Gold Fields

The Audit Committee (the Committee) was appointed by the shareholders at the AGM in May 2016. Since then, an additional three directors have been appointed to the Committee. The members are all independent non-executive directors. Details and attendance at meetings are included on p10 of this report. The Directors of Gold Fields (the Board) continue to believe that the Committee members collectively have the necessary skills to carry out its duties.

The Committee has reporting responsibilities to both the shareholders and the Board and is accountable to them. Its duties are set out in the Board Charter which is reviewed annually and incorporates its statutory obligations as set out in the South African Companies Act, 71 of 2008 (SA Companies Act), as amended, and the King III Report on Governance Principles for South Africa (King III). A work plan is drawn up annually incorporating all these obligations and progress is monitored to ensure all these are fulfilled. This is currently in the process of being updated for King IV.

It is the duty of the Committee, among other things, to monitor and review:

• The annual financial statements ensuring fair presentation and compliance with IFRS and the SA Companies Act and recommending same to the Board for approval
• The integrity of the Integrated Annual Report by ensuring that its content is reliable, includes all relevant operational, financial and other non-financial information, risk and other relevant factors
• Quarterly, interim and operational reports and all other widely distributed documents
• The Form 20-F filing with the US Securities Exchange Commission (SEC)
• Accounting policies of the group and proposed revisions, and significant and unusual transactions, estimates and accounting judgements
• The effectiveness of the internal control environment
• The effectiveness of the internal audit function
• The effectiveness of the external audit function
• Recommending the appointment and remuneration of external auditors and reviewing the scope of their audit, their reports and findings and pre-approving all non-audit services in terms of policy
• Reports of both internal and external auditors
• Evaluation of the performance of the Chief Financial Officer
• The adequacy and effectiveness of the Group’s enterprise wide risk management policies, processes and mitigating strategies
• The governance of information technology (IT) and the effectiveness of the group’s information systems
• The cash/debt position of the Group to determine that the going concern basis of reporting is appropriate
• Compliance with applicable legislation, requirements of appropriate regulatory authorities and the Company’s Code of Conduct
• Policies and procedures for preventing fraud

EXTERNAL AUDIT

• The Committee is responsible for recommending the appointment or reappointment of a firm of external auditors to the Board that, in turn, will recommend the appointment to the shareholders. The Committee is responsible for determining that the designated appointee firm and signing partner have the necessary independence, experience, qualifications and skills and that the audit fee is adequate.
• The Committee evaluated the performance of KPMG during the year, including a detailed interrogation of its quality control procedures, its experience and technical expertise in the mining industry, its staff complement in terms of both numbers and skills in our different geographical areas and succession planning. During this evaluation, the Committee reviewed KPMG’s responses to a questionnaire as well as their own responses and also considered input by management and other appropriate persons. The Committee is satisfied that KPMG has extensive experience in the mining sector and that Mr CH Basson has had significant exposure to the sector.
• The Committee reviewed the documentation KPMG provided describing the firm’s quality control procedures and in particular their process around the coordination of the global audit and the interaction between the corporate and regional teams. The Committee reviewed and assessed the independence of KPMG, including the firm’s independence policies and their confirmation in writing that the criteria for independence as set out in the rules of the Independent Regulatory Board for Auditors and other international bodies have been followed.
• The Committee is satisfied that KPMG is independent of the Group.
• An audit fee for the period of R35.9m (US$2.4m) was approved, as well as R4.1m (US$0.3m) for audit-related fees, R0.9m (US$0.1m) for tax services and Rnil (US$nil) for other non-audit services. The Committee has a documented policy on the nature and extent of non-audit services that the external auditor can provide and pre-approves all audit and permitted non-audit assignments by the company’s independent auditor. The Committee believes the fees paid are adequate.
• The Committee reviewed the annual audit plan presented at its meeting in August 2016 including the scope, materiality levels and significant risk areas establishing that the approach was revised to be responsive to commodity price risk, foreign exchange movements and other financial statement risks. The audit plan forms the basis of providing the Committee with the necessary assurances on risk management, the internal control environment and IT governance. The plan was approved.
• The Committee monitors progress against the plan and KPMG presented its first progress report at the November 2016 committee meeting. The auditors report on all issues identified during its audit and particularly on the results of its work carried out on high-risk areas, significant estimates and judgements as well as significant and unusual transactions.
• KPMG has direct access to the Committee and meets with the Committee Chair (the Chair) before each meeting and on an ad hoc basis when required. KPMG reports to the Committee at each quarterly meeting and in addition, the Committee regularly meets with KPMG separately without other invitees being present.
• The Committee has recommended that KPMG is reappointed for the 2017 financial year. However, in terms of rotation rules set out in the Companies Act 2008 Section 92 (1) the same individual auditor may not serve for more than five consecutive years. Therefore the Committee recommends that Ms M Watson be appointed as the designated group audit engagement partner as Mr CH Basson has now served five years. Ms Watson has more than 20 years of auditing experience.

SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

Significant areas requiring the use of management estimates and assumptions are detailed in Note 1 to the accounting policies. Work papers presented to the Committee by management detailed the estimates and assumptions used, the external sources and experts consulted and the basis on which they were applied in the calculations. These were challenged by the Committee and included, but were not limited to, the following areas:

Impairment of Assets and Goodwill

• No impairment was necessary in respect of goodwill and non-current inventory stock piles which will only be processed at the end of the life of mine. (Refer Notes 14 and 19 to the Financial Statements).
• An impairment of US$66m before tax was identified at Cerro Corona, as there is currently no intention to extend the life beyond 2023, and an impairment of mining fleet and related spares at Damang of US$10m was calculated resulting in a total impairment of US$76m before tax. (Refer Note 6).

Taxation

• The Committee is satisfied that a detailed review has been carried out by management, including the internal tax team, to provide a best estimate of the tax liability for the year. (Refer Note 9).
• The Committee discussed the detailed paper on deferred tax presented at year end. Deferred tax assets amounting to US$34.9m were not recognised at Cerro Corona and Damang to the extent that it is estimated that there will not be sufficient future taxable income available. (Refer Notes 9 and 23).

Contingent Liabilities

• A number of contingent liabilities are disclosed in detail in Note 35 to the Financial Statements. The contingent liabilities cover the Silicosis matter, the Randgold and Exploration summons, acid mine drainage and the South Deep tax dispute with SARS. No new contingent liabilities were identified in 2016. The matter of the Ngadju People’s claim was resolved during the year in favour of Gold Fields.
• All these matters are receiving ongoing attention from management, together with outside specialists and industry committees. The Committee was updated as to the current status and based on the evidence presented, the Committee concurred that it was not possible at this time to provide a reliable estimate of any possible liability. This position is unchanged from the prior year.

Business Combinations

• Gold Fields announced on 13 December 2016 that it had entered into a 50:50 unincorporated joint venture with Gold Road Resources Limited, an Australian company for the development and operation of the Gruyere Gold Project in Western Australia. The paper presented on the transaction was reviewed and, in compliance with IFRS accounting statements, it was accounted for as the acquisition of an asset. (Refer Note 15.2).

INTERNAL AUDIT

Gold Fields Internal Audit (GFIA) is an independent department within Gold Fields which is headed by a Vice President: Internal Audit (VP:IA) who is appointed and can be dismissed by the Committee. The VP:IA reports directly to the Committee and the Committee assesses the performance of Internal Audit annually. The VP:IA has direct access to the Chair, members of the Committee and the Chair of the Board. The Chair meets with the VP:IA once a quarter and on an ad hoc basis as required. The VP:IA also meets with the Committee without management at least annually and whenever deemed necessary by either the VP or the Committee.

The Committee is satisfied with the resources of the function and is confident that the skills and experience of the team will fulfil its mandate. The internal team ensures that the necessary professional education credits are met on an annual basis and the focus for 2017 will be to supplement their skills where possible with certifications in ISO and Safety.

