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Arrow Directors’ Report
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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:

    F2009   F2008  
  Analysis of cost of sales R million   R million  
  Total cash cost 17,145   13,436  
  Add: General and administration 707   585  
           Exploration – on mine*   38  
           Rehabilitation 129   59  
           Gold inventory change – cash portion 192   7  
           Royalties** (339)   (243)  
  Operating costs 17,834   13,882  
  (Deduct)/add: Gold inventory change – total (210)   86  
                          Amortisation and depreciation 4,142   3,026  
  Cost of sales per income statement 21,766   16,994  

* 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.
** Royalties are deducted as they are included as part of total cash cost but are reflected as part of taxation in the income statement.

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:

    Year ended 30 June 2008   Year ended 30 June 2008  
        Total   Total   Total   Total       Total   Total   Total   Total  
    Gold   cash   production   cash   production   Gold   cash   production   cash   production  
    sold   cost5   cost5   cost5   cost5   sold   cost5   cost5   cost5   cost5  
    (ë000 oz)   (US$/oz)   (US$/oz)   (R/kg)   (R/kg)   (ë000 oz)   (US$/oz)   (US$/oz)   (R/kg)   (R/kg)  
  South Africa                                        
  Driefontein 829.9   448   537   129,837   155,451   928.0   412   496   96,293   115,898  
  Kloof 643.0   507   632   146,930   183,148   820.9   430   531   100,419   124,094  
  Beatrix 391.1   552   680   159,799   196,917   438.1   515   610   120,382   142,510  
  South Deep 174.7   717   903   207,803   261,612   232.1   727   866   169,889   202,382  
  South African operations 2,038.7   510   626   147,657   181,238   2,419.1   467   564   109,117   131,797  
  Ghana                                        
  Tarkwa 1 612.4   521   609   150,814   176,438   646.1   430   500   100,552   116,760  
  Damang 2 200.4   660   755   191,179   218,662   194.2   551   623   128,770   145,506  
  Peru - Cerro Corona3 217.8   369   543   106,777   157,168                      
  Australia4         708       205,074           734       171,673  
  St Ives 428.3   596       172,707       417.7   582       136,122      
  Agnew 192.0   401       116,120       203.7   445       104,040      
  International operations 1,650.9   523   655   151,549   189,782   1,461.7   492   616   114,952   143,925  
  Total operations 3,689.6                   3,880.8                  
  Weighted average cost     516   639   149,398   185,061       476   583   111,315   136,365  

Notes: 1 In F2009 and 2008, 435,400 ounces and 459,400 ounces respectively were attributable to Gold Fields.
  2 In F2009 and 2008, 142,500 ounces and 138,100 ounces respectively were attributable to Gold Fields.
  3 In F2009, 175,800 ounces were attributable to Gold Fields. There were no sales in F2008.
  4 Total production cost for the Australian operations is not split between the two operations.
  5 Total cash cost and total production cost is calculated in accordance with the Gold Institute industry standard.

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:

  • Recovered corporate expenditure for F2009 was R254 million compared with R200 million in F2008;
  • Management fees in Ghana of R136 million, compared with R106 million in F2008. In dollar terms they were similar at US$15 million;
  • The cost of regional offices in Australia, Ghana and Peru of R102 million, compared with R55 million in F2008. The increase is mainly due to the inclusion of the Lima office in Peru and the translation of these dollar based costs at the weaker rand;
  • World Gold Council fees of R56 million in F2009, charged at an average of US$1.80 per ounce of attributable gold production. The F2008 charge was similar at R50 million;
  • Off-site training amounted to R149 million in F2009 compared with R142 million in F2008; and
  • Other costs relating to Chamber of Mines and special technical projects.

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.

