Gold Fields

2.2 CEO Report

Dear Shareholders

The global gold mining industry has operated under the shadow of a falling gold price since September 2011, when it was trading at a record high of about US$1,900/oz.

Since then gold has lost about 45% of its value and traded at an intraday low of US$1,045/oz on 3 December 2015. Subsequently, the gold price has recovered to levels of around US$1,200/oz. Weaker currencies in commodity-exporting nations provide a cushion to the cash flows of companies operating in these countries. The weaker Australian Dollar and South African Rand have improved the current prospects of Gold Fields despite lower US Dollar gold prices, with up to two-thirds of our production benefiting from the softer exchange rates.

When Gold Fields started on its strategic transformation journey in the final quarter of 2012, the gold price was still trading between US$1,700/oz and US$1,800/oz. The core objective of the transformation process was to address investor perception that gold mining companies, including Gold Fields, were not providing investors with the expected leverage to the then prevailing high gold price. This was to be achieved by turning Gold Fields into a lean, focused and globally diversified gold mining company that generates substantial free cash flow. In turn, this would enable Gold Fields to meet the legitimate expectations of all of its stakeholders, in particular, to provide its shareholders with superior leverage to the price of gold.

Little did we know at the time that the industry was facing its first year in the multi-year decline in the price of gold. What we can say with certainty is that it has proven fortuitous that we embarked on our transformation journey when we did. Not only was our pre-emptive restructuring the right thing to do to start rekindling investor interest and confidence in Gold Fields and the gold mining sector generally, but it provided Gold Fields with a built-in safety cushion which has enabled us to withstand the lower gold prices experienced since then.

The success of our restructuring journey is reflected in our operational and financial performance during 2015, the highlights of which are described below. It also reflects in the progress that we have made with our key strategic priorities for 2015, which were:

• Setting up South Deep for long-term success
• Cash flow and margin – making money at current lower gold prices
• Dividends – paying between 25% and 35% of normalised earnings
• Balance sheet – further reducing our net debt to EBITDA ratio
• Growth through brownfields exploration and opportunistic, value-accretive acquisitions

It is fair to say that, despite the 45% decline in the price of gold between 2011 and 2015, Gold Fields is today in much better shape generating substantially more cash than when the gold price was at its peak. While this is reassuring in the current low price environment, it also positions Gold Fields for enhanced cash generation when the gold price eventually starts to appreciate again, which it undoubtedly will.

The ability to generate cash is critical in distributing the benefits from mining that our stakeholders rightfully expect. These include:

• Shareholders and debt providers, who are seeking a return on their invested capital through interest and dividend payments
• Our employees, whose work is rewarded through salaries and other benefits
• Contractors and suppliers, from whom we procure goods and services
• The governments and regulators, who grant us our mining licences and who benefit from our taxes and royalties
• Communities, whose support is critical for our social licence to operate and who benefit through jobs and procurement as well as our social investment programmes

Group performance scorecard

In 2015, Gold Fields adopted a Group performance scorecard that incorporated the strategic priorities listed above and seeks to instil the right culture and behaviours amongst our workforce, driven by the strategic imperative of cash generation by the business.

By integrating all of the key value drivers into the business, the scorecard also aims to enhance the Group's sustainability. The scorecard consists of four key performance areas and elements against which we measure our performance. The four key performance areas are: financial performance; business optimisation; people; and, our social licence to operate. A brief overview of each area, broken down by the respective elements follows.

a) Financial performance

The first key performance area in the Group scorecard is financial performance, as measured by cash flow generation and debt reduction as well as improving investor confidence.

The impetus to improve the financial performance of the Group lies in the strategic shift introduced in 2012, of replacing the then industry-wide prevailing production growth philosophy, of ounces for the sake of ounces, with a rigorous new focus on growing the margin and improving free cash flow per ounce.

This fundamental shift in strategy is embodied in our overarching strategic objective of generating a 15% FCF margin at a gold price of US$1,300/oz, which has become the core commercial driver and guiding principle underpinning everything we do – from exploration to production.

Why US$1,300/oz? Because we believe this is a sensible long-term price for bullion. The premise is that when the gold price trades above US$1,300/oz, the free cash flow margin will grow commensurately. Conversely, when prices trade below US$1,300/oz, as we have seen since 2012, the inclusion of the 15% free cash flow margin at a gold price of US$1,300/oz provides Gold Fields with a safety cushion down to our cash break-even level of approximately US$1,050/oz. The bottom-line is that the Group is focused on cash generation at all levels of the price cycle and this drives our strategies, activities and culture.

The Group’s free cash flow margin for 2015 was 8% despite the fact that, at US$1,140/oz, the actual gold price received was 12% below the long-term planning price of US$1,300/oz.

Net cash flow
Gold Fields today is in much better shape than it was in 2012, when measured by net cash flow (cash flow from operating activities after taking account of net capital expenditure and environmental payments). Despite the 31% decline in the average annual price of gold between 2012 and 2015, Gold Fields’ ability to generate cash has improved substantially. During 2015 this was also aided by the weakening of the South African Rand and the Australian Dollar against the US Dollar.

• In 2012 Gold Fields (then including Sibanye Gold) had negative net cash flow of US$280 million despite an all-time high average gold price for the year of US$1,656/oz
• In 2013, the first full year of the transformation process, Gold Fields reduced its negative net cash flow to US$235 million despite a 16% decline in the average gold price to US$1,386/oz during the year and incurring restructuring costs
• In 2014, Gold Fields generated US$235 million of net cash, a positive swing of US$470 million, despite the average gold price received once again falling by 10% to US$1,249/oz for the year. The Group’s free cash flow margin improved to a positive margin of 13%
• In 2015, Gold Fields generated US$123 million of net cash despite the average gold price received again declining – by 9% – to US$1,140/oz. The free cash flow margin was 8% for the year

Cost reductions amid lower gold price and stable production	Strong focus on cash generation (net cash flow1)

Focus on cost
Central to our ability to generate free cash flow is a commitment to aggressive cost management. This continued to be reflected in the 6% reduction in AIC during 2015, which brings the cumulative reduction in our AIC since 2012 to 33% in nominal terms.

