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Integrated Annual Report 2019
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Our operating environment

Gold Fields is subject to external strategic dynamics that inform decision making and influence our business performance. An analysis of the four key strategic themes – and how Gold Fields is responding to them – is set out below.


After almost seven years in the doldrums, the price of gold showed a major upturn during 2019, boosting the average price received by our mines by 11% to US$1,388/eq-oz, up from US$1,252/eq-oz in 2018. Towards the end of 2019 and into the Q1 2020, pricing levels were extremely volatile amid global economic and political uncertainties, as well as the impact of the Covid-19 pandemic. The gold price increased to as much as US$1,650/oz in early March 2020, but also declined again to just above US$1,400/oz during that period.

The traditional investment case for gold as a safe haven asset was called into question after many investors sold their physical gold holdings after the gold price collapsed in 2013. However, during 2019 and 2020 this status seems to have been partially restored. While much of the gold price’s short-term movement is driven by market sentiment and geopolitical developments, an analysis of gold’s supply and demand fundamentals underpins our belief that the gold price could continue to improve over the next few years, though there will be periods of short-term volatility.

In particular, mine supply, which in 2019 showed its first decline in 10 years, is likely to remain under pressure. Many gold market analysts are of the view that the industry has reached peak production levels given the limited number of new gold discoveries since the mid-1990s, together with the decreased levels of exploration spend over recent years.


Gold Fields does not seek to predict the gold price. We expect volatility and structure the business accordingly.

We seek to maximise value by:

  • Prioritising cash-flow over production volumes
  • Setting targets for each region at a 15% FCF margin around a planning price of US$1,300/oz
  • Eliminating marginal mining
  • Selling non-strategic assets
  • Hedging a portion of our gold production in times of high capital expenditure (capex) and high debt

We believe the Group is therefore in a relatively strong state to weather a sustained lower gold price (at just over US$1,000/oz) and well positioned to capture future upside.

Gold price   Global mine production
Source: Bloomberg   Source: World Gold Council


Since the fall in the gold price in 2013, the industry went into survival mode, aggressively cutting costs to stay in business. While there was a reduction in both operating and capital costs, the reduction in capex was generally easier to make and consequently more severe.

Seven years later, we believe the industry has significantly under-invested, which is expected to result in declining production profiles and rising costs in coming years. Figures released by the World Gold Council show that in 2019 global mine production declined for the first time since 2008 (see graph below). Furthermore, total gold reserves among major producers have been decreasing since 2014, according to Bloomberg data.

In our view, capital expenditure in the industry has to increase, with companies needing to spend on new projects and exploration to maintain production levels. We believe that the recent spate of consolidation in the industry – led by the mergers between Barrick Gold and Randgold, and Newmont Gold and Goldcorp – is a response to the under-investment.


We believe that Gold Fields has been counter-cyclical by spending almost US$1bn on new projects over the past three years. Unlike our peers, who have been more focused on mergers and acquisitions, we have been focused internally, building two new mines – Gruyere and Damang – and taking a greenfield project – Salares Norte – to a construction decision.

Our portfolio is now in a strong position to maintain production of 2.0Moz – 2.5Moz per year for the next 10 years. In our view, this is the optimal production level given that each year we need to find almost 5Moz in new Mineral Resources to replace depletion, assuming a 50% Resource to Reserve conversion rate. In addition, we believe that a portfolio of no more than 10 mines is the optimal number allowing management to properly focus on operations.

Looking further into the future, we think the industry will need to return to greenfields exploration to find new projects for development to maintain longer-dated production profiles.


Over the past few years, many governments, particularly in developing countries, increasingly view the industry as an easy target for higher taxes and other fiscal imposts, particularly during tough economic times. As a result, governments’ share of mining revenue has grown at the expense of other stakeholders but, at the same time, miners and investors are shying away from more risky jurisdictions characterised by strong resource nationalism.

A sound and certain regulatory and fiscal environment should enable the global gold sector to ride out short-term fluctuations in gold prices and achieve sustained returns over the 15 to 20-year average life of a mining project. In many jurisdictions, however, the legal and tax environments have become less conducive to the long-term viability of the mining sector.

At the same time, mining-impacted communities in these jurisdictions are finding their voice and are demanding a greater share of the value created by miners. Mines are dependent on their mineral deposits and cannot relocate to new locations when facing deteriorating local or national operating environments. Furthermore, mines must be able to navigate complex social, economic and political dynamics over time to avoid conflicts with their host communities. As it is, conflicts between communities and mines in the global industry have risen sharply over the last decade.

To manage the potential risks, mining companies need to maximise their positive impacts, avoid or minimise their negative impacts and make sure that this is communicated to – and recognised by – host community stakeholders.


At Gold Fields, a strong social licence to operate is embedded in our societal value proposition and is a prerequisite for long-term generation of value for stakeholders.

The question is how the trust gap between mining companies and governments and communities can best be bridged. Gold Fields, on its own and in conjunction with its peers, has sought to address this trust gap in a number of ways:

  • The industry is continuing to distribute value to a number of stakeholders. Over the past three years, Gold Fields has consistently created between US$2bn and US$3bn in total value annually for our wide range of stakeholders – accounting for around 90% of revenue on average here
  • Gold Fields is actively promoting host community employment and procurement in an effort to strengthen its social licence to operate. In 2019, about 33% of our total value creation benefited host communities through these initiatives here
  • We are working with international mining bodies, such as the ICMM, to promote industry-wide best practice and showcase the benefits that a responsible and fairly regulated industry can bring


The impact of the rapidly changing climate on our business, employees and host communities is one of the defining global challenges faced by our business, our workforce and our communities. This impact is felt in a number of ways, including:

  • Extreme weather such as severe rainfall, shifts in rainfall patterns, heavy snow fall, severe winds, higher temperatures, sea level undulations, and prolonged droughts
  • Disruptions to our supply chain
  • Impacts on our host communities
  • The need to comply with current and emerging climate-related regulations, policies and laws, emerging carbon emission taxes and stringent water restrictions
  • An increasing drive for transparency around our efforts to minimise our carbon footprint and our ability to build operational resilience in the face of climate-related risks

Carbon emissions are primarily from diesel consumed and electricity consumption.


Our objectives are to minimise the Company’s contribution to climate change and to reduce the direct physical impacts thereof on our operations and host communities, while also improving disclosure. Furthermore, with three of our regions classified as water stressed, water security is critical to us. To this end, we have developed a range of strategic policy interventions and operational adjustments.

The management of climate change impacts and transition to a low carbon environment is a key component of environmental stewardship at all our operations and projects. At operational level, our energy, carbon management and water strategies highlight our approach taken:

  • Greater energy and water efficiencies
  • Improved use of low carbon and renewable energy sources
  • Security of water and energy supplies

In addition, we have joined a number of global initiatives and programmes that support both corporate disclosure of climate change impacts and encourage multi-stakeholder commitments to combating it. Our second climate change report that complies with the recommendations of the TCFD was released in conjunction with this IAR.