Gold Fields achieved improvement in production and cost performance

Key achievements during the December 2013 quarter

In mid-2012 Gold Fields embarked on a fundamental shift in strategy away from an emphasis on ounces of production, to a primary focus on driving margins and cash flow. To this end, and to sustain our business in the long-term, we embarked on a process to engineer a sustainable and structural shift in the Group’s cost and production base. This process continued through the December 2013 quarter and will carry on throughout 2014.

During the December 2013 quarter the Group made meaningful progress on all fronts of this process:

All of the interventions to engineer a sustainable and structural shift in the Group’s cost base, including the four key interventions listed above, are discussed in more detail below.

Key achievements during 2013
2013 cost and production guidance exceeded

A key feature of our operations during 2013 was that the Group’s overall operational performance has generally been more consistent and predictable than in previous years, and better than the guidance for 2013. The Group’s attributable production for the full year of 2.02 million ounces is 6 per cent higher than the upper end of the original guidance of between 1.83 and 1.90 million ounces provided on 27 February 2013 and 1 per cent above the upper end of the revised guidance of between 1.92 and 2.00 million ounces provided on 20 November 2013, after the acquisition of the Yilgarn South assets.

The Group’s total cash cost for the full year 2013 was US$803 per ounce, 7 per cent lower than the guidance of US$860 per ounce, provided on 27 February 2013 and re-affirmed on 20 November 2013. The Group’s NCE for the full year 2013 was US$1,146 per ounce, 16 per cent lower than the guidance of US$1,360 per ounce provided in February 2013.

Geographic distribution of the portfolio

During 2013 the composition and geographic distribution of the Gold Fields portfolio of assets went through a fundamental transformation. The most significant changes were the February 2013 unbundling of the legacy South African assets (Kloof, Driefontein and Beatrix) into the newly created Sibanye Gold and the acquisition in October 2013 of the Yilgarn South assets in Western Australia. The good operational and financial performance of Sibanye Gold in 2013 is indicative of the success of the creation of Sibanye Gold.

As a result of these two transactions, and based on the results for the December 2013 quarter, Gold Fields currently sources approximately
13 per cent of its total production from Peru, 13 per cent from South Africa, 31 per cent from Ghana and 43 per cent from Australia.

Approximately US$450 million removed from the cost, capital, exploration and project expenditure during 2013

Based on our annualised results for the December 2013 quarter, compared with the results for the year ended December 2012, we have through the course of 2013 eliminated approximately US$450 million from cost, capital, exploration and project expenditure. Our costs are now approximately the same as they were three years ago, despite double-digit mining inflation in some of the past years. This structural shift in the Group’s cost base was brought about by the following interventions which, together with those described above under the achievements for the December 2013 quarter, were implemented through the course of 2013.

Safety

It is with deep regret that we have to report one fatal injury for the Group - at the Cerro Corona mine in Peru - during the December 2013 quarter. This tragic incident occurred in November, after Cerro Corona recorded two full years without a single lost time injury and had been fatality free since the inception of commercial operations in 2008. As a result of this incident the Group’s fatal injury frequency rate regressed from 0.00 in the September quarter to 0.10 in the December quarter, however, the lost time injury frequency rate for the Group improved from 1.20 to 0.58. As at the end of December 2013, Agnew had achieved 18 months without a lost time injury. Tarkwa was awarded the “Best Mine - 2013, for Safety, Health and Environment Auditing” by the Inspectorate Division of the Minerals Commission in Ghana during the last quarter.

Environmental incidents

Gold Fields reports on environmental incidents using a grading scale of 1 to 5. Levels 1 and 2 involve minor incidents/non-conformances with negligible or limited impact and level 5 includes major non-conformances or non-compliances that may result in long-term environmental impact with company or operation threatening implications and potential major damage to the company’s reputation.

