GOLD FIELDS - Q2 ended 30 June 2012

Gold production increased by 12 per cent from 249,700 ounces (7,765 kilograms) in the March quarter to 279,600 ounces (8,698 kilograms) in the June quarter. This increase was as a result of higher underground volumes achieved at higher yields.

Underground tonnes milled increased from 0.99 million tonnes in the March quarter to 1.08 million tonnes in the June quarter due to increased focus on the removal of accumulations and backlog tonnes. The underground yield increased from 6.5 grams per tonne to 7.2 grams per tonne mainly due to an increase in average mining values and an improvement in the mine call factor. Surface tonnes milled decreased from 1.53 million tonnes to 1.32 million tonnes and the surface yield regressed from 0.8 grams per tonne to 0.7 grams per tonne. Main development increased by 9 per cent from 10,651 metres to 11,600 metres and on-reef development increased by 2 per cent from 1,890 metres to 1,926 metres. The average development value increased from 1,867 centimetre grams per tonne to 2,013 centimetre grams per tonne.

Operating costs increased from R1,971 million (US$254 million) to R2,074 million (US$257 million). This increase was mainly due to the annual electricity tariff increase, one month of winter electricity tariffs as well as higher stores costs in line with the increase in production. Total cash cost for the quarter decreased from R255,480 per kilogram (US$1,023 per ounce) in the March quarter to R242,596 per kilogram (US$936 per ounce) in the June quarter. This decrease was mainly due to the increase in production, partly offset by the increase in costs.

Operating profit increased from R1,278 million (US$165 million) in the March quarter to R1,590 million (US$198 million) in the June quarter due to the increase in production. Capital expenditure increased from R533 million (US$69 million) to R633 million (US$79 million) mainly due to expenditure on housing projects, self-rescue pack replacements and additional ore reserve development.

Notional cash expenditure reduced from R322,421 per kilogram (US$1,291 per ounce) in the March quarter to R311,163 per kilogram (US$1,201 per ounce) in the June quarter as a result of the higher production, partly offset by the increase in operating costs and capital expenditure. The NCE margin increased from 23 per cent to 26 per cent due to the lower NCE.

A fire broke out on 30 June 2012 at KDC West Ya Rona (formerly Driefontein 4 shaft), tragically resulting in the death of five employees due to inhalation of toxic gas. Production in the June quarter was not affected. Operations across KDC were temporarily suspended until the integrity of the systems to safeguard our employees was confirmed. Production resumed at KDC East after 3 days, and at the portions of KDC West unaffected by the fire after 5 days once the instruction issued under Section 54 of the Mine Health and Safety Act was uplifted.

All operations at Ya Rona have been suspended to date, and a limited number of panels were affected at other KDC West shafts due to noxious gases or seismicity. The fire has since been extinguished with no evident damage to existing working areas. The balance of the September quarter will be focused on flushing out noxious gases and ensuring a safe and healthy environment to recommence operation in the December 2012 quarter. On this basis, the loss of production as a consequence of the fire is expected to be approximately 1,600 kilograms (50,000 ounces).

Gold production increased marginally from 79,200 ounces (2,462 kilograms) in the March quarter to 79,600 ounces (2,477 kilograms) in the June quarter and was in line with the increase in underground tonnes milled, from 539,000 tonnes in the March quarter to 543,000 tonnes in the June quarter. The increase in tonnes was due to a marginal increase in stoping volumes which was lower than anticipated due to flexibility constraints. This was as a result of an abnormal amount of crew moves from low grade areas to maintain the mining grade at 4.4 grams per tonne.

Surface tonnes milled decreased from 449,000 tonnes in the March quarter to 351,000 tonnes in the June quarter. In the March quarter, during the Christmas break, 1 plant processed 82,000 tonnes of low grade ore compared with no surface material milled during the June quarter as a strategy to segregate high grade and low grade ore. Surface yield increased from 0.2 grams per tonne in the March quarter to 0.3 grams per tonne in the June quarter.

Main development increased by 19 per cent from 5,151 metres in the March quarter to 6,117 metres in the June quarter and on-reef development increased by 22 per cent from 1,321 metres to 1,606 metres. The weighted average main development value decreased from 1,320 centimetre grams per tonne in the March quarter to 1,076 centimetre grams per tonne in the June quarter, mainly due to the grade variability of the areas being developed as anticipated.

Operating costs increased from R630 million (US$81 million) in the March quarter to R673 million (US$84 million) in the June quarter. This was mainly due to increased stoping and development volumes, increased maintenance costs and the annual electricity tariff increase as well as one month of winter electricity tariffs. Total cash cost increased from R260,114 per kilogram (US$1,041 per ounce) to R273,436 per kilogram (US$1,055 per ounce) due to the higher operating costs.

