Financial review

Quarter ended 30 June 2011 compared with quarter ended 31 March 2011

Revenue

Attributable gold production increased by 5 per cent from 830,000 ounces in the March quarter to 872,000 ounces in the June quarter. At the South African operations, production increased by 9 per cent from 411,000 ounces to 447,000 ounces. Attributable gold production at the West African operations decreased by 3 per cent from 173,000 ounces to 168,000 ounces. Attributable equivalent gold production at the South American operation increased by 13 per cent from 87,000 ounces to 98,000 ounces due to the buy-out of minority shares which increased our average interest for the quarter from 80.7 to 96.6 per cent. At the Australian operations, gold production increased marginally from 158,000 ounces to 159,000 ounces.

In the South Africa region, at KDC, gold production increased by 4 per cent from 262,600 ounces (8,169 kilograms) in the March quarter to 272,500 ounces (8,475 kilograms) in the June quarter due to an increase in tonnes milled offset by a 9 per cent reduction in underground yield which is believed to be temporary and localised. At Beatrix, gold production increased by 32 per cent from 74,400 ounces (2,314 kilograms) to 98,000 ounces (3,048 kilograms) in line with an increase in underground volumes. At South Deep, production increased by 3 per cent from 74,000 ounces (2,301 kilograms) to 76,100 ounces (2,366 kilograms).

At the West Africa region, managed gold production at Tarkwa decreased by 3 per cent from 186,100 ounces to 180,800 ounces for the quarter mainly due to decreased CIL throughput at a lower head grade. At Damang, gold production decreased by 2 per cent from 57,500 ounces to 56,300 ounces due to lower mining volumes from the higher grade Damang pit cutback.

At the South America region, equivalent production at Cerro Corona decreased by 7 per cent from 108,100 equivalent ounces in the March quarter to 101,000 equivalent ounces in the June quarter due to the lower copper prices relative to the gold prices.

At the Australasia region, St Ivesí gold production decreased by 10 per cent from 120,500 ounces to 108,700 ounces due to a decrease in processing volumes as a result of a SAG mill failure. At Agnew gold production increased by 33 per cent from 37,900 ounces to 50,400 ounces due to an increase in underground ore mined and a higher head grade.

The average quarterly US Dollar gold price achieved increased from US$1,389 per ounce in the March quarter to US$1,496 per ounce in the June quarter. The average Rand/US Dollar exchange rate at R6.78 was 3 per cent stronger than the March quarter level of R6.98, while the average Australian Dollar exchange rate strengthened against the US Dollar by 6 per cent during the quarter to A$1.00 = US$1.06. The resultant rand gold price increased from R311,708 per kilogram to R326,206 per kilogram.

Revenue increased from R8,969 million (US$1,285 million) in the March quarter to R9,581 million (US$1,411 million) in the June quarter due to the increase in production and the higher gold price received.

Operating costs

Net operating costs increased by 5 per cent from R4,878 million (US$699 million) in the March quarter to R5,124 million (US$755 million) in the June quarter. Total cash cost increased by 6 per cent from R168,455 per kilogram (US$751 per ounce) to R177,934 per kilogram (US$816 per ounce).

At the South Africa region, net operating costs increased by 10 per cent from R2,783 million (US$399 million) to R3,074 million (US$453 million) mainly due to the 28 per cent annual electricity price increase together with one month of significantly higher winter tariffs. Excluding the impact of the higher electricity tariffs, costs would only have increased by R111 million (US$16 million) or 4 per cent. The higher operating costs were partially offset by higher production resulting in total cash cost increasing by only 3 per cent from R213,759 per kilogram (US$953 per ounce) to R220,261 per kilogram (US$1,010 per ounce).

At the West Africa region, net operating costs were similar at US$122 million (R825 million). Total cash cost at the West African operations increased from US$521 per ounce in the March quarter to US$564 per ounce in the June quarter due to the lower production and higher royalties.