    Year ended 30 June 2009   Year ended 30 June 2008  
    Gold   Operating   Capital       Gold   Operating   Capital      
    produced   costs   expenditure   NCE   produced   costs   expenditure   NCE  
    (í000ozs)   US$mil   US$mil   US$/oz   (í000ozs)   US$mil   US$mil   US$/oz  
  South Africa                                
  Driefontein 829.9   391.8   114.8   610   928.0   403.4   139.8   585  
  Kloof 643.0   342.3   106.4   698   820.9   370.0   123.5   601  
  Beatrix 391.1   226.1   69.9   757   438.1   237.2   79.3   723  
  South Deep 174.7   131.9   113.3   1,403   232.1   173.8   107.9   1,214  
  South African operations 2,038.7   1,092.1   404.4   734   2,419.1   1,184.4   450.5   676  
  Ghana                                
  Tarkwa 612.4   338.1   201.1   881   646.1   283.2   212.0   766  
  Damang 200.4   132.4   16.9   745   194.2   118.1   28.1   753  
  Peru ñ Cerro Corona 219.3   86.4   116.8   926                  
  Australia                                
  St Ives 428.3   255.4   68.8   757   417.7   241.5   107.9   836  
  Agnew 192.1   74.9   30.8   550   203.7   82.5   33.1   568  
  International operations 1,652.5   887.2   434.4   800   1,461.7   725.3   381.1   757  
  Peru ñ Cerro Corona (project)                         348.4      
  Group operations/projects 3,691.2   1,979.3   838.8   763   3,880.8   1,909.7   1,180.0   796

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:

  • R383 million interest paid on local borrowings raised to finance capital expenditure and operating costs by the Driefontein, Kloof and South Deep mines;
  • R341 million on forward cover costs for the foreign exchange contract taken out for the revolving credit facility;
  • R41 million interest paid on the revolving credit facility for partial funding of the Cerro Corona capital expenditure and purchases of further investments in Sino Gold Limited;
  • R26 million interest paid on the project finance facility taken out by Gold Fields La Cima;
  • R14 million on the commercial paper issued during the fourth quarter to finance capital expenditure and operating costs of the divisions of GFIMSA; and
  • The balance of R2 million related to sundry interest payments.

The charge in F2008 comprises:

  • R205 million on forward cover costs for the foreign exchange contract taken out for the revolving credit facility;
  • R169 million on the revolving credit facility taken out in the prior year in terms of the South Deep purchase;
  • R77 million interest paid on local borrowings raised to finance capital expenditure and operating costs by the Driefontein, Kloof and Beatrix divisions of GFIMSA;
  • R40 million interest paid on the revolving credit facility for partial funding of the Cerro Corona capital expenditure and purchases of further investments in Sino Gold Limited;
  • R18 million interest paid on a facility taken out for the purchase of the Uncle Harry’s mineral rights; and
  • The balance of R7 million related to sundry interest payments.

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.

  Financial instruments
  US dollar forward purchases
  During F2009 the Group had three different US dollar forward purchase contracts. They were:
   
Western Areas US dollar/rand forward purchases – As a result of the draw down under the bridge loan facility to settle the close-out of the gold derivative structure, US dollar/rand forward cover was purchased during the March 2007 quarter for the amount of US$551 million for settlement 6 August 2007, at an average forward rate of R7.3279/US$. Subsequent to this date the cover has been extended for periods between one and three months throughout F2008 and 2009. The forward cover was also reduced with the partial repayments of US$61 million and US$172 million against the loan on 6 December 2007 and 31 December 2007 respectively.
 

During F2009, a further amount of US$44 million was repaid against the loan and the forward cover was reduced by the same amount. The balance of the US$274 million forward cover was extended to 15 July 2009, being the next repayment date on the loan, at an average forward rate of R8.0893/US$. For accounting purposes, this forward cover has been designated as a hedging instrument. As a result the gains and losses on the forward cover have been accounted for under gain/(loss) on foreign exchange along with gains and losses on the underlying loan that has been hedged. The forward cover points have been accounted for as part of interest.

   
South Africa: US dollar/rand forward sales – In October 2008, US$150 million of expected gold revenue for the December quarter was sold forward on behalf of the South African operations. In December 2008, the US$150 million was extended to the March quarter at an average forward rate of R10.3818. During the March quarter US$30 million was settled at a gain for the quarter of R7 million. The outstanding balance of US$120 million was extended into the June quarter at an average forward rate of R10.2595. In the June quarter, the remaining forward cover of US$120 million was partly delivered into and the balance closed out, resulting in a gain of R54 million. This was accounted for in the income statement in the June quarter.
   
Australia: US dollar/Australian dollar forward sales – In October 2008, US$70 million of expected gold revenue for the December quarter was sold forward on behalf of the Australian operations. In December 2008, US$56 million was extended to the March quarter at an average forward rate of A$0.6650. During the March quarter an additional US$8 million of the same instruments were taken out. The total of US$64 million was extended into the June quarter at an average forward rate of A$0.6445. In the June quarter the forward cover of US$64 million was partly delivered into and the balance closed out, resulting in a gain of A$2 million (R13 million). This was accounted for in the income statement.
   
