Strong operational performance generates US$54 million cash flow

In 2014, the Group generated cash flow from operating activities of US$235 million despite the 10 per cent decrease in the gold price during the year. The robust international portfolio continues to perform well, underpinning the 2014 financial performance. Unfortunately, South Deep remains challenging and the planned build-up for 2015 will not be achieved. However, we believe that 2014 was the low-point for the mine and expect consistent improvement through 2015 and beyond.

Highlights for the December 2014 quarter:

Highlights for fiscal 2014:

* Cash flow from operating activities less net capital expenditure and environmental payments for continuing operations

South Deep – Focusing on getting the basics right

Gold production for the quarter increased by 16 per cent to 1,508kg (48,500oz), mainly as a result of the resumption of full production after the ground support programme was completed during the September quarter. However, production for the full year was severely impacted by this four-month remediation programme, reducing by 34 per cent to 6,237kg (200,500oz) in 2014.

A number of issues that arose during 2014 highlighted the numerous challenges facing the mine. These included the ground support remediation programme and a skills deficit in mechanised mining practices, as previously indicated. In view of these issues Gold Fields has decided to take a step back to get the basics right and set the foundation to unlock the long-term value inherent in the asset.

Management retains full confidence in the orebody and the world-class infrastructure in place to successfully exploit this orebody. Many of the challenges faced by the mine are related to the shortage of mechanised mining skills in South Africa and our competition with other players for these limited skills. We now have put in place a strong senior management team in South Africa with South African mechanised mining experience, headed by Nico Muller as EVP for the South Africa Region. In addition, we have retained a small part of the Australian team brought in at the beginning of the 2014 to assist with ongoing training and skills transfer.

Key focus areas for South Deep are:

Unfortunately, there are no quick fixes and providing more equipment, capital and people on its own will not solve the challenges at the mine. The right sizing of the mine last year with a reduction in personnel and equipment thus remains an important building block for future sustainability and improvement. The South Deep project, with an estimated life of 70-years plus, is pioneering mechanised gold mining in South Africa on the scale not previously envisaged and hurdles can be expected; setting it up for long-term sustainable delivery will require more time than we had originally anticipated.

Gold Fields will give the newly appointed team the time to get the basics right and determine the way forward for the mine. The knock-on effects of the stoppage last year will have a material impact on 2015 but we nonetheless forecast a 15 per cent increase in production to approximately 230,000oz this year. We expect the efforts of the new team to start to come through in 2016, when we forecast South Deep to move to a breakeven position, assuming current Rand gold prices.

Australia – Full benefits of the Yilgarn South deal shine through

The Australian region had another strong quarter, achieving a free cash flow margin of 20 per cent. Production for the quarter was 260,000oz (down 3 per cent), with AIC of A$1,089/oz (US$930/oz) (up 2 per cent). At St Ives, production increased by 5 per cent to 93,000oz mainly due to higher grade open pit material mined and processed. Production at Agnew/Lawlers was largely unchanged at 73,200oz. Darlot was negatively impacted by lower tonnes processed and lower grades mined, resulting in a 30 per cent reduction in gold produced to 15,500oz. At Granny Smith, gold production decreased by 8 per cent to 78,500oz due to lower volumes mined and processed as well as lower grades.

Calendar 2014 was the first full year of the inclusion of the Yilgarn South assets (acquired from Barrick Gold in October 2013), with the region achieving 1,031,000oz, at an AIC of A$1,124/oz (US$1,015/oz). Granny Smith was the star performer in the region, producing 315,200oz at an AIC of A$896/oz (US$809/oz). On the other hand, St Ives was negatively impacted by the closure of the Argo mine and a lower underground head-grade, which resulted in production decreasing by 10 per cent to 361,700oz. Darlot remains in a challenging position, but achieved its targets for the year. Agnew/Lawlers performed well for the year with 270,700oz at an AIC of A$1,096/oz (US$990/oz).

During 2015, there will be a further increase in exploration spending at the Australian operations, with particular focus at St Ives. In addition to exploration activities aimed at extending the mine’s Mineral Reserves and Resources with a focus on the Invincible, Invincible South and Incredible areas, greenfields exploration outside these possible extensions will also be increased. The main target areas include the Eastern Corridor, SW Dome, Speedway Corridor and Kambalda West. We expect to spend approximately A$80 million on brownfields exploration across the region in 2015, compared with A$62 million in 2014.

On 12 December 2014, we advised the market that, together with another major resources company, we had filed an appeal in respect of aspects of the decision of the Federal Court handed down in the Ngadju native title matter. It is anticipated that the appeal will take place later in the year.