At Cerro Corona in South America, net operating costs decreased from US$44 million (R305 million) to US$38 million (R258 million). This decrease was mainly due to a decrease in the workersí statutory participation in profits. Total cash cost increased from US$387 per ounce in the March quarter to US$408 per ounce in the June quarter due to lower equivalent production produced and sold, partially offset by lower costs.

At the Australasia region, net operating costs were similar at A$135 million (R967 million). Total cash cost for the region increased from A$835 per ounce (US$838 per ounce) to A$858 per ounce (US$909 per ounce).

Operating margin

The net effect of the changes in revenue and costs, after taking into account gold-in-process movements, was a 9 per cent increase in operating profit from R4,091 million (US$586 million) in the March quarter to R4,457 million (US$656 million) in the June quarter. The Group operating margin at 47 per cent was one percentage point higher than the March quarter. The margin at the South African operations increased from 30 per cent to 33 per cent. At the West African operations the margin increased from 64 per cent to 66 per cent. At Cerro Corona in South America the margin increased from 72 per cent to 73 per cent and at the Australian operations the margin increased from 39 per cent to 40 per cent.

Amortisation

Amortisation increased from R1,240 million (US$178 million) in the March quarter to R1,277 million (US$188 million) in the June quarter as a result of the increase in production.

Other

Net interest paid of R32 million (US$5 million) in the June quarter compares with net interest paid of R41 million (US$6 million) in the March quarter. In the June quarter interest paid of R88 million (US$13 million) was partly offset by interest received of R39 million (US$6 million) and interest capitalised of R17 million (US$2 million). This compares with interest paid of R116 million (US$17 million), partly offset by interest received of R55 million (US$8 million) and interest capitalised of R20 million (US$3 million) in the March quarter.

The share of profit of associates after taxation of R1 million (US$0 million) in the June quarter compares with a share of loss of R4 million (US$1 million) in the March quarter. The June quarterís profit and March quarterís loss both related to the Groupís 34.9 per cent interest in Rand Refinery.

The loss on foreign exchange of R19 million (US$3 million) in the June quarter compares with a gain of R3 million (US$0 million) in the March quarter. These differences relate to the conversion of offshore cash holdings into their functional currencies.

The gain on financial instruments of R25 million (US$4 million) in the June quarter, compares with R6 million (US$1 million) in the March quarter. These gains mainly related to the receipt of 15 million shares in Timpetra Resources Limited (an Australian listed junior exploration company), in exchange for Central Victoria tenements, an Australian exploration project.

Share based payments of R123 million (US$18 million) were similar to the March quarter.

Other costs increased from R76 million (US$11 million) in the March quarter to R85 million (US$13 million) in the June quarter mainly due to transaction costs and fees incurred on the buy-out of minorities in Peru.

Exploration

Exploration expenditure increased from R139 million (US$20 million) in the March quarter to R214 million (US$31 million) in the June quarter mainly due to increased expenditure at Woodjam, Yanfolila, Hualgayoc and East Lachlan exploration projects.

Refer to the exploration and corporate development section of this report for more detail on exploration activities.

Feasibility and evaluation costs

Feasibility and evaluation costs decreased from R27 million (US$4 million) in the March quarter to R17 million (US$3 million) in the June quarter mainly due to timing of expenditure at the Far South East (FSE) project in the Philippines.

Non-recurring items

The non-recurring items of R101 million (US$15 million) in the June quarter and the R83 million (US$12 million) in the March quarter were mainly due to voluntary separation packages, business process reengineering and restructuring costs at all our operations.

Royalties

Government royalties increased from R165 million (US$24 million) in the March quarter to R236 million (US$35 million) in the June quarter. The higher royalty payment in the June quarter was mainly due to the increase in royalty from 3 per cent to 5 per cent at the Ghanaian operations with effect from 1 April 2011 and the higher revenue on which royalties are calculated.

Taxation

Taxation for the quarter amounted to R866 million (US$128 million) compared with R780 million (US$112 million) in the March quarter in line with the higher taxable income.

