The international operations continued to perform well for the six months ended June 2018 generating c.US$190m in net cash flow (before project capex) for the group.

Gold Fields is in a strong financial position, with the integrity of the balance sheet remaining intact after funding cumulative project expenditure (Damang and Gruyere) of US$330m over the past 18 months.

As reported in the recent trading statement, attributable gold equivalent production from continuing operations, for the six months ended 30 June 2018, was 994koz (for the six months ended June 2017: 1,022koz). All-in sustaining costs for the period were US$965/oz (for the six months ended June 2017: US$967/oz), with all-in costs of US$1,169/oz (for the six months ended June 2017: US$1,092/oz) as a result of the higher project capital, as was planned.

Normalised profit from continuing operations for the six months ended June 2018 was US$43m or US$0.05 per share, compared with US$78m or US$0.09 per share in for the six months ended June 2017. Normalised profit was impacted by higher exploration expenditure this half year particularly as activities at Salares Norte have increased to complete the feasibility study by year end.

In line with our dividend policy of paying out between 25% and 35% of normalised profit as dividends, we have declared an interim dividend of 20 SA cents per share which compared with the 2017 interim dividend of 40 SA cents per share.

Net cash flow for continuing operations from operating activities less net capital expenditure and environmental payments was an outflow of US$79m, compared with an outflow of US$102m for the six months ended June 2017, mainly due to the growth capital spent at Gruyere, Damang and Salares Norte. We previously indicated that we expected to be cash negative in 2017and 2018 as a consequence of building two new mines in the Group and our ongoing study at Salares Norte. Excluding the project capital of US$179m for the half year, the net cash flow would have been an inflow of US$100m for the six months ended June 2018.

The net debt balance increased by US$90m to US$1,393m from US$1,303m at the end of FY 2017, with the net debt to EBITDA ratio marginally higher at 1.07x (December 2017: 1.03x) but still well below the debt covenant level of 2.5x.

Update on projects

Damang

The Damang reinvestment project continued to track well against plan for the six months ended June 2018. Total tonnes mined increased 26% YoY to 23.9Mt for the six months ended June 2018 which was slightly ahead of plan. Gold produced increased 16% YoY to 89.5koz, driven by higher grade material mined and processed during the half year.

Capital expenditure was 9% higher YoY at US$73m, with US$61m spent on capital waste stripping and the balance spent on engineering projects, Amoanda Phase 2 infill drilling and construction of the Far East TSF. AISC decreased 18% YoY to US$829/oz while AIC decreased 7% YoY to US$1,585/oz.

The potential at Amoanda continues to increase, following a successful drilling campaign, which will provide additional flexibility to the operation when the main Damang pit commences production in Q2 2019.

Gruyere

As reported by the joint venture partners (on 30 July 2018), the independent third party review of the Definitive Estimate (DE) for the Gruyere Gold Project including the Final Forecast Capital (FFC) cost estimate has been completed. First gold remains scheduled for the June 2019 quarter which is in line with the guidance issued in April 2018. However, the FFC is now estimated to be A$621m (level of accuracy range -2% / +2%) which includes scope changes and force majeure costs of A$30m along with a contingency of A$30m. This compares with the original budget of A$532m, with A$329m spent on the project to date. A$185 m is expected to be spent in the second part of the year.

As per the Joint Venture agreement entered into at the time of the acquisition, Gold Fields will fund up to 10% of costs overruns, excluding scope changes and force majeure costs. This translates to approximately A$51m. Consequently, Gold Fields share of the FFC is A$337m, with A$164m having been incurred up to the end of June 2018.

As at 27 July 2018, overall Project engineering and construction was 94% and 61% complete respectively with EPC construction (process plant and associated infrastructure) 39% complete.

Despite the increased capital for the project, we believe that the long-life, low-cost nature of Gruyere will subsequently improve the Gold Fields portfolio.

Salares Norte

The feasibility study for Salares Norte is on track for completion at the end of 2018. As previously guided, the mine is expected to produce 3.5Moz gold equivalent ounces over a 10-year life, with average AISC of around US$575/oz and initial capex of US$850m.

On 5 July 2018, the Environment Impact Assessment was accepted for evaluation by the Chilean regulatory authorities.

Regional performance

Australia

Gold production for the Australia region for the six months ended June 2018 was 1% lower YoY at 442koz, mainly due to lower production at Granny Smith, partially offset by increased production at St Ives. AIC for the region (excluding Gruyere) was 2% lower YoY in A$ terms at A$1,166/oz and 1% higher YoY in US$ terms at US$900/oz. Net cash flow from the region for the six months ended June 2018, excluding the US$79m spent on Gruyere, was an inflow of US$86m.

During the six months ended June 2018, A$40m of the exploration budget was spent, with 387,800 metres drilled during the period. There have been encouraging results at all operations including extensions at Wallaby at Granny Smith, both laterally and at depth, as well as extensions at the Greater Invincible complex at St Ives. The prefeasibility study on the Paleochannel Project at St Ives continued in the six months ended June 2018, with progress being made on the mining method. At Agnew, drilling at Waroonga North continued to yield positive results and Redeemer is emerging as a potential new ore source for the future.

West Africa

Attributable gold production from the West Africa region decreased by 1% YoY for the six months ended June 2018 at 319koz due to lower production at Tarkwa, partially offset by increased production at Damang. AIC for the region decreased 2% YoY to US$1,114/oz due to lower cost of sales before amortisation and depreciation and sustaining capital. Project capex for the Damang reinvestment was US$66m for the six months ended June 2018, compared with US$53m for the six months ended June 2017. The AISC for the Ghana region (which excludes the project capex for Damang) decreased 7% YoY to US$924/oz. The region generated a net cash outflow of US$2m for the six months to June 2018. Again, if the project capex for Damang is excluded, the region would have generated a net cash inflow of US$64m.

