20-F 1 d304882d20f.htm 20-F 20-F
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As filed with the Securities and Exchange Commission on April 5, 2017

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 20-F

 

 

(Mark One)

 

    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

or

 

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to

or

 

    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from              to             

Commission file number: 1-31318

 

 

Gold Fields Limited

(Exact name of registrant as specified in its charter)

 

 

Republic of South Africa

(Jurisdiction of incorporation or organization)

150 Helen Road

Sandown, Sandton, 2196

South Africa

011-27-11-562-9700

(Address of principal executive offices)

with a copy to:

Taryn L. Harmse

Executive Vice-President: Group General Counsel

Tel: 011-27-11-562-9724

Fax: 011-27-86-720-2704

Taryn.Harmse@goldfields.com

150 Helen Road

Sandown, Sandton, 2196

South Africa

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

and

Thomas B. Shropshire, Jr.

Linklaters LLP

Tel: 011-44-20-7456-2000

Fax: 011-44-20-7456-2222

One Silk Street

London EC2Y 8HQ

United Kingdom

Securities registered or to be registered pursuant to Section 12(b) of the Act

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Ordinary shares of par value Rand 0.50 each
American Depositary Shares, each representing one ordinary share
  New York Stock Exchange*
New York Stock Exchange

 

* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or

common stock as of the close of the period covered by the Annual Report

820,606,945 ordinary shares of par value Rand 0.50 each

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes  ☒    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☒                Accelerated filer  ☐                Non-accelerated filer  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ☐        International Financial Reporting Standards as issued by the International Accounting Standards Board  ☒    Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:    Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ☐    No  ☐

 

 

 


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PRESENTATION OF FINANCIAL INFORMATION

Gold Fields Limited, or Gold Fields or the Company, is a South African company and in fiscal 2016 13%, 32%, 43% and 12% of Gold Fields’ operations, based on gold-equivalent production, were located in South Africa, Ghana, Australia and Peru, respectively. Its books of account are maintained in South African Rand. The reporting currency of the Gold Fields consolidated financial statements is the U.S. dollar. The Group’s annual and interim financial statements are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board and as prescribed by law (refer to the “Basis of preparation” section of the accounting policies to the consolidated financial statements). Until December 31, 2015, Gold Fields also prepared annual financial statements in accordance with United States Generally Accepted Accounting Principles, or US GAAP, for inclusion in the annual report on Form 20-F (refer note 43 to the consolidated financial statements).

Except as otherwise noted, the financial information included in this annual report has been prepared in accordance with IFRS and is presented in U.S. dollars, and for descriptions of critical accounting policies refer to accounting policies under IFRS.

For Gold Fields’ consolidated financial statements, unless otherwise stated, statement of financial position item amounts are translated from Rand and A$ to U.S. dollars at the exchange rate prevailing on the date that it closed its accounts for fiscal 2016 (Rand 14.03 per $1.00 and $0.72 per A$1.00 as of December 31, 2016), except for specific items included within shareholders’ equity and the statements of cash flows that are translated at the rate prevailing on the date the relevant transaction was entered into, and income statement item amounts are translated from Rand and A$ to U.S. dollars at the weighted average exchange rate for each period (Rand 14.70 per $1.00 and $1.00 per A$0.75 for fiscal 2016).

In this annual report, Gold Fields presents the financial items “all-in sustaining costs”, or AISC, “all-in sustaining costs per ounce”, “all-in costs”, or AIC, and “all-in costs per ounce”, which have been determined using industry standards promulgated by the World Gold Council, or WGC, and are non-IFRS measures. The WGC standard was released by the WGC on June 27, 2013. Gold Fields voluntarily adopted and implemented these metrics as from the quarter ended June 2013. An investor should not consider these items in isolation or as alternatives to operating costs, profit before tax, profit for the year, cash flows from operating activities or any other measure of financial performance presented in accordance with IFRS. While the WGC provided definitions for the calculation of AISC and AIC, the calculation of AISC, AISC per ounce, AIC and AIC per ounce may vary significantly among gold mining companies, and by themselves do not necessarily provide a basis for comparison with other gold mining companies. See “Key Information—Selected Historical Consolidated Financial Data”, “Information on the Company—Glossary of Mining Terms—All-in sustaining costs” and “Information on the Company—Glossary of Mining Terms—All-in costs”.

Gold Fields also presents “net cash flow” in this annual report which is a non-IFRS measure. An investor should not consider this item in isolation or as an alternative to cash flow from operating activities, cash and cash equivalents or any other measure presented in accordance with IFRS. Net cash flow is defined as net cash flow from operations less the South Deep dividend, net capital expenditure (additions to property, plant and equipment less proceeds on disposal of property, plant and equipment), and environmental trust fund and rehabilitation payments, as per the consolidated statements of cash flows. The definition for the calculation of net cash flow may vary significantly between companies, and by itself does not necessarily provide a basis for comparison with other companies. See “Information on the Company—Glossary of Mining Terms—net cash flow”.

The financial results of Sibanye Gold (as defined below) included in this annual report, which include the KDC and Beatrix mines, have been presented as discontinued operations as a result of the Spin-off (as defined below) in the income statements and statements of cash flows for all relevant periods presented. The financial information presented in this annual report refers to continuing operations unless otherwise stated.

 

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Market Information

This annual report includes industry data about Gold Fields’ markets obtained from industry surveys, industry publications, market research and other publicly available third-party information. Industry surveys and industry publications generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed. Gold Fields and its advisors have not independently verified this data.

In addition, in many cases, statements in this annual report regarding the gold mining industry and Gold Fields’ position in that industry have been made based on internal surveys, industry forecasts, market research, as well as Gold Fields’ own experiences. While these statements are believed by Gold Fields to be reliable, they have not been independently verified.

 

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DEFINED TERMS AND CONVENTIONS

In this annual report, all references to the “Group” are to Gold Fields and its subsidiaries. On February 18, 2013, or the Spin-off date, Gold Fields completed the separation of its wholly-owned subsidiary, Sibanye Gold Limited, or Sibanye Gold (formerly known as GFI Mining South Africa Proprietary Limited, or GFIMSA), which includes the KDC and Beatrix mining operations, or the Spin-off.

In this annual report, all references to “fiscal 2012” are to the 12-month period ended December 31, 2012, “fiscal 2013” are to the 12-month period ended December 31, 2013, all references to “fiscal 2014” are to the 12-month period ended December 31, 2014, all references to “fiscal 2015” are to the 12-month period ended December 31, 2015, all references to “fiscal 2016” are to the 12-month period ended December 31, 2016 and all reference to “fiscal 2017” are to the 12-month period ending December 31, 2017. In this annual report, all references to “South Africa” are to the Republic of South Africa, all references to “Ghana” are to the Republic of Ghana, all references to “Australia” are to the Commonwealth of Australia, all references to “Chile” are to the Republic of Chile, all references to “Finland” are to the Republic of Finland, all references to “Peru” are to the Republic of Peru, all references to “Mali” are to the Republic of Mali, all references to the “Philippines” are to the Republic of the Philippines and all references to the “United States” and “U.S.” mean the United States of America, its territories and possessions and any state of the United States and the District of Columbia.

In this annual report, all references to the “DMR” are references to the South African Department of Mineral Resources, the government body responsible for regulating the mining industry in South Africa.

This annual report contains descriptions of gold mining and the gold mining industry, including descriptions of geological formations and mining processes. In order to facilitate a better understanding of these descriptions, this annual report contains a glossary defining a number of technical and geological terms. See “Information on the Company—Glossary of Mining Terms”.

In this annual report, gold production figures are provided in troy ounces, which are referred to as “ounces” or “oz”, or in kilograms, which are referred as “kg”. Ore grades are provided in grams per metric tonne, which are referred to as “grams per tonne” or “g/t”. All references to “tonnes” or “t” in this annual report are to metric tonnes. All references to “gold” include gold and gold equivalent ounces, unless otherwise specified or where the context suggests otherwise. See “Information on the Company—Glossary of Mining Terms” for further information regarding units of measurement used in this annual report and a table providing rates of conversion between different units of measurement. AIC, net of by-product revenue, and AISC, net of by-product revenue, are calculated per ounce of gold sold, excluding gold equivalent ounces. See “Operating and Financial Review and Prospects—All-in Sustaining and All-in Cost”.

This annual report contains references to the “total recordable injury frequency rate”, or TRIFR, at each Gold Fields operation—which was introduced in 2013. The TRIFR at each operation includes the total number of fatalities, lost time injuries, medically treated injuries, or MTI, and restricted work injuries, or RWI, per million man hours. A lost time injury, or LTI, is a work-related injury resulting in the employee or contractor being unable to attend work for a period of one or more days after the day of the injury (i.e., the employee or contractor is unable to perform any of his/her duties). An MTI is a work-related injury sustained by an employee or contractor which does not incapacitate that employee and who, after having received medical treatment, is deemed fit to immediately resume his/her normal duties on the next calendar day, immediately following the treatment or re-treatment. An RWI is a work-related injury sustained by an employee or contractor which results in the employee or contractor being unable to perform one or more of their routine functions for a full working day, from the day after the injury occurred but the employee or contractor can still perform some of his/her duties.

In this annual report, “R” and “Rand” refer to the South African Rand and “SA cents” refers to subunits of the South African Rand, “$”, “U.S.$” and “U.S. dollars” refer to United States dollars, “U.S. cents” refers to

 

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subunits of the U.S. dollar, “A$” and “Australian dollars” refer to Australian dollars, “GH” refers to Ghana Cedi, “S/.” refers to the Peruvian Nuevo Sol and “CAD” refers to Canadian dollars.