Gold Fields group target is Zero level 4 and 5 incidents. No level 4 or 5 incidents were recorded at any of Gold Fields operations in the past five years. No level 3 incidents were reported in the December 2013 quarter and a total of 2 level 3 environmental incidents were reported during 2013. The Group recorded 13 level 2 incidents in the December 2013 quarter. This shows a significant improvement from 2012 in which 6 level 3 environmental incidents were reported. A level 3 incident is a limited non-conformance or non-compliance with limited environmental impact.

Balance sheet

At the end of the December 2013 quarter, Gold Fields had total outstanding debt of US$2.06 billion, cash on hand of US$325 million, net debt of US$1.735 billion and a net debt to EBITDA ratio of 1.53 times.

Of the total outstanding debt of US$2.06 billion, 49 per cent is a 10-year US$ Dollar bond of US$1.0 billion with a fixed coupon of 4.875 per cent, no financial covenants, and a maturity date of October 2020. Some 35 per cent of the gross debt of US$2.06 billion amounting to US$720 million has a maturity date of 28 November 2015. The current debt profile and tenor significantly reduces the risk of near term maturities having to be refinanced. A further US$53 million is drawn under a US$720 million 5 year revolving credit facility with a maturity date of November 2017.

While our current debt levels and the maturation profile of the debt are not considered to be excessively onerous, our stated preference is to gradually revert to our long-term debt target of approximately 1 times net debt to EBITDA. This is a medium to long-term strategy and is dependent on future gold price levels.

Impairments

Impairments of US$672 million (R7.0 billion) were recorded in the December quarter. At St Ives, Damang and Tarkwa the impairments amounted to A$297 million (R2.7 billion), US$173 million (R1.8 billion) and US$51 million (R531 million), respectively. The impairment calculations are based on 2013 life of mine plans at a gold price of US$1,300 per ounce. The impairments are mainly due to the decrease in the gold price and an increase in the discount rates used. In addition to the above, the impairment of the Arctic Platinum project (APP) and Yanfolila amounted to US$90 million (R928 million) and US$30 million (R307 million), respectively. At Tarkwa, US$44 million (R451 million) was impaired (US$27 million (R276 million) on long lead items for Tarkwa Expansion Phase 6 (TEP 6), US$8 million (R82 million) on assets no longer in use, US$7 million (R69 million) on heap leach assets and US$2 million (R24 million) on the high pressure grinding roller). Impairment of the oxide heap leach project expenditure at Cerro Corona amounted to US$10 million (R107 million) and US$10 million (R98 million) was impaired on the Group’s option payment to Bezant.

Operational update

Of the Group’s eight mines (including the recently acquired Yilgarn South assets) five are performing well and consistent with production and cost expectations (Cerro Corona, Tarkwa, St Ives, Agnew/Lawlers and Granny Smith). Two (Damang and Darlot) have shown significant improvements in the December 2013 quarter. More work is required to ensure that these mines are sustainable in the long-term. South Deep is still largely in project mode and continues its build-up to full commercial levels of production.

Tarkwa

The Tarkwa mine in Ghana has now transitioned from a combined heap leach and CIL operation to a CIL operation only, after the North heap leach operation was closed at the end of the December 2013 quarter. This follows the closure of the South heap leach operation earlier in 2013. The heap leach operations were closed because they had a cost structure higher than the prevailing gold price and due to declining dissolutions associated with harder ore. As a consequence of the closure of the North heap leach operation the mining rate will reduce from approximately 130 million tonnes per annum to approximately 90 million tonnes per annum and gold production will reduce to between 525,000 ounces and 550,000 ounces in 2014. From 2015 onwards production will stabilise at approximately 500,000 ounces per annum for the remainder of the life of mine. While the cost savings from the earlier closure of the South heap leach operation are fully reflected in the results for the December 2013 quarter, the benefits of the closure of the North heap leach operation will only be visible during the course of 2014.

Damang

At the Damang mine, also in Ghana, the focus during the September and December 2013 quarters was on improving operational performance through improved quality mining and more consistent plant availability. A parallel stream of work was focussed on determining if it was economically viable to extract all or part of the four million ounce reserve on the property. The possibility of care and maintenance was considered as a real alternative if a viable operational plan could not be developed for this mine.

