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Gold Fields sticks to brownfields despite depth concerns

Gold Fields Ltd. appears to have closed ranks on the mergers and acquisitions front and recognizes serious challenges for the industry in mines getting deeper with barely any greenfields exploration, but a senior executive told S&P Global Market Intelligence that it could re-enter that latter space going forward.

When Executive Vice President Australasia Stuart Mathews started discussing key gold sector challenges when addressing an Austmine event in Perth March 27, the first thing he mentioned was that mines are getting deeper.

"Agnew is 1.3-1.4 kilometers deep, and the ground can heave and squeeze on us so there's geotechnical risk with costs increasing at depth; we know that grade is not changing in most cases, though it did for a while at Granny Smith but now it's leveled out again," he said.

"The gold outlook is fairly positive at this point; the exposure for us is the Australian gold price if the Australian dollar increases in value."

He also noted that the South Deep mine, which has one of the world's biggest gold reserves of about 48 million ounces and 90 million ounces of resources, is still "a little bit difficult" at 3.7 kilometers below the surface and "highly seismic", albeit a "great opportunity".

Australian Bureau of Statistics data showed that while gold enjoyed the largest exploration expenditure increase — up 8.3% or A$16 million — in the December 2017 quarter, overall mineral exploration in terms of total meters drilled fell by 9%.

When probed further by S&P Global Market Intelligence, Mathews indicated that the South Africa-headquartered company seemed to prefer to focus on brownfields exploration — at least for the foreseeable future — though he did leave the door open to worthwhile greenfields down the track.

"There's not many invested in greenfields, us included," he conceded, but then justified the continued focus on brownfields exploration by saying Gold Fields' landholding was "still underdone".

"Some, like St Ives, are big, big landholdings; a lot of the mines historically are all congregated in little discrete areas," he said. "We're branching out and still finding multimillion-ounce deposits."

The company is spending A$37 million on exploration at St Ives alone this year, and hopes are high.

Using the Invincible discovery as a case in point, he said it was actually discovered in 2004, "but no one realized it at the time with a drill hole of 2 meters at 2 grams, and some bright geologist thought 'let's drill a few holes around that'."

"It's now an over 3-million-ounce resource and there's still no end in sight, still growing, and it's in an area where some people said you don't get mineralization," Mathews said.

"Granny Smith is another one underdone. There wasn't a lot of spread across that big tenement, and we're spreading it out now."

He said Gold Fields' current overall A$100 million exploration budget was "not insignificant", but also conceded that "opportune moments come, and when they do hopefully we'll be ready [to invest in greenfields]".

Mathews said he was the one who fought to double Gold Fields' exploration spend four years ago when its reserve base was "dwindling really fast".

Tellingly, Mathews also added that "exploration discoveries are cheaper than buying something."

Earlier he had said that while looking for opportune M&A opportunities was one of Gold Fields' three growth pillars, "it's getting expensive in the next little while so we may not be doing too much. We do have a lot on our plate".