For Gold Fields’ consolidated financial statements, unless otherwise stated, statement of financial position item amounts are translated from Rand and A$ to U.S. dollars at the exchange rate prevailing on the date that it closed its accounts for fiscal 2016 (Rand 14.03 per $1.00 and $0.72 per A$1.00 as of December 31, 2016), except for specific items included within shareholders’ equity and the statements of cash flows that are translated at the rate prevailing on the date the relevant transaction was entered into, and income statement item amounts are translated from Rand and A$ to U.S. dollars at the weighted average exchange rate for each period (Rand 14.70 per $1.00 and $1.00 per A$0.75 for fiscal 2016).

In this annual report, except where otherwise noted, all production and operating statistics are based on Gold Fields’ total operations, which include production from the Tarkwa and Damang mines in Ghana and from the Cerro Corona mine in Peru which is attributable to the noncontrolling shareholders in those mines. This annual report contains references to “gold equivalent ounces” which are quantities of metals (such as copper) expressed as amounts of gold using the prevailing prices of gold and the other metals. To calculate this, the accepted total value of the metal based on its weight and value is divided by the accepted value of one troy ounce of gold.

 

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FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to Gold Fields’ financial condition, results of operations, business strategies, operating efficiencies, competitive position, growth opportunities for existing services, plans and objectives of management, markets for stock and other matters.

These forward-looking statements, including, among others, those relating to the future business prospects, revenues and income of Gold Fields, wherever they may occur in this annual report and the exhibits to the annual report, are necessarily estimates reflecting the best judgment of the senior management of Gold Fields and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. As a consequence, these forward-looking statements should be considered in light of various important factors, including those set forth in this annual report. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, without limitation:

 

   

the success of the Group’s business strategy, development activities and other initiatives;

 

   

decreases in the market price of gold or copper;

 

   

fluctuations in exchange rates, currency devaluations and other macroeconomic monetary policies;

 

   

changes in assumptions underlying Gold Fields’ mineral reserve estimates;

 

   

the ability to achieve anticipated efficiencies and other cost savings in connection with past and future acquisitions;

 

   

the ability to achieve anticipated cost savings at existing operations;

 

   

changes in relevant government regulations, particularly labor, environmental, tax, royalty, health and safety, water, regulations and potential new legislation affecting mining and mineral rights;

 

   

court decisions affecting the South African mining industry, including without limitation regarding the interpretation of mineral rights legislation and the treatment of health and safety claims;

 

   

the ability of the Group to comply with requirements that it operate in a sustainable manner and provide benefits to affected communities;

 

   

the ability to manage and maintain access to current and future sources of liquidity, capital and credit, including the terms and conditions of Gold Fields’ facilities and Gold Fields’ overall cost of funding;

 

   

the occurrence of labor disruptions and industrial actions;

 

   

power cost increases as well as power stoppages, fluctuations and usage constraints;

 

   

fraud, bribery or corruption at Gold Field’s operations that leads to censure, penalties or negative reputational impacts;

 

   

the occurrence of hazards associated with underground and surface gold mining or contagious diseases (and associated legal claims) at Gold Fields’ operations;

 

   

loss of senior management or inability to hire or retain employees;

 

   

political instability in South Africa, Ghana, Peru or regionally in Africa or South America;

 

   

overall economic and business conditions in South Africa, Ghana, Australia, Peru and elsewhere;

 

   

the occurrence of work stoppages related to health and safety incidents;

 

   

supply chain shortages and increases in the prices of production imports;

 

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the adequacy of the Group’s insurance coverage; and

 

   

the manner, amount and timing of capital expenditures made by Gold Fields on both existing and new mines, mining projects, exploration projects or other initiatives.

Gold Fields undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.

 

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TABLE OF CONTENTS

 

     Page  

PART I

     1  

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     1  

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

     1  

ITEM 3: KEY INFORMATION

     1  

RISK FACTORS

     5  

ITEM 4: INFORMATION ON THE COMPANY

     28  

ITEM 4A: UNRESOLVED STAFF COMMENTS

     154  

ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     155  

ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     211  

ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     250  

ITEM 8: FINANCIAL INFORMATION

     251  

ITEM 9: THE OFFER AND LISTING

     252  

ITEM 10: ADDITIONAL INFORMATION

     255  

ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     277  

ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     281  

PART II

     282  

ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     282  

ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     283  

ITEM 15: CONTROLS AND PROCEDURES

     284  

ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT

     285  

ITEM 16B: CODE OF ETHICS

     286  

ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES

     287  

ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     288  

ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     289  

ITEM 16F: CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

     290  

ITEM 16G: CORPORATE GOVERNANCE

     291  

ITEM 16H: MINE SAFETY DISCLOSURE

     292  

PART III

     293  

ITEM 17: FINANCIAL STATEMENTS

     293  

ITEM 18: FINANCIAL STATEMENTS

     294  

ITEM 19: EXHIBITS

     296  

SIGNATURES

     299  

 

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PART I

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3: KEY INFORMATION

Selected Historical Consolidated Financial Data

The selected historical consolidated financial data set out below for fiscal 2016, fiscal 2015 and fiscal 2014 and as of December 31, 2016 and 2015 has been derived from Gold Fields’ audited consolidated financial statements for those years and as of those dates and the related notes, as included elsewhere in this annual report. The selected historical consolidated financial data for fiscal 2013 and fiscal 2012 and as of December 31, 2014, 2013 and 2012 has been derived from Gold Fields’ audited consolidated financial statements, which are not included in this annual report. The selected historical consolidated financial data presented below have been derived from consolidated financial statements which have been prepared in accordance with IFRS as issued by the International Accounting Standards Board. As a result of the Spin-off, the financial results of Sibanye Gold, which include the KDC and Beatrix mines, have been presented as discontinued operations in the consolidated financial statements for fiscal 2013 and the comparative income statements and statements of cash flows have been presented as if Sibanye Gold had been discontinued for all periods presented below. The Other Operating Data presented has been calculated as described in the footnotes to the table below:

 

    Fiscal Period Ended December 31,  
    2016            2015            2014            2013            2012  
    ($ million, unless otherwise stated)  

Consolidated Income Statement Data

                     

Revenue

    2,749.5          2,545.4          2,868.8          2,906.3          3,530.6  

Cost of sales

    (2,066.7        (2,066.1        (2,334.4        (2,277.8        (2,151.0
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Net operating profit

    682.8          479.3          534.4          628.5          1,379.6  

Investment income

    8.3          6.3          4.2          8.5          16.3  

Finance expense

    (78.3        (82.9        (99.2        (69.5        (55.3

Gain/(loss) on financial instruments

    14.4          (4.7        (11.5        (0.3        (0.5

Foreign exchange (loss)/gain

    (6.4        9.5          8.4          7.3          (13.8

Other costs, net

    (16.8        (21.2        (62.5        (97.2        (15.6

Share-based payments

    (14.4        (10.9        (26.0        (40.5        (45.5

Long-term incentive plan

    (11.0        (5.3        (8.7        —            —    

Exploration expense

    (92.2        (53.5        (47.2        (65.9        (128.5

Feasibility and evaluation costs

    —            —            —            (47.7        (44.1

Share of results of equity accounted investees after taxation

    (2.3        (5.7        (2.4        (18.4        (49.7

Restructuring costs

    (11.7        (9.3        (42.0        (39.4        (50.8

Impairment of investments and assets

    (76.5        (221.1        (26.7        (809.5        (98.2

Profit on disposal of investments

    2.3          0.1          0.5          17.8          27.6  

Profit on disposal of Chucapaca

    —            —            4.6          —            —    

Profit/(loss) on disposal of assets

    48.0          (0.1        (1.3        1.6          0.3  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Profit/(loss) before royalties and taxation

    446.2          80.5          224.6          (524.7        921.8  

 

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    Fiscal Period Ended December 31,  
    2016            2015            2014            2013            2012  
    ($ million, unless otherwise stated)  

Royalties

    (80.4        (76.0        (86.1        (90.5        (116.7
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Profit/(loss) before taxation

    365.8          4.5          138.5          (615.2        805.1  

Mining and income taxation

    (192.1        (247.1        (118.1        20.1          (456.6
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Profit/(loss) from continuing operations

    173.7          (242.6        20.4          (595.1        348.5  

Profit from discontinued operations, net of taxation

    —            —            —            287.9          384.9  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Profit/(loss) for the year

    173.7          (242.6        20.4          (307.2        733.4  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Profit/(loss) attributable to:

                     

Owners of the parent

    162.8          (242.1        12.8          (295.7        701.2  

—Continuing operations

    162.8          (242.1        12.8          (583.6        316.4  

—Discontinued operations

    —            —            —            287.9          384.8  

Non-controlling interest holders

    10.9          (0.5        7.6          (11.5        32.2  

—Continuing operations

    10.9          (0.5        7.6          (11.5        32.1  

—Discontinued operations

    —            —            —            —            0.1  
    173.7          (242.6        20.4          (307.2        733.4  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Earnings/(loss) per share attributable to ordinary shareholders of the Company:

                     

Basic earnings/(loss) per share from continuing operations—cents

    20          (31        2          (79        44  

Basic earnings per share from discontinued operations—cents

    —            —            —            39          53  

Diluted basic earnings/(loss) per share from continuing operations—cents

    20          (31        2          (79        43  

Diluted basic earnings per share from discontinued operations—cents

    —            —            —            39          53  

Dividend per share (Rand)

    0.71          0.24          0.42          0.75          3.90  

Dividend per share ($)

    0.05          0.02          0.04          0.08          0.50  

Other Operating Data—Continuing Operations

                     

All-in-sustaining costs net of by-product revenue per ounce of gold sold(1)

    980          1,007          1,053          1,202          1,310  

All-in-cost net of by-product revenue per ounce of gold sold(1)

