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| MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE FINANCIAL STATEMENTS(The following Management’s Discussion and Analysis of the Financial Statements should be read together with the Gold Fields’ consolidated financial statements, including the notes appearing with these financial statements.) The financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) which is consistent with the previous year. RESULTS FOR THE YEAR Net earnings attributable to ordinary shareholders for F2009 were R1,536 million or 229 cents per share, compared with net earnings attributable to ordinary shareholders of R4,458 million or 683 cents per share achieved for the previous financial year. The reasons for this decrease are discussed below. Headline earnings which exclude the after tax effect of asset impairments and profits on the sale of investments and fixed assets, amounted to R2,890 million or 431 cents per share for F2009, compared with headline earnings for the previous year of R2,992 million or 459 cents per share. These results are analysed as follows: REVENUE Revenue increased 26 per cent from R23,010 million in F2008 to R29,087 million in F2009. The increase in revenue of R6,077 million was due to the increase in the rand gold price, which increased from R190,623 per kilogram to R253,459 per kilogram, partially offset by a decrease in gold sales. This increase in the rand gold price occurred as a result of a seven per cent increase in the US dollar gold price from an average of US$816 per ounce to US$875 per ounce year on year and a weaker rand, which moved from an average of 7.27 to 9.01 to the US dollar; a change of 24 per cent. Gold sales decreased by five per cent from 3,880,800 ounces in F2008 to 3,689,600 ounces in F2009. Gold sales at the South African operations decreased from 2,419,100 ounces to 2,038,700 ounces or 16 per cent, while gold sales at the international operations increased from 1,461,700 ounces to 1,650,900 ounces or 13 per cent. At the South African operations, the decrease in gold sales of 380,400 ounces was mainly as a result of the infrastructure rehabilitation at Kloof’s Main shaft, safety stoppages related to seismicity and backlog secondary support at Driefontein and Kloof. Added to this were poor recoveries at Beatrix and a 25 per cent decrease in production at South Deep, from 232,100 ounces to 174,700 ounces, due to the termination of conventional VCR mining and rehabilitation of the two main access ramps. At Driefontein, gold output reduced by 11 per cent from 928,000 ounces to 829,900 ounces as a result of lower underground volumes mined and processed of four per cent as well as a lower underground yield, which reduced by seven per cent from 8.1 grams per ton to 7.5 grams per ton. The lower volumes in the first half of the year were due to the backlog secondary support programme and two seismic events which resulted in safety related stoppages which led to a loss of high grade production, specifically pillar mining at 6 and 10 shafts. Gold output at Kloof decreased by 22 per cent from 820,900 ounces to 643,000 ounces as a result of the major rehabilitation work undertaken and completed in the first half of the year on the Main shaft infrastructure, as well as safety related stoppages during the year. At Beatrix, gold output decreased 11 per cent from 438,100 ounces to 391,100 ounces due to a seven per cent decline in volumes mined and processed together with a decrease in yield. At the international operations the increase in gold sales of 189,200 equivalent ounces was mainly as a result of the transition of Cerro Corona in Peru from project to operational phase during the year. First production was achieved in August 2008, with sales for the year of 217,800 equivalent ounces. This increase was partially offset by lower production from Ghana. At Tarkwa gold sales decreased from 646,100 ounces to 612,400 ounces mainly due to the problems associated with the commissioning of the new Carbon-in-Leach (CIL) expansion and the tie-in to the existing metallurgical plant. These problems have been overcome and nameplate capacity is being achieved. Gold sales at Damang were similar year on year, increasing from 194,200 ounces to 200,400 ounces as crusher problems which negatively affected production earlier in the year were offset by increased production from the high grade Damang pit cutback and a more consistent feed to the plant due to the build up of the crushed ore stockpile in F2008. In Australia production was similar year on year. Gold sales at St Ives increased by three per cent from 417,700 ounces to 428,300 ounces, due to an increase of higher grade ore from the newly developed Cave Rocks and Belleisle underground mines. At Agnew, gold sales declined from 203,700 ounces to 192,100 ounces due to the completion of Songvang open pit stockpiles in January 2009, partially offset by a ramp-up in production from the Waroonga (Kim and Main Lode) underground complex. COST OF SALES Cost of sales, which consists of operating costs, changes in gold inventories and amortisation and depreciation, increased from R16,994 million in F2008 to R21,766 million in F2009. The table below presents the analysis of cost of sales:
* On-mine or brownfields exploration is expensed as from F2009 together with greenfields exploration on the exploration line in the income statement and as such