South America

Attributable equivalent gold production at Cerro Corona increased marginally YoY to 137koz. AIC increased by 9% YoY to US$737 per equivalent ounce, mainly due to higher cost of sales before amortisation and depreciation and lower equivalent ounces sold. Despite this, the mine generated net cash flow of US$41m for the six months ended June 2018.

South Deep

Gold Fields announced a material restructuring of its South Deep operation on 14 August 2018. The mine has had a number of operational challenges since Gold Fields acquired it in 2006. The key challenge has been the difficulty in transitioning the mine from one run with a conventional mining mindset and practices to mining with a modern, bulk, mechanised mining approach. South Deep is a complex and unique mine, that has faced persistent issues that need to be addressed in a holistic manner.

Despite numerous interventions to address these challenges, including optimising the mining method, extensive training and skills development, changing shift and work configurations, and outsourcing functions, the mine continues to make losses (R4bn over the past five years). Management believes that the mine can no longer sustain these cash losses and that the cost structure needs to be realigned with the current lower level of production.

During Q1 2018, South Deep completed phase 2 of its organisational restructuring plan, focusing on the lower levels of the organisation, through a voluntary retrenchment programme, which resulted in 261 employees leaving the company This followed the restructuring in Q4 2017 (phase 1) at the more senior levels of the business, which comprised a 25% reduction (47 employees) in the management level.

Although this restructuring was mostly voluntary in nature, it nonetheless had a significant negative impact on morale and consequently productivity and output during the six months ended 30 June 2018. In addition, continued low mobile equipment reliability and productivity, the intersection of active geological features (faults and dykes) in the high-grade corridor 3 and poor ground conditions in the composites (far western part of the orebody) slowed production rates.

For the six months to 30 June 2018, production at South Deep decreased by 19% YoY to 3,003kg (97koz) from 3,710kg (119koz)) for the six months ended June 2017 driven by decreased volumes and grade. AIC for the six months ended June 2018 increased 8% YoY to R715,373/kg (US$1,816/oz), mainly due to lower gold sold. Net cash outflow for the six months ended 30 June 2018 was R656m (US$54m).

These challenges have resulted in an underperformance on development and destress mining and has impacted stope availability and output. Stope availability and output has also been adversely affected as a result of slow loading and backfilling. These challenges will not only impact the mine's 2018 performance but the knock-on effect will carry through into 2019 and beyond.

Section 189 process commenced

Management has commenced with consultations in terms of Section 189 of the Labour Relations Act. It is envisaged that approximately 1,100 permanent employees could potentially be impacted by the proposed restructuring. In addition, approximately 460 contractors could also potentially be impacted. South Deep currently employs 3,614 full-time employees and 1,940 contractors. Section 189 notices have been served on its two representative trade unions, the National Union of Mineworkers and UASA. This will be followed by a 60-day consultation process, which will be facilitated by the CCMA. The Minister of Mineral Resources has been informed of these developments.

Focus on securing the future with intensive near term initiatives

In support of returning the mine to sustainable profitability we propose to:

Given the significant impact of the restructuring from late 2017 and early 2018, we are unable to quantify the impact of the proposed large scale restructuring on production in 2019 and beyond.

Consequently, the previously guided build-up plan for the mine (released in February 2018) has a high degree of risk and uncertainty and can no longer be relied upon.

South Deep impairment

The underperformance of the mine in 2018 and the resultant knock-on impact has necessitated a further impairment of South Deep. As discussed above, we are unable to provide guidance for 2019 and beyond. However, for the purpose of the impairment calculation, we have used a number equivalent to extrapolating the six months ended 30 June 2018 production for 2019 of 6,100kg (196koz).

As a result, South Deep has been further impaired by R4.8bn (US$359m) (net of tax) to a carrying value of R20.7bn (US$1.5bn). The information underlying the impairment calculation may be subject to further adjustments in the future. These adjustments could be as a result of further information becoming available to management during Gold Fields' production planning processes.

Joint Venture with Asanko Gold

The Joint Venture transaction with Asanko Gold (Asanko) was completed on 31 July 2018, with Gold Fields acquiring a 50% stake in Asanko's 90% interest in the Asanko Gold Mine in Ghana. Gold Fields is expected to equity account its share in the Joint Venture, with attributable production and costs incorporated into the Group numbers from completion. Asanko's published guidance for 2019–2023 is average annual production of 253koz (100% basis).

Gold Fields and Asanko have established various working groups to ensure that the Asanko Gold Mine continues to operate in an efficient manner.

FY18 guidance adjusted

Attributable equivalent gold production for 2018, including Asanko, is expected to be within the original guidance (14 February 2018) of between 2.08Moz and 2.10Moz. AISC is expected to be between US$990 per ounce and US$1,010 per ounce and AIC is expected to be between US$1,190 per ounce to US$1,210 per ounce, both as previously guided.

The South Deep production guidance factored into the Group production guidance is unchanged from the 7,600kg provided in April 2018 (with Q1 2018 results). However, given the potential volatility related to the proposed restructuring, there is an increased level of uncertainty with this forecast.

Gold Fields will account for its contribution from the Asanko Joint Venture from 31 July 2018. As such, production of 43koz is expected to be attributable to Gold Fields from the JV.

Change in Directorship

Mr Don Ncube retired after the AGM in May 2018, having spent over 12 years on the Board, of which he has been Chair of the Social, Ethics and Transformation Committee for the past 5 years. I would like to thank Don for his service to Gold Fields and wish him well in his future endeavours.

N.J. Holland
Chief Executive Officer