    1,006          1,026          1,087          1,312          1,537  

All-in-sustaining costs gross of by-product revenue per equivalent ounce of gold sold(1)

    987          1,000          1,053          1,206          1,331  

All-in-cost gross of by-product revenue per equivalent ounce of gold sold(1)

    1,012          1,018          1,086          1,307          1,539  

 

 

Note:

(1)

Gold Fields has calculated AISC net of by-product revenue per ounce of gold sold by dividing total AISC net of by-product revenue, as determined using the guidance provided by the WGC, by only gold ounces sold. Total AISC costs, as defined by the WGC, are operating costs (as per note 2 to the consolidated financial statements) excluding amortization and depreciation plus all costs not included therein relating to sustaining current production including sustaining capital expenditure. The value of by-product revenues (i.e. silver and copper) is deducted from operating costs excluding amortization and depreciation as it effectively reduces the cost of gold production. The AIC net of by-product revenue starts with AISC costs net of by-product revenue and adds additional costs which relate to the growth of the Group, including non-sustaining capital expenditure and exploration, evaluation and feasibility costs not associated with

 

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  current operations. AISC costs and AIC are reported on a per ounce of gold basis, net of by-product revenues (as per the WGC definition), as well as on a per ounce of gold equivalent basis, gross of by-product revenues. Changes in total AISC and AIC per ounce are affected by operational performance, as well as changes in the currency exchange rate between the Rand and the Australian dollar compared with the U.S. dollar. Total AISC and all-in cost per ounce are not IFRS measures. Management, however, believes that total AISC cost and total all-in cost per ounce will be helpful to investors, governments, local communities and other stakeholders in understanding the economics of gold mining. For a description of AISC costs and AIC and a reconciliation of Gold Fields’ AISC costs and AIC to its operating costs excluding amortization and depreciation costs for fiscal 2016, 2015 and 2014, see “Operating and Financial Review and Prospects—All-in Sustaining and All-in Cost”.

 

    As of December 31,  
    2016            2015            2014            2013            2012  
    ($ million, unless otherwise stated)  

Consolidated Statement of Financial Position Data

                     

ASSETS

                     

Non-current assets

    5,282.0          4,969.6          5,764.9          6,234.7          7,197.1  

Property, plant and equipment

    4,547.8            4,312.4          4,895.7          5,388.9          6,258.4  

Goodwill

    317.8            295.3          385.7          431.2          520.3  

Inventories

    132.8            132.8          132.8          93.8          96.3  

Equity-accounted investees

    170.7            129.1          252.4          237.5          232.1  

Investments

    19.7            10.9          5.5          7.5          38.4  

Environmental trust funds

    44.5            35.0          30.4          23.9          10.0  

Deferred taxation

    48.7            54.1          62.4          51.9          41.6  

Current assets

    1,052.7          908.1          1,092.8          1,061.4          3,875.5  

Inventories

    329.4          298.2          368.3          404.5          427.8  

Trade and other receivables

    170.2          168.9          226.5          272.7          450.5  

Deferred stripping costs

    —            —            —            —            2.0  

Financial instrument

    —            —            —            —            7.0  

Cash and cash equivalents

    526.7          440.0          458.0          325.0          606.3  

Assets held for sale/distribution

    26.4          1.0          40.0          59.2          2,381.9  

Total assets

    6,334.7          5,877.7          6,857.7          7,296.1          11,072.6  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

EQUITY AND LIABILITIES

                     

Equity attributable to owners of the parent

    3,067.0          2,656.1          3,538.8          3,851.4          5,981.6  

Share capital

    59.6            58.1            57.9          57.8          55.9  

Share premium

    3,562.9            3,412.9            3,412.9          3,412.9          4,544.0  

Other reserves

    (2,126.4          (2,262.2          (1,636.5        (1,340.8        (700.8

Retained earnings

    1,570.9            1,447.3            1,704.5          1,721.5          2,082.5  

Non-controlling interest

    122.6          111.9          124.5          193.8          209.4  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total equity

    3,189.6          2,768.0          3,663.3          4,045.2          6,191.0  

Non-current liabilities

    2,285.7          2,545.6          2,481.3          2,627.4          2,681.0  

Deferred taxation

    465.5          487.3          387.0          399.4          589.5  

Borrowings

    1,504.9          1,761.6          1,765.7          1,933.6          1,828.8  

Provisions

    291.7          284.1          320.3          294.4          262.7  

Long-term incentive plan

    23.6          12.6          8.3          —            —    

 

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    As of December 31,  
    2016            2015            2014            2013            2012  
    ($ million, unless otherwise stated)  

Current liabilities

    859.4          564.1          713.1          623.5          2,200.6  

Trade and other payables

    543.3            427.6          509.7          462.4          538.4  

Royalties payable

    20.2            18.5          20.4          23.1          32.5  

Taxation payable

    107.9            59.3          37.8          11.5          148.4  

Current portion of borrowings

    188.0            58.7          145.2          126.5          40.0  

Liabilities held for sale/distribution

    —              —            —            —            1,441.3  

Total equity and liabilities

    6,334.7          5,877.7          6,857.7          7,296.1          11,072.6  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Net assets (excluding non-controlling interest) or equity attributable to owners of the parent

    3,067.0          2,656.1          3,538.8          3,851.4          5,981.6  

Net debt

    1,166.2          1,380.3          1,452.9          1,735.1          1,262.5  

Other Financial Data

                     

Number of ordinary shares as adjusted to reflect changes in capital structure (including treasury shares)

    820,606,945          777,450,492          772,272,821          768,016,593          730,393,143  

Exchange Rates

The following tables set forth, for the periods indicated, the average, high and low exchange rates of Rand for U.S. Dollars, expressed in Rand per $1.00. All exchange rates are sourced from I-Net Bridge (Proprietary) Limited, or I-Net Bridge, being the average rate.

 

Year ended

   Average  

December 31, 2012

     8.19 (1) 

December 31, 2013

     9.60 (1) 

December 31, 2014

     10.82 (1) 

December 31, 2015

     12.68 (1) 

December 31, 2016

     14.70 (1) 

Through April 3, 2017

     13.22 (1) 

 

Note:

(1) The daily average of the closing rate during the relevant period as reported by I-Net Bridge.

 

Month ended

   High      Low  

October 31, 2016

     14.35        13.46  

November 30, 2016

     14.42        13.24  

December 31, 2016

     14.13        13.45  

January 31, 2017

     13.79        13.24  

February 28, 2017

     13.47        12.87  

March 31, 2017

     13.44        12.42  

The closing rate for the Rand on April 3, 2017, as reported by I-Net Bridge was Rand 13.69 per $1.00. Fluctuations in the exchange rate between the Rand and the U.S. dollar will affect the dollar equivalent of the price of the ordinary shares on the JSE, which may affect the market price of the American Depositary Shares, or ADSs, on the New York Stock Exchange, or NYSE. These fluctuations will also affect the U.S. dollar amounts received by owners of ADSs on the conversion of any dividends paid in Rand on the ordinary shares.

 

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RISK FACTORS

In addition to the other information included in this annual report, the considerations listed below could have a material adverse effect on Gold Fields’ business, financial condition or results of operations, resulting in a decline in the trading price of Gold Fields’ ordinary shares or ADSs. The risks set forth below comprise all material risks currently known to Gold Fields. These factors should be considered carefully, together with the information and financial data set forth in this document.

Gold Fields may experience unforeseen difficulties, delays or costs in implementing its business strategy and projects, including any strategic projects, cost-cutting initiatives, divestments and other initiatives and any such strategy or project may not result in the anticipated benefits.

The ability to grow the business will depend on the successful implementation of Gold Fields’ existing and proposed strategic initiatives, such as the ramping up of production at South Deep (which accounts for 72% of Gold Fields’ mineral reserves as at December 31, 2016), the reinvestment of Damang, the development of the Gruyere Gold project, or the Gruyere Gold Project or Gruyere, as well as the achievement of a 15% free cash flow margin, or FCF Margin, at a gold price of U.S.$1,300 per ounce. See “Information on the Company—Strategy”. The Gruyere Gold Project is exposed to all of the risks described below in “—To the extent that Gold Fields seeks to add to or replace its reserve base through exploration, it may experience problems associated with mineral exploration or developing mining projects.”

The successful implementation of the Company’s strategic initiatives depends upon many factors, including those outside its control. For example, the successful achievement of a 15% FCF Margin at a gold price of U.S.$1,300 per ounce. will depend on, among other things, prevailing market prices for input costs.

Gold Fields may also prove unable to deliver on production targets and other strategic initiatives. Unforeseen difficulties, delays or costs may adversely affect the successful implementation of Gold Fields’ business strategy and projects, and such strategy and projects may not result in the anticipated benefits. For example, Gold Fields is in the process of implementing an operational and ramp up plan at South Deep intended to improve productivity at the mine, which includes the alignment of the mine’s planning process with realistic productivity levels, the implementation of business improvement projects and the implementation of revised support strategies, mining sequence and pillar configuration changes. The implementation of this operational and ramp up plan is complex and there can be no assurance that the implementation of the plan will achieve the result intended or that it will not result in delays, increased costs or other issues. In addition, the reinvestment in the Damang mine may not yield the extension of reserves or life of mine expected. Any such difficulties, delays or costs could prevent Gold Fields from fully implementing its business strategy, which could have a material adverse effect on its business, operating results and financial condition.

Gold Fields is in the process of implementing initiatives relating to its strategic restructuring, including the reduction of marginal mining, cost-efficiency initiatives, increased brownfield exploration, production planning, cost-cutting and divestments. Any future contribution of these measures to profitability will be influenced by the actual benefits and savings achieved and by Gold Fields’ ability to sustain these ongoing efforts. Strategic restructuring and cost-cutting initiatives may involve various risks, including, for example, labor unrest and operating license withdrawal. The risk is elevated in South Africa, given Gold Fields’ mining rights obligations. See “—Gold Fields’ mineral rights are subject to legislation, which could impose significant costs and burdens and which impose certain ownership requirements, the interpretation of which are the subject of dispute”.