does not form part of cost of sales. The analysis that follows provides a more detailed comparison of cost of sales, as well as a new, non-IFRS measure providing all-in costs for the Group. This new measure is defined as notional cash expenditure (NCE) per ounce. Operating costs – cost of sales less gold inventory change, and amortisation and depreciation Operating costs increased by 28 per cent from R13,882 million in F2008 to R17,834 million in F2009. The increase at the South African operations was 14 per cent from R8,610 million to R9,840 million and at the international operations 52 per cent from R5,272 million in F2008 to R7,994 million in F2009. At the South African operations the increase of R1,230 million was mainly due to the above inflation annual wage increases of around 12 per cent all-in, a 25 per cent increase in electricity costs and an increase in commodity costs due to the commodities boom, which only slowed in the second half of the year. These increases were partially offset by the lower production levels and benefits achieved through our cost saving initiatives, such as programmes to reduce power consumption, a review of surface labour, improved workshop delivery, more effective salvage and reclamation and a focus on core business training, amongst others. At the international operations, the increase of R2,722 million was mainly due to the weaker rand, which resulted in an increase of approximately R1,260 million, and R779 million at Cerro Corona, being its first year of operation as well as increased mining activity. In the respective reporting currencies the increase in operating costs at the Australian operations was 24 per cent and in Ghana, which is US dollar based, the increase was 17 per cent. In Australia at St Ives, operating costs increased from A$269 million to A$345 million. This was made up of an increase in the third party royalty charge of A$32 million, due to the initial application of the 4 per cent smelter royalty combined with the higher Australian gold price. Other contributing factors were an increase in mining costs because of the 16 per cent increased underground and open pit ore tons mined, mainly from Cave Rocks, Belleisle and Leviathan open pit, and an increase in commodity and contractor costs. At Agnew, costs increased from A$92 million to A$101 million, as underground mining activity increased following the depletion of the Songvang stockpiles during the year. In Ghana at Tarkwa, operating costs increased from US$283 million to US$338 million. This increase was due to an 11 per cent increase in tons mined and increased milling volumes, increased maintenance and repairs contract (MARC) tariffs due to the larger and relatively older fleet, as well as increased power usage due to the newly expanded CIL plant and increased tariffs. At Damang, the majority of the increase from US$118 million to US$132 million was due to increased mining of the more expensive high grade Damang pit, together with an increase in mill consumables and increased power tariffs during the year. The following table sets out for each operation and the Group, total gold sales in ounces, total cash cost and total production cost in US$/oz and R/kg for the years ended 30 June 2009 and 2008:
The weighted average total cash cost per kilogram increased by 34 per cent from R111,315 per kilogram (US$476 per ounce) in F2008, to R149,398 per kilogram (US$516 per ounce) in F2009. The weighted average total cash cost at the South African operations in rand terms increased by 35 per cent from R109,117 per kilogram (US$467 per ounce) in F2008 to R147,657 per kilogram (US$510 per ounce) in F2009. This increase was as a result of the decline in gold production and the increases in costs described earlier. At the international operations total cash cost increased from R114,952 per kilogram (US$492 per ounce) to R151,549 per kilogram (US$523 per ounce) an increase of 32 per cent in rand terms but only six per cent in dollar terms as the increase in costs was partially offset by the increase in production. General and administration (G&A) costs Net General and Administration costs, which are included in operating costs, were R707 million in F2009, an increase of 21 per cent compared with the R585 million in F2008 of which nearly half was due to the weaker rand. Costs falling under the definition of general and administration costs included the following:
Gold inventory change Gold inventory change in F2009 was a R210 million credit to costs, compared with a charge to costs of R86 million in F2008. At St Ives, there was a credit to costs of R10 million in F2009 compared with a charge to costs in F2008 of R51 million. In F2009 low grade Leviathan ore was stockpiled at year end. The charge to costs in F2008 was mainly due to the drawdown of stockpiles throughout the year to meet the shortfall resulting from the delayed production from Cave Rocks and Belleisle underground mines, and while the Leviathan pit was brought into full production. At Agnew, there was a charge to costs in F2009 of R20 million compared with R148 million in F2008. Both amounts were due to processing the Songvang stockpile accumulated over prior years and depleted in mid-F2009. At Tarkwa, there was a credit to costs in F2009 of R162 million compared with R36 million in F2008. The R162 million credit was due to gold lock-up in the new plant, a build-up at the North heap leach and increased stockpiles at year end. The R36 million credit in F2008 represented the build-up of inventory in the South heap leach which reached its sixth lift during the year. At Damang, there was a credit to costs of R21 million in F2009 compared with R77 million in F2008. The credit in F2009 was mainly due to the deliberate stockpiling of crushed ore to improve mill feed flexibility started in the previous year. The R77 million credit in F2008 was due to a build-up of lower-grade mined-ore stockpiles of R25 million, with the balance the result of stockpiling crushed ore at the plant to improve flexibility. Cerro Corona had a build-up of unsold stock at year end of R37 million. Amortisation and depreciation Amortisation and depreciation increased by R1,116 million, from R3,026 million in F2008 to R4,142 million in F2009. At the South African operations amortisation increased from R1,664 million in F2008 to R2,036 million in F2009, an increase of R372 million. At the international operations amortisation increased from R1,208 million to R1,961 million, an increase of R753 million. At the South African