The Committee determines the purpose, authority and responsibility of GFIA in an Internal Audit Charter which is reviewed annually. GFIA operates in accordance with the International Standards for the Professional Practice of Internal Auditing as prescribed by the Institute of Internal Auditors (IIA). The internal audit activities carried out during the year were identified through a combination of the Gold Fields Risk Management framework, which includes the Combined Assurance Framework, and the risk-based methodologies adopted by GFIA. The Committee approves the annual internal audit assurance plan presented by GFIA and monitors progress against the plan reported to the Committee each quarter. GFIA has ensured its framework is aligned with COSO 2013.

During 2016 the internal function embarked on the use of a computer assisted auditing techniques programme to provide specific data analytics for assisting the operational auditors to meet their internal audit and fraud objectives. The programme is co-sourced with an external supplier. A pilot for procure to pay was completed mid 2016 while a pilot for payroll is scheduled to be completed in the first quarter of 2017. It is envisaged over time this process will be refined to be able to carry out data analytics within a very short period of time which will lead to identifying anomalies within these processes on a quarterly, monthly or weekly basis depending on the need of the Group.

The internal control systems of the Group are designed to provide reasonable assurance on the maintenance of proper accounting records and the reliability of financial information. It also covers operational areas, compliance with the Gold Fields Code of Conduct and the sustainability records. These systems are monitored by GFIA and its findings and recommendations are reported to the Committee and to senior management.

GFIA reports deficiencies to the Committee every quarter together with recommended remedial actions which are then followed up to ensure the necessary action has been taken. GFIA provided the Committee with a written report which assessed the internal financial controls, IT governance and the risk management process as adequate during the year.

IT GOVERNANCE

IT governance remains a key focus for the Information, Communication and Technology (ICT) group and the Committee is responsible for ICT governance on behalf of the Board.

The Vice President and Group Head of ICT is responsible for executing on ICT Governance and the Committee reviews his report, which includes the results of all review and testing conducted by management and internal audit, at each meeting. The Gold Fields ICT Charter defines the overall direction and governance for ICT across the group.

Gold Fields have adopted the Control Objectives for Information Technology (COBIT) as a governance framework, and regular assessments are conducted that determine the maturity of ICT Governance processes. Across the group, Gold Fields ICT is operating at an overall maturity level of between 3 and 4 which indicates that the group’s governance framework and processes are formally defined and monitored. Further, considering the nature of cyber security and the rising global cyber risk, Gold Fields has embarked on a journey to further enhance its security posture. Areas of ICT Risks across the Group have been defined as part of the Group’s overall Risk Management Framework, and formal policies and procedures are documented and updated regularly for these areas.

Cyber Security has now become a key component of IT Governance and forms part of the Group’s ICT Governance and Risk agenda.

The committee responsible for ensuring compliance/adherence to group ICT policies and procedures is ICT GRASSC (Governance, Risk, Architecture, Standards, Security Compliance) Committee. The GRASSC committee reviews compliance to the governance framework quarterly, and recommends improvements as appropriate.

CHIEF FINANCIAL OFFICER

The Committee evaluated the expertise and performance of the Chief Financial Officer (CFO), Paul Schmidt. The Committee continues to be satisfied that Mr Paul Schmidt has the appropriate expertise and experience to carry out his duties as CFO of the Company and the Group, and is supported by highly qualified and competent senior staff. This conclusion is supported by input from both internal and external auditors.

GOVERNANCE

The Committee is also responsible for monitoring governance and compliance with the Gold Fields Code of Ethics (the Code). All breaches identified are followed up with a disciplinary hearing which rules on the appropriate action to be taken. This can range from a warning to immediate dismissal.

