Gold Fields Earnings Call NUGGETS: Labor Agreement, Platinum Industry Violence

On Thursday, Gold Fields Ltd ADR (NYSE:GFI) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Labor Arrangements

David Leffel – Deutsche Bank: Just I guess specifically on South Deep, you have done a good job with keeping us informed I guess of process that you’ve (prepared to) restructure your working arrangements with labor. Can you give us some specific dates or when we might expect I guess more specific dates because I think you’ve done some filings in accordance with the Labor Act in South Africa? And then I guess from the previous call back in early July I guess I’m uncertain of the actual cost if you reach I guess a good resolution with the workforce, accepts the changes to the jobs, and I guess total cost if they do not, if you could share those things with me, they will be helpful.

Nicholas J Holland – CEO: Yeah. Look the process under the Labor Relations Act is a 60 day process which commenced on the 2nd of August. So that process, unless it’s extended, would expire on the 1st of October. So what’s happening now is we are in a facilitation process. There is a facilitator that’s been appointed by the CCMA and the parties are obviously talking and determining each other’s position and trying to find some kind of solution to this. So I would like to let that process run its course. I wouldn’t want to try and predict any particular outcomes at this point in time, because we don’t know what the outcomes are going to be. That’s why we’ve had to get to a formal process under the Labor Relations Act because we were in deadlock beforehand. So now that process has to be given a chance and let’s see where we end up at the end of the period and what the options might be for us and then take it from there, David.

David Leffel – Deutsche Bank: Okay, but it could be possible that this process extends out from October 2nd if the facilitator suggests that there’s no further discussion room and you’ll let it – will be maybe into November or something like that. I mean, how set in stone is the 60 days in the facilitation process?

Nicholas J Holland – CEO: Well, at this stage it is set in stone. Now that’s our period (indiscernible) otherwise that’s our period and then we’ll see where we end up at that point in time, but we’ve been in discussions with the union on this since April and we’ve had detailed discussions on the operating model we want to put in place since November and this has gone on for a long time, so we do have to get to a point on it. So at this stage we’re working on the 60 days.

David Leffel – Deutsche Bank: But the facilitator can order in terms of the labor laws that you carry on negotiations?

Nicholas J Holland – CEO: No, that would have to be by mutual consent and at this stage we’re not seeing any extension here on this date. That is a date that we’re putting down as a date by which we want to get formality on this.

David Leffel – Deutsche Bank: You’ve talked about some monetary considerations for changing the work hours and the bonus structures and I think you mentioned $300 million. Now if you retrench the workforce and go to a new structure, I mean is the $300 million a right number or is it even more, because I’ve heard rumors that you’ve offered like to buyout current contract for like nine months?

Nicholas J Holland – CEO: Yeah, if we did (kind of reduced it), it would obviously be an incremental cost, which could be of a similar quantum.

David Leffel – Deutsche Bank: 600?

Nicholas J Holland – CEO: Well, in fact I think probably the retrenchment would be about 300. I think you’re mixing up the 300 with retrenchment and incentives are not going to be that much, but they could over a period of time add up. But that would be spread, there would be additional benefits paid out over about two to three year period that could add up to about — might be 200 or so, but those would be linked particular targets being met. So we would be self financing, but yeah the number we did mention last time was around about 300 if you had to do the full re-judgment.

Session 2:

Tanya Jakusconek – Scotia Capital Inc.: I have three questions, the first one is just a continuation on the labor agreement, just from a financial standpoint, how would that be recorded? Will it go through the cash flow statement as the $300 million payment and then any additional payments over the cash flow statement through the next few years? Is that a correct way of looking at it?

Paul A Schmidt – CFO: Those expenses would be a (once only) cost expensed and cash flowed immediately. The other cost that Nick mentioned would be anticipated as part of the normal monthly salary run. That’s the way it would be accounted. So the full $300 million the number that Nick said, that could be (once only) cost expense when it’s paid.

Tanya Jakusconek – Scotia Capital Inc.: That would be a cash flow impact?

Paul A Schmidt – CFO: Yes, it would be cash flow…

Tanya Jakusconek – Scotia Capital Inc.: Just then the other two, one is Chucapaca, just listening to you Nick talk about the finishing the feasibility study by the end of the 2012 and you want to time to do more work in terms of the configuration and obviously the size and exploration; the configuration, are you thinking it to be smaller configuration because given if you’re looking at exploration and the size, am I just interpreting it wrong that you are looking at it as a smaller operation?