operations, Driefontein increased from R548 million to R625 million and Kloof from R591 million to R693 million, mainly due to an increase in amortisation of short life ore reserve development. This was mainly as a result of a decrease in reserves. South Deep increased from R232 million to R283 million mainly due to a R50 million credit in F2008 to reverse over provisions at year end. However, the largest increase was at Beatrix, which increased by R142 million mainly due to a decrease in reserves at South shaft, which substantially increased the amortisation rate of that shaf At the international operations the increase of R753 million was mainly due to the inclusion of the first year’s amortisation from Cerro Corona of R351 million and R288 million due to the weaker rand. In Ghana, which is dollar based, amortisation increased from US$60 million in F2008 to US$74 million in F2009. The majority of this increase was due to the depreciation of the new plant expansion at Tarkwa and to a lesser degree an increase in the pre-strip amortisation rates at the Damang main pit and Tarkwa’s Teberebie cut-back. In Australia, amortisation increased from A$119 million in F2008 to A$142 million in F2009. This was mainly due to an increase in underground mining at Agnew, especially at Main Lode, necessitated by the depletion of Songvang stockpiles, and at St Ives, due to increased production from Leviathan open pit and the new underground mines, Cave Rocks and Belleisle. Notional cash expenditure (NCE) Notional cash expenditure is defined as operating costs (including general and administration costs) plus capital expenditure, which includes brownfields exploration, and is reported on a per ounce basis. The objective is to provide the all-in cost for the Group, and for each operation. The NCE per ounce is an important measure, as it determines how much free cash flow is generated in order to pay taxation, interest, greenfields exploration and dividends.
The above calculation is based on the average rand to the US dollar exchange rate for the year of 9.01 and 7.27 for F2009 and F2008 respectively. The NCE for F2009 of US$763 per ounce is lower than the US$796 per ounce achieved in F2008 because of the lower capital expenditure due to the completion of our growth projects in Peru, Ghana and Australia during the year, partially offset by the lower production and higher operating costs. Net operating profit As a consequence of the foregoing, net operating profit increased by 22 per cent from R6,015 million in F2008 to R7,321 million in F2009, with the higher gold price being the main contributor. INVESTMENT INCOME Income from investments was flat at R225 million. The R225 million in F2009 comprises R12 million dividends received, R82 million interest received on the environmental rehabilitation trust funds and R131 million interest received on other cash balances. The R227 million in F2008 comprises R34 million dividends received, R63 million interest received on the environmental rehabilitation trust funds and R130 million interest received on other cash balances. Dividends received are lower in F2009 at R12 million and comprise R11 million dividend received on preference shares held in a wholly owned subsidiary of Mvela Resources Limited and R1 million dividend received from Troy Resources NL. The reason for the decrease is the settlement of the preference shares in March 2009. Interest received on the environmental rehabilitation trust funds increased from R63 million in F2008 to R82 million in F2009 due to higher investment returns achieved by the funds and higher balances invested in F2009. Interest on other cash balances remained relatively flat at R130 million in F2008 and R131 million in F2009. FINANCE EXPENSE Finance expense increased from R587 million in F2008 to R873 million in F2009. The R873 million finance expense in F2009 comprises R18 million interest paid on the Mvela loan, R807 million in respect of other interest paid, preference share interest of R88 million and R38 million environmental rehabilitation interest charge, partially offset by interest capitalised of R78 million. The R587 million finance expense in F2008 comprises R63 million interest paid on the Mvela loan, R516 million in respect of other interest paid, preference share interest of R19 million and R47 million environmental rehabilitation interest charge, partially offset by interest capitalised of R58 million. Interest paid on the Mvela loan decreased from R63 million in F2008 to R18 million in F2009. The lower interest paid is due to the capital amount owing decreasing as capital repayments were made against the loan as well as the final repayment of the loan on 17 March 2009. Other interest paid increased from R516 million in F2008 to R807 million in F2009. The charge in F2009 comprises:
The charge in F2008 comprises:
The R88 million preference share interest relates to R1,200 million raised by the issue of the said shares to Rand Merchant Bank on 24 December 2007. The preference share interest is rolled up and will be paid only on redemption date. R600 million of the preference shares, with an associated interest of R23 million, were redeemed in October 2008. During F2009, R78 million of interest was capitalised in terms of IAS 21 Borrowing cost, due to the existence of general borrowings used to finance long-term projects such as South Deep and Cerro Corona. During F2008, R58 million of interest was capitalised due to the existence of general borrowings used to finance long-term projects such as South Deep, Cerro Corona, Driefontein 9 Shaft drop down and the Tarkwa CIL project. Environmental rehabilitation interest charges decreased from R47 million in F2008 to R38 million in F2009. The decrease in the charge in F2009 was due to lower discount rates applied in the calculation of the interest charge which is in line with lower inflation in the current market environment partly offset by higher rehabilitation cost numbers.