Operating profit decreased from R402 million (US$52 million) in the March quarter to R374 million (US$46 million) in the June quarter due to the higher operating costs.

Capital expenditure increased from R130 million (US$17 million) to R188 million (US$23 million) due to the slow start-up of spend on capital at the beginning of the financial year. The majority of the capital expenditure was on infrastructure upgrades and ore reserve development.

Notional cash expenditure increased from R308,570 per kilogram (US$1,235 per ounce) in the March quarter to R347,679 per kilogram (US$1,342 per ounce) in the June quarter due to the higher operating costs and the increase in capital expenditure. The NCE margin decreased from 26 per cent to 18 per cent due to the higher NCE.

Gold production increased by 33 per cent from 58,600 ounces (1,824 kilograms) in the March quarter to 77,800 ounces (2,420 kilograms) in the June quarter.

Total tonnes milled, which as planned, included 119,000 tonnes of off-reef development, increased from 439,000 tonnes in the March quarter to 539,000 tonnes in the June quarter. Underground reef yield increased from 5.3 grams per tonne to 5.8 grams per tonne, mainly due to an increase in production from higher grade areas.

Development increased from 2,440 metres in the March quarter to 2,952 metres in the June quarter. The new mine capital development in phase 1, sub 95 level, increased from 688 metres to 887 metres. Development in the current mine areas above 95 level increased from 1,516 metres to 2,008 metres. Vertical development decreased from 236 metres to 57 metres due to a change in mine design to facilitate the build-up to full production. Part of the fleet is being deployed to the installation of additional secondary support in the haulages in order to provide long-term sustainability of the operations. De-stress mining increased by 52 per cent from 7,811 square metres in the March quarter to 11,851 square metres in the June quarter. The de-stress attack-points in the future mine area have increased from eight in the March quarter to eleven in the June quarter. The current mine attack-points has remained at seven.

Operating costs increased from R567 million (US$73 million) in the March quarter to R599 million (US$74 million) in the June quarter, mainly due to higher production levels, the annual electricity tariff increase and one month of winter electricity tariffs. In addition, more employees were employed, in line with the project build-up. Total cash cost decreased from R305,976 per kilogram (US$1,225 per ounce) to R244,215 per kilogram (US$942 per ounce) due to the increase in gold production, partly offset by the increase in operating cost.

Operating profit increased from R197 million (US$25 million) in the March quarter to R425 million (US$53 million) in the June quarter as a result of the higher revenue, partly offset by the increase in operating costs.

Capital expenditure decreased from R655 million (US$84 million) in the March quarter to R643 million (US$80 million) in the June quarter. The majority of the expenditure was on development, the ventilation shaft deepening and infrastructure, the metallurgical plant expansion, trackless equipment and the full plant tailings backfill.

Notional cash expenditure decreased from R670,121 per kilogram (US$2,683 per ounce) in the March quarter to R512,934 per kilogram (US$1,979 per ounce) in the June quarter as a result of the increase in production and the lower capital expenditure, partly offset by the increase in operating costs.

The South Deep capital infrastructure programme continues to meet its key delivery dates to support the build-up to a run-rate of 700,000 ounces per annum by the end of 2015. The ventilation shaft deepening project remains on track for commissioning in the December 2012 quarter and the additional rock hoisting is expected to build to a nameplate capacity of 195,000 tonnes per month by the last quarter of 2013. This, together with the existing Main shaft capacity of 175,000 tonnes per month, is expected to be adequate to sustain the full production to the mill. The gold plant expansion from 220,000 tonnes per month to 330,000 tonnes per month is under construction, with commissioning planned before the end of the year.

Of concern is the fact that the issues raised during the strike at South Deep in fiscal 2010 relating to the relationship between the unions and management and the desire of the union for greater involvement in human resource and other management decision-making processes at the mine remain unresolved.

On 2 August 2012 Gold Fields issued a Section 189 (3) notice to the National Union of Mineworkers (“NUM”) and other affected employees who are not members of a recognised trade union at South Deep. In terms of the notice, a consultation process with the NUM and affected unaffiliated employees will run for a prescribed period of 60 days. At the end of the consultation process, the possible outcomes could include restructuring in line with a proposed new operating model for South Deep – which management had been discussing with the union for over six months – or possible dismissals for operational requirements. Of the 2,800 affected employees around 330 – mostly members of United Association of South Africa (UASA) – have accepted the changes to operating conditions linked to the new operating model.

In the event that South Deep experiences work stoppages or delays arising from industrial action or the Section 189 (3) process, these may have a material adverse effect on the business, production levels and operating results.

South Africa region