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Gold Fields to ax up to 1,560 jobs amid South Deep restructuring

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Gold Fields to ax up to 1,560 jobs amid South Deep restructuring

Up to 1,560 jobs will be cut at Gold Fields Ltd.'s loss-making South Deep gold mine in South Africa as part of a complex restructuring, the company said Aug. 14.

Losses at South Deep amounted to 4 billion South African rand over the past five years, and underperformance in 2018 has resulted in a further 4.8 billion rand posttax impairment to a carrying value of 20.7 billion rand, or US$1.5 billion. Ahead of its first-half financial report Aug. 16, the company said the impairment will result in a basic loss per share of 45 U.S. cents in the first half, a drop of 743% from basic EPS of 7 U.S. cents in the same period in 2017.

Gold Fields' share price tumbled more than 12% in the wake of the announcement.

"Gold Fields has invested a total of approximately 32 billion rand (including the 22 billion rand acquisition cost) since acquiring the mine in 2006. Management believes that the mine can no longer sustain these cash losses and that the cost structure needs to be realigned with the current lower level of production," the company said.

South Deep has been struggling with rising operating and overhead costs, a consistent failure to meet mining and production targets, and labor productivity below the industry average.

The company said numerous initiatives to optimize operations had failed to bear fruit, and they were unable to quantify the impact of the proposed large-scale restructuring on production in 2019 and beyond.

"Consequently, the previously guided build-up plan for the mine has a high degree of risk and uncertainty and can no longer be relied upon," the company said.

About 1,100 permanent employees and 460 contractors may be affected by the miner's restructuring efforts.

The announcement comes days after another South African miner, Impala Platinum Holdings Ltd. revealed that it will cut 13,000 jobs at its Impala operation by 2021.

Mineral Resources Minister Gwede Mantashe condemned the move.

"We are beginning to notice a worrying trend where some mining companies do not meaningfully engage with the Department [of Mineral Resources] on their restructuring plans, and only brief us as a mere formality or tick-box exercise, ignoring processes outlined in the law which are binding to every mining right-holder," Mantashe said Aug. 14. "It is our view that the spirit in which Gold Fields is engaging contravenes the agreed approach and the laws governing the sector."

The minister was briefed on Gold Fields' retrenchment plans.

Among the proposed initiatives is temporarily suspending mining activities at 87 Level and redeploying the mining crews into the 4W corridor while limiting operations at the south shaft to a single shift per day. The company also intends to reduce growth CapEx in the next 18 months to avoid burning cash.

In February 2017, Gold Fields announced plans to ramp up to steady-state production of about 500,000 ounces over the next five years at all-in costs under US$900 per ounce. The company expected to reach 315,000 ounces in 2017, 358,000 ounces in 2018, 393,000 ounces in 2019, 440,000 ounces in 2020, 495,000 ounces in 2021 and 497,000 ounces in 2022.

Following a number of target revisions due to slow production build-up, labor restructuring and a change in underground working shifts, South Deep's production estimate for 2018 was slashed to 244,000 ounces from 321,000 ounces.

Over the past 10 years, the Johannesburg-based miner has shifted its focus from ounces to margins and cash flow while continuing a long-time quest for geographical diversification, according to S&P Global Market Intelligence research.