Gold Fields Limited
Q4 2020 Earnings Call Transcript

Published: 19 Feb 2021

[Nicholas Holland:]

Good afternoon, everybody, or good morning, wherever you might be in the world today, and welcome to the year-end results of Gold Fields for the year ended December 31, 2020. Joining me today are Paul Schmidt, our CFO, as always; and Avishkar Nagaser, our Head of Investor Relations. If you look at the presentation in front of you, you can see a photograph there of Salares Norte. Given the fact that this project is now beginning to advance, we thought it'd be good to give you a snapshot of what it looks like. And we've got a few other photographs we'll show you later in the presentation. And as I'll indicate to you, we're making good progress on this project, and 2021 is going to be a big year for us in terms of advancing this project.

[A - Unidentified Company Representative:]

Okay. I'm going to take the first question from the webcast, and then we'll go to the conference call. So the -- from the webcast, the question relates to how much emphasis have we put on reducing pollution by harnessing clean technologies and renewable energy during 2020?

[Nicholas Holland:]

Yes. So the renewables, as we've said, have been rolled out at Agnew. We've got a micro grid there. We have a solar project at Granny Smith. The solar project we want to do at South Deep is going to be 40 megs. That's going to be around about 15% to 20% of total baseload. We're encouraged by the process through NERSA, which is the regulating body here. And I'm hopeful that we'll get final approval from NERSA at the end of February. We've been in touch for the Eskom. Because this will be an Island Mer project, we just need to do some technical checks to make sure there'll be no impact on the grid. I think they're pretty confident there won't be any issues. And if all goes well, we could be making a final decision, taking this back to the Board during the course of March and getting ready to start constructing this. That will make a big difference to reducing our carbon emissions. I think we sort of said if we did South Deep on the back of what we've done in Australia, we'd take the whole group to over 10% of renewables in terms of energy sources. So that's a big ticket item. I mentioned earlier that at St Ives and Gruyere in Australia, we're also going to be looking at what we learned from Agnew and Granny Smith and rolling out those projects as well. There's a great opportunity for us to harness that as well. We are testing a battery loader underground at St Ives, and we'll see how that pans out. But if that works, it may be that we'll move on to battery electric underground. We're still looking at hydrogen as well. But at this stage, battery electric looks like it might work better for us. And then at Tarkwa, we're going to be looking at a hybrid diesel gas vehicle, which will reduce emissions. It won't completely take the emissions away, but it moves from higher carbon to lower carbon. And so those are some of the main initiatives we're working on, which will have, I think, a step change so that by the end of '21, we can report more progress on these projects.

[Unidentified Company Representative:]

Okay. And we have a question from Nkateko at Investec. What is the maximum in terms of steady-state production at the restructured South Deep? It is the circa 377,000 ounces per annum we are guiding for in the next 3 to 4 years?

[Nicholas Holland:]

Look, we wouldn't want to give any cap on what South Deep can do. But because people have been asking us and because we took long-term guidance off the table, what we have said in this presentation and in the book is we believe that we can increase by between 20% and 30% over the next 4 to 5 years of the '21 guidance of 290,000 ounces. So nominally, that might be somewhere between 60,000 and about 90,000 ounces on top of our guidance for 2021. That doesn't mean that's the end. That's what we'd like to try and target in the short to medium term. But the sky is a limit here over time, particularly as we embrace more technology and particularly as we get the heart of the mining into north of Wrench. If we can move away from the scattered mining above, the infrastructure that we largely inherited when we bought this and actually concentrate the mining on the areas Gold Fields developed, which are much easier to mine, haulages better set up, tips are much closer, a lot of direct dumping as well. If we get more of our mining in there, that's going to give us a step change as well. So let's not cap anything. But I think as a minimum, we want to try and achieve that over the next 4 to 5 years.

[Unidentified Company Representative:]

Okay. Another one from Investec. The operations associated with COVID of roughly $35 million in 2020, can we expect a similar number in 2021?

[Nicholas Holland:]

I would say -- unless we have significant cuts in production because of mandated shutdowns, I would say no. A lot of these are nonrecurring items. For example, we expanded accommodation facilities at Cerro Corona. We expanded some facilities as well at Salares, as I mentioned earlier. We've had to man step-down areas for people to recover. We've had to put on additional flex in Australia because we had to operate the plants with half loadings. We have to bring in additional resources because people were incapacitated. That's an extra cost. So no, I think a lot of it is a one-off. But if things change, sure, I mean, some of those costs are going to come back, and it's indeterminable as to what they might be.