South America – Consistent performance

Cerro Corona continues to be the jewel in the crown, with equivalent gold production stable at 84,600oz for the quarter, in line with the previous quarter. AIC per ounce of gold increased from US$245 per ounce to US$468 per ounce mainly due to higher net operating cost. AIC per equivalent ounce decreased from US$718/oz to US$682/oz, due to the increase in equivalent ounces sold. The mine achieved a free cash flow margin of 32 per cent in the quarter and 37 per cent for the full year. For the full year, gold equivalent production increased by 3 per cent to 326,600oz, at an AIC of US$316/oz or US$702/oz when expressed on an equivalent ounce basis.

Favourable results from early exploration work at Salares Norte in Chile during 2014 have warranted additional drilling in 2015. The approved exploration budget for 2015 is US$24 million.

West Africa – Turnaround at Damang sustained through 2014

Production and AIC from the West African region were similar to the September 2014 quarter at 180,900oz and US$1,126/oz, respectively. The success of the turnaround at Damang is evidenced by the December quarter results, with production increasing 12 per cent to 47,800oz, mainly due to higher tonnes processed. Consequently, AIC decreased by 13 per cent to US$1,082/oz. At Tarkwa, gold production decreased by 4 per cent to 133,100oz, due to lower ounces from the heap leach operations and a lower yield. AIC increased by 4 per cent to US$1,142/oz as a result of the lower output and higher capital expenditure, partially offset by the lower operating costs.

For the year, total managed production from the region decreased by 6 per cent to 736,000oz. Production from Damang improved by 16 per cent to 177,800oz in 2014 mainly due to the implementation of the recovery plan and a higher head grade mined, in line with improved mining discipline. At Tarkwa, production decreased by 12 per cent to 558,300oz primarily as a result of the closure of the heap leach facilities.

Further improvement in the balance sheet

Net debt decreased from US$1,498 million at the end of September 2014 to US$1,453 million at the end of December 2014, which resulted in a lower net debt to EBITDA ratio of 1.30. The further US$45 million reduction in the quarter, takes total net debt reduction over the year to US$282 million. An additional encouraging indicator is that the net debt as a percentage of enterprise value** decreased to 29 per cent at the end of December 2014, compared with 41 per cent at the end of December 2013.

Effect of oil prices on All-in Costs (AIC)

For Gold Fields, the impact of the lower oil price is not as meaningful as would be expected (especially in the short-term). This is because in Ghana and Peru fuel price stability strategies are followed by Government and short term variations in prices are not always passed onto consumers and industry. The Australian operations entered into a hedge at a base price of US$99.10 per barrel of Brent crude on 10 September 2014. On 26 November 2014, an additional hedge at a base price of US$78.45 per barrel of Brent crude was entered into. This resulted in 100 per cent of diesel requirements for the March 2015 quarter and 75 per cent of diesel requirements for the remaining 9 months (April to December) 2015 for Australia being hedged. All other things being equal – i.e. assuming no fuel price stabilisation strategy and no hedges – the impact of a decrease of US$10 per barrel of Brent crude on AIC is a reduction of US$18/oz for Ghana, A$6/oz (US$5/oz) for Australia and US$7/oz for Peru.

Power

In South Africa, South Deep has elected to be on a load curtailment schedule, and will not be subjected to load shedding. Under Eskom Stage 1 and 2 emergencies, the mine is required to reduce its load by 10 per cent for the duration of the emergency. Thus far, South Deep has only been subject to Stage 1 and 2 emergencies. We expect minimal impact on production due to the excess hoisting and plant capacity at the mine. In the event of moving to a Stage 3 emergency, the mine would have to reduce its load by 20 per cent for the duration of the emergency.

The Ghanaian mines have been affected by load shedding of up to 25 per cent. These disruptions have been accommodated through the use of standby Gensets.

2015 guidance

Attributable equivalent gold production for the Group for 2015 is forecast at around 2.2 million ounces. All-in sustaining costs are forecast at US$1,055/oz and total all-in cost at US$1,075/oz. Capital expenditure for the year has been set at US$660 million. It is weighted to the first half of the year, which will have a resultant impact on AIC. Notwithstanding continuous inflation in labour and power costs, which make up approximately 60 per cent of the Group’s costs, the 2015 guidance for AISC at US$1,055/oz and AIC at US$1,075/oz is forecast to be lower than that achieved in 2014. The exchange rate assumptions for guidance were US$1=R11.50 and A$1=US$0.80.

** Enterprise value is defined as market capitalisation plus net debt