In addition, these initiatives may not be implemented as planned; turn out to be less effective than anticipated; only become effective later than anticipated; or not be effective at all. Depending on the nature of the outcomes of the initiatives, they, individually or in combination, may have a material adverse effect on Gold Fields’ business, operating results and financial condition.

 

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As part of its strategy, Gold Fields has stated that it intends to dispose of certain of its exploration and development assets, as well as the Darlot mine. With respect to these and any other dispositions, Gold Fields may not be able to obtain prices that it expects for assets it seeks to dispose of or to complete the contemplated disposals in the timeframe contemplated or at all.

Any of the above could have a negative impact on Gold Fields’ business, operating results and financial condition.

Changes in the market price for gold, and to a lesser extent copper, which in the past have fluctuated widely, affect the profitability of Gold Fields’ operations and the cash flows generated by those operations.

Gold Fields’ revenues are primarily derived from the sale of gold that it produces. The Group’s policy is to remain unhedged to the gold price, though hedges are sometimes undertaken to protect cash flows at times of significant expenditure, for specific debt servicing requirements and to safeguard the viability of higher cost operations. As a result, it is exposed to changes in the gold price, which could lead to reduced revenue should the gold price decline. After falling 45% between September 2011 and December 2015, when it hit a low of U.S.$1,060 per ounce, the gold price recovered in fiscal 2016, ending the year at U.S.$1,130 per ounce. As at April 3, 2017, it was U.S.$1,247 per ounce, as trading in the metal remains volatile amid global political and economic uncertainties. See “Quantitative and Qualitative Disclosures about Market Risk”. The market price for gold has historically been volatile and is affected by numerous factors over which Gold Fields has no control, such as general supply and demand, speculative trading activity and global economic drivers.

Further, over the period from 2011 to 2016, the gold price has declined from an average price of U.S.$1,571 per ounce to an average price of U.S.$1,241 per ounce. Should the gold price decline below Gold Fields’ production costs, it may experience losses and should this situation continue for an extended period, Gold Fields may be forced to curtail or suspend some or all of its growth projects, operations and/or reduce operational capital expenditures. Gold Fields might not be able to recover any losses it incurred during, or after, such events. A sustained period of significant gold price volatility may also adversely affect Gold Fields’ ability to undertake new capital projects or continue with existing operations or make other long-term strategic decisions. The use of lower gold prices in reserve calculations and life of mine plans could also result in material impairments of Gold Fields’ investment in mining properties or a reduction in its reserve estimates and corresponding restatements of its reserves and increased amortization, reclamation and closure charges.

In Peru, copper accounts for a significant proportion of the revenues at Gold Fields’ Cerro Corona mine, although copper is not a major element of Gold Fields’ overall revenues. Over the period from 2011 to 2016, the price of copper has declined from an average price of U.S.$8,836 per tonne to an average price of U.S.$4,848 per tonne. A variety of factors have and may depress global copper prices and a decline in copper prices, which have also fluctuated widely, would adversely affect the revenues, profit and cash flows of the Cerro Corona mine.

Because gold is sold in U.S. dollars, while a significant portion of Gold Fields’ production costs are in Australian dollars, Rand and other non-U.S. dollar currencies, Gold Fields’ operating results and financial condition could be materially harmed by a material change in the value of these non-U.S. dollar currencies.

Gold is sold throughout the world in U.S. dollars. Gold Fields’ costs of production are incurred principally in U.S. dollars, Australian dollars, Rand and other currencies. Recent volatility in the Rand (including significant depreciation of the Rand against the U.S. dollar in recent years) and depreciation of the Australian dollar against the U.S. dollar in fiscal 2014, 2015 and 2016 has made our reported costs in South Africa and Australia and results of operations less predictable than when exchange rates are more stable. As a result, any significant and sustained appreciation of any of these non-U.S. dollar currencies against the U.S. dollar may materially increase Gold Fields’ costs in U.S. dollar terms, which could materially adversely affect Gold Fields’ business, operating results and financial condition.

 

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Conversely, inflation in any of the countries in which it operates could increase the prices Gold Fields pays for products and services and could have a material adverse effect on Gold Fields’ business, operating results and financial condition if not offset by increased gold prices.

Gold Fields’ mineral reserves are estimates based on a number of assumptions, which, if changed, may require Gold Fields to lower its estimated mineral reserves.

The mineral reserves stated in this annual report are estimates based on assumptions regarding, among other things, Gold Fields’ costs, expenditures, commodity prices, exchange rates, geology models, geological criteria, mining methods, mining equipment and metallurgical and mining recovery assumptions, which may prove inaccurate due to a number of factors, many of which are beyond Gold Fields’ control. In the event that Gold Fields adversely revises any of the assumptions that underlie its mineral reserves reporting, Gold Fields may need to revise its mineral reserves downwards. See “Information on the Company—Reserves of Gold Fields as at December 31, 2016”.

During fiscal 2015 and 2016, Gold Fields completed a strategic review of South Deep and delivered a revised plan, or the Rebase Plan, to the market in February 2017. The Rebase Plan defines the updated Mineral Reserve and life of mine, or LoM, plan for South Deep and incorporates all recent revisions and improvements in mine design, production scheduling and geotechnical parameters. The Rebase Plan required a diagnostic of the full value chain, from design to skills training, conducted by management and external consultants. This review highlighted opportunities for improvement and South Deep’s own technical abilities were strengthened along with on-boarding various technical experts as part of developing a technically assured and deliverable mine plan. South Deep is now targeting steady-state annual production of approximately 500,000 ounces by fiscal 2022 at an AIC of U.S.$900 per ounce. There can be no assurance that the implementation of the Rebase Plan will not result in lower than expected long-term steady state production volumes, cost fluctuations, reduced reported ore reserves and life of mine, or other associated issues at South Deep, which could have a material adverse effect on Gold Fields’ business, operating results and financial condition. See “Information on the Company—Reserves of Gold Fields as at December 31, 2016—Methodology”.

To the extent that Gold Fields seeks to add to or replace its reserve base through exploration, it may experience problems associated with mineral exploration or developing mining projects.

Gold Fields’ reserve base is depleted annually through its production activities. In fiscal 2016, four out of Gold Fields’ seven non-South African mines reported lower ore reserves after taking depletion into account. In order to replace its mineral reserves at its international operations or expand its operations and reserve base, Gold Fields expects to rely, in part, on exploration for gold, and other metals associated with gold, as well as its ability to develop mining projects. Exploration for gold and other metals associated with gold is speculative in nature, involves many risks and is frequently unsuccessful. To the extent that ore bodies are to be developed, it can take a number of years and substantial expenditures from the initial phases of drilling until production commences, during which time the economic feasibility of production may change. In addition, to the extent Gold Fields participates in the development of a project through a joint venture or any other multi-party commercial structure, such as the Gruyere Gold Project in Western Australia in which Gold Fields holds a 50% interest, there could be disagreements, legal or otherwise, or divergent interests or goals among the parties, which could jeopardize the success of the project. There can be no assurances that Gold Fields will be able to replace its reserves through exploration, development or otherwise and, if Gold Fields is unable to replace its reserves, this could have a material adverse effect on its business, operating results and financial condition.

Furthermore, significant capital investment is required to achieve commercial production from exploration efforts. There is no assurance that Gold Fields will have, or be able to raise, the required funds to engage in these activities or to meet its obligations with respect to the exploration properties in which it has or may acquire an interest.

 

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To the extent that Gold Fields makes acquisitions, it may experience problems in executing the acquisitions or managing and integrating the acquisitions with its existing operations.

In order to maintain or expand its operations and reserve base, Gold Fields may seek to make acquisitions of selected precious metal producing companies or assets. For example, on October 1, 2013, Gold Fields completed the acquisition of the Granny Smith, Darlot and Lawlers gold mines, or the Yilgarn South Assets, in Western Australia from Barrick Gold Corporation, or Barrick. See “Information on the Company—Gold Fields’ Mining Operations—Australasia Operations”. Any such acquisition may change the scale of the Company’s business and operations and may expose it to new geographic, geological, political, social, operating, financial, legal, regulatory and contractual risks. There can be no assurance that any acquisition will achieve the results intended, and, as such, could have a material adverse effect on Gold Fields’ business, operating results and financial condition.

Gold Fields’ mineral rights are subject to legislation, which could impose significant costs and burdens and which impose certain ownership requirements, the interpretation of which are the subject of dispute.

Gold Fields’ right to own and exploit mineral reserves and deposits is governed by the laws and regulations of the jurisdictions in which the mineral properties are located. Currently, a significant portion of Gold Fields’ reserves and deposits are located in countries where mining rights could be suspended or canceled should it breach its obligations in respect of the acquisition and exploitation of these rights.

In all of the countries where Gold Fields operates, the formulation or implementation of governmental policies on certain issues may be unpredictable. This may include changes in laws relating to mineral rights and ownership of mining assets and the right to prospect and mine, and, in extreme cases, nationalization, expropriation or nullification of existing rights, concessions, licenses, permits, agreements and contracts. For example, Gold Fields’ operations in South Africa are subject to legislation regulating the exploitation of mineral resources through the granting of rights required to prospect and mine for minerals. This includes broad-based black economic empowerment, or BBBEE, legislation designed to effect the entry of historically disadvantaged South Africans, or HDSAs, into the mining industry and to increase their participation in the South African economy.