[Unidentified Company Representative:]

Okay. Can we take the question from the conference call, please?

[Operator:]

Our first question from the conference is from Leroy Mnguni of HSBC.

[Leroy Mnguni:]

I'm just trying to get an overall picture of the movement in your reserves. So at a total level, your attributable reserves seems like it only increased about 2%, but you've had significant increases in Australia and at South Deep. Where have they declined? Does that Asanko exclusion account for all of that? Or are there other areas where your reserves have declined? That's my first question. And then my second question is just on Slide 15, where you detail the organic growth opportunities, particularly in Australia. Which of those are more sort of life extension? And which of those are potentially an increase in production?

[Nicholas Holland:]

Okay. Let me go to the back end first. I think all of the stuff that we are looking at in Australia should be seen as life extension. If you look at our process plants, a lot of our process plants other than Granny Smith are operating close to capacity. So there isn't much potential for us to put more through the process plants. And the problem with the Granny Smith is that there's only so much you can get out of the whole given the multiple levels we're mining. So even if we wanted to accelerate, it's unlikely we could put more through the plant. And Granny Smith is a one ore source operation. There's only the wall at the underground mine. There's nothing else. So it's really life extension. Looking at the reserves, Damang has obviously come off. We've had some modeling changes, and we've had depletion. So there's no push back also at Cerro Corona. We haven't added anything there as well. Tarkwa is sort of just about kept level with where it is. So the pluses and minuses give you a net increase of around about 1 million ounces a year. What we'll do is we'll give you -- we'll do a little recon for you, giving you a little breakdown. I'll send it to you after this call.

[Operator:]

Our next question is from Jared Hoover of RMB Morgan Stanley.

[Jared Hoover:]

Just a few questions from my side, please. My thought around Salares Norte. It looks like, as you mentioned, a lot of the detailed engineering work has done, and you've managed to mitigate a lot of the risks that we would find in other projects. But I wondered if you could chat about maybe within the country, I mean, there's been a lot of increases in COVID-19 cases. And globally, logistics are a problem and you guys are fabricating off-site. So in terms of an importation, and therefore, transportation up into the project site, you probably have to go through a few different provinces and cities. Do you foresee any delays in that if they have different sort of COVID-19 protocols? And one more on Salares Norte. Just how big an issue do you see this chinchilla issue? I mean, there have been other global mining projects that have been stalled by an inability to relocate indigenous animals. So if you could just chat through those, please. And then I'll just follow up with one more after that.

[Nicholas Holland:]

Yes. In terms of access roads, as you correctly say, all the fabrication is done off-site. We've plotted all the roads through. We've made sure the roads are possible that can take the big trucks. But another thing we've done as part of our risk mitigation is we've looked at alternative routes to make sure that there are other ways through here. So we're reasonably confident that we can get the stuff to site. If there would be further delays, there's going to be an impact. I think one thing we've said in the book, a generic statement, there's no factoring down of anything this year because of COVID because we can't determine it with any degree of accuracy, whether it will happen, the extent which it happens, how long? So if COVID happens, it's going to have an impact. We've got some flex in the projects in addition to around about $85 million of contingency, we've got in Salares and that $860 million. We've also got some time contingency, around about 5 months of time contingency. That may be needed anyway because things just run late. But if COVID comes through in a big way and there are mandated shutdowns, it's going to affect the project, the degree to which we can't determine at this point in time. So that's the one aspect. The chinchilla, we're operating or we're operating in accordance with a later plan given to us by the authorities. And what we've discovered is that the area that we had these chinchilla in was probably too small given how they roam in their natural habitat. And then actually, that contributed to 2 of them dying, unfortunately. And so we went back to the authorities, and we said, look, we think we need a different plan here compared to the one you told us to follow. And they are open to that. And so we released the other 2 chinchilla. And once we've got a kind of plan approved, we'll start it again. And I just want to mention, there's no big urgency with this. It's not going to impact any activities during the construction. So we've got a year or 2 to fix this. And so what we'd rather do is really look at it, we brought in the experts to understand these species and how they live. And we're working together with the authorities for another plan. There's no indication that this is going to be a problem. We've also made it quite clear to various ESG groups that are interested in this, what we're doing, there's visibility on our plans, and we'll do what's necessary to protect the species.