International petroleum exchange gasoil call option In F2009, the Ghanaian operations purchased four monthly Asian style Intercontinental exchange (ICE) gasoil call options with strike prices ranging from US$0.90 per litre to US$1.11 per litre, which equates to a Brent crude price of between US$92 and US$142 per barrel, with final expiry on 28 February 2010. The call options resulted in a premium of US$10.4 million, paid upfront. The Australian operations purchased two monthly Asian style Singapore 0.5 gasoil call options with strike prices ranging from US$0.9128 per litre to US$1.0950 per litre with a final expiry on 28 February 2010. The call options resulted in a premium of A$4.4 million, paid upfront. On 28 June 2007 Gold Fields Ghana Holdings (BVI) Limited purchased a three month Asian style (average monthly price) call option in respect of 15.0 million litres of diesel, settled monthly, to protect against adverse energy price movements. The call option resulted in a premium of US$0.3 million, paid upfront, at a strike price of US$0.5572 per litre. On 20 August 2007 Gold Fields Ghana Holdings (BVI) Limited purchased a further three month Asian style call option in respect of 15.0 million litres of diesel, settled monthly, to protect against adverse energy price movements. The call option resulted in a premium of US$0.4 million, paid upfront, at a strike price of US$0.5572 per litre. Copper financial instruments During June 2009 8,705 tons of Cerro Corona’s expected copper production for F2010 was sold forward for monthly deliveries, starting on 24 June 2009 to 23 June 2010. The average forward price for the monthly deliveries is US$5,001 per ton. An additional 8,705 tons of Cerro Corona’s expected copper production for F2010 was hedged by means of a zero cost collar, guaranteeing a minimum price of US$4,600 per ton with full participation up to a maximum price of US$5,400 per ton. Realised (loss)/gain on financial instruments The realised portion on financial instruments moved from a gain of R86 million in F2008 to a loss of R56 million in F2009. The F2009 realised loss of R56 million comprises mainly:
The F2008 realised gain of R86 million comprises:
Gain on foreign exchange Gain on foreign exchange increased from R14 million in F2008 to R92 million in F2009. The gain of R92 million in F2009 comprises:
The gain of R14 million in F2008 comprises exchange gains on foreign currency denominated cash balances within the Group. Other (costs)/income Other operating income in F2008 was R68 million compared to other costs of R203 million in F2009. The charge for F2009 is mainly made up of: – Restructuring costs at the training academy; The income realised in F2008 was mainly due to a refund of costs from Orezone Resources Inc. of R40 million and an R11 million fair value adjustment to the rose cultivars in Living Gold. Share-based payments IFRS 2 Share-based payments became effective for Gold Fields for the financial year ended 30 June 2006. In terms of IFRS 2, Gold Fields recognises the cost of share options granted (share-based payments) from 1 July 2005. IFRS 2 requires that all options granted after 7 November 2002, but not vested by 1 July 2005 be accounted for. Gold Fields has adopted an appropriate valuation model to fair value the employee share options. The value of the share options has been determined as of the grant date of the options and has been expensed on a straight-line basis over the vesting period. Based on this model R303 million was accounted for in F2009 compared to R151 million in F2008. The corresponding entry for the above adjustments was share-based payment reserve within shareholders’ equity. The reason for the increase in share-based payments is a modification made to the existing scheme and an additional allocation made in F2008 (as part of the employee retention strategy) resulting in two allocations being made to employees. The said modifications and additional allocation were accounted for a full year in F2009 as opposed to only a portion of the year in F2008. The modification was made due to the fact that subsequent to the implementation of the Share Plan, it became evident that the XAU index used was not representative of Gold Fields’ peer competitors as it included some companies which are not pure gold mining companies and a number of relatively small gold producers. Accordingly it was decided that instead of using the XAU index, Gold Fields’ performance will be measured against only five gold mining companies who can be regarded as peer competitors. The modification to the scheme resulted in incremental fair value which is being expensed over the remaining vesting period of the instruments. Exploration expense Gold Fields expensed R508 million (US$56 million) on exploration in F2009 compared with R328 million (US$45 million) in F2008. The bulk of the expenditure has been incurred on a diversified pipeline of projects in Africa, Australia, China and North, South and Central America. The increase in F2009 is due to spend on advanced stage exploration projects, being Talas in Kyrgyzstan, Chucapaca in Peru and Sankarani in Mali. Subject to continued exploration success, expenditure is expected to range between US$50 million and US$80 million in F2010. Share of results of associates after tax Gold Fields equity accounts for two associates. They are Rand Refinery Limited and Rusoro Mining Limited. The Group’s 35 per cent share of after tax profits in Rand Refinery Limited was R14 million in F2009 compared to R34 million in F2008. Gold Fields acquired a 36 per cent stake in Rusoro in F2008 and