Strong operational performance generates US$63 million cash flow

During the quarter Gold Fields generated US$63 million of cash flow. This brings the total cash flow from operating activities for the year to date, after taking account of net capital expenditure, environmental payments, debt service costs and non-recurring items, to US$182 million, which positions Gold Fields as one of the strongest free cash flow generators in its gold mining peer group.

Attributable gold equivalent production increased by 2% to 559,000 ounces in the September quarter. The Group achieved all-in sustaining costs (AISC) of US$1,074/oz and all-in costs (AIC) of US$1,096/oz. If the South Deep project, which is not yet at commercial levels of production, is excluded from the September quarter results, then the Group’s AIC was US$1,025/oz, which demonstrates the robustness of the portfolio and positions Gold Fields in the lowest quartile on an AIC basis.

Despite the recent volatility in the gold price, Gold Fields remains committed to the objective of generating a sustainable free cash flow margin of at least 15% at a US$1,300/oz gold price, without compromising the long-term sustainability of our ore bodies through a lack of investment in ore reserve development and stripping, or through “high grading”. This policy remains unchanged, even at current spot prices. During the September quarter, Gold Fields achieved a free cash flow margin of 12% (see table on Free cash flow margin ) against a realised gold price of US$1,265/oz for the quarter. By structuring the Group to generate a 15% free cash flow margin at a US$1,300/oz gold price, Gold Fields has in fact built-in a safety cushion to withstand lower gold prices. On this basis the Group’s expected breakeven gold price is approximately US$1,050/oz, assuming existing operations are sustained.

On 20 October 2014, Gold Fields announced that the Group remained on track to achieve its production guidance for the full year 2014 of approximately 2,200,000 ounces of gold equivalent production. Costs for the full year, however, are expected to be lower than the guidance, first published on 13 February 2014, with AISC and AIC expected to be 3% and 2% lower at approximately US$1,090/oz and US$1,130/oz respectively.

Further Reducing Net Debt

Continued strong cash generation during the quarter enabled the Group to make further progress on another key strategic objective for 2014, namely to further improve the strength of its balance sheet by reducing net debt and further improving the net debt to EBITDA ratio. During the quarter net debt was reduced by a further US$137 million to US$1,498 million, which brings total net debt reduction for the year to date to US$237 million. The reduction was assisted by the US$81 million proceeds from the sale of a 51% interest in Chucapaca, which was received this quarter.

Based on a 12-month rolling historical average, the Group’s net debt to EBITDA ratio improved from 1.47 in the June 2014 quarter to 1.33 in the September 2014 quarter. Our medium-term objective is to reduce our net debt to EBITDA ratio to approximately 1 times.

The net debt reduction in conjunction with the agreement reached with our group of bankers in the June quarter to amend and extend the maturity date of commitments totaling US$715 million by two years from November 2015 to November 2017 on the same terms – has enabled the Group to improve its solvency and liquidity.

Setting South Deep up for long-term success

At South Deep all mining related activities were severely curtailed for the entire September quarter as a result of the May 2014 introduction of an extensive ground support remediation programme in the current mine workings. The remediation programme took most of the legacy haulages and arterial routes on 95-level and above – from where a significant proportion of current production is sourced – out of service, with a commensurate impact on production. As a consequence South Deep’s production declined by 18% from 1,591 kilograms (51,100 ounces) in the June quarter to 1,298 kilograms (41,700 ounces) in the September quarter and destress mining declined by 50% from 6,822 square metres in the June quarter to 3,392 square metres in the September quarter.

While access to production areas was re-established at the start of the December quarter, the ground support remediation programme delayed both destress mining and the opening up of a number of long-hole stopes that were planned to be mined in the December 2014 and March 2015 quarters, as well as the advance of ancillary services, such as backfill, an integral component of the mining cycle. While this will have a commensurate knock-on effect on production, mitigation is expected through new production areas that are planned to be opened up during the March 2015 quarter. The full implications of the largely completed ground support programme on 2015 production are still being assessed. Accordingly, updated 2015 guidance for South Deep, reflecting these safety related knock-on effects, will be published with the Group guidance on Thursday, 12 February 2015.

The Australian team continues to contribute to the upskilling of our people and in helping to develop a true mechanised mining culture at South Deep. Particularly pleasing, however, is that South Deep is now starting to attract talent from the highly sought after, albeit small, South African mechanised mining skills pool. Nico Muller, formerly the Chief Operating officer of Royal Bafokeng Platinum Limited, has joined Gold Fields as Executive vice president for the South Africa Region. Nico has extensive mechanised mining experience spanning a 20-year career during which time he worked at Target and helped to build the Two Rivers mechanised underground mine, one of the most successful mechanised mines in South Africa.

The success of South Deep is largely dependent on its people and our strategy is to grow our own people through focussed internal training efforts as well as judicious recruitment of the best South African mechanised mining skills to supplement our existing talent pool.