During 2015, we were also able to beat our cost guidance. Our original guidance for AISC and AIC for 2015 was US$1,055/oz and US$1,075/oz respectively, while our actual costs for the year were US$1,007/oz and US$1,026/oz respectively, an improvement of 5% each on guidance.

While the bulk of the cost reduction initiatives were implemented during 2013 and 2014, as described in our 2014 Integrated Annual Report (IAR), we continue to revisit every aspect of our operations to ensure the sustainability of previously captured cost reductions, and to ensure that new opportunities for cost reductions are achieved. Amid the continued decline in the gold price in 2015 our focus shifted to reducing cash costs and trimming non-essential capital and we were careful not to cut our sustaining and growth capital expenditure critical to maintaining the long-term integrity of our ore bodies. Over the past three years our total annual capital expenditure was
US$739 million in 2013, US$609 million in 2014 and US$634 million in 2015.

It is worth recalling the core elements of our cost reduction programme implemented between 2013 and 2015. They included the following:

• Trimming costs through elimination of inefficiencies and productivity improvements
• The elimination of marginal mining at all of our operations
• The restructuring of all of our corporate, regional and operational structures
• The stabilisation of our workforce at 9,052 employees and 7,798 contractors
• The ongoing rationalisation and prioritisation of capital expenditure and, where appropriate, the deferral of capital investment without negatively impacting the short, medium and long-term sustainability of our mines
• The cancellation of near-mine and greenfields growth projects that demonstrated inadequate returns
• The closure of the Group’s greenfields exploration and project development division and, where appropriate, the sale of projects in the project pipeline

A key driver in reducing the Group’s AISC and AIC is the South Deep mine in South Africa, which is still in build-up and not yet at steady-state levels of production. If South Deep is excluded from the Group’s AISC and AIC for 2015, then the AISC and AIC would have been US$930/oz and US$944/oz respectively, placing Gold Fields among the lowest-cost gold producers worldwide. The objective is for South Deep to reach cash break-even by the end of 2016.

Debt reduction
Gold Fields has long maintained the position that its debt comfort zone is approximately 1.0 times net debt to EBITDA (Earnings before interest, taxes, royalties, depreciation and amortisation). Following the unbundling of Sibanye Gold and the acquisition of the Yilgarn South assets in 2013, this ratio increased to approximately 1.5 times at the end of 2013. During 2015, net debt was reduced by US$73 million to US$1,380 million by the end of the year on the back of lowering the debt by US$282 million during 2014. The net debt to EBITDA ratio at end-2015 was 1.38 compared with 1.30 at the end of 2014. Although debt was again reduced in 2015, the lower gold price more than offset these gains on the net debt to EBITDA ratio.

In March 2016, Gold Fields successfully completed a R2.3 billion (US$150 million) equity raising by way of a private placement of an additional 5% of its shares to institutional investors. The equity raising was significantly oversubscribed and the proceeds were used to fund the February 2016 buy-back of US$148 million of the US$1 billion 2020 bond.

The effect of these transactions will be a reduction in the net debt to EBITDA ratio from 1.38x as at 31 December 2015 to 1.21x, which gets Gold Fields closer to achieving one of its key strategic objectives of a net debt to EBITDA ratio of 1.0x (p57). The repayment of debt, together with dividend payments, will remain the top financial priority for the Company.

Improving investor confidence
In Gold Fields’ 2014 IAR, the Group published its Investor Charter for the first time. The Charter embodies three core commitments aimed at regaining and growing investor confidence in Gold Fields:

• To build a quality portfolio of productive mines
• To provide superior returns
• To deliver on our promises

Gold Fields’ portfolio has undergone a fundamental change since 2013. We spun off the Sibanye Gold assets to shareholders, eliminated marginal mining as a practice at all of our assets, stopped all projects in our growth pipeline that did not provide an adequate return and, in October 2013, acquired the Yilgarn South assets in Western Australia from Barrick Gold. The latter deal has proved a model for the kind of value-accretive acquisition we are seeking in future, as we managed to pay off the US$262 million consideration for the three mines in Q3 2015, two years after the acquisition.

The portfolio of operating assets is consistently reviewed in line with our portfolio management strategy (p76). During 2016, we expect to decide the long-term future of our Damang mine in Ghana and Darlot mine in Australia.

As mentioned before, we have reduced the AIC by 33% over that period while turning around the cash flow position of the Group with net cash generated of US$235 million in 2014 and US$123 million in 2015, despite significant declines in the gold price received.

Gold Fields has also made significant progress in its ability to deliver on its guidance and has, since 2013, consistently met or exceeded its Group production and cost guidance.

One operating asset in the Gold Fields Group that still has to be brought to account fully is the South Deep mine in South Africa. Here we are targeting cash breakeven by the end of 2016 with long-term production metrics to be published early in 2017.

During 2015, we made considerable progress in ‘getting the basics right’ at South Deep with improvements in the three key performance areas that we are focusing on: people, fleet and mining methodologies. As a result, the production and cash burn position of the project have improved markedly through the second half of 2015.

