In the movie Jerry Maguire, Tom Cruise is a sports agent who, tired of all the BS that goes with ever more demanding bottom lines in the sports management industry, has a moment of clarity.
In the wee hours of the morning, wrapped in a blanket he writes a mission statement that contains the motto “fewer clients, less money”.
In the unlikely event that they make a movie about the current state of the gold mining sector, Nick Holland’s keynote address to the Melbourne Mining Club could provide a very similar moment.
In a fascinating 35-page long speech the CEO of gold major, Gold Fields looks at all the things that gold miners have been getting wrong over the last decade and looks at a few ways to solve some of them. Among them is a page dedicated to the manner in which much of the industry reports costs – something about which Holland is clearly passionate.
He points out that while the gold price has gone up at a compound annual growth rate of 21% from 2006 to 2011, all-in costs, what Gold Fields refers to as Notional Cash Expenditure, as risen 16%.
“In five years that means costs have doubled. We’ve lost a lot of the upside!” But, he says, while this may be the case, “At investor conferences the industry often extols its cash cost performance – that we are making significant operating cash flow margins – sometimes in excess of $1,000 an ounce.
“Who are we trying to kid? We don’t kid the investors because they know how much cash we really generate after everything is accounted for. The sell-side also understands this. The only people we’re kidding are governments and communities who, not surprisingly, say, okay, you’re making super profits, please pay up. And before we know it we have windfall taxes, higher royalties and so on.”
Holland compares the current situation to a footballer scoring an own goal every time he or she plays and being proud of it.
“We’ve got to change the lens through which we and the world view this industry, and start talking about what it really costs to produce an ounce of gold. I don’t care if we call it NCE or something else, but to talk about cash costs only is not telling the full story.”