during F2009 the holding was diluted to 26 per cent consequent upon a private placement by Rusoro. The after tax loss of R43 million for the seven months holding period in F2008 compares to a R156 million loss realised in F2009. The acquisition of the Rusoro stake is described under discontinued operations below. Restructuring costs The charge for restructuring costs increased from R65 million in F2008 to R126 million in F2009. The costs in F2009 relate to restructuring costs at the Driefontein, Kloof, Beatrix and South Deep operations. The costs of R65 million in F2008 relate to a provision made for the anticipated retrenchment of approximately 2,000 employees at the South Deep mine following the closure of the VCR section. South Deep insurance claim South Deep insurance claim income of R131 million relates to the receipt of the insurance claim from the South Deep fire in F2007. Driefontein 9 shaft closure costs Closure costs of R24 million were incurred in F2008 and relate to Driefontein’s 9 shaft project which was suspended due to the lack of power supply. During F2009, there was a reversal of an over provision of R2 million after finalisation of the total closure costs. Impairment of investments and assets Impairment of investments and assets increased from R51 million in F2008 to R1,210 million in F2009. The charge in F2009 of R1,210 comprises impairment of R1,066 million of Rusoro to its market value of R390 million (US$48 million) in terms of IAS 36 Impairment of assets. However, management’s view of the investment in Rusoro is that its inherent value is significantly greater than its current market value. The balance of the impairment charge relates to a write down of R144 million on sundry offshore listed exploration investments to its market value at 30 June 2009. The charge of R51 million in F2008 comprises R32 million relating to the St Ives’ Junction mine and the original Leviathan pit which have been depleted and R19 million at Agnew, an impairment of the rehabilitation assets relating to old slimes dams. The Group assesses at each reporting date whether there are indicators of impairment for any of its assets. If there are any indicators of impairment, the asset’s recoverable amount needs to be estimated. The carrying value is compared to the higher of “value in use” or “fair value less costs to sell”. Various internal and external sources of information were considered and management has concluded that no indicators of impairment of assets exist at 30 June 2009. Unlike assets, goodwill needs to be tested for impairment annually. The following estimates and assumptions were used by management when reviewing the long-term assets and associated goodwill for impairment:
In both F2009 and F2008 the application of the above estimates and assumptions did not result in any impairment charge. (Loss)/profit on disposal of investments Loss on sale of investments in F2009 amounted to R148 million compared to a profit of R1,416 million in F2008. The major disposals comprising the R148 million loss in F2009 were:
The major disposals comprising the R1,416 million profit in F2008 were:
Profit on disposal of property, plant and equipment Profit on disposal of property, plant and equipment decreased from R34 million in F2008 to R4 million in F2009. The major disposals comprising the R4 million profit in F2009 related to the sale of surplus housing by Driefontein, Kloof and Beatrix. The major disposals comprising the R34 million profit in F2008 were:
MINING AND INCOME TAX The table below indicates Gold Fields’ effective tax expense rate for F2009 and F2008:
In F2009, the effective tax expense rate of 56 per cent differed from the maximum South African mining statutory tax rate of 43 per cent mainly due to non-deductible impairment charges of R520 million on the impairment of associate and certain listed investments, R339 million increase in charges relating to levies and royalties in Ghana and Australia, R219 million non-deductible exploration expense as well as R131 million non-deductible share-based payments. These increases were partly offset by a reduction of R507 million in net tax charge arising from non-South African mining income taxed at lower rates, R250 million reduction relating to the South African mining tax formula and a R25 million decrease due to use of assessed losses not previously recognised at GFL Mining Services Limited and Gold Fields Protection Services Limited. In F2008, the effective tax expense rate of 29 per cent differed from the maximum South African mining statutory tax rate of 43 per cent mainly due to a non-taxable gain on the disposal of the Essakane project and other investments of R609 million, a reduction of R424 million in net tax charge arising from non-South African mining income taxed at lower rates, R222 million reduction relating to the South African mining tax formula, R31 million decrease due to use of assessed losses not previously recognised at Gold Fields Limited and GFL Mining Services Limited and other non-taxable income of R110 million mainly due to the Venezuelan subsidiary not being subject to tax. These reductions were partly offset by the Group incurring R243 million in charges relating to levies and royalties in Ghana and Australia, R141 million of non-deductible exploration expenses and R65 million of non-deductible share-based payments. Discontinued operations During the December quarter in F2008 the assets in Venezuela were sold. This sale has necessitated the restatement of prior periods salient features and financial results as required by IFRS 5. In F2008 the