We certainly believe that we have put the building blocks in place to restore the confidence of our large shareholder base and attract the long-term investors that seek value and long-term leverage to the gold price.

b) Business optimisation

Underpinning the financial performance of the business is Gold Fields’ commitment to running its operations safely, efficiently and cost-effectively without undermining the long-term sustainability of our mines. We measure the success of business optimisation by looking at our progress on safety and wellness; the performance of our portfolio of assets; the implementation of our growth strategy and setting up the South Deep mine for long-term success.

Safety and wellness
Safety is management’s first priority in running our operations, and it is critical that we continuously emphasise that our first value is ‘if we cannot mine safely we will not mine’. Nevertheless, we reported three mining-related fatalities and one fatal shooting during 2015 and my condolences once again go out to the families, friends and colleagues of the deceased.

Three fatalities occurred at the South Deep mine in South Africa and one at the Tarkwa mine in Ghana:

• In March, Kennedy Katongo, a boilermaker, was injured at a station tip. He succumbed to his injuries in hospital three days later
• Alberto Chiungo, a contracted locomotive operator, was fatally wounded in May, when he was caught between the loco and a hopper during tramming operations
• In August, Sbongiseni Ngqoleka, a security contractor, was shot and killed by armed robbers targeting copper cables at South Deep. Two other security personnel were injured in the same attack
• In December, a spotter at Tarkwa, Clement Aidoo, was struck and fatally injured by a truck when it reversed after dumping its load of material

South Deep’s two fatal mine accidents and another serious accident at the mine led to Section 54 orders being issued by the Department of Mineral Resources, placing a moratorium on mine-related activities across the mine and effectively stopping production for a total of about 18 days. We fully support these orders and during the year also conducted a comprehensive mine-wide review of all safety protocols, procedures and standards at South Deep in line with the mandate to improve the mechanised mining culture at the project. Many of the recommendations arising from the review have already been implemented and are having a visible impact on our safety performance. The fatal accident at Tarkwa, the first at our Ghanaian operations in almost four years, has also led to a review of truck loading and driving procedures.

The fatalities were an undoubted setback on our path to Zero Harm. However, our TRIFR continued to improve during 2015 – by almost 16% to 3.4 recordable incidents per million hours worked – demonstrating that the numerous regional safety programmes being implemented are yielding positive results.

The Group has also intensified operation-specific health and wellness programmes, focusing on improving the physical and mental health of our employees. These are having a significant impact as the 53% decline in Noise Induced Hearing Loss submissions and the 40% reduction in the number of Silicosis cases submitted last year illustrates.

Quality portfolio of assets
In 2015, Gold Fields consolidated its position as a focused, leaner business by pro-actively managing its portfolio of operating and growth assets. This active portfolio management approach requires an ongoing strategic review of all existing assets as well as potential acquisition targets against our strategic imperatives. The aim is to improve the quality of our overall portfolio measured by the improvement in cash generation and sustainability of operations. It implies that we are prepared to trade existing assets for better, new assets.

The most obvious manifestation of this was the 2013 unbundling of the Group’s conventional, deep-level underground mines in South Africa to create Sibanye Gold and the subsequent acquisition of Barrick Gold’s Yilgarn South assets in Western Australia. Gold Fields’ portfolio is now characterised by modern, fully mechanised open-pit and underground mining, with diversified production spread across three continents.

In this context, Gold Fields continued to focus on improving the cash-generation performance of its existing operations. During 2015, this included:

• Protecting the commercial sustainability of its mines by avoiding high-grading and stripping and investing in ore development on an ongoing basis
• Brownfields exploration for life-of-mine extensions
• Production and strategic planning based on the delivery of a 15% free cash flow margin at a gold price of US$1,300/oz

To ensure that our business has a strong future, we have made continued exploration and development of our mines’ underground and surface ore bodies a strategic priority. These are among the last activities we would cut, even in a sustained low gold price environment and costs associated with maintaining the integrity of our ore bodies is built into the mines’ cash-flow models. Should gold prices go down to levels of around US$1,000/oz or lower for a sustained period of time, we would need to look at a new operating and planning protocol at these lower prices to protect the integrity of our ore bodies.

Growth
Growth at Gold Fields is not just a matter of increasing the Group’s Mineral Resources and Mineral Reserves or boosting the production profile. It is about growing cash flow per ounce and per share in the medium and long term. Since 2013, this has resulted in:

• The cessation of all early greenfields exploration activity
• Refocusing from greenfields exploration to lower risk, near-mine exploration to improve the quality of ore feed and provide longevity to our operations
• Disposing of growth projects that are marginal, located in higher-risk locations and/or are primarily focused on metals other than gold
• Focusing on portfolio-enhancing, value-accretive acquisitions

Gold Fields believes that at the current point in the price cycle near-mine exploration offers the best route to low-cost ounce replacement that can generate cash in the short and medium term at our Australian operations, which have a history of reserve replacement. In 2015, Gold Fields raised its total near-mine exploration expenditure by 20% to US$72 million, on top of the US$60 million and US$32 million spent in 2014 and 2013 respectively, in pursuit of this strategy. Much of this activity was focused on the Australia region, where the mines in the Gold Fields portfolio spent A$91 million (US$69 million) in 2015. This builds on the A$64 million (US$58 million) spent in 2014 and A$34 million (US$32 million) in 2013. To build on the work undertaken in 2015 we have budgeted A$86 million (US$63 million) for 2016.