The Mineral and Petroleum Resources and Development Act, or the MPRDA, came into effect on May 1, 2004 and transferred ownership of mineral resources to the South African people, with the South African government acting as custodian in order to, among other things, promote equitable access to the nation’s mineral resources by South Africans, expand opportunities for historically disadvantaged persons who wish to participate in the South African mining industry and advance social and economic development. As custodian, the South African government exercises regulatory control over the exploitation of mineral resources and does so by exercising the power to grant, including, subject to terms and conditions, the rights required to prospect and mine for minerals. The MPRDA required mining companies to apply for the right to mine and/or prospect and to apply for the conversion of “old order” prospecting rights and mining rights to “new order” prospecting rights and mining rights. In order to qualify for these rights, applicants need to satisfy the South African government that the granting of such a right will advance the open-ended broad-based socio-economic empowerment requirements of the Mining Charter published pursuant to the MPRDA, or the Mining Charter. The MPRDA also required that mining companies submit social and labor plans, or SLPs, which set out their commitments relating to human resource development, labor planning and socio-economic development planning to the DMR. In order to provide guidance on the fulfillment of these broad-based socio-economic empowerment requirements to the mining industry, the DMR published the Mining Charter, which became effective on May 1, 2004. The Mining Charter required 15% HDSA ownership by 2009 and 26% HDSA ownership by 2014, or the 2014 Deadline. See “Information on the Company—Environmental and Regulatory Matters—South Africa—Mineral Rights—The MPRDA”.

In 2010, the DMR introduced the Amended Mining Charter containing guidelines envisaging, among other things, that mining companies should achieve a minimum of 40% HDSA demographic representation by 2014 at

 

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executive management (board) level, senior management (executive committee) level, core and critical skills, middle management level and junior management level. See “Information on the Company—Environmental and Regulatory Matters—South Africa—Mineral Rights”. In April 2013, Gold Fields submitted a new SLP for South Deep to replace its original SLP submitted in 2010 and is awaiting a response from the DMR.

In fiscal 2014, with the 2014 Deadline in view, the DMR initiated a process of assessing mining companies’, including Gold Fields’, compliance with the BBBEE guidelines of the Mining Charter and Amended Mining Charter. This review process raised a number of concerns among mining companies due to its inflexible approach towards the assessment of compliance with the Amended Mining Charter.

On March 31, 2015, the DMR released to the public an interim report of the consolidated results of the assessment, which showed relatively general compliance with the non-ownership requirements of the Amended Mining Charter. However, the DMR did not report the results of compliance with the HDSA ownership guidelines of the Mining Charter and noted that there is no consensus on certain applicable principles.

On the same date, the Chamber of Mines, or the Chamber, reported that the DMR believes that empowerment transactions by mining companies concluded after 2004 where the HDSA ownership level has fallen due to HDSA disposal of assets or for other reasons, should not be included in the calculation of HDSA ownership for the purposes of, among other things, the 26% HDSA ownership guidelines under the Mining Charter. The position of Gold Fields is consistent with that of the Chamber and it is that such empowerment transactions should be included in the calculation of HDSA ownership. The DMR and the Chamber agreed to approach the South African courts jointly to seek a declaratory order that will provide a ruling on the relevant legislation and the status of the Mining Charter, including clarity on the status of previous empowerment transactions concluded by mining companies. The Chamber and the DMR filed papers in court and the matter, or the Main Application, was placed on the roll to be heard on March 15, 2016. In February 2016, an application was filed by a third party, Malan Scholes Inc., to consolidate the Main Application with its own application for a declaratory order on the empowerment aspects of the Mining Charter, or the Scholes Application. The Chamber opposed the consolidation of these applications on the basis that, among other things, the right to relief in the respective applications does not depend substantially on the same questions of law and/or fact. On May 3, 2016, the court refused to consolidate the two applications. The court reserved judgment in the Scholes Application after a hearing on February 7, 2017. The court is yet to hear the Main Application, which has not been enrolled pending an attempt to settle the Main Application outside of court.

If the DMR were to prevail in the Main Application or alternatively, the Scholes Application, mining companies, including Gold Fields, may be required to undertake further empowerment transactions in order to increase their HDSA ownership, which would result in the dilution of existing shareholders and could have a negative impact on the financial indebtedness of Gold Fields. In such event, mining companies may be required to maintain a minimum HDSA ownership level indefinitely. While it remains to be seen whether the Chamber will prevail in court, on April 15, 2016, the DMR published a new draft mining charter, or the New Draft Mining Charter, which seeks to, among other things, maintain HDSA equity ownership in mining companies at a minimum of 26% which could result, once published in its final form, in mining companies being required to undertake further empowerment transactions within a prescribed period of time in order to increase their HDSA ownership, which would result in the dilution of existing shareholders. Under the New Draft Mining Charter, current holders of mining rights will have a three year transitional period from the coming into effect of the New Draft Mining Charter to align themselves with the new ownership requirements. Where empowerment transactions have been concluded and empowerment partners have sold their shares and exited the structure, new empowerment transactions will need to be concluded for mining right holders to be compliant with the New Draft Mining Charter. Having first been introduced in the Amended Mining Charter, the New Draft Mining Charter also proposed that HSDA entrepreneurs, communities and employees are brought into the ownership structure and all hold a mining equity stake of no less than 5% each. The New Draft Mining Charter was open for public comment and various submissions on the New Draft Mining Charter were made as part of the public commentary process. During the latter part of 2016, the Chamber and the DMR initiated consultation in relation to the New Draft Mining Charter, which is continuing. The Minister of Mineral Resources announced on

 

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February 6, 2017, that a revised version of the New Draft Mining Charter would be published in the government gazette in March 2017. A revised version of the New Draft Mining Charter is yet to be published in the government gazette.

Any adjustment to the ownership structure of Gold Fields’ mining assets in order to meet BBBEE requirements could have a material adverse effect on the value of Gold Fields’ securities. Further, Gold Fields may in the future incur significant costs or have to issue additional ordinary shares as a result of changes in the interpretation of existing laws and guidelines or the imposition of new laws relating to HDSA ownership requirements, which may have a material adverse effect on Gold Field’s business, operating results and financial condition.

In terms of section 47 of the MPRDA, the Minister of Mineral Resources may suspend or cancel the existing mining rights, or under section 23(3) of the MPRDA, refuse to grant applications for new mining rights by mining companies, including Gold Fields, should such holders of mining rights be deemed not to be in compliance with the requirements of the MPRDA as read with South Africa’s mining industry empowerments requirements. However, it is this very issue which also forms part of the court application by the Chamber. If the Minister were to determine that Gold Fields is not in compliance with the requirements of the MPRDA and its empowerment requirements, Gold Fields may be required to engage in remedial steps, including changes to management and actions that require shareholder approval.

There is currently uncertainty whether mining companies are, in addition to its required compliance with the MPRDA, required to comply with the BBBEE Act, 2003, or BBBEE Act, and the BBBEE Codes, which apply generally to other industries in South Africa. The MPRDA does not require mining companies to comply with the BBBEE Act and the BBBEE Codes but the Minister of Mineral Resources has expressed a desire to align the New Draft Mining Charter with the BBBEE Act and the more onerous BBBEE Codes. The current version of the New Draft Mining Charter reflects the Minister’s attempts at alignment notwithstanding the questionable need to do so. Accordingly, if brought into effect in its current form, the New Draft Mining Charter could potentially create further uncertainty.

If the DMR were to determine that Gold Fields is not in compliance with the MPRDA, for any reason, including HDSA ownership, Gold Fields may challenge such a decision in court. Any such court action may be expensive and there is no guarantee that Gold Fields’ challenge would be successful.

There is no guarantee that any steps Gold Fields has already taken or might take in the future will ensure the retention of its existing mining rights, the successful renewal of its existing mining rights, the granting of applications for new mining rights or that the terms of renewals of its rights would not be significantly less favorable than the terms of its current rights. Any further adjustment to the ownership structure of Gold Fields’ South African mining assets in order to meet BBBEE requirements could have a material adverse effect on the value of Gold Fields’ securities.

An amendment bill to the MPRDA, namely the MPRDB, was passed by both the National Assembly and the National Council of Provinces, or NCOP, on March 27, 2014. In January 2015, the President referred the MPRDB back to parliament for reconsideration and on November 1, 2016, the Portfolio Committee on Mineral Resources tabled non-substantial revisions to the MPRDB in the National Assembly and a slightly revised version of the MPRDB was passed by the National Assembly and referred to the NCOP. There is a large degree of uncertainty regarding the changes that will be brought about should the MPRDB be made law. Among other things, the MPRDB seeks to require the consent of the Minister of Mineral Resources for the transfer of any interest in an unlisted company or any controlling interest in a listed company where such companies hold a prospecting right or mining right and to give the Minister of Mineral Resources broad discretionary powers to prescribe the levels required for beneficiation in promoting the beneficiation of minerals. For further information, see “Information on the Company—Environmental and Regulatory Matters—South Africa—Mineral Rights—The MPRDA”.

 

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Failure by Gold Fields to comply with mineral rights legislation in any of the jurisdictions in which it operates may cause it to lose the right to mine, fail to acquire new rights to mine and may have a material adverse effect on Gold Fields’ business, operating results and financial condition.

Further, Gold Fields may, in the future, incur significant costs as a result of changes in the interpretation of existing laws and guidelines or the imposition of new laws, whether relating to the mining industry or otherwise, which may have a material adverse effect on Gold Fields’ business, operating results and financial condition.

Gold Fields is subject to various regulatory costs, such as mining taxes and royalties, changes to which may have a material adverse effect on Gold Fields’ operations and profits.