net gain from the sale of the Venezuelan assets amounted to R111 million comprising a profit on the disposal of the Venezuelan assets of R74 million and an income on the operational results at Choco 10 for the five months ended November 2007, the effective date of sale, of R37 million. There were no discontinued operations in F2009. Profit attributable to ordinary shareholders of the company Because of the factors discussed above, Gold Fields posted earnings attributable to ordinary shareholders of the company of R1,536 million in F2009 as compared with earnings of R4,458 million in F2008. Profit attributable to minority shareholders’ interest Minority interests represent attributable earnings of R319 million in F2009, compared with attributable earnings of R360 million in F2008. These amounts reflect the portion of the net income or losses of Gold Fields Ghana, Abosso Goldfields, Gold Fields La Cima and Living Gold attributable to its minority shareholders. LIQUIDITY AND CAPITAL RESOURCESCash resources Cash flows from operating activities Cash inflows from operating activities decreased from R6,692 million in F2008 to R6,001 million in F2009. The decrease of R691 million was mainly due to:
Cash from discontinued operations relates entirely to the Venezuelan operations and amounted to R126 million in F2008. The R126 million in F2008 comprises R111 million of profit before tax and a depreciation charge of R15 million. Cash flows from investing activities Cash outflows from investing activities decreased from R7,727 million in F2008 to R7,284 million in F2009. The items comprising these numbers are discussed below. Additions to property, plant and equipment Capital expenditure decreased from R9,014 million in F2008 to R7,649 million in F2009. Capital expenditure at the South African operations increased from R3,275 million in F2008 to R3,643 million in F2009. The increase in capital expenditure of R368 million was due to:
In F2008, R400 million was paid for the Uncle Harry’s mineral rights adjacent to the South Deep mine. Capital expenditure at the offshore operations decreased from R5,310 million in F2008 to R3,914 million in F2009 and from US$730 million to US$434 million in US dollar terms.
Proceeds on the disposal of property, plant and equipment Proceeds on the disposal of property, plant and equipment decreased from R42 million in F2008 to R32 million in F2009. In both years this related to the disposal of various mining assets by the South African mining operations. Proceeds on disposal of subsidiary Proceeds on disposal of subsidiaries decreased from R1,042 million in F2008 to R45 million in F2009. The amount received in F2009 comprises the cash proceeds received from the sale of a 70 per cent holding in the IRCA (Pty) Limited Group. The amount of R1,042 million comprises entirely the cash proceeds received from the sale of the Essakane project in Burkina Faso. The gross proceeds of the sale amounted to R1,375 million comprising the abovementioned cash of R1,042 million and 41,666,667 shares in Orezone Resources Limited. Net cash from discontinued operations Cash inflows from investing activities from discontinued operations amounted to R1,165 million in F2008 and nil in F2009. The gross proceeds from the sale of the Venezuelan assets amounted to R2,799 million (US$413 million) and comprised cash of R1,219 million (US$180 million) and shares in Rusoro Mining Limited of R1,580 million (US$233 million). The cash received has been partly offset by capital expenditure for the period to 30 November 2007 of R54 million. This sale has necessitated the restatement of prior periods’ salient features and financial results as required by IFRS 5 Non-current assets held for sale and discontinued operations. Purchase of investments Investment purchases decreased from R978 million in F2008 to R99 million in F2009. The major net investment purchases comprising the R99 million spent in F2009 were:
The major net investment purchases comprising the R978 million spent in F2008 were:
Proceeds on the disposal of investments Proceeds on the disposal of investments increased from R100 million in F2008 to R482 million in F2009. The major investment disposals comprising the R482 million in F2009 were:
The major investment disposals comprising the R100 million in F2008 were:
Environmental trust funds and rehabilitation payments During F2009 Gold Fields paid over R58 million to its environmental trust funds and spent R36 million on ongoing rehabilitation costs resulting in a total cash outflow of R94 million for the year. During F2008 Gold Fields paid over R56 million to its environmental trust funds and spent R29 million on ongoing rehabilitation costs resulting in a total cash outflow of R84 million for the year. Cash flows from financing activities Net cash generated by financing activities increased from R557 million in F2008 to R2,087 million in F2009. The items comprising these numbers are discussed below. Minority shareholders’ loans received Minority shareholders’ loans received was nil for F2008 as compared to R10 million in F2009. The R10 million received in F2009 relates to an advance and a repayment between Tarkwa and its minority shareholder, IAMGold of US$6 million. The R10 million relates to different exchange rates used to convert the advance and repayment to South African rand. Loans raised Loans raised increased from R4,336 million in F2008 to R11,704 million in F2009. The R11,704 million received in F2009 comprises:
The R4,336 million received in F2008 comprises:
