SUSTAINABLE DEVELOPMENT

RISK MANAGEMENT

Risk management policy

Gold Fields strives to manage risk effectively in order to protect the company’s assets, stakeholders, environment and reputation and to ensure achievement of the business objectives.

The aim is to achieve a fuller understanding of the reward/risk balance and seeks to reduce the likelihood and consequences of adverse effects to acceptable levels and to achieve continual improvement in our management of risk, thereby enhancing the degree of certainty in achieving our objectives.

The new Internet web based Cura electronic risk management software solution was implemented across Gold Fields during the latter part of 2008 and was fully functional by early 2009, with the exception of Cerro Corona where connectivity problems were previously experienced.

Risk registers from all the operations and service divisions have been analysed in the new format.

An auditing function was added to the existing software in order to conduct ongoing internal assurances that mitigating strategies for risks are receiving the required attention. The audits are conducted by an internal controller on each operation.

The Top 10 risks were extracted directly from the new electronic software and presented for each operation and service division during the Executive Committee strategic management planning and review for F2010.

During F2009 a number of new risks were identified and included in the Group risk register for consideration by Gold Fields’ Executive Committee and the Audit Committee. These new risks relate primarily to:

• Leadership and management changes within Gold Fields; and
• Significant changes in the global risk landscape such as the credit crisis and the commodity price downturn.

The six major areas reviewed in terms of the risk management policy are outlined below:

1. Health and safety

Safety always comes first and is the first item on the agenda at all meetings. Gold Fields has significantly improved its safety performance during the past year. The slogan, “If we cannot mine safely, we will not mine” has been at the forefront during F2009. This campaign assisted in contributing to a 55 per cent reduction in fatalities and a 30 per cent improvement in serious injuries this year. Behaviour based safety interventions on all the operations are ongoing and an area of priority.

Each operation in the South Africa Region is implementing a comprehensive strategy to ensure compliance to the 2013 milestones for health and safety which were put in place by the Mine Health and Safety Council (MHSC). Progress towards the achievement of safety and occupational hygiene targets is monitored with report back to senior management on a weekly basis. More recently a project called 4M was introduced in the South Africa Region to formally monitor, by way of monthly meetings and report back, the progress towards the achievement of the MHSC milestones.

2. Financial

Please refer to the financial statements for a detailed report on each financial risk exposure.

The risks remain the same as last year, however the intensity has increased in respect of the action that the Group has taken in an attempt to further mitigate the risk.

Various financial and operational cost cutting initiatives and projects are in place, referred to as Projects 1M to 3M. Project 1M relates to the achievement of an additional one metre of face advance on stoping panels. Project 2M relates to the implementation of new mining and engineering technology. A new department has been established in the South Africa Region to direct and guide the operations in the implementation of new technology. Project 3M relates to a saving initiative in surface utilities such as power, air and water. Operations in the South Africa Region are already geared towards operating at 90 per cent power availability. Further improvements to cut power usage and costs are included in a Group-wide power conservation strategy, which is monitored through the 3M project.

The installation of three additional emergency power generation plants at the West Wits mines at a total cost of R160 million is complete.

The Group initiated a project to implement a capital management software solution to assist in the management of future projects. Prism, MS Projects and SAP have been selected as the software solution packages. This software is in the process of being implemented at South Deep. The software solution together with good management principles will assist in ensuring that the project is completed on time and within budget.

3. Human resources

The competition for scarce human resources amongst mining companies has abated slightly since the onset of the global credit crisis and the subsequent slowdown in the commodity sector. Despite this Gold Fields still regards the retention of skills as a major risk. Retaining quality, motivated and experienced staff is a huge opportunity for Gold Fields to excel as one of the leading gold producers in the world. Gold Fields strives to keep abreast of the latest best practices in terms of remuneration and retention bonuses to retain its valued and experienced staff.

The expansion and growth policy of Gold Fields will compound the problem and the Group’s ability to staff up. During the year the regionalisation strategy was implemented and the necessary management structures were put in place.

4. Political and social

As ore bodies bind mining operations physically to the location, the sector is exposed to unexpected changes in national regulatory requirements, such as the tax regime, the terms of royalty agreements, as well as levy and licence conditions. Such uncertainties can have a material effect on overall profitability and influence investment decisions in certain regions where there is political volatility, a divisive electoral process or a drift towards undemocratic rule. In addition, there are local, national and international campaigns against mining activities and specific forms of mining, all of which have the potential to influence public perceptions of the industry. These could include demands from labour and other social demands. Gold Fields remains particularly conscious of these dynamics and continues to develop relationships and mutually beneficial partnerships with all levels of government and non-governmental stakeholders in each country of operation. Through the implementation of the AA1000 stakeholder engagement system, community support programmes and its membership in various industry bodies and transparent lobbying at national and international level, the Group further seeks to ensure stakeholder inclusivity and manage stakeholder expectations and increased regulator understanding.

In addition, the Group’s South African operations are subject to the mining charter and scorecard which seeks to:

• Promote equitable access to South Africa’s Mineral Resources for all people in South Africa;
• Expand opportunities for Historically Disadvantaged South Africans (HDSAs), including women, to enter the mining and minerals industry and to benefit from the extraction and processing of the country’s resources;
• Utilise the existing skills base for the empowerment of HDSAs;
• Expand the skills base of HDSAs in order to serve the community;
• Promote employment and the social and economic welfare of mining communities and areas supplying mining labour; and
• Promote beneficiation of South Africa’s mineral commodities beyond mining and processing, including the production of consumer goods.

While Gold Fields believes that it has made, and continues to make good progress towards meeting the Mining Charter requirements, any regulatory changes to these, or failure to meet existing targets, as well as the rise of unrealistic social, political and economic demands being placed on the South African mining sector in general, could adversely affect the Group’s earnings, assets and cash flow.

5. Environmental

During 2008, a large amount of work was done to comply with the requirements of the International Cyanide Management Code. Initially third party consultants were engaged to direct the process and make recommendations for Gold Fields to achieve compliance. Having completed the audit process and received a multitude of recommendations for improvements, the physical work started early in 2008. This involved a substantial capital investment. The work involved construction changes at cyanide offloading areas and the re-organisation and re-routing of pipelines at all the gold plants in the Group. Accompanying procedures and standards were also reviewed in order to comply with the new Code.

This effort has resulted in Gold Fields’ operations achieving either accreditation, or substantial compliances to the Code during F2009, the detail of which is included on page 81.

The unpredictable consequence of global warming was included in the Gold Fields risk register during this year. Mitigating strategies have been initiated as well as the development of a comprehensive carbon strategy. More information on energy and climate is included under the environmental section on page 78.

6. Risk finance

The Group’s insurance programme has been successfully renewed for F2010. Gold Fields continues to insure on a standing charges only (fixed cost) basis of business interruption cover.

Globally the economic meltdown had a negative effect on the international insurance market. Insurance capacity for mining risks has shrunk and a few underwriters have to withdraw from the mining market. Huge losses in their investment income portfolios and a number of catastrophic events during the past two years, forced insurers to increase their insurance rates.

Despite this, due to sound risk management, the premiums remained similar and the underlying deductible structure was unchanged from F2009.