At the end of 2016, the Code of Ethics was replaced by a detailed Code of Conduct (available on the Gold Fields website at www.goldfields.com) and this has been rolled out to all employees and continuous training will remain a focus during the 2017 year. Gold Fields has reaffirmed its commitment to fighting bribery and corruption by rolling out its dedicated Anti Bribery and Corruption policy during quarter 4 of 2016.

The Committee is also responsible for ensuring that all calls to the Gold Fields Hot Line – administered by an independent external party - are followed up whenever the information provided is sufficient to initiate an investigation. Many of the calls do not contain enough information to enable a follow up while others are simply based on incorrect perceptions or information. The number and nature of these calls is reported at the quarterly Committee meetings. The details, including the detail of the action taken, are also reported by the Chair to the Social and Ethics Committee members.

The Group Compliance Officer has a detailed and systemic framework in place to identify all legislation applicable to Gold Fields in all the jurisdictions in which the Group operates. Updates on regulatory changes are sourced from external legal sources and internally assessed for application/impact. Changes are recorded and monitored on a quarterly basis. The assessment of potential and/or actual risk exposure of non-compliance re the identified applicable legislation per jurisdiction includes potential exposure to financial loss as well as operational and reputational risks. Also, under the ambit of risk exposure assessment, all active suppliers are screened on a monthly basis. A screening risk calculator is applied to those assessed as posing a risk to Gold Fields. Mitigating controls designed to pro-actively manage the risks are identified, documented and maintained. GFIA carries out a review of the effectiveness (in terms of design and operating effectiveness) of the control procedures and reports on the level of compliance. The results are reported to the Committee in detailed schedules and an annual Compliance Index is calculated for the Group.

RISK MANAGEMENT

As reported in the prior year, the Committee proposed that a separate risk committee be formed. This committee met for the first time in May 2016 and includes members and attendees with appropriate mining technical skills, who can address the operational risks as well as those with financial skills, including members of the Committee.

There is ongoing interaction between the risk and audit committees and the management of financial risk remains a key focus of the Committee, management and internal audit. Gold Fields’ Group and regional risk disclosures are on p42-45 of the Integrated Annual Report.

INTERNAL CONTROL STATEMENT

Management is accountable to the Board for the design, implementation, monitoring and integrating of internal financial controls for the day-to-day running of the Group, focusing on the efficiency and effectiveness of operations, safeguarding the Company’s assets, legal and regulatory compliance, business sustainability and reliable reporting, including financial reporting.

The Committee has discussed and documented the basis for its conclusion which includes discussions with internal and external auditors as well as management. Based on these discussions and reports tabled during the year, the Committee has no reason to believe that there were any material breakdowns in the design and operating effectiveness of internal financial controls during the year. The Committee is of the opinion that the financial records can be relied upon as a reasonable basis for the preparation of the annual financial statements.

AUDIT COMMITTEE STATEMENT

The Committee considered and discussed the Annual Financial Report, the Governance Report and the Integrated Annual Report with both management and the external auditors.

During this process, the Committee:

• Reviewed the annual financial statements included in the Annual Financial Report for consistency, fair presentation and compliance with IFRS;
• Evaluated significant estimates and judgements and reporting decisions;
• Reviewed the documentation supporting the going concern basis of accounting and concluded that it is appropriate;
• Evaluated the material factors and risks that could impact the Annual Financial Report and Integrated Annual Report;
• Evaluated the completeness of the financial and sustainability disclosures;
• Discussed the treatment of significant and unusual transactions with management and the external auditors; and
• Reviewed and discussed the sustainability information disclosed in the IAR and is satisfied, based on discussions, that the information is reliable.

The Committee considers that the Annual Financial Report and the Integrated Annual Review comply in all material respects with the statutory requirements of the various regulations governing disclosure and reporting, and the annual financial statements comply in all material respects with the Companies Act No 71 of 2008, as amended, and with International Financial Reporting Standards.

The Committee has recommended to the Board that the annual financial statements included in the Annual Financial Report be adopted and approved by the Board.

Gayle Wilson

Chair: Audit Committee

20 March 2017