Normal taxation decreased from R600 million (US$86 million) to R521 million (US$77 million). Deferred taxation increased from R180 million (US$26 million) in the March quarter to R346 million (US$51 million) in the June quarter.

Earnings

Net earnings attributable to owners of the parent amounted to R1,267 million (US$186 million) or 175 SA cents per share (US$0.26 per share), compared with earnings of R1,100 million (US$158 million) or 153 SA cents per share (US$0.22 per share) in the March quarter.

Headline earnings i.e. earnings excluding the after tax effect of asset sales, impairments and the sale of investments, amounted to R1,270 million (US$187 million) or 176 SA cents per share (US$0.26 per share), compared with earnings of R1,101 million (US$158 million) or 153 SA cents per share (US$0.22 per share) in the March quarter.

Earnings excluding non-recurring items as well as gains and losses on foreign exchange, financial instruments and gains or losses of associates after royalties and taxation amounted to R1,326 million (US$195 million) or 184 SA cents per share (US$0.27 per share), compared with earnings of R1,152 million (US$165 million) or 160 SA cents per share (US$0.23 per share) reported in the March quarter.

Cash flow

Cash inflow from operating activities for the quarter amounted to R2,954 million (US$436 million), compared with R2,783 million (US$398 million) in the March quarter as a result of the higher earnings.

In the June quarter dividends of R7 million (US$1 million) were paid to non-controlling interest holders at Cerro Corona. This compared with dividends of R506 million (US$73 million) paid to owners of the parent and R59 million (US$9 million) paid to non-controlling shareholders at Damang in the March quarter.

Capital expenditure increased from R2,069 million (US$296 million) in the March quarter to R2,285 million (US$336 million) in the June quarter.

At the South Africa region, capital expenditure increased from R995 million (US$143 million) in the March quarter to R1,169 million (US$172 million) in the June quarter mainly due to timing of expenditure. Capital expenditure at South Deep amounted to R472 million (US$69 million) in the June quarter compared with R411 million (US$59 million) in the March quarter, with the majority of the expenditure on development and the ventilation shaft deepening and infrastructure. Expenditure on ore reserve development (ORD) at KDC and Beatrix was R73 million more at R546 million. KDCís ORD increased from R380 million to R436 million and Beatrixís ORD increased from R93 million to R110 million quarter on quarter in line with the increase in waste development metres.

At the West Africa region, capital expenditure decreased from US$84 million to US$69 million due to a reduction in expenditure on mining fleet and equipment at Damang, as the owner mining project is nearing completion. In South America, at Cerro Corona, capital expenditure was similar at US$16 million.

At the Australasia region, capital expenditure increased from A$39 million to A$56 million for the quarter. St Ives increased from A$24 million to A$39 million with the majority of the expenditure on mine development (A$24 million) on Athena and Hamlet, and exploration (A$8 million). At Agnew, capital expenditure increased from A$15 million to A$17 million.

The balance of the buy-out of non-controlling interest holders at La Cima amounted to R1,243 million (US$184 million) representing a further 8.8 per cent of the issued shares of Gold Fields La Cima, taking the Groupís holding to 98.5 per cent at the end of the June quarter. This compares with R1,368 million (US$198 million) in the March quarter which related to the buy-out of 9 per cent of the issued shares of Gold Fields La Cima which took the Groupís holding up to 89.7 per cent at the end of the March quarter.

Buy-out of non-controlling interest holders at Ghana amounted to R4,520 million (US$667 million) and represented 18.9 per cent of the issued shares of Gold Fields Ghana and Abosso Goldfields taking the Groupís holding to 90.0 per cent at quarter end. The additional attributable ounces associated with this buy-out will be accounted for from the September quarter.

Proceeds on disposal of investments of R12 million (US$2 million) relates to a loan repayment from one of the Groupís mining contractors at St Ives.