[Jared Hoover:]

Great. And then -- so just two more. The other was it looked like there's quite a large working capital build into the second half of the year. Can we expect something similar given Salares Norte going into peak CapEx this year? And then my last question was just around South Deep. I know you've given almost indicative guidance over the next 3 to 4 years and how you see the production building out. But should we be thinking about that as you potentially having more OpEx and CapEx coming through given you've restructured the asset for about 250,000 to 270,000 footprint? Or should we be thinking that you're just going to continue improving your productivity, and that's going to drive a bit of a production bump going forward?

[Nicholas Holland:]

Paul answer the first question, and I'll do the second. Just unmute, Paul.

[Paul Schmidt:]

Sorry. On the working capital, I don't think we can expect the numbers you saw this year. We should return to the historical norms. The big reason for this year is because of the changing year into calendar year-end, we had a fifth cycle of creditors' payments that came through. We had big GIP buildup, despite it being a credit on the cost, it's a negative on the working capital. And also, we had a lot of prepayments at Salares Norte for capital, which will unwind next year.

[Nicholas Holland:]

So in terms of the second question, let's just remember at South Deep that the essential infrastructure of the mine is built. We got the backfill facility on surface. We got the process plant on surface. We've got the twin shaft system, which was built some time ago. Obviously, there's ongoing maintenance for the fixed infrastructure. There's going to be fleet replacements and rebuilds of our trucks and our loaders, et cetera. But I think the main item you're going to see coming through in '21 and beyond is getting back to the new mine development, opening up the deeper part of mine where there's 10 million ounces of reserves waiting for us, and that's really just extending our infrastructure and our cuts down into the north of Wrench area. And you'll see that coming through this year and into the following year. It's actually no different from what we do at, say, Invincible underground in Australia. It's follow-on development, by and large, that we'll be undertaking during the course of this year and the next couple of years to open up the mining fronts so that we can deliver that 20% to 30% increase in production. And from time to time, there's going to be fleet replacements. And our fleet has a typical life of about 6 years or so. So as fleet comes to the end, you have to replace it. But it doesn't come all at once because different parts of the fleet have different life cycle processes. So luckily, it's not all happening at once. Hopefully, that clarifies it for you.

[Jared Hoover:]

Yes. Great. So just to sum it up, I guess it's probably more incremental on the OpEx and CapEx. And as you get into the north of Wrench area, hopefully, productivity also picks up with that?

[Nicholas Holland:]

Yes. I mean, I don't see a massive pickup in OpEx other than, obviously, the variable cost components of additional tonnes, which on South Deep, is not that high. And as I said, the new mine development we're going to be doing this year is probably a good yardstick for what we'll see in the years to follow.

[Operator:]

Our next question is from Patrick Mann of Bank of America.

[Patrick Mann:]

I had two questions. One was around capital allocation. So obviously, in a big CapEx year for Gold Fields this year, but net debt is -- has come down quite nicely. And if gold prices hang around here, the 25% to 35%, it looks like you'll still build up a fair amount of cash. I mean, how would you think about allocating that capital kind of maybe post this big CapEx here? And then, Nick, maybe one for you. You've been outspoken over the years as a kind of gold industry CEO about the industry not investing enough for replacement and a lot of the M&A being driven by kind of survival needs rather than, I suppose, rational or value-accretive transactions. Maybe do you just want to give us a -- your thoughts on the industry and what the key things investors should look out for in the next kind of 1 to 2 years? Because I think we're going to miss having your views being put out there each time.

[Nicholas Holland:]