This is part of a multi-year strategy to both replace and increase reserves and resources at the operations in Australia. In addition to exploration drilling to extend current ore bodies, activity was also focused on developing early-stage generative targets on the prospective leases. Some successes can be recorded:

• St Ives’ Invincible mine has already produced over 131,000 ounces
• Work at Agnew has shown good potential at the Cinderella and FBH ore bodies
• Exploration at Granny Smith has indicated further mineralisation at depth at the existing Wallaby underground mine
• Multiple targets have been identified across the lease at Darlot but more work needs to be done to scope these ore bodies

At our Damang mine in Ghana, work is continuing to evaluate the longterm growth potential of the mine. The mine has a good ore body at depth under the original pit that will require a push-back to expose. We expect to announce a decision by mid-2016.

In 2015 we continued the disposal of projects that are not aligned with our Group objectives: the Woodjam project in Canada was sold, while the Arctic Platinum project in Finland remains earmarked for sale.

We continue to drill our Salares Norte project in northern Chile to assess its longer-term potential.

The Far Southeast project in the Philippines has also been retained in our portfolio and we maintain optionality on this project.

Gold Fields is also open to the possibility of further value-accretive transactions similar to our acquisition of the Yilgarn South assets in 2013.

South Deep
After a difficult 2014 and the introduction of a new management team, we took the decision at the start of 2015 to take a step back and ‘get the basics right’ at South Deep to ensure a stronger foundation for sustainable growth in the future. The first six months of the year came with its own challenges as the new management team adopted a strategy of embedding an improved safety and productivity culture as it set the mine up for the long-term.

However, the second half of the year showed some early encouraging indicators of improvement. Production in the second half was 64% higher at 123,000 ounces than in the first half, with total production for the year coming in at 198,000 ounces (2014: 200,500 ounces). In Q4, aided in part by the rising Rand gold price, the cash outflow from the project was limited to R57 million down from R266 million in Q3.

We remain committed to our target of achieving a breakeven cash position by the end of 2016. Further, Gold Fields will provide an updated production ramp-up schedule early in 2017, once our ‘back to basics’ programme has had more time to be bedded down.

The three main focus areas at South Deep have been:

People: To augment the current skills base, South Deep recruited an additional 164 skilled employees during 2015, mostly from the platinum sector, which has a similar mechanised mining skills set. The recruitment of identified critical skills was 98% completed by the end of 2015. Importantly, most of the core mining and engineering positions have now been filled. This has been supported by intensified training programmes for our existing staff, backed by the signing of a three-year wage deal with trade unions in March 2015. This will govern wages and other working conditions until March 2018 and should give South Deep a degree of labour stability as the mine builds up.

Fleet: During 2015, the South Deep machinery and vehicle fleet were optimised and a total of 24 Category 1 machines were delivered to the mine during the year, with all machines, except one, commissioned before year-end. An additional 24 machines will be acquired during 2016. These fleet acquisitions will mean that South Deep would have replaced more than half of its fleet by the end of 2016, which should have a positive impact on availability and utilisation. The maintenance capacity at South Deep improved during the year through the implementation of supplier maintenance contracts in corridor 2 (approximately 35% of total mining), as well as the commissioning of the 93 level workshop.

Mining method: During 2014 and 2015, South Deep management, in collaboration with a team of leading international and local geotechnical experts, reviewed the de-stress mining method. A strategic mine design change in the de-stress methodology and a conversion from low profile (2.5 metres vertical height) to high profile (5.0 metres vertical height) de-stress mining commenced in the September quarter. By year-end about 70% of the mine was employing this approach, which, even at this early stage, has already contributed to simplifying and derisking the mining process. The transition to high profile de-stress is expected to continue until the early part of 2018.

c) People

The profile of our workforce was profoundly impacted during the initial years of our transformation journey (2012 – 2014) with large-scale reductions in the number of employees and contractors. However, since then, our human resource base has stabilised with 9,052 employees and 7,798 contractors on our books at the end of 2015.

With the shift towards mechanisation and automation, we have found that in addition to the continued development and training of our workforce, it is also important to recruit the appropriate skills at our mines. At South Deep in 2015 we employed an additional 164 mechanised mining skills. However, our strategy remains to grow our own people through focused internal training efforts. During 2015, we spent over US$12.4 million globally on training and development – on top of recruiting the best mining skills to supplement the existing talent pool.

Since the restructuring, our smaller, yet more skilled, workforce has ensured that Gold Fields works more efficiently to improve productivities. The key to this is that employees are incentivised to deliver against clearly defined performance targets that directly support the achievement of business objectives.

Our remuneration strategy is evolving to attract and retain these skills, and our people development approach is being adjusted to ensure we build a robust internal skills pipeline that can supply the skills that the business needs, now and in the future. Furthermore, we continue to entrench a high-performance culture that encourages people to meet and exceed their performance targets. Finally, employees need a work environment that supports optimal functioning and ensures they are safe, healthy, balanced and productive.

The People strategy is reflected in our Group scorecard objectives for 2015:

• Training, development and talent management
• Employee engagement
• Performance management

A large portion of our workforce in Ghana and South Africa is represented by a number of trade unions. We successfully engaged with these trade unions during 2015 and concluded wage deals in both countries. In South Africa we opted out of the centralised wage negotiations and moved to company-level negotiations to reflect the different skills set at South Deep. In April, we signed a three-year comprehensive wage deal that recognises the mechanised mining requirements of the project as we take South Deep to full production. In Ghana, talks with the trade unions continued into 2016. A deal was concluded in Q1 2016, which resulted in employees in Ghana receiving a back-dated 5% salary increase for 2015.

d) Social licence to operate

Despite a third year of adverse market conditions in 2015, Gold Fields continued to distribute value to a wide range of stakeholders, including employees, host governments, host communities, businesses and suppliers as well as the providers of risk capital.

