Gold Fields aims to be producing 5m ounces of gold per year within the next four to five years. And, it maintains it will do this largely through exploration activities rather than big acquisitions. In the group's annual report, released Tuesday, CEO Nick Holland the group will work toward this target but advancing its much touted "regionalization strategy" and organic growth by "leveraging off our existing production footprints in West Africa, South America, Australasia and South Africa". The plan according to Holland is to have "South Africa producing approximately 2.2 to 2.5 million ounces and each of our international regions (South America, West Africa and Australasia) producing approximately one million attributable ounces per year." He says, "Exploration remains the most cost effective way in which to grow a gold mining company. Through our various exploration programmes we are discovering new gold ounces for less than US$20 per ounce. "While we do not discount the possibility of acquisitions, it is difficult to make accretive purchases in the current environment. We have therefore, during the year under review, increased our exploration activity around the globe and we now have over 30 exploration drill rigs operating in eleven countries: Australia, Ghana, Peru, Mali, Chile, Democratic Republic of Congo (DRC), Dominican Republic, China, USA, Indonesia and Kyrgyzstan, and we drilled 442,261 metres in F2009. He adds, "For the first time in Gold Fields' history, we currently have three highly prospective advanced stage exploration projects underway at the same time, at least one of which we expect to progress to a prefeasibility study within the next 12 months. One of the most exciting prospects in the group's portfolio is at St. Ives. The group notes that the Athena project continues to deliver exceptional gold grades, and at the Hamlet target, diamond drilling has returned intercepts at sufficiently high grade to define a reserve. "Together these two projects have the potential to add more than two million ounces to the resource base of St Ives and possibly double the life of this mine." But, the group also makes it clear that cost is an issue, especially as its cost base has risen both in South Africa and in its international operations. "As indicated in the F2008 annual report, it remains a key strategic objective of Gold Fields to reduce notional cash expenditure (NCE) and increase free cash flow. NCE is defined as operating costs (including general and administration costs) plus capital expenditure, which includes brownfields exploration. The Group's NCE for the year ended 30 June 2009 amounted to US$763 per ounce (R221,153 per kilogram), which compares with the US$796 per ounce (R186,088 per kilogram) for last year. These figures include all sustaining capital as well as capital expenditure for growth projects. At the South African operations the NCE increased from US$676 per ounce (R157,972 per kilogram) in the previous year to US$734 per ounce (R212,629 per kilogram) this year. The combined West African, South American and Australasian operations achieved NCE for F2009 of US$800 per ounce (R231,670 per kilogram), against last year's US$757 per ounce (R176,909 per kilogram). What about the gold market itself? While the gold miner feels its exploration programme is well placed, Gold Fields Chairman, Alan Wright, is careful to note that as a result of the current economic climate "junior exploration companies have considerably slowed their exploration and development activities. In addition, the number of new mines coming into production is generally less than historically expected, driven predominantly by the lack of a quality pipeline of new projects - mainly because of increased legislative and social challenges, a lack of investment, and no major technological advances. As a consequence, gold production globally is somewhat subdued and greenfields exploration continues to suffer from reduced investment." But, he adds, at the same time as exploration is slowing, so demand for gold is rising, "driven in part by the rapidly increasing middle classes of certain emerging countries, continued tensions in many parts of the world and instability in some resource-rich African regions, together with the maturing of the gold Exchange Traded Funds (ETF) business." Holland agrees, saying, "Considering the economic challenges over the past year, it has been a stimulating time in the industry. Gold has showed its resilience by being a refuge for a financial community that has been constrained in almost every other investing sector. "Gold is now emerging, once again, as an asset class in many investment portfolios, which is the single most important underpin of the current gold price. It continues to be a ‘safe haven' investment and there is every reason to believe that gold will continue to be supported as the world struggles to recover from the financial turmoil of the past 18 months Adding finally that, "One of the most significant underpins to the price of gold is the real all-in cost of producing an ounce of gold which we estimate to be in the order of approximately US$700 to US$800 per ounce globally. This should provide a natural longterm floor for the price of gold. While one can be almost certain that gold would from time to time test this level on the downside, it has real potential to move above that level over the longer term.

Source