Yes. Let me start at the back end, and I'll work back to the front question. As I've said before, and I've given you this presentation, I think, a couple of times over the last 3 years, the industry is not only -- not explored enough over the last 20 years. It's actually been slowly strangling its minds of not only growth capital, but also sustaining capital. And when you see sustaining capital coming down, that's a worry because that normally means you're going to have a near-term production impact. I think you'll find companies are going to use the windfall in the gold price to try and catch up some of the capital they haven't spent. And we've had outside research companies doing a lot of this analysis for us. So it's not just a gut feel. It's based on empirical data that we put together and we update each year and have done so over the last 5 years. I think that leads into the second question about mergers. Mergers, I think, are driven largely by survival. And people try and argue about synergies, and if you look at big bank mergers over time, a lot of the synergies that were promised were never delivered. In fact, if anything, they went the other way as they had to equalize cost between companies with different philosophies on remuneration and having consolidation of suppliers, contractors, et cetera. So I think a lot of it's driven by the fact that companies are running out of road, and they have to do something to make up for that. There's an argument that we're catering to a new category of investor. The index funds that want the big caps to invest in. But I think that's a small part of the answer. And the problem you've got is when you created these big monsters, how do you keep feeding them? How do you keep replacing a 6 million, 7 million-ounce company? It means every year, you've got to be finding roughly 14 million ounces. Because adding half of that, if you're lucky, will convert into a reserve. It's well-known impossible. And so therefore, it's either going to mean the big guys following up the smaller guys or it's going to be big bank mergers so that people can actually keep things going. We've always said we want to be in charge of our own destiny, and we don't want to be beholden to anybody else to figure out our strategy. And therefore, we've been opportunistic on M&A. We've created now a wonderful base of organic growth. We've got Salares. And capital allocation, I think we can see further life extension at Invincible, which will flow through into St Ives. That will mean ongoing spend. And just to bear in mind, we are building new mines all the time. It's in our spend already. Last year, we've actually brought in a new mine called Hamlet North. I don't think you saw it in the past did you? Because as some capital expenditure comes off, other capital comes in, and St Ives is a very dynamic operation. So you didn't see the impact of Hamlet North coming. You didn't see the impact of the additional of the Neptune open pit at St Ives. You didn't see the impact -- significant impact that is of opening up Zone 135, Zone 110, 120 at Granny Smith, but there's significant ventilation. Risers will need to be put in, upfront development, second escape ways. There's a whole bunch of stuff you've got to put in place to get those areas ready to mine. And we've been basically handling that within our bucket of capital expenditure. And so I would say the ones to watch for is are we going to do another Damang, a pushback that is obviously going to be visible capital like the original pushback was. Tarkwa, I think, would just continue to push out the mining boundaries because we're doing a lot of stripping already at Tarkwa. Australia, Gruyere, if we did an expansion of the pit, that will only happen in years to come. It won't happen in the first few years. And in Corona, again, I think it's more a focus there of catching up the waste and doing the study on a potential for the cutback. South Deep, if you look at the capital we're spending this year, that's going to be a pretty good yardstick to what you can look at going forward. Roughly about ZAR 1 billion to ZAR 1.1 billion a year is what you can expect steady state from South Deep with a rising production profile. Hopefully, that answers your question, Patrick.

[Operator:]

Our next question is from Shilan Modi of UBS.

[Shilan Modi:]

A couple of questions on Salares. Previously, you mentioned that you had some sort of FX buffer through hedging in terms of the CapEx. I believe it was 60% hedged in Chilean pesos. Producer currencies have strengthened quite dramatically in the last couple of months. What sort of -- what state is that buffer in? Like does it still exist or is that being eroded? I'm trying to get a gauge for the $860 million CapEx if there's potential risks to that number. And then just in terms of reserves and resources. I mean, you've shown strong growth in reserves and resources over the last couple of years. Maybe just outline the strategy for Australia again and maybe highlight Agnew, in particular, given that it's potentially the shortest life asset you have there. And then maybe can you also explain the same type of philosophy around Damang? Effectively, Agnew and Damang appeared to be the lowest life assets. I'm trying to gauge whether Salares is more replacement or if it's -- if those assets can persist and then actualize Salares' growth.

[Nicholas Holland:]

Paul, do you want to talk about the hedge?

[Paul Schmidt:]

Yes. I mean, as you know, we hedged the full peso component. It was just over $500 million worth. We hedged it at CLP 856 to the U.S. dollar, obviously, where the peso is sitting now. One of the most valuable assets on our balance sheet is the mark-to-market of that hedge. And we're just letting it roll in as we are delivering or buying the dollars to convert to the peso. So yes, we had exposures. It has been totally covered by the hedge, and it's proving to be a very lucrative hedge that we put in place.