In 2015, our total value distribution – reported according to World Gold Council methodology – was US$2.43 billion (2014: US$2.65 billion), with 69% going to businesses and suppliers (2014: 69%), 8% to governments (2014: 7%), 18% to employees (2014: 18%), 5% to capital providers (2014: 5%) and 0.5% on socio-economic development programmes (2014: 1%) – mostly in host communities. The slight decline in the overall value distribution was largely due to a cutback in spending with business suppliers and partners amid lower operational expenditures.

The success of our business is critically dependent on the relationship with a number of key external stakeholders that determine both our regulatory and our social licences to operate: governments at national, regional and local level and, above all, the communities that host our mines. These stakeholders determine both our regulatory licence and social licence to operate, and we therefore devote considerable resources and energies in securing and maintaining these licences. This is not merely a compliance-based approach but one that seeks to ensure that we win the long-term support of governments and communities through the sustainable development of our mines and projects.

A number of elements are critical in achieving the support of these stakeholders: improved community relations and the related development of Shared Value projects and other investment projects in these communities, as well as the responsible management of environmental resources, particularly water. These resources, if not managed sustainably, can have an adverse impact on the environment or create social tensions with host communities, thus threatening our licences to operate.

Improved community relations
The communities in which we operate are directly and often exclusively dependent on the sustainability and growth of our mines. One of the biggest challenges facing mining companies is building relationships and trust with these host communities, without which there is potential for operational disruption, project delays and cancellations.

It takes substantial time, effort and resources to establish and maintain a strong social licence to operate. Increasingly, our ability to grow Gold Fields through the expansion of existing mines and the development of new projects is determined by our ability to build strong relationships and trust with communities in our operating areas.

Gold Fields has invested heavily in communities through social investment projects and, more recently, through Shared Value projects (see p118). However, it is evident that mining companies need to expand and deepen their investment in and engagement with host communities, who have found their voice and are rightfully seeking a greater share of the benefits of mining.

In response Gold Fields has implemented a range of initiatives, in addition to the work already being done, including:

• Boosting the capacity of our community relations teams
• Working with peer companies to jointly address community needs, such as the alliance with Sibanye Gold in the Westonaria municipality, home to our South Deep mine in South Africa
• Supporting the ability of the South Deep Trusts as well as foundations in Peru, Ghana and Australia to deliver benefits to host communities more effectively
• Expanding the quantity and quality of Shared Value projects

At South Deep in particular, we have intensified our community investment work after we commissioned independent surveys among our host communities in Westonaria, which revealed a significant relationship gap between the mine and these communities.

Based on these findings, South Deep has strengthened and restructured its community relations and stakeholder engagement capacity. At the same time, the community investment programmes are increasingly focused on sourcing goods and services from enterprises in these communities and increasing local employment opportunities. This will require a significant investment in training and skills development, but is an investment that is essential for our long-term sustainability.

Host community procurement and employment are critical pillars of our community investment strategies at all our operations in developing countries. At present host community employment accounts for 29% of our workforce in Peru, 50% at South Deep and 67% at our Ghanaian operations. The respective numbers for host community procurement spend are 7%, 10% and 9% respectively. In Australia 90% of our workforce and 66% of procurement is from Western Australia, which is classified as the host region. Gold Fields will continue to look at ways to increase local employment and procurement opportunities in 2016.

Shared Value
Our contribution to host communities is on a more sustainable footing now that we have implemented the Shared Value approach to structure part of our investments in community projects with a focus on social and economic benefits rather than just social spend. We are gaining valuable experience with each project that we are undertaking.

To date, our regions have implemented five Shared Value projects ranging from the promotion of mathematics and science education among South Deep’s host communities to multilateral water management projects at Cerro Corona and increased sourcing from community suppliers at all our mines. Our Ghanaian mines are working with government to build a tar road to connect our two mines and adjacent communities.

Reducing energy and carbon emissions
Energy remains a major performance driver at 22% of Group operating costs in 2015, having risen from 18% in 2013, amid increasing energy demand and supply constraints in all of our operating regions. Unless we act to find more cost effective and alternative energy sources, this trend will continue in future. As part of the Integrated Energy and Carbon Management strategy, implemented in 2013, each of our regions has set energy reduction targets, which have already delivered around US$30 million in cumulative savings from 2013 to 2015 (against plans). This equates to energy savings of around 7% against our business plans over the period and had the additional benefit of leading to 9% savings in our CO₂-equivalent emissions.

At the same time, the regions have been tasked with securing access to future energy sources. In Ghana, where our mines were asked by the government to reduce their electricity consumption by 25% – 30% during 2015, the operations have reached an agreement with a private utility that will deliver the bulk of their energy requirements within the next two years. In Peru and Australia, new long-term supply agreements have been signed with utilities.

While South Deep has a long-standing agreement with the state-owned utility to implement load-curtailment programmes, we have solicited proposals for an on-site 40MW photovoltaic solar plant. Other non-carbon energy projects we are developing include a gas plant at our Granny Smith mine in Australia to replace the diesel power station. We also remain committed to our goal of 20% renewable energy generation at all new projects. Greater use of renewables creates power price and supply stability and has the added benefit of reducing our carbon footprint, which is one of Gold Fields’ key environmental priorities.

Enhanced water management
Responsible water management remains a vital component of Gold Fields’ licence to operate and social licence at all our operations and projects as water is becoming an increasingly scarce and expensive commodity globally. Managing the risks around current and anticipated water security, which includes the quantity and quality of supply as well as associated costs, is essential to ensure sustainable production for existing operations and the future viability of projects.

