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To the shareholders of Gold Fields Limited
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:
|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:
|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
|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:
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:
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.
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.
Chartered Accountant (SA)
25 March 2019
85 Empire Road