[Nicholas Holland:]

Okay. So coming back to Agnew. Agnew now has potential on 3 fronts. We've got the Buronga North and Kath area, which continues to be open at depth and also laterally. We have Sheba across at New Holland, which looks the most perspective, but there's a few other targets that are looking good. And the new front is the Redeemer complex with what we call Barren Lands, but there's nothing Barren about Barren Lands. And we're going to be doing a study on an open pit and an underground operation there. So what does all of that mean? It means that Agnew's reserves will continue to grow. We will more than likely double the reserves or at least go up to 1.5 million ounces within the next couple of years, I would think, with the exploration budget that we've allocated. And at the same time, having a tiny plant of only 1.2 million tonne a year doesn't seem to make a sense with what's coming at us. And so we've started with the front end. We're replacing the crusher, which had to be replaced anyway. And so if we're going to replace it, let's upgrade it. It's marginal extra cost to do so. Then we'll start on the grind circuit. There may be a second ball mill that we can bring in a separate line, and then we'll look at the back end after that. And the idea really is to get Agnew up to about 1.7 million, 1.8 million tonne a year, and that will translate at the average grades we're seeing at somewhere around about 270,000 ounces a year. So we would think that we can get reserve life for Agnew at that level for at least 5 years and probably even longer over time. So that's Agnew. And we think that, that will be good capital that we can allocate to. Coming back to Patrick's question, it's not so much about the production profile. It's about what are the returns we can get. Can we get the returns that we've set for ourselves on these assets? It's not going to be about driving ounces for ounces' sake. You've heard me saying for 8 years that, that game is over. It's about actually creating fundamental incremental value for us, whatever the production profile is for the group. Damang, again, it's a function of saying does for the next cutback make returns for us? Is it worth spending the capital to get those extra years of life? And that's the study we're going to be doing over the course of 2021. If we see more of what we're seeing at the moment, I think the chances are very good. Because once we're in the Tarkwa Phyllites, once we're in that ore domain, we're starting to see really good grades coming out. So that gives us a good idea as to what to expect further down. And laying back the walls a little bit further to access that deeper material, it may well be a good project for us, but the numbers have got to stack up for us, and then we'll make the decision.

[Shilan Modi:]

Okay. Just a final comment for myself. Nick, thanks for all the debates we've had over the last decade or so. I can count there's a lot. I think we've had quite a few arguments, and I think we're both better for it. But thank you for all the guidance and the bets that we've had over the last long while.

[Nicholas Holland:]

Thank you so much. Appreciate it.

[Operator:]

Our next question is from of Bloomberg Intelligence.

[Unidentified Analyst:]

Just two sort of follow-up questions. So one is on Salares Norte. And I apologize if you've probably covered this ground on previous calls. I think, if I'm not mistaken, the water source comes from the aquifers in the surrounding areas. So I mean, has there been any sort of pressure on you to try and supply desalinated water? And I'm just putting that in context of some of the copper mines where the pressure does seem to be ratcheting up. So that's the first question. And then a second simple one. In Australia, what sort of percentage of your costs are in Aussie dollars? The reason for my question is your guidance is predicated on an Aussie dollar of AUD0.75, I think it is. So just trying to get a sensitivity in case the Aussie dollar strengthens.

[Nicholas Holland:]

Yes. So one of the things that I was pretty insistent on given where we are in the Andes, 4,700 meters up, that we couldn't start the feasibility study until we had water, and we had permitted water. So we've got an exploration company to actually do the exploration for the water through boreholes. They found the water. We've got more than enough water for the projects with some buffer. And then we got it permitted. And all these questions were asked, we have to do a full catchment study, what's the upstream impact, what's the downstream impact, et cetera. And then we've got to permit it. Only then did we start our feasibility study in earnest. Because no water up there, no projects, no mine. In addition, as we went through the environmental assessment and these submissions to the authorities, we again had to go through the water, even though it was separately permitted. And a lot of the same questions were asked. So there's been real visibility and transparency to the authorities. There's been engagement with communities, other stakeholders. There's no indication at this stage that anyone is concerned about the water we're using. And I must just say, based on the catchment study and analysis we did, there's virtually no impact on the catchment area. We're using not much water at all. It's a very small process plant. It's only 2 million tonne a year process plant because it's very high-grade ore. So we're quite comfortable on that. We've had no pressure. If anything, we've just had support from the government, all the way from the President himself who has written to me indicating his support for the project. We've had the mines minister on site. The communities in the nearby town of Diego de Almagro are very supportive. We've got shared value projects working with them, local employment opportunities, local procurement. Everyone wants this project to go. So no indication. It's been on our risk register. We'll continue to look for other water sources if we need them, but we don't see this as a major risk at this time. The second question, if you just remind me again what it was.