The Group water management guideline, implemented in 2014, focused on water stewardship, including identifying opportunities to enhance water reuse, recycling and conservation practices at all operations. In 2015, the operations focused on identifying projects to support these objectives and by year-end a total of 20 initiatives were listed, such as the use of in-pit tailings at our St Ives and Tarkwa mines. A number of these initiatives are already being implemented and they are expected to deliver multiple benefits. These include cost savings, reduced impact in water scarce areas, improved regulatory compliance, identification and mitigation of water-related risks, reduction of mine closure liabilities and enhancing Gold Fields’ social licence to operate.

Operational overview

Australia

During 2015, the Group’s four mines in Western Australia – St Ives, Agnew, Darlot and Granny Smith – collectively delivered a strong operational performance, with gold production of 988,000 ounces at an AIC of A$1,211/oz (US$912/oz), which was in line with full year guidance for the region of 983,000 ounces at an AIC of A$1,210/oz (US$965/oz). AIC in 2014 was A$1,124/oz (US$1,015/oz).

Compared to 2014, production decreased by 4% from 1,031,000 ounces mainly as a result of planned lower production from Granny Smith, Agnew and Darlot, offset by higher production from St Ives. Both St Ives and Granny Smith exceeded their guidance for the year, compensating for Darlot and Agnew, both of which did not achieve their guidance.

Net operating costs in the region decreased by 7% from A$799 million (US$721 million) to A$747 million (US$562 million), mainly due to good cost control, while capital expenditure increased from A$304 million (US$274 million) to A$373 million (US$281 million) mainly as a result of the opening up and development of new ore sources at the various mines as well as higher expenditure on near-mine exploration across the region.

The region reported net cash inflow of A$338 million (US$255 million) during 2015.

Ghana
Gold Fields’ two mines in Ghana, Tarkwa and Damang, produced a strong operational performance in 2015 with total managed gold production of 753,900 ounces which was 2% higher than the 736,000 ounces produced in 2014.

Strong cost management ensured a 7% decrease in net operating costs from US$551 million in 2014 to US$513 million in 2015, while capital expenditure increased from US$190 million in 2014 to US$221 million in 2015. As a consequence, AIC for the region of US$1,049/oz was 4% better than the US$1,094/oz reported in 2014 and 13% ahead of guidance. The aggregate performance of the region was outstanding, underpinned by the strong showing of Tarkwa and despite the significant operational challenges faced by Damang. The region as a whole reported net cash inflow of US$44 million during 2015 of which Tarkwa contributed US$76 million while Damang had a negative cash flow of US$32 million for the year.

Damang's reduced output and higher costs have prompted Gold Fields to evaluate various future options for the mine. We expect to complete this work before the middle of 2016 and announce a decision on the mine's future then.

Peru

Despite the significant decline in the price of copper during 2015, Cerro Corona in Peru recorded a relatively good performance with total managed gold equivalent production of 295,600 ounces in 2015, 6% ahead of guidance. However, it was 9% lower than the 326,600 ounces produced in 2014, as a result of the lower copper price and a planned decline in gold and copper grades.

Net operating costs decreased by 9% from US$158 million in 2014 to US$145 million in 2015, mainly due to good cost management and lower ore tonnes mined, while capital expenditure increased from US$51 million in 2014 to US$65 million in 2015. The region reported net cash inflow of US$35 million during 2015.

Total AIC amounted to US$718/oz in 2015 compared with US$316/oz in 2014 due to lower gold sold, lower by-product credits and higher capital expenditure, partially offset by lower net operating costs. On a gold equivalent only basis AIC rose from US$702/oz in 2014 to US$777/oz in 2015.

South Africa

At the South Deep mine production remained steady during 2015 with production of 198,000 ounces compared with 200,500 ounces in 2014, mainly due to lower grades, partially offset by increased volumes. Higher wage hikes and rises in other operating costs led to net operating costs increasing by 13% from R2.66 billion (US$246 million) in 2014 to R3 billion (US$237 million) in 2015. Capital expenditure at South Deep decreased from R994 million (US$92 million) in 2014 to R848 million (US$67 million) in 2015.

AIC of R635,622/kg (US$1,559/oz) in 2015 compared with AIC of R602,363/kg (US$1,732/oz) in 2014 due to lower gold sold and higher operating costs, partially offset by lower capital expenditure.

South Deep’s net cash outflow reduced sharply from US$116 million in 2014 to US$80 million in 2015.

Progress on the re-basing of the South Deep mine can be found on pages 21 and 73.

Stakeholder relations

Gold Fields’ prosperity in the short and longer term is – as I have stated before – critically dependent on societal acceptance. This can only be chieved through transparent and mutually beneficial relationships with governments at all levels (national, regional and local), organised labour and host communities, who might disrupt our operations. Our corporate and regional management teams have been tasked with intensifying stakeholder engagements in 2016 to ensure that we operate in a business environment that allows us to operate profitably to the benefit of these stakeholders and others. As part of this, we have completed an extensive relationship assessment exercise at South Deep and are starting this progress in Ghana and Peru in 2016.

The appeal to governments is particularly urgent in South Africa and Ghana, where pending legislation and regulations have the potential to adversely affect the mining sector. In Peru, poor relations with communities and activists are threatening the growth of the entire mining sector and all stakeholders need to work together to address these challenges.

In South Africa, Gold Fields has dedicated substantial human and capital resources towards meeting the targets of the 2010 Mining Charter, including the equity empowerment target of 26% ownership. We will commit similar resources in achieving the continued transformation of the sector to make South Deep truly representative of the South African population.

True transformation will take time and cannot happen without the financial backing of investors, many of whom have fled the sector over the past few years amid poor returns on their capital. We welcome the South African government’s commitment to engaging with the sector openly and honestly through Project Phakisa to devise an action plan for further growth and transformation that encourages renewed investment in the industry.