Nicholas J Holland – CEO: No, we’re just saying what is the best capital efficiency ratio of size to capital. You should look at is it a 30,000 ton a day, is it a 25,000 ton a day, do you get economies of scale or a better capital ratio if you make it smaller or bigger, but of course…

Tanya Jakusconek – Scotia Capital Inc.: Okay, so it isn’t anything that you’ve seen in the ore body that’s making you readdress it?

Nicholas J Holland – CEO: The ore body is good. The question is whether we can get more. We know that there’s a lot of exploration potential within the area of interest. There’s at least four other targets in the 5×5 km area of interest in the joint venture between the two companies, and we’ve done some targeting, but we haven’t done enough drilling. So we believe that we should get an exploration program going probably round about the middle of next year and see what else we can find. I think that will create a more robust project. We’ve got a project that could go at this stage, but we want to be absolutely sure that we can make this thing fly in the face of robust gold prices and not just spot prices. And we’ve used lower prices than spot, make no mistake. As you know, since I’ve spoken to you, we’ve indicated 1,500 as a long-term price, but I’d like us to make sure that we can really try to (indiscernible) project here. So we probably need round about another year of work to (continue with) all this exercise and then we can give you the full details.

Tanya Jakusconek – Scotia Capital Inc.: Okay. And then now that I have you on, just for the North American audience just some of your views on what’s happening in South Africa and the violence surrounding the platinum industry and how that’s impacting you and so forth?

Nicholas J Holland – CEO: Look, it’s not impacting us. At this stage the union that people are referring to is AMCU, you may have heard of them, which is sort of a splinter union that broke off and was formed some time ago. We don’t have them on the gold mines to any degree. They have been around trying to get support, but at this stage they haven’t really been that successful. One of the benefits in the gold industry (indiscernible) to the platinum industry is we have central bargaining of agreements. In other words, we negotiate all of our wages in the gold industry as a gold industry and not as individual companies, and platinum is actually decentralized and that has a lot of benefits in the sense that we’re able to, as an industry, agree things and not one company do something that might affect another company, and also the union is never (indiscernible) on these deals and usually they have been two-year deals and stuck to their guns, and I must give them credit for that. So we haven’t had them on our operations, as of this point in time. That’s not to say that we can rule out the risk of that happening in the future, and certainly from a country perspective what we’ve advised the Chamber, and we’ve been closely involved with this process over the last week is there should be greater engagement and dialogue between all of the various parties to try and understand people’s perspectives and try and get some sense and sensibility back into this whole process. The Chamber is going to be talking to everyone and playing a leading role in trying to resolve this issue. Clearly we’ve got to get stability back into the country and more importantly into the platinum sector at this point in time. So, lot of it deals with (indiscernible) operators that we are looking to try and get higher wages and that possibly ended up being convinced by people I’ve talked in normal forums that they could be assisted in this process and not get into this whole culture of finger pointing and that’s why the government is initiated a formal inquiry into the entire process, so we don’t want a second guess how the whole thing really happened because there are so many different stories, not let the inquiry run its course, let’s learn from it but in the mean time we’ve strongly urged in the industry to enter into proper dialogue and try and understand people’s perspective, but I think we can create more polarization in this process. That’s really (indiscernible) as to where we are right now.

Tanya Jakusconek – Scotia Capital Inc.: Maybe just some other thoughts on the silicosis case?

Nicholas J Holland – CEO: I have got Michael here, our General Counsel. It’s a quite technical process in terms of the notice that was served on is three days ago, so let me hand over to Michael and he can explain specifically to you what the situation is.

Michael D Fleischer – EVP, General Counsel: This audience will probably be very familiar with class actions North America and Canada. In South Africa, the rules are not well-established around class actions. The jurisprudence is limited and I guess it’s going to be a process that’s going to develop what the silicosis litigation. What’s been served on us is an application to certify a class. The application is effectively split into two sections; one is it defines a class on an opt-out basis, so in other worlds you will be included in the class unless you decide to opt-out and it then has a phased approach. Is the court certifies the class then what this particular lawyer intends to do is to argue the common factual and legal issues on behalf of the class and then if he’s successful on that basis then potential claimant, potential plaintiffs will have to then opt-in for the purposes of establishing their personal damages. So, we’ve only just got this application about 48 hours ago, we’ve got a legal team that’s actually been in place for a long time in anticipation of this litigation coming. We’re considering what our approach would be. In the ordinary course of the rules of courts, you’ve got 10 days within which to decide to oppose or not oppose the application for certification and then you’ve got another at least 15 days within which to file your papers. The important thing though is that they are no specific numbers of applicants or plaintiffs here because we haven’t even defined the class yet, number one, and number two, they certainly no mention of quantification of any top of damages that’s something that’s way down the line. Really, in a nutshell, that’s where we sit at the moment as far as official service of process on us.