In recent years, governments, communities, non-governmental organizations, or NGOs, and trade unions in several jurisdictions have sought and, in some cases, have implemented greater cost imposts on the mining industry, including through the imposition of additional taxes and royalties. Such resource nationalism, whether in the form of cost imposts, interference in project management, mandatory social investment requirements, local content requirements or creeping expropriation could impact the global mining industry and Gold Fields’ business, operating results and financial condition.

In South Africa, the African National Congress, or the ANC, has adopted two recommended approaches to interacting with the mining industry. While the ANC has rejected the possibility of mine nationalization for now, the first approach contemplates, among other things, greater state intervention in the mining industry, including the revision of existing royalties, the imposition of new taxes and an increase in the South African government’s holdings in mining companies. The second approach contemplates the South African government taking a more active role in the mining sector, including through the introduction of a state mining company to be involved in new projects either through partnerships or individually.

The adopted policies may impose additional restrictions, obligations, operational costs, taxes or royalty payments on gold mining companies, including Gold Fields, any of which could have a material adverse effect on Gold Fields’ business, operating results and financial condition.

In South Africa, the President has appointed the Davis Tax Committee to look into and review the current mining tax regime. The committee’s first interim report on mining, which was released for public comment on August 13, 2015, proposed no changes to the royalty regime but recommended the discontinuation of the upfront capital expenditure write-off regime in favor of an accelerated capital expenditure depreciation regime. In addition, the report recommended retaining the so called “gold formula” for existing gold mines only, as new gold mines would be unlikely to be established in circumstances where profits are marginal or where gold mines would conduct mining of the type intended to be encouraged by the formula. The committee also recommended the phasing out of additional capital allowances available to gold mines in order to bring the gold mining corporate income tax regime in line with the tax system applicable to all taxpayers. For a description of the gold formula, see “Operating and Financial Review and Prospects—Income and Mining Taxes—South Africa”. A further report is awaited from the committee after receiving public comment.

In Ghana, the ownership of land on which there are mineral deposits is separate from the ownership of the minerals. On January 1, 2017, in line with the development agreement concluded between Gold Fields and the government of Ghana, or the Development Agreement, Gold Fields’ royalty rate changed from a flat 5% of revenue to a sliding scale royalty based on the price of gold, starting at a rate of 3% on a gold price below U.S.$1,300 per ounce. The Development Agreement also resulted in a reduction in the corporate tax rate from 35% to 32.5%, effective March 17, 2016. The government of Ghana has a right to obtain a 10% free-carried interest in mining leases. In addition, stool/land rents of approximately U.S.$3 to U.S.$3.2 per acre are (depending on the exchange rate) payable to the government of Ghana. See “Information on the Company—Environmental and Regulatory Matters—Ghana—Mineral Rights”.

 

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In Peru, the general corporate income tax rate was increased from 28% to 29.5% with effect from January 1, 2017. In turn, the dividends income tax rate applicable to non-resident shareholders has reduced from 6.8% to 5%. Since July 2012, mining companies have also been required to pay an annual supervisory contribution to the Supervisory Body of Investment in Energy and Mining (Organismo Supervisor de la Inversión en Energía y Minería), or the OSINERGMIN, as well as to the Assessment and Environment Supervising Agency (Organismo de Evaluación y Fiscalización Ambiental), or the OEFA. See “Information on the Company—Environmental and Regulatory Matters—Peru—Mining Royalty and Other Special Mining Taxes and Charges”.

In addition, a consultation law has been enacted, requiring the government to consult with indigenous or native populations on legislative or administrative proposals that may have an impact on their collective rights. See “Information on the Company—Environmental and Regulatory Matters—Peru—Mining Royalty and Other Special Mining Taxes and Charges”.

Australia operates a state based royalty regime, and a federal income tax regime. Each of Gold Fields’ Australian mines are in the State of Western Australia, which imposes a 2.5% royalty on the value of gold produced. In the 2012–13 State Budget, the Western Australian government announced a mineral royalty rate analysis to review Western Australia’s royalty arrangements. This review was conducted jointly by the Department of State Development and the Western Australian Department of Mines & Petroleum, or DMP, and the final report was released to the public on March 25, 2015.

The review examined the efficacy and appropriateness of the royalty system and assessed alternative systems. It recommended that the gold royalty rate increase from 2.5% to 3.75%. The government noted the recommendation of the review, but announced that it would not implement any of the recommended changes.

The Australian federal government levies a corporate income tax at the rate of 30%. It is existing government policy to reduce this to 25% over time. However, as the government does not have the support of the opposition parties, it is considered unlikely that this change will occur in the near time, if at all.

The impositions of additional restrictions, obligations, operational costs, taxes or royalty payments could have a material adverse effect on Gold Fields’ business, operating results and financial condition.

Mining companies are increasingly required to operate in a sustainable manner and to provide benefits to affected communities. Failure to comply with these requirements can result in legal suits, additional operational costs, investor divestment and loss of ‘social license to operate’, which could adversely impact Gold Fields’ business, operating results and financial condition.

Many mining companies face increasing pressure over their “social license to operate” which can be understood as the acceptance of the activities of these companies by local stakeholders. While formal permission to operate is ultimately granted by host governments, many mining activities require social permission from host communities and influential stakeholders to carry out operations effectively and profitably.

These businesses are under pressure to demonstrate that, while they seek a satisfactory return on investment for shareholders, the environment, human rights and other key sustainability issues are responsibly managed and stakeholders, such as employees, host communities and the countries in which they operate, also benefit from their commercial activities. The potential consequences of these pressures and the adverse publicity in cases where companies are believed not to be creating sufficient social and economic benefit or are perceived to not be responsibly managing other sustainability issues may result in additional operating costs, higher capital expenditures, reputational damage, active community opposition (possibly resulting in delays, disruptions and stoppages), allegations of human rights abuses, legal suits, regulatory intervention and investor withdrawal.

In order to maintain its social license to operate, Gold Fields may need to design or redesign parts of its mining operations to minimize their impact on such communities and the environment, either by changing

 

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mining plans to avoid such impact, by modifying operations, changing planned capital expenditures or by relocating the affected people to an agreed location. Responsive measures may require Gold Fields to take costly and time consuming remedial measures, including the full restoration of livelihoods of those impacted. In addition, Gold Fields is obliged to comply with the terms and conditions of all the mining rights it holds in South Africa. In this regard, the SLP provisions of our mining rights must make provision for local economic development, among other obligations. See “Information on the Company—Environmental and Regulatory Matters—South Africa—Mineral Rights”. Gold Fields also undertakes social and economic development spending in Australia, Ghana and Peru, both voluntarily and as a condition of its mining rights. See “Information on the Company—Community Relations and Creating Shared Value”. In addition, as Gold Fields has a long history of mining operations in certain regions or has purchased operations which have a long history, issues may arise regarding historical as well as potential future environmental or health impacts in those areas.

Delays in projects attributable to a lack of community support or other community-related disruptions or delays can translate directly into a decrease in the value of a project or into an inability to bring the project to, or maintain, production. The cost of measures and other issues relating to the sustainable development of mining operations has placed significant demands on our resources, and could increase capital and operating costs and have a material adverse impact on Gold Fields’ reputation, business, operating results and financial condition.

Economic, political or social instability in the countries or regions where Gold Fields operates may have a material adverse effect on Gold Fields’ operations and profits.

In fiscal 2016, 13%, 32%, 43% and 12% of Gold Fields’ gold-equivalent production was in South Africa, Ghana, Australia and Peru, respectively. Changes or instability in the economic, political or social environment in any of these countries or in neighboring countries could affect an investment in Gold Fields.

High levels of unemployment and a shortage of critical skills in South Africa, despite increased government expenditure on education and training, remain issues and deterrents to foreign investment. The volatile and uncertain labor and political environments, which severely impacts the local economy and investor confidence, has led, and may lead, to further downgrades in national credit ratings, making investment more expensive and difficult to secure. See “—Gold Fields’ operations and profits have been and may be adversely affected by union activity and new and existing labor laws” and “—A further downgrade of South Africa’s credit rating may have an adverse effect on Gold Fields’ ability to secure financing.” This may restrict Gold Fields’ future access to international financing and could have a material adverse effect on Gold Fields’ business, operating results and financial condition.

Furthermore, while the South African government has stated that it does not intend to nationalize mining assets or mining companies, certain political parties have stated publicly and in the media that the government should embark on a program of nationalization. Any threats of, or actual proceedings to, nationalize any of Gold Fields’ assets, could halt or curtail operations, resulting in a material adverse effect on Gold Fields’ business, operating results and financial condition and could cause the value of Gold Fields’ securities to decline rapidly and dramatically, possibly causing investors to lose the entirety of their respective investments.

In 2016, Australia, Ghana and Peru held national elections. Additionally, state elections for the government of Western Australia (the state in which Gold Fields’ Australian interests are located) were held on March 11, 2017. It is not certain what if any political, economic or social impacts the newly elected governments will have on Australia, Ghana and Peru, respectively, or on Gold Fields specifically.

There has also been regional social and community-related instability in the area around Gold Fields’ mining operations in Peru, where political developments in fiscal 2014 resulted in the election of local and regional officeholders who have taken public positions opposed to mining operations. In addition, engagement with community stakeholders, including in Peru and South Africa, can pose challenges to local management and any inability to properly manage these relationships may have a negative impact on our production or associated

 

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costs. There is also the potential for social instability or protests regarding mining activity in the communities near Gold Fields’ South Deep mine relating to, among other things, community investment, environmental concerns, service delivery by local government or other issues. Occurrence of any of the above mentioned developments could result in Gold Fields experiencing opposition or disruptions in connection with any of its operations. Such opposition or disruptions at any of Gold Fields’ operations, in particular if it has an adverse impact or costs or causes any stoppages (including as a result of any protests aimed at other mining operations that affect operations) could have a material adverse effect on Gold Fields’ business, operating results and financial condition.