  During F2008 the Group had two different US dollar/rand forward purchase contracts. They were:
   
As a result of the draw down under the bridge loan facility to settle the close-out of the gold derivative structure, US dollar/ rand forward cover was purchased during the March 2007 quarter for the amount of US$551 million for settlement 6 August 2007, at an average forward rate of R7.3279/US$. Subsequent to this date the cover was extended for periods between one and three months throughout the year. The forward cover was also reduced with the partial repayments of US$61 million and US$172 million against the loan on 6 December 2007 and 31 December 2007 respectively.
 

The balance of the US$318 million forward cover was extended on 6 June 2008 to 7 July 2008 at a rate of R7.8479/US$, based on an average spot rate of R7.7799/US$. For accounting purposes, this forward cover has been designated as a hedging instrument. As a result the gains and losses on the forward cover have been accounted for under gain/(loss) on foreign exchange along with gains and losses on the underlying loan that has been hedged. The forward cover points have been accounted for as part of interest.

In anticipation of increased US dollar denominated capital expenditure on the Cerro Corona mine, a US$90 million forward exchange contract at a rate of R6.9200 was purchased. This was settled at a rate of R8.1536 resulting in a gain of R85 million.

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:

  • Loss of R126 million on the international petroleum exchange gasoil call option;
  • Loss of R3 million on a US dollar/rand currency hedge;
  • Gain of R61 million on the US dollar/rand forward sales; and
  • Gain of R13 million on the US dollar/Australian dollar forward sales.

The F2008 realised gain of R86 million comprises:

  • Gain of R85 million on a US dollar/rand currency hedge;
  • Gain of R10 million on the international petroleum exchange gasoil call option; and
  • Loss of R9 million on various warrants and options converted to shares.

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:

  • Gain of R125 million on the repayment of Australian dollar denominated intercompany loans;
  • Gain of R35 million on the US dollar proceeds received in respect of the South Deep fire insurance claim of US$17 million; and
  • Exchange losses of R68 million on cash balances held in currencies other than the functional currencies of the Group’s various subsidiary companies.

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;
– New loan facility charges;
– Research and development into mechanised mining;
– Fair value write down of the rose cultivars at Living Gold; and
– Sale agreement adjustment with Orezone Resources Inc. with reference to the sale of Essakane in the previous financial year.

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:

  • A gold price of R245,000 per kilogram for F2010 and 2011 and R280,000 per kilogram thereafter (2008: R210,000 per kilogram),
  • Discount rate of 6 per cent,
  • The extraction of proved and probable reserves as per the most recent life of mine plan, and
  • Operating costs and capital expenditure estimates as per the most recent life of mine plan.

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:

  • R209 million loss resulting from the exchange of 41.7 million Orezone Resources Inc. shares for 3.3 million IAMGold Limited shares as a result of the acquisition of all Orezone shares by IAMGold;
  • R3 million loss from the sale of 70 per cent holding in IRCA (Pty) Limited Group;
  • R1 million loss from the sale of 0.1 million shares in Lakota Resources Inc; and
  • R65 million gain from the subsequent sale of the abovementioned 3.3 million shares in IAMGold Limited.

The major disposals comprising the R1,416 million profit in F2008 were:

  • R1,389 million gain from the sale of the Essakane project in Burkina Faso to Orezone Resources Inc.;
  • R35 million gain from the sale of various shares held by the New Africa Mining Fund;
  • R15 million gain from the sale of 14.8 million shares in Emed Mining Public Limited;
  • R1 million gain from the sale of 0.03 million shares in Resource Investment Trust;
  • R20 million loss from the sale of 8.1 million shares in Committee Bay Resources Limited; and
  • R4 million loss from the sale of 0.5 million shares in Lakota Resources Inc.

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:

  • R22 million profit from the sale of a stage winder by Driefontein; and
  • R12 million profit from the sale of surplus housing by Beatrix and South Deep.

MINING AND INCOME TAX

The table below indicates Gold Fields’ effective tax expense rate for F2009 and F2008:

    Year ended 30 June  
    2009   2008  
  Income and mining tax        
  Effective tax expense rate 55.9   29.2  

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 RESOURCES

Cash 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:

  • A movement of R1,446 million in working capital resulting from an investment of R1,184 million in F2009 versus a release of R262 million in F2008 which is mainly due to an increase in trade receivables for gold sales in F2009;
  • Increase in interest paid of R247 million due to higher borrowings;
  • Increase in tax paid of R889 million due to higher taxable earnings;
  • Partially offset by an increase in cash generated by operations of R1,975 million due to the gold price increasing from R190,623 per kilogram in F2008 to R253,459 per kilogram in F2009; and
  • A decrease in dividends paid of R64 million.