However, as it drafts critical policy based on these engagements we urge government to avoid additional fiscal or regulatory burdens that will inevitably further stifle the growth of the sector. Directly, and through the Chamber of Mines, we are engaging the South African government on three key issues in 2016: the review of the Mining Charter; the once-empowered, always-empowered principle in Black Economic Empowerment ownership of mining companies; and, the finalisation of amendments to the Mineral and Petroleum Resources Development Act.

In Ghana, our appeal to government is to finalise and implement the long-awaited investment agreement that is critical for Gold Fields to achieve a level investment playing field with its peers in the country. Other investments in the sector would also be supported by a level playing field and without it, we fear, the much-needed economic growth linked to mining in Ghana will not occur.

In Peru, the mining industry is working closely with government to find joint solutions to the social and environmental issues that appear to be the root causes for the distrust towards the sector by communities. Engagement with these communities and their representative organisations will have to be the critical next step.

I would like to reiterate a commitment I have made on a number of occasions. For the mining sector to benefit all its stakeholders we have to work in partnership to grow the mining economy – to expand, not shrink, the ‘mining pie’. Distributing smaller slices of a shrinking mining pie will inevitably lead to a gradual decline in the industry.

Strategic priorities and guidance for 2016

The 2016 Group scorecard is displayed below.

The pillars of Gold Fields strategy are firmly in place and have successfully guided the transformation of the Group over the past three years. We do not envisage major changes to this strategy in the year ahead, though there has been a shift in emphasis in some of the key performance areas, which has led to an adjustment to some of the measurements.

Gold Fields’ strategic review for 2016 takes into account a continued depressed gold price and our budgets have been built around an anticipated average gold prices of US$1,100/oz, A$1,500/oz and R500,00/kg. This places renewed emphasis on business optimisation as a priority for our operations and we are guiding on an AIC of between US$1,035/oz – US$1,045/oz and an AISC of between US$1,000/oz – US$1,010/oz for 2016 compared with the 2015 actuals of US$1,026/oz and US$1,007/oz respectively. Capital expenditure for the year is forecast at US$602 million (2015: US$634 million).

Our production guidance for the year is 2.05 – 2.10 million ounces, a decline of at least 3% on the 2.16 million ounces achieved in 2015. Notable changes in 2016 include a reduction in production from the Australian region to 901,000 ounces; the negative impact of the lower copper price on Cerro Corona; lower production from Damang; and a 30% increase at South Deep to 257,000 ounces.

The main expected contributors to lower production in Australia in 2016 are as follows:

• At Granny Smith, mining of lower grade areas of the mine on Zones 90 and 100
• At St Ives, closure of Athena underground mine and outperformance on grade from Neptune ore in early 2015 at St Ives
• Deeper mining at Agnew and timing to access the new high grade FBH and Cinderella ore bodies
• Limited mining planned at Darlot pending further exploration success during the current year

The 30% increase in production from South Deep is expected to be driven mainly by an increase in available working places, an increase in productivity, fleet replacement and grade improvements.

Our portfolio of mines will continue to be evaluated in line with the operations' abilities to contribute towards the growth of the average reserve life per mine and free cash flow per ounce. In particular, we anticipate decisions on the long-term future of our Damang mine in Ghana and the Darlot mine in Australia. Growth will be driven, in the main, through brownfields exploration at our mines though we are also aggressively looking at value-accretive acquisitions.

An important addition to our 2016 scorecard is Technology and Innovation, with our regions having been tasked to develop and implement three-year technology plans in 2016. Gold Fields’ size still suggests that we do not necessarily have to be pioneers of research and development in technology but fast adopters of best practice. However, recent advances in digitisation, automation and mechanisation make it critical that we develop strategies to implement new technologies and partner with IT companies and Original Equipment Manufacturers (OEMs) that are leaders in the field. We have appointed a new member to our Executive Committee (ExCo) to oversee our progress in this area.

Integrated thinking

As I discussed last year, the sustainability of our business is ensured by understanding the linkages between all of the inputs and outputs of our operations, enabling us to maximise the benefits for all stakeholders and reduce the risks to the business. Integrated thinking underpins this approach and while many of our processes and linkages are formalised they are not as fully articulated in our integrated reporting. This will be one of my priorities in 2016; the objective will be to explain in greater detail how integrated thinking is factored into our business decisions. Our integrated reporting will be an output of this thinking.

Vote of thanks

I would like to express my gratitude to my fellow directors, led by our Chairperson, Cheryl Carolus. Their sound experience and guidance to the executive management team ensured that Gold Fields is reaping the rewards of its transformation strategy, whose implementation demanded so much of their time, energy and wealth of experience. I would also like to welcome Steven Reid to the Board. He joined in February 2016 and brings with him 35 years of experience in the mining industry.

The composition of the ExCo remained steady since January 2015, when Avishkar Nagaser joined as Head of Investor Relations. The ExCo team provided the renewed energy, input and experience to see the Group through the sometimes difficult and painful restructuring and is now ensuring that we stay the course. Subsequent to year-end we have appointed Richard Butcher as Executive Vice-President Technical. He joined us from Australia’s MMG and will bring 30 years’ experience in technical services in the mining industry to this new ExCo position.

Finally, I would like to express my sincere gratitude to all the employees of Gold Fields who continue to astound me with the resilience, commitment and long hours they put in to ensure the operational and financial success of the Group. The Gold Fields team rivals any of our peers in terms of experience, technical ability and, above all, enthusiasm and energy. I am proud to lead them.

