MATERIAL STEWARDSHIP AND SUPPLY CHAIN MANAGEMENT

During the first half of financial year 2009 and in alignment with the new Group Sustainable Development Framework, a Group policy was developed and approved by the Board of Directors for material stewardship and supply chain management.

The overall philosophy in our dealings with external business partners and vendors is governed by the Gold Fields Group ethics policy and approval framework, which provides a common set of corporate governance guidelines.

The vision and intent of the integrated supply chain and material stewardship policy is, inter alia, to:

• Encourage business partners and vendors to adopt sustainable development practices;
• Source, store, utilise and dispose of materials in a manner that is responsible with due regard to environmental, social, health and safety considerations; and
• Support local economies, suppliers and community development.

Continuous cost, quality and vendor performance improvement initiatives for F2009 delivered very good results from a high inflation claw-back perspective. Total cumulative contracted benefits for the financial year achieved more than R70 million (South Africa) and US$38 million (international) contracted pricing claw-back benefits from the record high peak prices recorded at the end of 2008. The main benefit is that the pricing baselines have been re-set to reflect the global economic downturn and have not been fixed at the high end. The total cost and inflation claw-back strategy of this last year will shift more clearly during the next year towards a strong focus on enhanced productivity and efficiency management.

Although existing practice dictates that formal contracts cover key compliance, quality and commercial requirements and terms, moving forward it is important that more clarity and a shared understanding on risk exposures and ‘green procurement’ requirements is achieved and that an objective measurement model is refined to be able to evaluate status and guide priority focus in this space.

Continued local supplier/vendor/community development has shown good progress to date in areas like grinding media, general consumables and services in Ghana and in Peru. South Africa continued achieving required BEE procurement targets and Australia has consistently been largely locally supported and aligned.

For South Africa our policy objective is to identify and approve Historically Disadvantaged South African (HDSA) suppliers, increase the level of spend to previously disadvantaged individuals and to increase business opportunities and set targets for HDSA procurement spend. When application is made for registration on our database we evaluate the following criteria: ownership, black empowerment status, and size of enterprise relating to turnover and staff. Should an HDSA vendor not qualify as a result of safety, quality or service, Gold Fields will, at its discretion, support and develop the supplier to be able to meet our criteria as set out in the Gold Fields Policies and Procedures.

By the end of financial year 2009, South African HDSA spend accounted for R2.32 billion (42 per cent) of working cost and capital spend. We have increased our HDSA vendor data base from 558 vendors in F2008 to 639 vendors in F2009. In addition we have introduced more advanced training courses this year. They include an improved entrepreneurship, Excel and Word training and finance for small and BEE entrepreneurs and suppliers.

In Ghana, local supply strategic partnerships have been further developed in the area of grinding ball manufacturing and supply. A new exploration drilling and extended haulage local partnership has also been established. Apart from the on-site Tarkwa tyre retread facility that was commissioned during F2008, an on-site emulsion plant was also commissioned through a joint venture towards the end of F2008 as part of a new long-term guaranteed supply of emulsion and logistics cost optimisation plan. Damang continued with local and community support with regard to general consumables purchasing and scrap sales.

In Peru, the major source of semi-skilled labour (and sometimes skilled labour) and service provision is through “Direct Influence Area” companies. This is an initiative designed to ensure benefit for the local communities and economy throughout the development of the mine and continuing through the operational phase of the mine. During the year significant spend support was invested into 62 local and community companies providing services to the mine in three main categories: heavy equipment, light vehicle trucks and general services. Part of this strategy requires training for the local companies to ensure that the companies optimise, and to provide a better understanding of quality and client satisfaction concepts.

In Australia, local supply partnerships and continuous improvement initiatives with mining contractors received priority focus with good cost savings and quality mining results and benefits flowing through. Major investments were also made in the new Kambalda airport and upgrades in accommodation across Kambalda and Leinster townships.

In terms of the issue of the lifecycle analysis of gold, fortunately, gold is a highly beneficial product to society in that it remains one of the main drivers of the global economy. The other important use of gold is for jewellery. Gold is not a harmful product and is actually used in medicinal applications for combating cancer. Gold also has numerous applications in environmental technology where it is used in water treatment and more recently, is being investigated for use in catalytic converters for the combating of harmful emissions from vehicles. Gold is benign to human health and in some cultures, gold is even eaten or is used for decorations on food. As a result, our focus remains on the production of gold from exploration to final product, in a manner that is responsible and sustainable.

We also take the concept of stewardship further than just our product and hence we refer to materials stewardship within our policy frameworks. The rationale behind this is that as part of normal operations, we do procure large quantities of materials as well as dispose of waste materials. In this regard, our ISO14001 and OHSAS18001 management systems come into play and govern any materials brought onto site and ensure that they are managed and handled responsibly. Measures put in place for this include transporting contracts, offloading procedures, storage procedures and facility requirements, emergency preparedness and response and disposal. The disposal of materials is governed primarily by our ISO14001 systems that incorporates waste management procedures. These procedures deal with all types of waste as well as the training of relevant personnel to ensure that such procedures are deployed correctly. In terms of disposing of any potentially hazardous materials, where possible we recycle materials such as hydrocarbons, old chemical containers and the like. Where no recycling method exists, we dispose of potentially hazardous materials to companies specialising in the safe disposal of such materials and we retain safe disposal certificates. Some materials such as screenings obtained from water treatment plants are required to be incinerated and procedures are in place to ensure that incineration is undertaken responsibly and in accordance with relevant regulations. All of the above is subject to regular audits undertaken by external auditors as part of our usual certification audits for ISO14001 and OHSAS18001.