Loans repaid Loans repaid increased from R4,620 million in F2008 to R9,724 million in F2009. The R9,724 million repayment in F2009 comprises:
The R4,620 million repayment in F2008 comprises:
Proceeds from rights issue – Cerro Corona The entire R768 million (US$96 million) was raised in F2008 as a rights issue to minority shareholders in Cerro Corona. As a result of Gold Fields converting its loan to equity, the outside shareholders were given the opportunity to participate in a rights issue to avoid a dilution of their interest. The funds were awaiting finalisation of all statutory requirements before the shares could be issued. Shares issued Shares issued increased from R73 million in F2008 to R97 million in F2009. The R97 million in F2009 includes R25 million received from the issue of 50,000,000 shares as a result of the completion of the
Mvelaphanda transaction and R72 million received from shares issued in terms of the Group’s employee share scheme. Net cash generated/(utilised) As a result of the above, net cash generated for F2009 amounted to R804 million compared to net cash utilised of R478 million in F2008. Total Group cash and cash equivalents amounted to R2,804 million at 30 June 2009, as compared to R2,007 million at the end of F2008. BALANCE SHEET Net debt Net debt (borrowings plus current portion of borrowings less cash and cash equivalents and bank overdraft) has increased from R4,991 million (US$624 million) in F2008 to R6,092 million (US$756 million) in F2009. In F2009 Gold Fields successfully refinanced maturing debt, which improved the debt maturity profile and provided flexibility and diversity in terms of sources of funding. The debt maturity profile is depicted in the table below: Debt maturity ladder
Exchange rate: US$1 = R8.06 being the closing rate at 30 June 2009. Long-term provisions Long-term provisions at the end of F2009 were R2,320 million as compared to R2,037 million at the end of F2008 and include a provision for post-retirement health care costs of R21 million (F2008: R21 million), a provision for environmental rehabilitation costs of R2,268 million (F2008: R2,016 million) and other long-term provisions of R31 million (F2008: nil). Provision for post-retirement health care costs The Group medical scheme, Medisense, provides benefits to employees and certain of its former employees. The Group remains liable for 50 per cent of these retired employees’ medical contributions to the medical scheme after retirement. This is applicable to employees of the Free State operations who retired on or before 31 August 1997 and members of the West Wits operations who retired on or before 1 January 1999. Provision for environmental rehabilitation costs The amount provided for environmental rehabilitation costs increased from R2,016 million in F2008 to R2,268 million in F2009. The provision represents the present value of closure, rehabilitation and other environmental obligations incurred up to 30 June 2009. The provision is updated annually to take account of inflation, the time value of money and any new environmental obligations incurred. The discount rate applied in F2009 changed to a range of 7.0 per cent to 8.7 per cent (2008: 10.1 per cent to 12.6 per cent) for the South African operations, 4.1 per cent to 4.4 per cent (2008: 4.6 per cent to 5.0 per cent) for Ghana, 6.2 per cent to 6.3 per cent (2008: 7.6 per cent) for Australia and 6.7 per cent (2008: 6.0 per cent) in Peru. The rates of inflation used in F2009 also changed from the previous year to 7.0 per cent (2008: 9.0 per cent) for South Africa, 3.0 per cent (2008: 4.2 per cent) in Ghana, 2.5 per cent (2008: 3.0 per cent) in Australia and 5.4 per cent (2008: 5.4 per cent) in Peru. The inflation adjustment for F2009 was R129 million compared with R59 million in F2008 and the interest adjustment for F2009 was R38 million compared with R47 million in F2008. During F2009 additional provisions were raised for new disturbances and changes in environmental legislation at:
Provisions were reversed for:
resulting in net additional provisions of R204 million. During F2008 additional provisions were raised for new disturbances and changes in environmental legislation at:
resulting in net additional provisions of R405 million. The South African operations contribute to dedicated environmental trust funds to provide financing for final closure and rehabilitation costs. The amount invested in the fund is shown as a non-current asset in the financial statements and increased from R747 million in F2008 to R887 million in F2009. The increase consists of contributions of R58 million and interest income of R82 million. The South African operations will continue to contribute annually to the trust fund over the remaining lives of the mines, which should ensure that sufficient funds will be available to discharge commitments for future rehabilitation costs. Other long-term provisions Gold Fields La Cima has formally declared their intention to jointly participate with Minera Yanacocha S.R.L. in financing of the Kunter Wasi Road as an alternative route from the coast to the Cerro Corona Mine. Gold Fields La Cima agreed to pay a maximum of 20 per cent of the estimated cost of the project amounting to US$12 million, which is expected to commence during the 2010 financial year and be completed by June 2011. INFORMATION COMMUNICATION AND TECHNOLOGY (ICT) Gold Fields ICT remains committed to supporting the Group in achieving its business strategy and is gearing towards improving and standardising global ICT service delivery. A number of strategic programmes have been conducted during the course of this year with the major achievement being the deployment of SAP globally within the Group. A SAP blueprint has been developed with the objective of enhancing the extraction of value from this system. The following strategic focus areas drive the prioritisation of activities within Gold Fields ICT. These focus areas have been translated into five key ICT programmes as follows:
