Q2 2013 results in line with guidance

Group production for the quarter at 451,000 ounces and for the year to date at 928,000 ounces, is supportive of our production guidance for the year at 1.825 million ounces to 1.900 million ounces, which we reaffirm.

As a consequence of the restructuring, rationalisation and aggressive cost cutting implemented since the beginning of the year, further capital and operating cost savings of approximately US$200 million, are expected for the full year 2013. This includes US$50 million forecast to be saved on project capital. As a result of these savings, the cash cost and NCE guidance for the year given in February 2013 has been reduced by approximately US$30 per ounce and US$120 per ounce, to US$830 per ounce and US$1,240 per ounce, respectively.

If the South Deep project, (which is a developing mine) and capitalised project costs are excluded from these figures, then cash costs are forecast at US$790 per ounce and NCE at US$1,110 per ounce; this indicates that the Group’s core operations are sustainable at current spot prices. The actual NCE of US$1,266 per ounce for the six months to June 2013 was lower than guidance for the full year of US$1,360 per ounce. NCE for the six months to December is forecast at US$1,180 per ounce. In addition, exploration costs and Far Southeast (FSE) project costs are forecast to be US$30 million lower than previously estimated.

The Group’s All-in sustaining costs (AISC) increased from US$1,303 per ounce (R372,509 per kilogram) in the March quarter to US$1,416 per ounce (R428,392 per kilogram) in the June quarter. All-in costs (AIC) increased from US$1,476 per ounce (R421,735 per kilogram) to US$1,572 per ounce (R475,577 per kilogram). These costs were determined in accordance with the new World Gold Council standard issued on 27 June 2013. Lower production and inventory impairments were the main reasons for the increase in costs, as previously mentioned (refer to page 7 for detail).

Excluding the impact of the once-off impairments, the Group’s AISC and AIC for the June quarter declined by two percent from US$1,416 per ounce (R428,392 per kilogram) to US$1,280 per ounce (R387,271 per kilogram) and by three per cent from US$1,572 per ounce (R475,577 per kilogram) to US$1,436 per ounce (R434,456 per kilogram) respectively.

At US$1,280 per ounce (R387,271 per kilogram) for the June quarter the normalised AISC was two per cent lower than the US$1,308 per ounce (R344,315 per kilogram) achieved for the full year 2012. This reflects the initial results of the Group’s cost reduction programme and curtailment of marginal production.

Due to the significant decline in the gold price, the Group has made a loss for the quarter. Management and the Board are also concerned about gold price volatility in the short-term. As a result, the Gold Fields Board has deemed it prudent not to declare an interim dividend.

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While much work is still required to reposition the cost base of the company, considerable progress has been made with the following interventions:

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In the West Africa region the Tarkwa and Damang mines were affected by industrial action early in the June quarter, which resulted in a combined loss of approximately 21,700 ounces. Following significant interventions the situation at both mines has returned to normal.

Tarkwa

Tarkwa’s gold production for the quarter was 139,200 ounces compared with 170,100 in the previous quarter. The lower production was due to the illegal strike action and a temporary reduction in grade.

Tarkwa continues to be a world-class ore-body. Lower gold prices have necessitated a rationalisation of the operation by further reducing marginal production.  Accordingly it has been decided to close the North heap leach operations by the end of 2013. Heap leach recoveries have been steadily declining over the years and are now at around 55 per cent compared with recoveries in the CIL plant of 96 per cent. In our view the opportunity loss arising from the difference in recoveries cannot be ignored, particularly at lower gold prices. It was also decided not to advance the TEP6 project which had been under consideration for the past year as a possible solution for the treatment of the increasingly harder ore encountered as the open pits become deeper and recoveries from the heap leach operations decline. The decision not to proceed with the project was motivated by inadequate returns and capital rationing.

As a consequence, Tarkwa’s annual production profile is expected to be between 525,000 ounces and 550,000 ounces initially. Early indications are that the cost profile should improve as a result of higher recoveries but more work is being done to quantify the impact. Further rationalisation opportunities at the mine are under review.

Damang

Damang’s managed gold production for the June quarter was 31,800 ounces compared with 43,300 ounces in the March quarter. As with Tarkwa, this was as a result of the industrial action, as well as the premature closure of the original Damang Pit due to safety concerns.

The existing Damang mine has effectively come to the end of its life following the withdrawal from the original Damang pit during the quarter. The mine is incurring losses and is cash negative due to inadequate volumes of high grade ore to feed the CIL plant, compounded by reduced availability of the plant due to its age. The plant is 17 years old, which is beyond its original anticipated life. Nonetheless, Damang has a large reserve base of four million ounces and a resource of eight million ounces. A dedicated project team has been assembled to determine if there are economic means to extract all or part of the remaining four million ounces. A decision on the future of Damang is expected by February 2014, which might include placing the mine on care and maintenance. In the interim, aggressive steps are being implemented to improve volumes, grade and plant availability in the short term, as a means of containing cash outflows.