[Unidentified Analyst:]

Just your -- what percentage of your costs going in Australian dollars in Australia?

[Nicholas Holland:]

Yes. Paul have a go.

[Paul Schmidt:]

Thanks. I'll ask it. The only real exposure we have in Australia to non-Australian dollar-denominated cost is the oil price affecting diesel. Slightly in excess of 95% of their cost are Aussie dollar-based. So no exposure to the U.S. dollar.

[Operator:]

Our last question is from Catherine Cunningham of JPMorgan.

[Catherine Cunningham:]

So two questions for me. The first one is, where geographically are you seeing cost inflation? And what mine inputs are giving you the most concern in this regard? And then linked to this, should we think of any radical changes to cutoff grades across the reserve base or is long-term mine plan basically sticking to stable assumptions in the current higher gold price environment? And then the second one is a little bit philosophical. Basically, the growth pipeline seems to be pretty full. Your shares are pretty cheap. So as you have the spreads, where is the key for a catalyst for the hidden value, in your opinion?

[Nicholas Holland:]

You're breaking up. We can't hear you. I don't know if you can get closer to a microphone, but I couldn't hear. I think got every other word, what you're saying there, sorry. If you can repeat that?

[Unidentified Analyst:]

Is this better?

[Nicholas Holland:]

A little bit better. Give us one question at a time.

[Unidentified Analyst:]

Okay. So the first question is, where geographically are you seeing cost inflation? And which mine inputs give you the most concern? And then linked to that, should we think about any radical changes to categories across the reserves that base? Or is long-term mine plan still sticking for stable assumptions in the current higher gold price environment?

[Nicholas Holland:]

Yes. So we have struck our reserves at $1,300 U.S. price, and we've used AUD 0.75 in converting for the reserves, and we've used ZAR 650,000 a kilo in South Africa. Those are marginally up on the previous year. So obviously, that will dictate the cutoff grades, along with the cost inputs, that we use in the business. So amongst other factors as well, other technical factors. So that's something we want to stick to. We have been running at $1,200 for the last 2 to 3 years. So we want to try and stick to around $1,300 for a number of reasons. One is gold prices, of course, may come back. We want to give ourselves a little bit of headroom. And the other thing is, once you start relaxing cutoff grades, and I've looked through this in the previous cycle, it's very difficult to reconfigure the operations back to where they should be. So we're going to be quite cautious, particularly as a lot of our operations are plant constrained. There's no reason for us to be dabbling with lower grade. Let's stick to the high-grade stuff. Cost inflation, we're not seeing really a lot of cost inflation. I think more of the cost increases you're seeing for us is mines that are may be getting a bit deeper, mines that are getting further away from the process plant with increased haulage distances, that sort of stuff. But we're not seeing big inflationary increases at this time. I'll just ask Paul if he wants to add to that.

[Paul Schmidt:]

No. Nothing much, Nick. Obviously, South Africa, we've got to deal with Eskom increases and wage increases. But fairly benign on the inflationary side, as you say. It's more change in mining type or mining depth.

[Nicholas Holland:]

Okay. Second question?

[Unidentified Analyst:]

Okay. So the second one is a little bit more philosophical. So the growth pipeline looks pretty full. Your shares are pretty cheap. So as you hand the , where do you see the key sources and catalyst for the hidden value?

[Nicholas Holland:]

Sorry, you just broke up again. Where do we give our share price is cheap? Where do we see the?

[Unidentified Analyst:]

Where do you see the key sources of hidden value and the catalyst for unlocking them?

[Nicholas Holland:]

Well, I think it's a function of delivering the guidance we've set out for you today at the cost envelope we've given you. We're fully exposed to the gold price. This year, there's no hedges or anything that capped the gold price. We bought some floors in Australia to give us downside protection, but we're fully exposed to the gold price. And if you look at our cost envelope relative to the spot price today, even though it's come off a bit, there's significant value there. And even though we're going to be building Salares Norte, it looks like we can fund it out of cash flow and keep our debt position pretty tidy if we stick at these sort of price levels. And then the catalyst will be there's rising production this year. We're up another 5%. There's potentially rising production from South Deep. And of course, there's Salares. Salares, if you bring in 450,000 ounces a year at somewhere around about $465 an ounce, I think you can see what additional cash flow that's going to bring in as we ramp up in 2023 on top of the existing base. And the other area of hidden value is our ability to continue to replace reserves and to have a strong profile of 2 million to 2.5 million ounces over 10 years, which isn't necessarily evident in our average reserve life, but it's getting close as we continue to put back more into reserves, as you've seen, than what we're depleting. So those areas, I think, of hidden value that could well be recognized in time. Any other questions?