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:

  • Driefontein increasing from R1,016 million in F2008 to R1,034 million in F2009. This was mainly due to increased expenditure on ORD, high and low density accommodation, partly offset by decreased expenditure on the mothballed 9 shaft project;
  • Kloof increasing from R898 million in F2008 to R959 million in F2009. This was due to expenditure on the Main shaft rehabilitation programme and increased ORD, partly offset by cessation of expenditure on the Kloof Extension Area project;
  • South Deep increasing from R785 million in F2008 to R1,021 million in F2009. This increase was due to expenditure on development and mechanised equipment as per the project plan build-up; and
  • Beatrix increasing from R576 million in F2008 to R629 million in F2009. This was mainly due to increased ORD and the procurement of additional mechanised equipment.

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.

  • Tarkwa decreased from US$212 million in F2008 to US$201 million in F2009. This was mainly due to the decrease in activity as the CIL expansion project was completed;
  • Damang decreased from US$28 million in F2008 to US$17 million in F2009. This was due to a reduction of expenditure on the Damang pit cutback;
  • St Ives decreased from US$108 million in F2008 to US$69 million in F2009. This was due to completion of the Cave Rocks and Belleisle projects;
  • Agnew decreased from US$34 million in F2008 to US$30 million in F2009. This translates to an increase in Australian dollars from A$37 million to A$42 million and was due to underground capital development and increased exploration expenditure; and
  • The Cerro Corona project in Peru decreased from US$348 million in F2008 to US$117 million in F2009 which was mainly due to commissioning of the project in the second quarter of F2009.

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:

  • R95 million invested in Sino Gold Limited as part of a rights offer maintaining our holding at 19.9 per cent;
  • R17 million invested in Glencar Mining Plc resulting in a holding of 9.1 per cent at 30 June 2009;
  • R2 million invested in Clancy Exploration Limited resulting in a holding of 5.4 per cent;
  • R0.5 million invested in Cascadero Copper Corporation resulting in a holding of 0.5 per cent.

The major net investment purchases comprising the R978 million spent in F2008 were:

  • R795 million invested in Sino Gold Limited bringing our holding to 19.9 per cent;
  • R85 million on the conversion of options held in Mvelaphanda Resources Limited to shares;
  • R67 million invested in Conquest Mining Limited bringing our holding to 19.1 per cent;
  • R38 million invested in Orsu Metals Corporation (previously Lero Gold Corporation) bringing our holding to 7.6 per cent; and
  • R5 million invested in Emed Mining Public Limited which was subsequently disposed of together with all existing holdings in the same, reducing our current holding to nil per cent.

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:

  • R282 million from the sale of IAMGold Corporation shares; and
  • R200 million from the redemption of preference shares held in a wholly owned subsidiary of Mvela Resources Limited.

The major investment disposals comprising the R100 million in F2008 were:

  • R41 million from the sale of Emed Mining Public Limited shares;
  • R38 million from the sale of various shares held by the New Africa Mining Fund;
  • R12 million from the sale of Committee Bay Resources Limited shares; and
  • R7 million from the sale of Encore Oil Limited shares.

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:

  • R4,139 million was drawn down on a credit facility in order to repay the Mvela loan. Mvela then used the proceeds from the loan repayment to subscribe for its 15 per cent interest in GFIMSA by paying the R4,139 million to GFIMSA. Immediately upon receipt of the GFIMSA shares, Mvela exercised its right to use the GFIMSA shares to subscribe for 50 million new ordinary shares in Gold Fields;
  • R3,900 million was borrowed by GFIMSA from various local banks to fund short-term working capital requirements and capital expenditure;
  • R1,325 million (US$138 million) drawn down on the US$750 million syndicated facility to fund the capital expenditure on Cerro Corona and the acquisition of additional Sino Gold Limited shares;
  • R1,143 million was drawn down under the Commercial Paper loan to refinance existing facilities;
  • R993 million (US$116 million) was raised under the syndicated revolving loan facility for purposes of refinancing existing facilities; and
  • R204 million (US$20 million) was drawn down under the short-term syndicated facility to fund capital expenditure.