The review of South Deep’s current destress mining methodology by the International Geotechnical Advisory Board (IGAB), announced on 21 August 2014, continued during the quarter. Two alternative methods are under review. The first method is the 4.5 X 4.5 meter Destress method (previously 4.0 X 4.0 meter) and the second is the Inclined Mining Slot method. Both of these methods, if successful, could significantly de-risk the South Deep build-up plan and future production profiles, and could have a meaningful positive impact on costs and schedule. Both methods will be piloted in discrete areas of the mine during 2015. It is too early to assess whether either of these methods could be commercially deployed. The results of the pilot studies will provide greater resolution on their commercial viability and timing of adoption.

Steady state production in Ghana

At Tarkwa in Ghana, the expansion of the Carbon in Leach (CIL) plant from an annual throughput of 12.3 to 13.3 million tonnes per annum progressed well and this programme is expected to be completed by the end of December 2014. The expansion is expected to enable Tarkwa to increase its future production to a steady state level of approximately 550,000 ounces per annum.

With production of 139,200 ounces at AIC of US$1,096/oz during the September quarter, and year to date production of 425,200 ounces at an AIC of US$1,045/oz, Tarkwa is on track to better its 2014 production guidance of 520,000 ounces at an AIC of US$1,100/oz. Following the closure of the heap leach operations at the beginning of the year, Tarkwa has achieved stability and continues to out-perform against its production and cost guidance. Although smaller following the closure of the heap leach operations, Tarkwa is now more profitable even at current lower gold prices.

Damang further consolidated its return to profitability with another strong performance. Gold production increased by 6% to 42,800 ounces, while the AIC declined by 3% from US$1,282/oz to US$1,245/oz during the September quarter. With year to date production of 130,000 ounces at an AIC of US$1,210/oz, Damang is on track to exceed its 2014 guidance of 165,000 ounces of production at an AIC of US$1,240/oz.

The main focus at Damang remains the identification of additional ore sources along the 27 kilometres of strike between Damang and Tarkwa, where historical open pits were last drilled and mined when the gold price was between US$300/oz and US$400/oz. This strategy could contribute to an appreciable addition to Mineral Reserves and Mineral Resources over the next three years and has the potential to extend the life of this mine substantially.

Another outstanding quarter for South America

Cerro Corona, our copper/gold operation in Peru, had another outstanding quarter with gold equivalent production up by 10% to 84,700 ounces at an AIC of US$718/eq oz. This strong cost performance compared with AIC of US$789/eq oz in the June quarter. With year to date production of 242,000 ounces at an AIC of US$712/eq oz, Cerro Corona is on track to exceed its production guidance for the full year of 290,000 ounces at an AIC of US$865/eq oz.

Australia continues to outperform

The Group’s Australian operations, in aggregate, exceeded guidance both in terms costs and ounces produced. The four mines in the portfolio reported gold production of 268,800 ounces at an AIC of US$990/oz. This brings total production for the year to date to 770,900 ounces at an AIC of US$1,043/oz against guidance for the full year of 975,000 ounces at an AIC of US$1,130/oz. Over the past 12 months, since acquiring the Yilgarn South assets from Barrick in October 2014, Gold Fields’ Australian operations have produced more than 1 million ounces of gold.

During the September quarter, Agnew/Lawlers increased its production by 9% to 72,200 ounces at an AIC of US$953/oz, while St Ives raised its production by 6% to 88,700 ounces at an AIC of US$1,149/oz. The star performer in the region, however, was again Granny Smith, which improved its production by 1% to 85,600 ounces at an AIC of US$792/oz. Year-to-date and with one quarter still to go, the mine has already produced 236,700 ounces at an AIC of US$789/oz, against full year guidance of 240,000 ounces at an AIC of US$1,060/oz.

Darlot contributed 22,300 ounces at AIC of US$1,224/oz, which is in line with the strategy for this mine to operate above cash break-even point, while investing all of the cash it generates in exploration to find additional ore sources that would secure its future. Year-to-date, the mine produced 68,100 ounces at an AIC of US$1,175/oz against full-year guidance of 80,000 ounces at AIC of US$1,315/oz. Approximately US$7 million has been invested in near-mine exploration year-to-date and sufficient ore reserves have been delineated to secure similar production in 2015. Good progress has also been made towards the discovery of a potential “game changer” aimed at securing the future of this mine as a long-term Gold Fields franchise asset.

The key strategic objective of the Australia region continues to be significant investment in near mine exploration with the US$65 million near-mine exploration programme at all of the mines, aimed principally at improving the Mineral Resource and Reserve positions of these mines over the next 2 to 3 years. At St Ives early capital development has commenced on the newly discovered high-grade Invincible deposit with a view to first open pit production during the June 2015 quarter. At Agnew/Lawlers access development has commenced into the new high grade underground FBH deposit, where first production is also expected during the June 2015 quarter. FBH is expected to initially supplement and eventually replace production from the Kim Lode, which is the base load of production from the mine. At Granny Smith exploration results during the quarter provided further support for the replication of numerous deeper lodes in the Wallaby underground deposit, similar in structure and geometry to the Z70 to Z100 lodes from where current production is sourced. These results are early indications of the potential for significant Mineral Resource and Reserve replenishment potential at the Wallaby deposit.