Gold Fields

Annual
Financial Report

2018

 
 
 

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Annual Financial Report including Governance Report 2018

Independent Auditor's Report

To the shareholders of Gold Fields Limited

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Opinion

We have audited the consolidated financial statements of Gold Fields Limited and its subsidiaries (“the Group”) set out on Accounting policies, which comprise the consolidated statement of financial position at 31 December 2018, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, the accounting policies, and the notes to the consolidated financial statements.

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Gold Fields Limited and its subsidiaries at 31 December 2018, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (“IRBA Code”) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (Parts A and B). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We have identified the following key audit matters pertaining to the consolidated financial statements:

Impairment of cash-generating unit (CGU) and recoverability of deferred tax asset – South Deep

Deferred tax asset – US$269.5 million
Impairment of South Deep goodwill – US$71.7 million
Impairment of South Deep property, plant and equipment – US$409.8 million

Refer to the accounting policies (significant accounting judgements and estimates , mineral reserves and resources estimates, carrying value of property, plant and equipment and goodwill and income taxes) and notes 6, 9, 13, 14 and 23 to the consolidated financial statements.

  Key audit matter   How the matter was addressed in our audit  
  The Group performs impairment assessments when events or changes in circumstances occur in respect of CGUs as well as annually in respect of goodwill.   Our team included senior audit team members and tax and valuation experts, who understand the Group's business, industry and the economic environment in which it operates.  
  Impairment indicators were identified in the current year in respect of the South Deep CGU given that the mine fell short of targeted production and recorded a loss for the year before impairment, royalties and taxation of US$140.2 million, requiring management to perform a detailed impairment assessment.   Our audit effort focused on the South Deep impairment assessment and the recoverability of the deferred tax assets as follows:
  • We evaluated the design, implementation and operating effectiveness of internal controls applied by management to ensure that its impairment assessment and deferred tax asset recoverability assessment was appropriately performed and reviewed.
  • We tested the integrity of the cash flow projections included in the life-of-mine model for the South Deep CGU and challenged the appropriateness of the key assumptions by evaluating the cash flows with reference to our knowledge of the industry, accuracy of historical forecasts in respect of production costs and capital expenditure and evaluating the potential risk of management bias.
  • We compared the mineable reserves assumption used in the cash flow model to the proved and probable reserves declared by the competent person employed by the Group at 31 December 2018. We evaluated the objectivity, competence and capabilities of the competent person.
  • We obtained an understanding of the work performed by the external specialist in respect of the South Deep life-of-mine model and evaluated the appropriateness of the conclusions reached. We also evaluated the independence, objectivity and competence of the external specialists.
  • We evaluated the appropriateness of the discount rate used to calculate the recoverable amount of the CGU with reference to a range of acceptable discount rates we derived from market data.
  • We performed sensitivity analyses to consider the impact of changes in key judgements, assumptions and estimates on the recoverable amount and the impact on the impairment assessment of the CGU.
  
  Significant judgements, assumptions and estimates were used by management in determining the recoverable amount of the South Deep CGU. The recoverable amount is determined as the higher of the value in use or fair value less costs of disposal ("FVLCOD"). The recoverable amount is based on expected future cash flows which are inherently uncertain, and are affected by a number of factors, set out in the life-of-mine plan, including reserves and production estimates, economic factors such as gold price, discount rate, foreign currency exchange rate, estimate of production costs and future capital expenditure as well as the resource valuation.    
  South Deep (jointly owned and operated by GFI Joint Venture Holdings Proprietary Limited (”GFI”) and Gold Fields Operations Limited (“GFO”)) has significant tax losses and unredeemed capital expenditure resulting in recognised net deferred tax assets. Given the underperformance of the mine, there is a risk that the deferred tax assets are not recoverable.    
  The Group recognises the future tax benefits related to deferred tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. The future tax benefits are dependent on the performance of the South Deep mine. Management’s assessment of the recoverability of the deferred tax assets is based on the same life-of-mine model used for their impairment assessment which includes significant estimates related to the quantum and timing of future taxable income.   Specifically, our focus for externally derived inputs used in the life-of-mine model included the following:
  • We evaluated the reasonableness of the gold price used with reference to external forecasts by comparing the projected gold price against external analyst reports, both regionally and globally.
  • We evaluated the reasonableness of the resource value per ounce, used to determine the value of the CGU beyond its proved and probable reserves, against a range of acceptable prices for comparable transactions in emerging markets.
  
