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  Gold Fields’ major risks and how we deal with them

Gold Fields' major risks and how we deal with them

  Principal risks  
Controls and mitigating strategies
 
Political, social and legal                    
 
Gold Fields operates in South Africa, Ghana, Peru and Australia. Changes in the political environment in these states could affect our business and our investment approach.
A change in fiscal policies in the form of higher royalties or taxes will have a negative impact on mining companies if the changes were not built into business plans.
In South Africa government has implemented laws and regulations to redress inequalities caused by previous government policies. These laws have a material impact on our operations in the country.
Increasing unionisation is a trend in many of the countries in which we operate. Their strategies and actions inevitably affect our businesses.
Adjacent communities often have high, sometimes unrealistic, expectations of the socio-economic benefits a mine can provide, sometimes causing tensions.
 
  Gold Fields is acutely aware of the importance of proactive stakeholder engagement and has implemented sound strategies and structures around it. A focused and deliberate stakeholder engagement process has established positive and constructive relationships with governments and other stakeholders.
  As part of this engagement Gold Fields has well-developed local economic development and social investment programmes in place that are primarily aimed at neighbouring communities.
  In South Africa Gold Fields uses a number of vehicles to achieve this: Social and Labour Plans at the mines, local economic development initiatives as well as extensive operational interventions.
  Trade unions represent the majority of our workers at the South African and Ghanaian mines. We engage with trade union leadership and shop stewards in a range of formal and informal meetings both at mine level and at the management/union leadership level.
  Progress towards the achievement of commitments, in terms of the Mining Charter, is on track and the company should achieve its targeted BEE ownership requirements for 2014 in the near future.
 
Financial and economic                    
 
Revenue, earnings and cash flows are dependent on a number of factors, some of them beyond the control of the company:
Volatility in the market price for gold, and to a lesser extent copper, as well as exchange rates affect the profitability of Gold Fields and the cash flows generated by its operations.
Because Gold Fields does not use commodity or derivative instruments to protect against low gold prices, the company could be exposed to rapid declines in the gold price.
Although proper control is maintained over input and unit costs, the global economic environment can lead to high material and commodity prices impacting these costs.

 

 

 
  Gold Fields has well-developed and sound financial, accounting and reporting systems backed by internal and external assurances procedures. Gold Fields is SOX compliant.
  Strategic and business planning processes are overseen by the Executive Committee, which ensures that external and internal factors impacting on costs are monitored and mitigating actions put in place should they exceed budgeted forecasts.
  All costs are benchmarked against Notional Cash Expenditure (NCE), the company’s key measure of economic performance. A short-term NCE margin target of 20 per cent has been set.
  A number of other cost optimisation initiatives are in place:
– Operational delivery and increasing reserve flexibility through accelerated Ore    Reserve development.
– Technology initiatives, including mechanisation.
– Reducing energy and utility consumption, surface and supply chain costs.
– A business re-engineering process has been initiated to ensure operational    optimisation and delivery on NCE targets.
 
Technical and operational                    
 
For investors, Gold Fields’ reserves and resources are key to determining the value of the company. The assumptions used to arrive at an accurate reserve and resource statement are subject to external factors which can change quickly.
The company’s mines rely heavily on electricity. Escalating electricity costs around the world coupled with supply interruptions in some countries are a major risk.
The infrastructure at some of the mines in Gold Fields is ageing. Although a comprehensive maintenance strategy is in place, breakdowns and unplanned stoppages can occur.
 
  Gold Fields applies the highest level of due diligence regarding reserves and resources standards and complies strictly with all the codes and regulations in countries where it operates.
  Power conservation strategies and power savings initiatives are in place at all operations. Additional resources have been made available to explore alternative energy sources and implement renewable energy trials in line with the Group’s carbon management strategy. Carbon trading is being actively utilised to mitigate the cost of investing in energy savings and alternative energy projects.
  Extensive maintenance systems are in place under a wellstaffed and resourced engineering structure (operational and maintenance). A comprehensive structural inspection and maintenance management system for all shaft steelwork was developed and a remedial action management system has been implemented.
 
Environment, safety and health                    
 
Mining in general and deep level mining in particular is a dangerous business. Safety procedures and safety training are embedded in our operations. Notwithstanding these, our employees and contractors – and by implication continuous operations at our mines – are at risk from:
– Mine accidents.
– Occupational illnesses as a result of prolonged    exposure to heat, dust and noise.
– Lifestyle illnesses such as HIV, Aids and STDs.
As a result of the dangers associated with mining, Gold Fields is subject to extensive and increasingly more stringent environmental regulations and policies. The company strives to adhere to these regulations in all its jurisdictions, but environmental incidents still pose a considerable risk to Gold Fields’ financial position and reputation. These include:
– Environmental accidents.
– Legacy issues from the older mines in the Gold    Fields portfolio.
– Increased rehabilitation costs due to changing    variables.
– Costs associated with changing compliance    requirements.


 
  Ensuring the safety, health and well-being of all employees and contractors is the number one priority and value system at Gold Fields. Integrated safe production management systems and job safety procedures have been implemented to the extent that production is stopped if the working environment is deemed unsafe. Safety strategies and policies are constantly being monitored and reviewed by management to ensure best practices are being implemented. External safety consultants, such as DuPont, are used to benchmark systems, identify gaps and make recommendations for improvement.
  Gold Fields has developed sustainable development frameworks which contain a range of environmental policies to ensure the company meets all statutory obligations and limits its environmental footprint going forward. In particular, the company ensures that all operations:
  Engage systematically with all key stakeholders on environmental matters.
  Have environmental management plans in place.
  Are ISO 14001 certificated.
  Utilise independent specialists to audit legal and social compliance with environmental regulations and identify opportunities for improvement.