Nick Holland
CEO

The mine of the future – looking ahead

Gold mining remains relevant and valuable in today’s global economy. But for mines to prosper in the long term they have to transform themselves into mines of the future – mines that are sustainable and create value for all their stakeholders.

Gold mining’s contribution to the global economy is significant: 60% of the top 30 gold-producing countries are in the low or lower-middle income bracket. Over US$171 billion per annum is added to total GDP from mining. The global gold mining industry employs 4.2 million people directly and indirectly, with a 5 – 10 dependency ratio for each direct employee. Despite what the gold bears think and say, gold has continued to be a safe haven during times of world crises, from the oil shock of 1975, the Soviet/Afghan war and Iranian revolution in the early 1980s, the stock market crash in 1987 and the latest financial crisis that started in 2008.

However, of late the industry has been confronted by a number of headwinds, which present significant risks to its long-term wellbeing. Today it takes an average of 18 years from discovery of gold to first production compared to 10 years a decade ago. While the grade of gold has fallen 3% per annum since 2000 and prices are dropping, cost inflation is ever-present. Both governments and communities are demanding greater benefits and incidents of clashes with local communities have risen 22% per year over the past 10 years.

Throw in a gold price that has declined by around 35% since its peak in September 2011, and it is not surprising that the sector has seen shareholder value slump by between 50% – 80% since 2007.

At Gold Fields, we recognised that a new recipe is required for the Company – and the industry – to overcome these challenges. The gold mine of the future has to be set-up, structured and managed differently from what it is today if it is to remain relevant and value-adding to all its stakeholders. This will require a focus on four key areas: operating practices and technology, talent and leadership, partnerships with key stakeholders and industry partners as well as governance and transparency.

The key operational challenges confronting gold mining can be grouped under five major headings:

• Embracing digital mining, advanced analytics and new software technologies
• Mining on demand, being the ability to run agile production schedules
• Converting conventional mining practices to mechanisation and automation
• Improving the economics of low grade and residual ore bodies
• Embracing energy and water efficiencies

Optimising existing technologies and new technologies will provide the solutions to these challenges, but adoption by the industry has been slow, particularly in developing countries. Mines in Australia on the other hand have been rolling out new technologies with a significant impact on costs, productivities and safety. If mines in other countries want to be sustainable they will have to follow this course.

A further feature of the mining industry’s technological transformation will be ever-closer co-operation with OEMs. These OEMs develop and operate best-of-class technologies and equipment at various levels of automation. It makes sense for mines to contract OEMs to utilise their expertise. This is particularly critical in South Africa’s gold industry, where the next big mining drive will have to take place in ever deeper and dangerous conditions. Technologies such as remote pillar mining and raise boring will only be possible in co-operation with OEMs and technology companies.

At South Deep, Gold Fields is in many ways pioneering bulk, deep-level, mechanised gold mining on a significant scale. The skills of operating and optimising of equipment don’t come easy in a mining culture that has been overwhelmingly conventional mining. But we are making gradual progress in setting the base for what could well be South Africa’s last major gold mine.

A number of technology companies are working on software advances in mining, which can be grouped under the ‘Big Data’ heading, where data is captured by various sources, digitised, analysed and finally leveraged for better decision-making. This has multiple applications for mines, such as geological mapping, geotechnical design, fleet tracking and operator safety. We believe that such technologies will provide us with the edge to fundamentally change our cost structure and improve safety. To meet these technical challenges, the mining workforce of the future needs to be highly skilled, specialised and trained. Mining companies and universities will need to work together to develop and train the personnel required.

Without a doubt, the mine of the future will have a high-level skills set that will lead to a smaller overall workforce. This creates a dilemma for many gold miners as adjacent communities rely on them for jobs and procurement. We need to find a new model for community engagement where we train some community members for the new mine, but where we also encourage the development of the local economy, so it is not reliant on jobs or services from mining alone. While today’s mining CEO manages assets, tomorrow’s leaders will be strategists, focusing on coaching and mentoring, integrated stakeholder management, collaborative decision-making and managing a portfolio of mines. Operating decision-making will be devolved down to mine site level.

Forging partnerships, with an emphasis on joint ownership, risk management and shared benefits, will be an essential element of the mine of the future. One of the trends already in evidence is that mining companies are increasingly co-operating in developing and managing gold mines to achieve economies of scale and address capacity constraints. Whether this trend will lead to a more formal consolidation of the gold sector remains to be seen.

The main benefits mines provide to society are job creation and paying taxes and royalties. But increasingly we are also seeing governments and miners work together in privatepublic partnerships, developing essential road, power and water infrastructure and supporting local governments in building educational and medical facilities. These partnerships, I believe, will increase in size and scope in future.

In so far as communities are concerned, we believe that the most direct benefits for communities can be achieved by implementing Shared Value projects in these communities, where they and the mine itself benefit from the creation of sustainable value. Should we go further than this by considering giving communities direct equity or participation in profit sharing in the mines in their area? That is something we, as the industry, should start debating as it could certainly assist in earning and maintaining our future social licences to operate.

I also believe that our employees and trade unions need to embrace a risk-reward relationship with the mines that will see them sharing the risks in downtimes and participating in the rewards of strong earnings growth in better times. Wage increases linked to productivitybased performance are also likely to become the norm in future.

Another area of focus for the mine of the future is transparency, in operational and financial performance, social development, managing environmental impact, regulatory adherence and corporate governance. The world is becoming more accountable and as mining companies, we need to embrace the change and meet the new standards.

Future gold mines will not succeed without the support of shareholders, governments, employees and communities. They are rightfully demanding to see the benefit of the resources we mine. This brings with it many challenges but through open engagement and partnerships, I believe we can create a successful gold mining company of the future.

Employee in training at South Deep