Over the last six months, a comprehensive review and re-interpretation was done of all of the potential ore sources on the property, followed by a series of strategic interventions aimed at optimising mining production, reducing dilution, reducing mining costs and improving plant recoveries and throughput. As a consequence of these interventions Damang increased its production by 39 per cent to 45,400 ounces from 32,600 ounces in the September 2013 quarter, and reduced its all-in sustaining costs by 27 per cent from US$1,727 per ounce to US$1,261 per ounce over the same period.

Based on the results achieved in the December 2013 quarter, and on the expectation that the good operational performance can be continued in future quarters it was decided to keep the mine in production. At a gold price of US$1,300 per ounce, Mineral Reserves of approximately 1 million ounces are economical. In addition the mine has 6.6 million ounces of Mineral Resources, providing significant optionality.

South Deep project

During 2013 the South Deep project continued its positive build-up trajectory, with gold production improving by 12 per cent from 270,000 ounces in 2012 to 302,100 ounces in 2013, and the mission critical destress mining increasing by 24 per cent to 53,700 square meters in 2013, which is double the run rate of two years ago. These improvements are in line with the guidance provided for 2013.

South Deep is continuing the process of right-sizing the cost-base in line with the mine’s production profile. The objective is to create a more cost effective and fit-for-purpose structure by reducing senior management levels, replacing contractors with own employees where practical, and optimising all support service costs without impeding the trackless mechanised mining and ancillary engineering capabilities critical to the momentum of the build-up. As a consequence of the cost right-sizing, and the increased production during 2013, the all-in cost for the project reduced by 41 per cent from US$2,436 per ounce in the December 2012 quarter to US$1,436 per ounce in the December 2013 quarter.

The comprehensive review of the production build-up plan for the South Deep project, also announced on 22 August 2013, was concluded by the end of 2013. The review’s primary focus was to reassess the expected production build-up. Critical factors that are being addressed to underpin the build-up include:

Following the review, and the successful implementation of the various interventions, the South Deep production build-up is expected to reach a run-rate of between 300,000 and 330,000 reef tonnes per month by the end of 2017, producing between 650,000 and 700,000 ounces of gold on an annualised basis at an all-in cost of approximately US$900 per ounce (This assumes an exchange rate of US$1.00/R9.50 and is in present day money terms).

Integration of the Yilgarn South assets

Following the conclusion of the acquisition of the Yilgarn South assets from Barrick Gold on 1 October 2013, the Granny Smith, Lawlers and Darlot mines were fully integrated into the Gold Fields portfolio during the December 2013 quarter. A thorough operational review was undertaken to determine the most appropriate approach to improve the cash generating ability of the assets by applying Gold Fields’ low cost model, which has been successful in repositioning St Ives and Agnew.All three mines implemented significant restructuring during the early part of the December 2013 quarter to reduce costs and to meet the Gold Fields cash flow requirements.

In order to maximise the operating synergies between Lawlers and the adjacent Agnew mine, the services, infrastructure and human resources of the two mines were immediately consolidated and the mine operated as a single entity. The Lawlers processing plant was closed by the end of November 2013 and all newly mined ore from Lawlers redirected to the Agnew plant. During the December 2013 quarter the combined Agnew/Lawlers mine produced 73,600 ounces of gold at an all-in cost of US$929 per ounce. Granny Smith produced 62,600 ounces of gold at an all-in cost of US$888 per ounce. The Darlot mine, which was previously loss-making, achieved production of 19,700 ounces at an all-in cost of US$1,132 per ounce. On a consolidated basis the newly acquired Yilgarn South assets produced 114,000 ounces and an all-in cost of US$940 per ounce.

As from Q1 2014 Gold Fields will exclusively report its costs in accordance with the new World Gold Council definition for all-in sustaining costs and total all-in cost and therefore will no longer report total cash cost and notional cash expenditure (NCE). From Q1 2014 Gold Fields will report in US dollar only, as it is now the dominant currency in the Gold Fields portfolio.