Gold Fields

2.5 Risk and materiality

Gold Fields uses a set of four well-defined processes to assess its risks, opportunities and material issues:

1. Key risks – and mitigating actions – are identified using an Enterprise-wide Risk Management (ERM) process
2. The Group takes into account the views and concerns of a wide group of stakeholders through direct and indirect stakeholder engagement processes
3. As part of the integrated reporting process, the Group conducts comprehensive interviews with key management, collects operational, financial and sustainability data, and analyses the short-, medium- and long-term strategic trends affecting the business
4. Material sustainability issues are assessed and prioritised according to the GRI G4 Guidelines, and comprehensive internal and external stakeholder interviews conducted to determine the relative ranking of material issues

The outputs from these four processes have informed the identification of the risks, opportunities and material issues contained in this Integrated Annual Report (IAR). Key elements of the four processes are set out alongside.

Internal assessment: Enterprise-wide Risk Management (ERM)

Gold Fields’ mature ERM process is aligned with the ISO 31000 international risk management standard, as well as the risk management requirements of South Africa’s King III Code.

The ERM process – which prioritises risks on the basis of probability and severity – is based on the following process:

1. Workplace risk assessments: Managers carry out ongoing workplace risk assessments in accordance with international standards (for example, ISO 31000 and the SAMREC guideline)
2. Mine/region reviews: Each regional and mine ExCo conducts a review of the top risks and mitigating strategies on a quarterly basis
3. Presentation to the Group ExCo: Each mine manager presents the top 10 risks and mitigation actions to Exco during quarterly business reviews – and mitigating actions are assessed for relevance and effectiveness
4. Compilation of Group Risk Register: The Group Risk Manager extracts the top risks from the regional and operational registers in line with the tolerance levels set by the Board, and compiles the Group Risk Register
5. Assessment and moderation: The risks are assessed and moderated at a Group-level by relevant risk owners and ExCo members
6. ExCo risk meeting: Every six months, ExCo reviews the top risks and sets and monitors Group-wide mitigation strategies
7. Audit Committee review: The Audit Committee reviews the top risks and mitigation strategies twice a year. This work will move to the reconstituted Risk Committee during 2016 (AFR – p2).
8. Internal audit review: The internal audit function assesses progress against – and adherence to – mitigation strategies on a regular basis

The Group heat maps on pages 46 – 49 set out:

• The Group’s top 10 risks as well as top five risks per region, as identified through the ERM process (i.e. the Group’s top operational and strategic risks at the end of 2015)
• Key movements in the top 10 Group risks between 2014 and 2015
• Key mitigating strategies to avoid and/or mitigate the top 10 Group risks for 2015, and the top five risks per region

External assessment: Stakeholder engagement

Proactive and frank stakeholder engagement plays a vital role in helping Gold Fields identify its material issues. All stakeholder engagement activities are informed by the AA 1000 principles of:

• Inclusivity
• Materiality
• Responsiveness

Gold Fields’ engagement activities fall into two categories:

• Direct engagement, including organised dialogues, roundtable discussions, one-to-one meetings, internal surveys and regular engagement with local communities and other stakeholders at each operation and project
• Indirect engagement, including the use of external benchmarks and standards (such as the UN Global Compact) that are designed to reflect and address societal expectations

Operational engagement
At an operational-level, all mines identify, prioritise and directly engage stakeholder groups that have the potential to affect their operational, sustainability or financial performance.

This includes, for example, ongoing engagement of:

• Employees and their representatives by our human resources teams and general managers
• Local communities by our community relations teams and general managars
• Regulators by our discipline heads and general managers
• Key contractors and suppliers by our procurement teams, health and safety managers and operational personnel

Strategic engagement
At a strategic-level, Gold Fields’ corporate and regional management teams implement an ongoing programme of direct and indirect engagement. This includes ongoing engagement of:

• In-country peer companies by the regional Executive Vice-Presidents (EVPs)
• Central, regional and local governments by the Group’s corporate affairs teams and legal teams, as well as members of the Group ExCo and regional EVPs
• Shareholders and potential investors by the Group investor relations team, CEO, CFO and regional EVPs
• Materiality assessment process (p45)

The outcomes of stakeholder engagement are integrated into Gold Fields’ internal reporting processes – including its quarterly regional board reports, sustainable development reports and other documents. In addition, they inform Gold Fields’ ERM process, and external reporting processes.