AUSTRALIA

St Ives

St Ives produced 97,700 ounces of gold in the June quarter compared with 102,000 ounces in the March quarter. This reduction was mainly due to a planned maintenance closure of the Lefroy mill.

Significant operational restructuring has already taken place at St Ives and the operation is viable as is evidenced by the strong operating results. While St Ives is now securely positioned in the lowest cost quartile in Australia, further cost reductions and revenue enhancing measures are under review.

Agnew

At Agnew, gold production increased to 53,000 ounces from 43,700 ounces in the March quarter mainly due to higher grade and improved throughput as a result of increased tonnes treated from the Songvang open pit stockpiles.

The succesfull implementation of the fit-for-purpose, low-cost, operating model and structure focussed on sustainable cash generation, has set Agnew up to be a good asset in our portfolio for some years to come. Agnew is now one of the lowest cost producers in the Group and near the bottom of the lowest cost quartile in Australia. Our challenge is to maintain this excellent performance.

PERU

Cerro Corona

In the South America region Cerro Corona produced 70,000 gold equivalent ounces compared with 76,900 gold equivalent ounces in the March quarter. This decrease was mainly due to an expected decrease in gold and copper grades, in line with those published in the 2012 Reserve declaration, partially offset by an increase in gold and copper recoveries.

Cerro Corona is the lowest cost producer in the Group and one of the lowest cost producers in the industry.  We believe that we can maintain this cost position for many years into the future.

Due to inadequate returns and capital rationing, it was decided not to advance the Sulphide Expansion project and the Oxides project at Cerro Corona. Instead of constructing a separate treatment facility for the existing oxide stockpiles, technologies are being tested that may make it possible to treat the Oxide material through the existing Sulphide circuits, if recovery rates are acceptable.

SOUTH AFRICA

South Deep

In the South Africa region the South Deep project increased its production by 23 per cent from 63,000 ounces (1,959 kilograms) in the March quarter to 77,800 ounces (2,420 kilograms) in the June quarter. Noteworthy was a 23 per cent increase in total tonnes milled to a record 640,000 tonnes, a 51 per cent quarter-on-quarter improvement in development, as well as a 39 per cent improvement in destress mining, all of which are important for the project’s production build-up. This performance is evidence of the successful implementation of the new operating model which launched in November 2012.

Despite these notable improvements, the slower production build-up, along with the slower than anticipated build-up in destress mining, is unlikely to place the mine in a position to achieve its previous target of 700,000 ounces of annual production during 2016. In addition, the underground yield and mine call factor have been negatively impacted by logistical constraints which have resulted in a delay in moving the long-hole stoping tonnages from the working place to the shaft. Long-hole stoping currently comprises 30 per cent of mining volumes. The mine has thus recently adopted a new blasting protocol in the long-hole stopes as the previous protocol has generated excessive tonnes per blast which could not effectively be removed. The new protocol allows for more frequent blasting and cleaning of lesser tonnes per blast to alleviate the current cleaning and movement constraints. A comprehensive review is underway to determine the most realistic future production profile for this mine. Once this is completed a reassessment of the capital and cost base will follow. Our view is that a rationalisation of the cost base at South Deep is required, given that the production build-up is likely to take longer and due to the lower gold price. We aim to provide further information on this review process by the end of the year.

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A prioritisation process has commenced on the project portfolio with a view to ranking our projects and determining which should continue to be advanced and which should be exited. This will allow the Group to concentrate on those assets which best fit the company’s objectives, have the best economic returns and are in jurisdictions considered attractive.

Accordingly, Gold Fields has appointed CIBC to explore strategic alternatives, including the possibility of a disposal, for the Arctic Platinum project in Finland, while Jefferies International has been appointed to do the same for the Talas Copper Gold project in Kyrgyzstan. The Woodjam project in British Columbia, Canada, has also been earmarked for possible disposal.

At the Yanfolila project in Mali the de-risking programme continues according to plan. Government approval for the exploitation permit is expected during the September 2013 quarter and a decision on the future of the project is expected by early 2014.

At the Chucapaca project in Peru conceptual studies for different mining scenarios, including a smaller underground operation, as well as metallurgical test work and capital estimates to support these scenarios, are ongoing.  This work is expected to be completed by the end of the year after which a decision will be made on the project’s future.  

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