[Operator:]

We have no further questions from the conference call.

[Unidentified Company Representative:]

Okay. There's two last questions on the webcast. From Nina at Goldman Sachs. One, Asanko. Could you elaborate why Galiano Gold expense production declined slightly in 2021? And what's happening with yields? When do you think it will trend back to reserve grade?

[Nicholas Holland:]

At Asanko?

[Unidentified Company Representative:]

Yes.

[Nicholas Holland:]

Yes. So look, Galiano are doing a whole remodeling exercise, as they have mentioned in their release during the course of the year. I think what's throwing the mat is the fact that we lost Nkran Cut 2 earlier than what we thought with the wall failure. That meant they had to reconfigure the plan. They had to do another pushback at Akwasiso. They had to accelerate mining in Esaase South and Esaase Main. And in the mix, the grade is what they got. They ran out of the flexibility that ordinarily we would have had if we had Nkran Cut 2. So essentially, you mine what you've got and you get the grade that you get, and that's flown through, obviously, into 2021. And that's one of the reasons they're doing some more infill drilling of the key ore sources. That's one of the other reasons they're pushing their exploration, particularly on Miradani, and some other ore sources looking at potential further pushbacks at Nkran, Nkran Cut 3, Akwasiso, rather, another stage and then see how we put it all together. And hopefully, that will improve the overall grade and the overall yield will get through the plant taken into account, the metrological recoveries that we can expect to get. So I think it's fair to say it's a very dynamic situation at the present time, and there's probably another 6 months of work to be done before we'll have proper line of sight as to what an updated life of mine plan is. But the joint venture partners and ourselves are obviously treating this as priority and working through this as we speak.

[Unidentified Company Representative:]

Okay. The second one from Nina on Damang. You've guided for an increase in output of over 20% for 2021. Could you discuss how you plan to achieve this?

[Nicholas Holland:]

Yes. So the increase in production at Damang is all on the back of the grade. As we mentioned when we announced the Damang reinvestment project, we expected the grade to increase as we got into the higher-grade ore domains, which we are now in. And so what you're seeing here is pretty much in line with what we expected to see. So the volume through the process plant is still around about 4.5 million tonnes a year. But on the back of a higher grade, somewhere around about 1.9 or so, 1.85 to 1.9 grams a tonne. That's going to give us a really good year of production, not just first year, but also the next two years thereafter. So we're seeing what we expected to see based on the detailed feasibility study.

[Unidentified Company Representative:]

Okay. A final question from from Investec. How do you think about hedging going forward beyond 2021 given that peak capitals in 2021? Will you look at being fully exposed to the gold price?

[Nicholas Holland:]

So I'm going to ask Paul to talk about our hedging philosophy because him and I has spent a lot of time on this. And I think we both got very strong views.

[Paul Schmidt:]

Yes. I think we are fully exposed to the gold price this year. Our hedging policy is quite simple. It's either to hedge marginal operations or hedge years of heavy capital investment. The reason we put the puts in Australia this year is, as you know, we've got over $500 million additional capital going into Salares. Board was worries what happened if the gold price dropped this year. But as we stand at the moment, there should be no more hedging for the rest of this year or in the future, but that depends again on what happens with projects or marginal operations. But at the moment, no hedging thoughts at the moment going forward.

[Unidentified Company Representative:]

Okay. Nick, final comments.

[Nicholas Holland:]

Well, I just want to thank everyone for dialing in and for the very insightful and penetrating questions. We've had a very exciting 2020. Sadly, we've lost a few people due to COVID. We hope that won't be the case in 2021. And we're hoping that Salares Norte will continue ahead of plan as it is right now and that the rest of the operations continue to perform exceptionally well. But above all, let's do it safely. Let's not forget safety first and the health of our people. So I want to thank everyone. Take care, and we look forward to talking to you some time in the future. Thank you very much for dialing in.