  The impairment assessment of the South Deep CGU and the recoverability of the deferred tax assets in GFI and GFO was considered a key audit matter in the audit of the consolidated financial statements due to the inherent uncertainty, significant judgements, estimates based on the various assumptions applied in determining the recoverable amount of the CGU and the significant estimation involved in the projections of future taxable income.   In addition to the procedures performed above in respect of the life-of-mine model, we evaluated the appropriateness for recognising the deferred tax assets in respect of GFI and GFO based on our work performed on the cash flow projections used in forecasting future taxable income and the reversal of temporary differences.

We considered the adequacy of the Group's disclosures in respect of the South Deep impairment assessment and the recoverability of deferred tax assets, including those disclosures related to significant accounting judgements and estimates used to determine the recoverable amount in accordance with the prevailing accounting standards.		  

Acquisition of Asanko Gold

Gain on acquisition of Asanko – US$51.8 million
Investment in Asanko Gold – US$85.8 million
Investment in Asanko redeemable preference shares – US$132.9 million

Refer to the accounting policies (significant accounting judgements and estimates , Asanko Gold acquisition) and notes 15, 16 and 17 to the consolidated financial statements.

  Key audit matter   How the matter was addressed in our audit  
 

During the year, the Group acquired a 45% interest in Asanko Gold Ghana Limited (“Asanko Gold”) which owns the Asanko Gold Mine (“AGM”). The Group also acquired a 50% interest in Adansi Gold Company Limited, owning exploration licences, and a 50% interest in Shika Group Finance Limited, a newly formed financing company. These interests are classified as interests in equity accounted investees as they meet the requirements of a joint venture.

The Group also acquired the Asanko redeemable preference shares that have been designated at fair value through other comprehensive income.

The purchase consideration comprised an upfront payment of US$165 million on closing of the transaction in respect of both the equity accounted investment and the preference shares. A gain on acquisition was recognised based on the fair value of the identifiable assets acquired exceeding the consideration paid.

The fair values of the identifiable net assets acquired were determined based on an internal valuation performed by internal valuers. The fair values were determined on a provisional basis pending completion of review and sign off of the life-of-mine model, including the reserves and resources, by the group competent person.

Determining the fair values of the identifiable assets acquired and liabilities assumed required the exercise of significant judgement and estimation, particularly in relation to the mineral reserves used in the life-of-mine model, forecasted gold prices, forecasted production costs and capital expenditure, the estimated gross closure costs and discount rates.

Assumptions were also made, based on the cash flows from the life-of-mine, with regard to the timing of when the preference shares would be redeemed in order to determine the fair value of the preference shares on initial recognition.

The acquisition of Asanko Gold Mine, the fair value determination of the Asanko redeemable preference shares and related accounting treatment of the transaction was considered a key audit matter in the audit of the consolidated financial statements due to the inherent uncertainty, significant judgements, assumptions and estimates applied in determining the fair values of the identifiable assets and liabilities acquired and the complexity of the transaction from a technical accounting perspective.

  

Our team included senior audit team members and valuation and technical accounting experts.

Our audit procedures included the following:

  • We evaluated the design, implementation and operating effectiveness of internal controls applied by management to ensure that the controls in respect of the acquisition were appropriately performed and reviewed.
  • We inspected the relevant agreements pertaining to the acquisition and evaluated management’s accounting treatment with reference to the terms set out in the agreements.
  • We obtained and inspected the valuation assessment prepared by the internal valuers on which the fair values of the identifiable assets and liabilities acquired were based and performed the following:
  • We obtained an understanding of the work performed by the external specialist in respect of the South Deep life-of-mine model and evaluated the appropriateness of the conclusions reached. We also evaluated the independence, objectivity and competence of the external specialists.
    • We challenged the key assumptions, including the reasonableness of the gold price and discount rates, applied in the fair value assessment by evaluating the cash flows with reference to our knowledge of the industry and with reference to external analysts’ reports.
    • We assessed the appropriateness of the valuation methodologies applied with reference to industry standards and the requirements of the prevailing accounting standards.
    • We challenged the key assumptions, including the reasonableness of the gold price and discount rates, applied in the fair value assessment by evaluating the cash flows with reference to our knowledge of the industry and with reference to external analysts’ reports.
       

Other information

The directors are responsible for the other information. The other information comprises the Company Secretary’s certificate, the Directors’ Report and the Audit Committee Report as required by the Companies Act of South Africa as well as all other information included in the Annual Financial Report as well as the Integrated Annual Report. Other information does not include the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the consolidated financial statements

The directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
  • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
  • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
  • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
  • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that KPMG Inc. has been the auditor of Gold Fields Limited for nine years.

KPMG Inc.

Registered Auditor

Per ML Watson

Chartered Accountant (SA)
Registered Auditor
Director

25 March 2019

KPMG Crescent
85 Empire Road
Parktown
Johannesburg