A further downgrade of South Africa’s credit rating may have an adverse effect on Gold Fields’ ability to secure financing.

Prior to 2017, the challenges facing the mining industry and other sectors, among other factors, had resulted in the downgrading of South Africa’s sovereign credit rating to one level above non-investment grade, or junk, by Standard & Poor’s and Fitch Ratings. However, on April 3, 2017, Standard & Poor’s downgraded South Africa’s sovereign credit rating to non-investment grade (BB+) with a negative outlook due to, among other things, political and economic uncertainty caused by changes in the government cabinet in South Africa. South Africa’s sovereign credit rating also suffered downgrades in fiscal 2015. As of April 3, 2017, Moody’s South African sovereign credit rating was Baa2 with a negative outlook and Fitch Ratings’ was BBB- with a negative outlook, two and one notches above non-investment grade, respectively. On April 3, 2017, Moody’s announced that it had put South Africa’s sovereign credit rating on a watch for a possible downgrade.

Further downgrading of South Africa’s sovereign credit rating to non-investment grade status by Moody’s or Fitch Ratings may adversely affect the South African gold mining industry and Gold Fields’ business, operating results and financial condition by making it more difficult to obtain external financing or could result in any such financing being available only at greater cost or on more restrictive terms than might otherwise be available. A downgrade to non-investment grade status by either of these two agencies may have a material adverse effect on the South African economy as many pension funds and other large investors are required by internal rules to sell bonds once two separate agencies rate them as non-investment grade. Any such negative impact on the South African economy may adversely affect the South African gold mining industry and Gold Fields’ business, operating results and financial condition.

Gold Fields’ operations are subject to water use licenses, which could impose significant costs and burdens.

Gold Fields operations are subject to water use licenses and regulations that govern each operation’s water usage and that require, among other things, mining operations to achieve and maintain certain water quality limits regarding all water discharges. Gold Fields is required to comply with these regulations under its permits and licenses and any failure to do so could result in the curtailment or halting of production at the affected locations.

Gold Fields continues to use measures to remove underground water to permit the routine safe functioning of South Deep. South Deep was issued with a water use license in November 2011. Certain conditions and other aspects of the approved license were identified as requiring modification and an application to address these was submitted to the Department of Water Affairs and Sanitation, or DWS, in February 2012. A further amended water use license application was submitted to the DWS in November 2013, primarily to reflect the results of a re-assessment of expected water use requirements and a changing water balance. No response was received from the DWS in relation to the 2013 amendment. In November 2014, an agreement was reached with the DWS to withdraw the 2013 amendment and to submit an updated amendment application in May 2015. The May 2015 amendment application reflects the proposed changes to the approved 2011 water use license conditions. In addition, the updated amendment reflects a variety of water management projects and initiatives that were implemented during fiscal 2014 and that are planned for implementation during fiscal 2015 and beyond. A presentation was provided to the DWS in March 2015 to appraise them of the proposed structure and content

 

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of the new amendment, prior to the re-submission in May 2015. Gold Fields continued to make representations to the DWS during fiscal 2016 and is currently waiting to receive an approved amended license. The existing approved license will remain in place while the application is processed by the DWS.

In 2015, South Deep concluded a water supply agreement with Sibanye Gold to supply water from Sibanye’s Ezulwini mine, via the Leeuspruit stream. The plan to secure water to support South Deep during production ramp-up could also be negatively impacted by Sibanye’s announcement on August 31, 2016 that it will be closing the Ezulwini (Cooke 4) mine. South Deep is currently assessing the implications of the closure if such application is granted.

South Deep has implemented a water and environmental management strategy in an effort to satisfy the conditions of its water use license and other relevant water and environmental regulatory requirements. However, there can be no assurance that Gold Fields will be able to meet all of its water and environmental regulatory requirements, primarily due to the inherent uncertainties related to certain requirements of the legislation, which are subject to ongoing discussions between government and the mining industry through the Chamber.

Any failure on Gold Fields’ part to achieve or maintain compliance with the requirements of its water use licenses with respect to any of its operations could result in Gold Fields being subject to substantial claims, penalties, fees and expenses; significant delays in operations; or the loss of the relevant water use license, which could curtail or halt production at the affected operation.

Further, any constraint on the water supply to South Deep could result in delays or constraints on the ramp up of that operation. Any of the above could have a material adverse effect on Gold Fields’ business, operating results and financial condition.

Gold Fields has experienced and may experience further acid mine drainage related pollution, which may compromise its ability to comply with legislative requirements or results in additional operating or closure cost liabilities.

Acid mine drainage, and acid rock drainage, or ARD (collectively called acid drainage, or AD), are caused when certain sulphide minerals in rocks are exposed to oxidizing conditions (such as the presence of oxygen, combined with water). AD can occur under natural conditions or as a result of the sulphide minerals that are encountered and exposed to oxidation during mining or during storage in waste rock dumps, ore stockpiles or tailings dams. The acidic water that forms usually contains iron and other metals if they are contained in the host rock.

AD generation, and the risk of potential long-term AD issues, specifically at Gold Fields’ Cerro Corona, Damang and South Deep mines, is ongoing. Immaterial levels of surface AD generation also occur at Gold Fields’ Tarkwa and St. Ives mines. The AD issues at Damang are confined to the Rex open pit. Any AD which is currently generated is contained on Gold Fields property at all operations where it occurs and is managed as part of each mine’s operational water management strategy. The relevant regulatory authorities are also kept appraised of the Group’s efforts to manage AD through various submissions and other communications.

Gold Fields continues to investigate technical solutions at its South Deep, Damang and Cerro Corona mines to better inform appropriate strategies for long-term AD management (mainly post-closure), as well as to work towards a reliable cost estimate of these potential issues. None of these studies have allowed Gold Fields to generate a reliable estimate of the total potential impact on the Group. In addition, there can be no assurance that Gold Fields will be successful in preventing or managing long-term potential AD issues at these operations.

Gold Fields’ mine closure cost estimate (namely environmental rehabilitation provisions) for fiscal 2016 contains the aspects of AD management (namely tailings facilities, waste rock dumps, ore stockpiles and other surface infrastructure), which management has been able to reliably estimate. However, there could be no guarantee that Gold Fields’ current cost estimate, including the cost of post-closure water treatment, reflects all relevant factors and as such, the actual closure costs may be higher.

 

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No adjustment for any effects on the Company that may result from potentially material (mainly post-closure) AD impacts at South Deep, Damang and Cerro Corona, has been made in the consolidated financial statements, other than through the Group’s normal environmental rehabilitation provisions.

The existence of material long-term AD issues at any of Gold Fields’ operations could cause it to fail to comply with its water use license requirements and could expose Gold Fields to fines, mine closures, production curtailment, additional operating costs and other liabilities, any of which could have a material adverse effect on Gold Fields’ business, production, operating results and financial condition.

Gold Fields’ operations are subject to environmental and health and safety regulations, which could impose additional costs and compliance requirements and Gold Fields may face claims and liability for breaches, or alleged breaches, of such regulations and other applicable laws.

Gold Fields’ operations are subject to various environmental and health and safety laws, regulations, permitting requirements and standards. For example, Gold Fields is required to secure estimated mine closure liabilities. The funding methods used to make provision for the required portion of the mine closure cost liabilities, in accordance with in-country legislation, are as follows:

 

   

South Africa: contributions to environmental trust funds and guarantees;

 

   

Ghana: reclamation bonds underwritten by banks, and restricted cash;

 

   

Australia: due to legislative changes in Western Australia becoming effective in July 2014, an annual levy to the State of 1% of the total mine closure liability which goes into a State-administered fund known as the Mine Rehabilitation Fund is used to rehabilitate legacy sites or sites that have been prematurely closed or abandoned. As a consequence, Gold Fields’ Australian operations now self fund all mine closure liabilities; and

 

   

Peru: bank guarantees.

Gold Fields may in the future incur significant costs to comply with such environmental and health and safety requirements imposed under existing or new legislation, regulations or permit requirements or to comply with changes in existing laws and regulations or the manner in which they are applied. Gold Fields may also be subject to litigation and other costs as well as actions by authorities relating to environmental and health and safety matters, including mine closures, the suspension of operations and prosecution for industrial accidents as well as significant penalties and fines for non-compliance. These costs could have a material adverse effect on Gold Fields’ business, results of operations and financial condition. See “Information on the Company—Environmental and Regulatory Matters”.

In 2014, the Peruvian government established a three-year moratorium on the application of fines and other punitive sanctions against persons and entities operating in Peru, prioritizing instead the imposition of corrective measures. This moratorium expires in July 2017 and it is not expected that it will be extended. The expiry of the moratorium increases the chances that Gold Fields’ Peruvian operations could be subject to greater focus by regulators on compliance with its environmental obligations.

The principal health risks associated with Gold Fields’ mining operations in South Africa arise from occupational exposure and potential community environmental exposure to silica dust, noise and certain hazardous substances, including toxic gases and radioactive particulates. The most significant occupational diseases affecting Gold Fields’ workforce include lung diseases (such as silicosis, tuberculosis, a combination of the two and chronic obstructive airways disease, or COAD) as well as noise-induced hearing loss, or NIHL. Employees have sought and may continue to seek compensation for certain illnesses, such as silicosis, from their employer under workers’ compensation and also, at the same time, in civil actions under common law (either as individuals or as a class) as is the case with the silicosis individual and class action lawsuits. Such actions may also arise in connection with the alleged incidence of such diseases in communities proximate to Gold Fields’ mines.