Integrated reporting process

The outputs of the ERM and stakeholder engagement processes are analysed alongside the information collected for the IAR. This includes:

• Gold Fields’ operational, financial and sustainability data generated through our data management systems
• The output of dedicated integrated reporting interviews with managers and executives at operation-, region- and Group-level
• Short-, medium- and long-term strategic analysis of the external environment

This is with the aim of:

• Gaining greater insight into the Group’s material issues
• Identifying and assessing the management actions taken in response to each material issue – as well as the effectiveness of such actions
• Defining the content of this IAR

The IAR is prepared on the basis of this process and is subject to a rigorous internal assurance process. The Board – through the Audit Committee – is ultimately responsible for the contents of this IAR.

Materiality assessment

Gold Fields has carried out a formal process to assess and prioritise its material sustainability issues. It has done so using criteria aligned with those set out in the GRI G4 Guidelines taking into account the actual or potential impact of these issues on Gold Fields and its stakeholders.

Materiality process
Gold Fields’ GRI G4 materiality process is based on a series of iterative assessments using a common, quantitative scoring framework. It draws on a range of internal and external sources, as outlined below:

1. National and international legislation and regulation
2. Standards
   Internal:
   Gold Fields’ Vision and Values; Sustainable Development Framework; Stakeholder Charters; and Code of Ethics
   
   External:
   10 Principles of the UN Global Compact; UN Guiding Principles on Business and Human Rights; ICMM 10 Principles on Sustainable Development; and ISO 14001 (environment) and OHSAS 180001 (safety) management standards
3. Documentation
   Internal:
   Gold Fields Board reports; Safety, Health and Sustainable Development reporting; and ERM output documents
   
   External:
   Media reports; NGO commentary; and sector analysis
4. Engagement
   Internal:
   Engagement around the specific requirements of the GRI with senior management
   
   External:
   Engagement with external stakeholders

Each step of the G4 materiality process is outlined below with the outcome shown in the table below.

These steps involve detailed engagement to determine the ranking of Gold Fields’ material sustainability issues. Senior executives at the Company, including its regional operations, and representatives of external stakeholders – including industry, government, community and environmental organisations – were briefed on the GRI process and asked to evaluate all G4 aspects in terms of importance to Gold Fields and its stakeholders. This took the form of a ranking with 1 being the most critical to Gold Fields and its stakeholders, and 10 considered not material at all.

Once these rankings had been made they were averaged and a score reached for each aspect. A score between 1 and 5 means that these issues are material to Gold Fields. Scores between 5 and 10 suggest that internal and external stakeholders consider these issues of less material importance to Gold Fields and its stakeholders. However, this does not mean that they will not be addressed by our management team when the issues arise.

The outcome – depicted in the table alongside – ranks health and safety, water management, social licence to operate and management of environmental issues as the key GRI aspects that internal and external stakeholders consider most material to Gold Fields and its wider stakeholder base.

Winder house at South Deep

Flow from operating environment to risks, materiality and strategy

Prioritised materiality issues

Group and regional risk tables

Gold Fields – Top 10 risks

Top 10 risks in 2015 – Mitigating strategies

View enlarged Top 10 risks in 2015 – Mitigating strategies

2014 Risks – How we performed in 2015

  2014 RISK RATING  

1   South Deep – failure to deliver the business plan   Despite the significant financial and operational performance improvement at South Deep during 2015, this remains the Group’s top risk   2   Lower gold price and volatility   The continued decline in both gold and copper prices during 2015 ensured that this remains a high risk   3   Replacement of Reserves and Resources at international ops   Since four out of seven international operations reported lower Reserves (after depletion) in 2015 this is now a higher risk   4   Non-achievement of 15% FCF margin at US$1,300/oz   Despite the better operational and cost performance in 2015 this risk remains at a high level amid the lower gold price   5   Loss of social licence to operate   Social and economic pressures from communities remain a pressing issue at our South African, Peruvian and Ghanaian mines

How we performed1 1 The risk rating in this graph is based on our severity and probability matrix. Both are rated from one to 10 and the result is a product of the two ratings for each risk.

