Integrated Annual Review 2012 Annual Financial Report 2012 Mineral Resources and Mineral Reserves Regional overview  
 

7.3.2 Government relations

The nature of our business means that our host governments are among our most important stakeholders. General engagement takes place through national Chambers of Mines due to the efficiency and legitimate influence offered by collective engagement. In certain circumstances, we also engage our host governments on a bilateral basis.

As a general rule, Gold Fields does not make financial contributions to political parties – and no such contribution was made in 2012. Likewise, Gold Fields does not receive financial assistance from any of its host governments.

Black Economic Empowerment

The primary focus of our engagement with government in South Africa is focused on Black Economic Empowerment (BEE). In the mining sector, this is regulated by the Mineral and Petroleum Resources Development Act of 2002 and the associated 2010 revised Mining Charter.

During 2010, the South African Department of Mineral Resources (DMR) unveiled the revised Mining Charter 2010, which updates empowerment targets that mining companies have to comply with by March 2015. Our South Deep mine is currently working with the DMR and other stakeholders in addressing these targets with a special focus on meeting the Social Labour Plan (SLP) requirements.

Gold Fields is an active participant in the Mining Industry Growth, Development and Employment Task Team (MIGDETT) – through its membership of the South African Chamber of Mines. The MIGDETT is a vehicle used by the DMR, companies and trade unions to promote sustainable growth and meaningful transformation of the mining sector.

Royalties and revenues

Resource nationalism remains a key risk for Gold Fields, with government efforts to increase imposts on the mining sector generally showing little sign of abating. This dynamic continued to be driven by a mixture of populist pressure, income inequality in resource-rich countries, shortfalls in government budgets and relatively high commodity prices. In addition, the misguided perception persists that mining companies (and gold mining companies in particular) are enjoying profit windfalls – despite the fact that the sector faces rapidly escalating all-in costs (as represented by Notional Cash Expenditure (NCE) (p42 – 44).

Our ability – and the ability of any mining company – to continue generating shared value for communities and governments is entirely dependent on our continued profitability. Similarly, there is no guarantee that tightening fiscal and regulatory regimes will – in the long term – result in government receiving greater income from the sector, as this dynamic acts as a direct disincentive to investment.

In this context, we believe it is important that we (and other mining companies) better communicate the broad social and economic benefits we already generate for our host societies and governments (p141) and – assuming our continued profitability – hope to continue generating in the future.

Australia

Gold Fields is not currently affected by the Mineral Resource Rent Tax, which was passed by the Australian Government in March 2012. The tax only applies to large iron ore and coal mining companies – but is evidence of an ongoing shift in political attitude towards the Australian mining sector.

In July 2012, the Clean Energy Act 2011 came into force, directly impacting our operations. Although we are not required to directly participate in the cap and trade scheme established by the Act (which applies a carbon price of A$23/tonne) (US$25/tonne), it applies an equivalent carbon price to our diesel through the adjustment of our applicable fuel tax credits and excise duties. It is estimated that this increased our fuel costs by A$6 million (US$6 million) in 2012. We believe the Act is again indicative of a broader trend towards the imposition of a heavier fiscal burden on the mining sector.

In 2012, we joined the Minerals Council of Australia, which will help ensure we are able to engage with the federal government at the highest level on these and related issues.

Ghana

We are the largest individual contributor to national revenues in Ghana. In 2012, we paid a total of US$255 million (2011: US$247 million) in corporate taxes, royalties, dividends, income taxes and contributions to the National Stabilisation Levy.

In early 2012, the government introduced a set of additional fiscal imposts on the mining sector. This occurred in a context in which the government identified a shortfall in its budget of more than US$410 million.

These new imposts comprise:

  • A rise in the Corporate Income Tax from 25% to 35%
  • A reduction in the capital allowance to 20% for five years (previously 80% in the first year) and the removal of a special 5% allowance for the mining sector
  • Provisions to ‘ringfence’ income and expenses on a localised basis (e.g. potentially on a mine-by-mine, or even pit-by-pit basis) – reducing our ability to internally off-set capital expenditure
  • Introduction of 5% customs duties on Mining List items, which were previously subject to a rate of 0%
  • A sharp increase in the Stool Tax (which is calculated on the basis of all exploration and mining licence areas) from GH¢0.5 (US$0.25) per km2 to GH¢9,019 (US$4,600) per km2. Whilst this can be sustained by our mining operations, its application to large exploration areas is one of the reasons behind our divestment of exploration licences in Ghana (p110)

The Ghanaian tax regime now appears globally uncompetitive, particularly as there may well be further tax increases in future.

We therefore believe the latest increase in the fiscal burden – which follows the 2011 increase in mining royalties from 3% to 5% of revenues – could discourage investment in Ghana’s mining sector. Furthermore, while government delayed the implementation of the planned Windfall Profit Tax, it has been given to the Mining Review Committee as part of their full review of the mining industry. This committee is due to revert to Parliament by June 2013. It is also looking at the tax stability agreements that have been selectivity granted to other mining companies.

We believe it is important that all mining companies in Ghana enjoy a level fiscal playing field. The government has established a Renegotiating Stability Agreement Committee to review these agreements and investigate a common and fair approach to taxation within the Ghanaian mining sector. We have also submitted our own draft stability agreement directly to Ghana’s Ministry of Finance and Economic Planning and are continuing to engage with the government in this regard.

Peru

Despite initial concerns around the 2011 decision of President Ollanta Humala’s government to raise taxes and royalties on the mining sector – the government showed no sign of seeking a further increase in the fiscal burden in 2012. This reflected a more ‘centrist’ policy approach, based on a commitment by the government to attract further investment in the mining sector and to promote the development of new mining projects in the country. This appears to be at least partly driven by growing recognition that the industrial mining sector is a major contributor to Peru’s public revenues (32%), GDP (6%) and exports (62%).M1 As such, we are pleased to be able to recognise Peru’s continued status as an attractive fiscal destination for mining investment.

South Africa

While the tax situation in South Africa has remained stable, the government has announced a review of corporate taxation (including mining royalties) – and has committed to introducing a carbon tax in 2015. We expect to be subject to the terms of this tax.

Nonetheless, the ruling ANC party ruled out the potential nationalisation of South Africa’s mines at its 5-yearly National Elective Conference – despite previous pressure from a number of quarters to apply such a policy.