Transcript GFI R&R Statement

Towards an
Affordable, Stable Electricity Supply
MISSION CRITICAL FOR SOUTH AFRICA
Public Presentation To NERSA
by
Nick Holland
Chief Executive Officer
Gold Fields Limited
22 January 2010
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INTRODUCTION
Affordable Electricity For All, but…..
• MYPD2 is not sustainable for South Africa.
• A clear, long-term, affordable price path is essential.
• A broad-based tax is preferable to input cost increases.
SUSTAINABILITY IS KEY
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GOLD FIELDS
Our Credentials
• A Global Gold Producer.
• Dependent on a strong SA base.
• R16 bn invested in SA operations over past 5 years.
• R24 bn invested in South Deep acquisition.
• R25 bn capital committed in SA over next 5 years.
• R10 bn additional projects in SA under consideration.
STABLE, AFFORDABLE POWER IS KEY
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GOLD FIELDS
Our Credentials
• ~60,000 employees in SA.
• F2010E Group production 3.8 to 4.0 moz.
(SA production ~2.2 moz.)
• F2009 Revenue R29 billion.
• 65 million ounces of reserves in SA.
• +50-year mine life in SA.
WE ARE A COMMITTED, LONG-TERM
PLAYER
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MYPD2
Impact on South Africa
• MYPD2 is negative for:
– New Investments;
– Operating costs;
– Employment;
– Tax collections; and
– Foreign earnings.
MYPD2 NEGATIVE FOR GROWTH!
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MYPD2
Impact on Mining Industry
• Mining industry hard hit by recession, yet…
– Employs ~500,000 people directly.
– Significant contributor to GDP, foreign earnings etc.
• Gold industry digging deeper…
– Low margin operators.
– Stable, affordable power essential.
• MYPD2 will increase risk of…
– Sterilized reserves.
– Shelving of expansion projects.
– Shaft closures.
– Job losses.
MYPD2 A NAIL IN THE COFFIN
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MYPD2
Impact on Gold Fields
• Consumed 2.2% of Eskom’s F2009 sales.
• Already paying a premium.
• ~50MW saved over past 2 years (10%).
• ~50MW savings planned next 2 years (10%).
• Stable electricity supply critical for safety and
sustainability of operations.
• MYPD2 may force restructuring.
– Jobs, production and reserves at risk.
JOBS AT RISK
IN A LABOUR INTENSIVE INDUSTRY
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MYPD2
Impact on Gold Fields
POWER ALREADY +2X F2008 BASE
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MYPD2
Impact on Gold Fields
NCE = All in cost of production including capital
PRE MYPD2 MARGINS
ALREADY TIGHT
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MYPD2
Impact on Gold Fields
Power as a Percentage of Working Costs
and Projected Impact of MYPD2
MYPD2 COULD TIP US OVER THE EDGE
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CONCLUSIONS
Efficiency
• No supply flexibility in short to medium term.
• Demand management the only lever to pull in the
short term.
• Universal DSM and PCP now the TOP priority.
• Must be applied ACROSS the Board.
• To be implemented by independent party, NOT
Eskom.
MANAGING DEMAND IS CRITICAL
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CONCLUSIONS
Price Path Certainty
• MYPD2 aims to recover long-term costs through
short- term solution – not sustainable.
• Current consumers should not subsidise future
consumers.
• Long-term solution and price path certainty required
for planning and investment decisions.
PRICE PATH CERTAINTY IS CRITICAL
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CONCLUSIONS
Government’s Role
• Sustainability of ESKOM is mission critical for SA.
• Government MUST provide adequate capital injection
and debt guarantees.
• Broad-based tax preferable to cost increases.
– Will avoid domino effect on economy and fiscus.
– Will impact only those who can afford it.
– Mixture of consumption and direct taxes to spread the
burden.
IF ESKOM FAILS, SA FAILS!
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CONCLUSIONS
Government’s Role
Price increases will:
→ increase headline costs;
→ damage income producing assets;
→ impair economic viability;
→ reduce employment;
→ reduce the tax base; and
→ lead to lower growth rates.
BROAD-BASED TAX IS PREFERABLE
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CONCLUSIONS
Other Considerations
• Transparent, credible pricing and cost data essential.
– Capital and operating cost review at ESKOM.
• Municipal tariffs should be addressed.
• IPP’s have a role in future, but are not the solution.
– Require a clear price path and strong counterparty
guarantee.
– Require tariff increases to generate an acceptable
return.
REQUIRES A HOLISTIC SOLUTION
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CONCLUSIONS
• Above inflation increases are unavoidable, BUT ….
• Must not damage the productive engine of SA.
• MYPD2 is fatally flawed.
• Clear, long-term, affordable price path is essential.
• Broad-based tax better than cost increases.
TOGETHER WE CAN
FIND A BETTER WAY
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