The R4,336 million received in F2008 comprises:

  • R1,719 million (US$225 million) drawn down on the US$750 million syndicated facility to fund the capital expenditure on Cerro Corona and the acquisition of additional Sino Gold Limited shares;
  • R1,260 million (US$173 million) was borrowed by GFIMSA from various local banks to fund working capital requirements and capital expenditure;
  • R1,200 million (US$165 million) was raised from the preference shares issued for purposes of refinancing existing facilities; and
  • R157 million (US$23 million) was drawn down on the Cerro Corona project finance loan.

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:

  • R4,139 million repayment to effect the Mvela transaction as described above;
  • R2,802 million repayment of various Group committed and uncommitted facilities used to finance short-term working capital and capital expenditure of the GFIMSA divisions;
  • R1,299 million (US$150 million) repayment of the split-tenor revolving credit facility taken out in F2007;
  • R623 million repayment of the preference shares issued;
  • R484 million representing the ninth and tenth repayments to Mvelaphanda Resources in terms of the Mvela loan; and
  • R377 million (US$44 million) repayment of the syndicated revolving loan facility taken out in F2009.

The R4,620 million repayment in F2008 comprises:

  • R3,002 million (US$432 million) repayment of the split-tenor revolving credit facility used to refinance the JP Morgan facility taken out in F2007;
  • R1,263 million repayment of various Group committed and uncommitted facilities used to finance working capital and capital expenditure of the GFIMSA divisions; and
  • R355 million representing the seventh and eighth repayments to Mvelaphanda Resources in terms of the Mvela loan.

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.
The R73 million in F2008 consists entirely of 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

                F2013 to      
    F2010   F2011   F2012   F2017   Total  
  Loan facilities (committed and uncommitted), including preference shares and commercial paper                
  R'million 4,065.4   684.2   -   1,500.0   6,249.6  
  US$'million 39.5   325.3   516.9   99.3   981.0  
  Utilisation - Loan facilities(committed and uncommitted), including preference shares and commercial paper                
  Rímillion 2,242.8   684.2   -   -   2,927.0  
  US$'million 39.5   86.3   515.4   99.3   740.5  
  Dollar debt translated to rand 318.4   695.6   4,154.1   800.4   5,968.5  
  Total (R'm) 2,561.2   1,379.8   4,154.1   800.4   8,895.5  
  Borrowings per balance sheet (R'm)                 6,334.3  
  Current portion of borrowings per balance sheet (R'm)                 2,561.2  
  Total per balance sheet (R'm)                 8,895.5  

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:

  • Driefontein of R70 million;
  • Tarkwa of R68 million;
  • Kloof of R35 million;
  • Beatrix of R33 million;
  • South Deep of R24 million;
  • St Ives of R11 million; and
  • Damang of R2 million.

Provisions were reversed for:

  • Cerro Corona of R31 million; and
  • Agnew of R8 million

resulting in net additional provisions of R204 million.

During F2008 additional provisions were raised for new disturbances and changes in environmental legislation at:

  • Cerro Corona of R139 million;
  • Driefontein of R83 million;
  • Tarkwa of R67 million;
  • South Deep of R54 million;
  • Kloof of R33 million;
  • Beatrix of R20 million;
  • Agnew of R8 million; and
  • St Ives of R1 million

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:

1. Safety;
2. Information Management and Communications;
3. Productivity;
4. Cost Management; and
5. ICT Operational and Delivery Excellence.

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
The Gold Fields ICT business architecture focuses the ICT organisation on business imperatives and providing business support, while the non-core services are outsourced, i.e. infrastructure and applications support. The journey to focusing the ICT organisation into supporting core business of mining will require a decoupling of the business, application and infrastructure layers of ICT and adopting a multiple vendor sourcing strategy when outsourcing non-core services.

b) Operating model
A new Gold Fields ICT operating model has been developed to ensure the continuous alignment of ICT and business. This model allows the ICT team to engage with the business, service providers and vendors to implement new projects through the projects office and transition these projects into business as usual (BAU) through a core ICT team. The oversight by this core team has been key to ensuring that projects are delivered to Gold Fields’ standards and transitioned to BAU with the proper contracts and Service Level Agreements in place that best support the business.

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:

  • The deployment of an IT Solution to manage capital projects;
  • The renegotiation of the Outsource environment to generate savings on outsourced components;
  • Introduction of a new ICT Operating Model and Strategy;
  • Development of the ICT Global Delivery Excellence Program;
  • The launch of a records and document management system; and
  • Deployment of a consolidated business intelligence platform.

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
Chief Financial Officer

10 September 2009