In order to deliver the key ICT strategic focus areas, the ICT organisation has focused on business architecture and an appropriate operating model described below: a) ICT business architecture b) Operating model The re-focused ICT has progressed significantly, both in terms of investment allocation as well as the delivery of key programmes as highlighted below: Financials ICT has generated significant cost savings through the careful execution of its strategy. These savings are being used to finance the necessary investments in technology and business projects for the future. Gold Fields ICT F2010 highlights F2010 will see ICT bring in a greater level of global standardisation to infrastructure, applications and business processes through the following strategic projects:
SARBANES-OXLEY Gold Fields, being a foreign private issuer under US SEC rules, has to comply with the requirements of the Sarbanes-Oxley Act, 2002. Management’s compliance programme consists of self assessments, focused walk-throughs and operating effectiveness testing executed throughout the year, on a quarterly basis. At the time of this reporting, management has completed control design and operating effectiveness testing for the Group across all significant locations, with the exception of the processes relating to preparation of US GAAP reporting (20F). The results to date of said compliance programme indicate a very high level of compliance and no indication of a material breakdown in controls was noted. SOUTH AFRICA STRATEGIC SOURCING AND INTEGRATED IMPROVEMENT PROJECTS Cumulative benefits delivered for the South African operations during F2009 were around R70 million, achieved mainly through pricing claw-back benefits from the record high peak prices recorded in the first half of F2009, together with integrated continuous improvement initiatives. The early part of F2009 also benefited from forward buying strategies largely in steel related products and higher inventory levels which allowed reduced spend quantities and lower stock average prices during the first quarter of F2009 and thus avoided the full impact of the record inflation prior to the global downturn. The main reduced spend benefits came from areas like fuel and cables reduced prices and buying strategies across steel products like rails and support items. Improvements in quality and related volumes of repairs and capital purchases also added significant benefits. The first half of F2009 ended up seeing high net price inflation in materials spend of more than 10 per cent, before the commencement of a turn in the inflation cycle in the second half, on the back of the global slowdown, where a marginal net price deflation was experienced. The net full year price inflation for materials was between 3 per cent and 5 per cent, significantly down from the start of year projections of more than 20 per cent inflation. The big benefit is that the pricing baselines have been re-set to reflect the global economic downturn and have not been at the high prices seen at the beginning of F2009. During the fourth quarter of F2009, it became evident that deflation had bottomed out and corrected across most commodities, especially oil, ammonia and copper, thereby effectively catching up again with the long-term trend line. A gradual upturn of pricing from the new corrected baseline is expected during the next year together with power and labour related inflation flowing through. INTERNATIONAL OPERATIONS INTEGRATED CONTINUOUS IMPROVEMENT INITIATIVES AND STRATEGIC SOURCING AND SUPPLY BENEFITS ACHIEVED Cumulative continuous improvement, sourcing and rise and fall claw-back related benefits across the International operations for F2009 of around US$38 million were achieved. The big benefit is that the pricing baselines have been re-set to reflect the global economic downturn and have not been at the high prices seen at the beginning of F2009. The main areas resulting in benefits were diesel rise and fall across the regions, mining contracts improvement projects in Australia and power rate adjustments in Ghana. High inflation in the first part of F2009 largely off-set the visible flow through of the above realised pricing claw-backs and benefits, resulting in a fairly flat cost line across most commodities, except for the average weighted prices for diesel that ended lower. The market for commodities like oil and ammonia corrected to the long-term trend line and prices are expected to gradually increase going into the new fiscal year. Australia Cumulative benefits delivered in Australia for F2009 added up to around US$17 million (A$20 million) largely from underground and surface mining contracts improvement projects, diesel rise and fall claw-back, travel and accommodation cost savings. Ghana Cumulative F2009 benefits for Ghana of around US$16 million were recorded, largely through rise and fall claw-back in diesel, reduced power tariffs, explosives cost reductions, cyanide and grinding balls cost reductions. Peru Estimated cumulative benefits for F2009 in Peru amounted to around US$5 million across areas like diesel, grinding balls, emulsions, ammonia nitrate and freight rates. Paul Schmidt 10 September 2009
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