Group and regional risk tables

Top 5 risks in 2015 – Americas region		Top 5 risks in 2015 – Australia region
RISK     DESCRIPTION WITH MITIGATING STRATEGIES         Erosion of free cash flow, sustained low copper and gold prices and cost inflation     Enhanced business planning process and continued delivery of the operational plan Improved understanding of operational risks and implementation of effective mitigation Continued focus on cost control and reduction measures   Social pressures, conflicts and community expectations     Social pressures around Las Tomas spring relocation, despite regulatory approval Pro-active community and stakeholder engagement Properly planned contingencies in place for conflict Stringent follow-up and feedback on all community commitments Implement contingency plan for a potential social conflict   Increase in regulatory scrutiny, sanctioning process and inspections     Process in place to challenge sanctions and penalties Strict compliance with regulations through internal auditing and constant monitoring   Government/political instability     Continued dialogue and engagement with authorities. Active participation in Peru’s National Chamber of Mining, Oil and Energy and local Chamber of Commerce   Government/political instability     Voluntary programme to repair houses in Hualgayoc at high risk of collapse		RISK     DESCRIPTION WITH MITIGATING STRATEGIES         Reserve life at all operations     Near-mine exploration spend increased to A$86 million to delineate further reserves budgeted in 2016 Ongoing business improvement to achieve cost savings, improve operating margins and improve the Resource cut-off grade M&A strategy – opportunities being considered   Failure to achieve delivery against operational plans     Ongoing improvements to mine plan accuracy and operational delivery Operational risk assessments conducted to reduce potential business interruptions Weekly, monthly and quarterly monitoring of performance   Australian gold price     Ongoing monitoring and review of compliance to annual operational plans on all sites Monitor relationship between Australian Dollar and US gold price Development and implementation of margin improvement programmes   Native title at Kambalda     Appeal heard on 25 May 2015 – judgment reserved Strategy in response to adverse decision, including further appeal process if required.   Ongoing safety performance     Vital behaviours programme rolled out and producing good results Active Visible Felt Leadership training for all managers Review undertaken to consolidate safety initiatives for 2016
Top 5 risks in 2015 – South African region		Top 5 risks in 2015 – West African region
RISK     DESCRIPTION WITH MITIGATING STRATEGIES         Failure to achieve the South Deep operational plan and loss of investor confidence     Align planning process with realistic productivities Core focus on getting the basics right continues to be implemented Identification of 68 business improvement projects - implementation commenced Improve production output by acquiring additional and appropriate staff and fleet resources   Geotechnical risk: Changes in mining method Seismicity Secondary support and backfill     Implemented Geotechnical Review Board recommendations, including revised support strategies, mining sequence, pillar configuration changes and improved modelling capabilities Introduction of high profile de-stress stoping Full plant tailings commissioned and utilised to reduce backfill backlog Initiated analysis of secondary support requirements   Union and labour relations     Extensive union engagement and union re-basing strategy Wage negotiations successfully concluded outside the Chamber of Mines central bargaining unit New engagement structures and higher frequency of engagement   Leadership capabilities     Retention of individuals in leadership positions Skills deficit addressed through the appointment of 146 people in core disciplines in 2015   Loss of social licence to operate and community activism     Meet Mining Charter and Social and Labour Plan commitments Fit-for-purpose community relations and stakeholder engagement structure in place Five-year community relations strategy prepared for implementation in 2016 Implementation of two Shared Value projects focused on Mathematics and Science education and local community procurement Alliance with Sibanye Gold to continue into 2016 Collaboration with South Deep Community Trusts in their strategy formulation and implementation Implementing a water management plan at South Deep Develop stakeholder engagement plan and strategy for the nearby community of Thusanang		RISK     DESCRIPTION WITH MITIGATING STRATEGIES         Tightened fiscal policies by government     Investment Agreement negotiation and implementation Frequent engagement with government and lobbying via the Chamber of Mines Strict adherence to Bank of Ghana foreign exchange regulations to ensure compliance   Lower gold price, currency fluctuations and increased input costs     Ongoing implementation of business process re-engineering initiatives Evaluate future options for Damang – decision in mid-2016 Cost containment Fit-for-purpose structure in place with regular reviews Renegotiate strategic supplier contracts   Erratic power supply and load shedding     Independent Power Purchase Agreement with Genser Energy Damang and Tarkwa power plants to be commissioned in 2016 Ongoing consultations/engagement with national electricity authorities Increase generation capabilities from back-up generators   Loss of environmental and social licence to operate     Consideration of regulatory requirements during planning processes Frequent engagement with the Environmental Protection Agency (EPA) Community awareness campaigns. In-depth preparation for EPA’s annual Akoben environmental audits   Increased stakeholder expectations     Working with employees to improve productivity as a trade-off for real wage rises Stakeholder engagement Shared Value rollout Continued community investment programmes