Net cash inflow from financing activities in the June quarter amounted to R2.8 billion (US$404 million) compared with R2.3 billion (US$330 million) in the March quarter. Loans received in the June quarter amounted to R3.9 billion (US$570 million) mainly as a result of drawdowns on offshore facilities for the purchase of the Ghanaian minorities. Loans repaid amounted to R1.2 billion (US$174 million), consisting primarily of the final repayment of R610 million (US$90 million) of preference shares issued, R276 million (US$40 million) repayment on an offshore facility, R128 million (US$19 million) scrip lending repayment and a partial repayment of the non-recourse term loan at Cerro Corona of R69 million (US$10 million).

Net cash outflow for the June quarter at R2,288 million (US$347 million) compared with an inflow of R1,074 million (US$154 million) in the March quarter. After accounting for a positive translation adjustment of R29 million (US$23 million) on offshore cash balances, the net cash outflow for the June quarter was R2,258 million (US$324 million). The cash balance at the end of June was R4,345 million (US$631 million) compared with R6,603 million (US$954 million) at the end of March.

Notional cash expenditure (NCE)

Notional cash expenditure is defined as operating costs (including general and administration) plus capital expenditure, which includes near-mine exploration and capitalised feasibility costs, and is reported on a per kilogram and per ounce basis Ė refer to the detailed table of this report.

NCE reflects how much free cash flow is available in order to pay taxation, interest, greenfields exploration, feasibility projects and dividends.

NCE margin is defined as the difference between revenue per ounce and NCE per ounce expressed as a percentage.

The Group NCE for the June quarter amounted to R256,692 per kilogram (US$1,178 per ounce) compared with R245,326 per kilogram (US$1,093 per ounce) in the March quarter. The NCE margin for the Group remained at 21 per cent. Operational NCE, that is excluding Corporate and capitalised project expenditure, which includes feasibility costs at Chucapaca and APP, increased from R241,716 per kilogram (US$1,077 per ounce) in the March quarter to R251,790 per kilogram (US$1,155 per ounce) in the June quarter.

At the South Africa region, NCE increased from R295,494 per kilogram (US$1,317 per ounce) to R305,501 per kilogram (US$1,401 per ounce). The NCE margin of 7 per cent in the June quarter compares with 5 per cent in the March quarter. The higher margin was due to the increase in production and higher gold price, partially offset by the increase in operating costs and higher capital expenditure. NCE excluding the funding of South Deep increased from R272,250 per kilogram (US$1,213 per ounce) in the March quarter to R280,986 per kilogram (US$1,289 per ounce) in the June quarter. The NCE margin excluding South Deep was 15 per cent in the June quarter compared with 13 per cent in the March quarter.

At the West Africa region, NCE decreased from US$938 per ounce to US$885 per ounce and the NCE margin increased from 32 per cent to 41 per cent due to a decrease in operating costs and lower capital expenditure.

At the South America region, NCE decreased from US$537 per ounce in the March quarter to US$526 per ounce in the June quarter due to decreased operating costs. The NCE margin increased from 61 per cent to 62 per cent.

At the Australasia region, NCE increased from A$1,035 per ounce (US$1,038 per ounce) in the March quarter to A$1,195 per ounce (US$1,265 per ounce) in the June quarter due to increased operating costs and increased capital expenditure, resulting in an NCE margin of 16 per cent compared with 26 per cent in the March quarter.

Balance sheet (Investments and net debt)

Investments decreased from R1,079 million (US$160 million) at 31 December 2010 to R1,013 million (US$147 million) at 30 June 2011. This was mainly due to Mvela Resources unbundling the 856,330 shares held, back to Gold Fields. The Group reclassified these shares as Treasury shares which are accounted for under shareholders equity.

The cash balance decreased from R5,464 million (US$810 million) at the end of the December quarter to R4,345 million (US$631 million) at the end of the June quarter.

Net debt (long-term loans plus the current portion of long-term loans less cash and deposits) increased from R3,974 million (US$589 million) in the December quarter to R10,208 million (US$1,482 million) in the June quarter, as a result of borrowings to fund the buy-out of minority shareholders in La Cima and Ghana.