 

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A consolidated application has been brought against several South African mining companies, including Gold Fields, for certification of a class action on behalf of current or former mineworkers (and their dependents) who have allegedly contracted silicosis and/or tuberculosis while working for one or more of the mining companies listed in the application. On May 13, 2016, the South Gauteng High Court ordered, among other things the certification of the two separate classes for silicosis and tuberculosis. Subsequently, the mining companies listed in the application were granted leave to appeal against all aspects of the class certification judgment. In addition to the class action, an individual silicosis-related action has been instituted against Gold Fields and one other mining company. See “Information on the Company—Legal Proceedings and Investigations—Silicosis”. If a significant number of such claims were suitably established against it, the payment of compensation for the claims and for any significant additional costs arising out of these issues could have a material adverse effect on Gold Fields’ business, reputation, operating results and financial condition. On March 4, 2016, AngloGold Ashanti Limited, or AngloGold Ashanti, and Anglo American South Africa reached a settlement to resolve approximately 4,400 combined silicosis claims, under which both companies will contribute, in stages, toward a total amount of up to R464 million (approximately U.S.$30 million) to an independent trust which will administer individual claims.

South Africa’s deputy Minister of Mineral Resources has stated that the ministry may increase sanctions, including closures, for mines in which fatalities occur because of violations of health and safety rules. The DMR can and does issue, in the ordinary course of its operations, instructions, including Section 54 orders, following safety incidents or accidents to partially or completely halt operations at affected mines. It is also Gold Fields’ policy to halt production at its operations when serious accidents occur in order to rectify dangerous situations and, if necessary, retrain workers. In fiscal 2016, 13 Section 54 stoppages were issued following visits by the DMR due to either perceived or actual unsafe working conditions, inadequate safety procedures or untrained personnel. Five of the work stoppages were to address safety issues. In addition, there can be no assurance that the unions will not take industrial action in response to such accidents which could lead to losses in Gold Fields’ production. Any additional stoppages in production, or increased costs associated with such incidents, could have a material adverse effect on Gold Fields’ business, operating results and financial condition. Such incidents may also negatively affect Gold Fields’ reputation with, among others, employees and unions, South African regulators and regulators in other jurisdictions in which Gold Fields operates.

Gold Fields could incur significant costs as a result of pending or threatened litigation, which could have a material adverse effect on Gold Fields’ business, operating results and financial condition. See “Information on the Company—Legal Proceedings and Investigations”. Further, any new regulations, potential litigation or any changes to the health and safety laws which increase the burden of compliance or the penalties for non-compliance may cause Gold Fields to incur further significant costs and could have a material adverse effect on Gold Fields’ business, operating results and financial condition. See “Information on the Company—Environmental and Regulatory Matters”.

Regulation of greenhouse gas emissions and climate change issues may materially adversely affect Gold Fields’ operations.

Energy is a significant input and cost to Gold Fields’ mining and processing operations, with its principal energy sources being electricity, purchased petroleum products, natural gas and coal. A number of governments or governmental bodies, including the United Nations Framework Convention on Climate Change and the Kyoto Protocol, have introduced or are contemplating regulatory changes in response to the potential impact of climate change. Many of these contemplate restricting emissions of greenhouse gases in jurisdictions in which Gold Fields operates.

The South African government plans to introduce a carbon tax. The carbon tax was intended to come into effect from January 1, 2015 but, in order to align the framework of the proposed carbon tax with the desired reduction outcomes, the implementation of the carbon tax was postponed in order to allow sufficient time for consultation on draft legislation and the implementation process. In November 2015, the national treasury, or the

 

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National Treasury, published for comment a draft carbon tax bill, or the Draft Carbon Tax Bill, with a view to the implementation of the tax by January 2017. However, this time-frame has been extended as a new draft bill is expected to be published for public comment with an anticipated implementation of the new legislation in fiscal 2018. The National Treasury has stated that the carbon tax will be designed to ensure that it has no net impact on the electricity price. In June 2016, the National Treasury published the draft carbon offset regulations, or the Draft Carbon Offset Regulations. Carbon offsets are one of the allowances that carbon tax-liable entities can employ to reduce their tax-related exposure. A further iteration of the carbon offset regulations is expected by mid-fiscal 2017, as are regulations providing for further limitation of exposure for those liable entities that reduce their greenhouse gas emissions intensity. In addition, the Department of Environmental Affairs, or the DEA, is currently working on draft legislation that will impose so-called “carbon budgets” on entities in identified high-emitting industries, including mining, which are intended to operate as statutory limits for carbon dioxide equivalent emissions, or CO2e, emissions in excess of which may entail a fine or other punitive measures. Further clarification of the carbon budgets and the carbon tax, which will both target industrial greenhouse gas emissions, is expected by the end of fiscal 2017. In terms of the current Draft Carbon Tax Bill, companies that participate in the carbon budget system will be eligible for a 5% allowance under the carbon tax. While many aspects of the proposed carbon tax remain uncertain, the financial implications of government’s proposed carbon tax for Gold Fields, at an anticipated rate of R120 per tonne of CO2e, would have been between approximately R0.2 million and R0.6 million for fiscal 2016.The potential net effect of proposed allowances is to permit the reduction of a carbon tax liability by 60% to 95%. In other words, Gold Fields’ final liability will be significantly informed by the extent it is able to make use of the full suite of allowances that are built into the carbon tax design. Since these may be revised in a further iteration of the Bill, this estimated liability is subject to change. See “Information on the Company—Environmental and Regulatory Matters—South Africa—Environmental”.

In addition, a number of other regulatory initiatives are underway in countries in which Gold Fields operates that seek to reduce or limit industrial greenhouse gas emissions. These regulatory initiatives will be either voluntary or mandatory and are likely to impact Gold Fields’ operations directly or by affecting the cost of doing business, for example by increasing the costs of its suppliers or customers. Inconsistency of regulations particularly between developed and developing countries may affect both Gold Fields’ decision to pursue opportunities in certain countries and its costs of operations. Furthermore, additional, new and/or different regulations in this area, such as the imposition of lower limits than those currently contemplated, could be enacted, all of which could have a material adverse effect on Gold Field’s business, financial condition, results of operations and prospects. Assessments of the potential impact of future climate change regulation are uncertain, given the wide scope of potential regulatory change in countries in which Gold Fields operates.

Furthermore, the potential physical impacts of climate change on Gold Fields’ operations are uncertain and may adversely impact the business, operating results and financial condition of Gold Fields’ operations.

Our high debt levels pose risks to our viability and may make us more vulnerable to adverse economic and competitive conditions, as well as other adverse developments.

Gold Fields carries significant debt relative to its shareholder equity. As of December 31, 2016, Gold Fields’ consolidated debt was U.S.$1.7 billion. U.S.$0.2 billion of Gold Fields’ consolidated debt securities becomes due over the 24 months following December 31, 2016.

Gold Fields’ significant levels of debt can adversely affect it in several respects, including:

 

   

limiting its ability to access the capital markets;

 

   

exposing it to the risk of credit rating downgrades, which would raise its borrowing costs and could limit its access to capital;

 

   

hindering its flexibility to plan for or react to changing market, industry or economic conditions;

 

   

limiting the amount of cash flow available for future operations, acquisitions, dividends, or other uses;

 

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making it more vulnerable to economic or industry downturns, including interest rate increases;

 

   

increasing the risk that it will need to sell assets, possibly on unfavorable terms, to meet payment obligations;

 

   

increasing the risk that it may not meet the financial covenants contained in its debt agreements or timely make all required debt payments; or

 

   

affecting its ability to service the interest on its debt.

The effects of each of these factors could be intensified if Gold Fields increases its borrowings. Any failure to make required debt payments could, among other things, adversely affect Gold Fields’ ability to conduct operations or raise capital, which could have a material adverse effect on Gold Fields’ business, operating results or financial condition.

Gold Fields’ operations and profits have been and may be adversely affected by union activity and new and existing labor laws.

Over recent periods, there has been an increase in union activity in some of the countries in which Gold Fields operates. Any union activity that affects Gold Fields could have a material adverse impact on its operations, production and financial performance.

In South Africa, a recent increase in labor unrest has resulted in more frequent industrial disputes and extended negotiations that have negatively affected South Africa’s sovereign debt rating and subsequently the credit ratings of a number of the country’s leading mining companies, including Gold Fields. While widespread strikes in the gold mining industry have not occurred since the second half of fiscal 2012, the South African platinum industry was subject to a five month strike in 2014. Negotiations on a new agreement between Gold Fields and the registered trade unions of South Deep, which is due in fiscal 2018, will commence in fiscal 2017. While the outcome of Gold Fields’ wage negotiations with the unions in fiscal 2015 was relatively positive and resulted in a three year wage agreement with the National Union of Mineworkers, or NUM, and UASA, in light of the ongoing labor unrest there can be no guarantee that future negotiations, including the negotiations scheduled for fiscal 2017, will not be accompanied by further strikes, work stoppages or other disruptions.

Furthermore, guidelines and targets have been provided to facilitate compliance with the open-ended broad-based socio-economic empowerment requirements espoused in Section 2 of the MPRDA and in the broad-based socio-economic empowerment charter for the South African mining and minerals industry known as the Mining Charter, as well as the amendments to that charter that took effect from September 13, 2010, or the Amended Mining Charter. The Amended Mining Charter, contains guidelines which provide that all mining companies must achieve, among other things, 26% ownership by HDSAs of mining assets and a minimum of 40% HDSA demographic representation at the executive management, senior management, middle management, junior management and core and critical skills levels (subject to offsets) in order to comply with the empowerment requirements of the MPRDA. See “—Gold Fields’ mineral rights are subject to legislation, which could impose significant costs and burdens and which impose certain ownership requirements, the interpretation of which are the subject of dispute” and “Information on the Company—Environmental and Regulatory Matters—South Africa—Mineral Rights”. The ongoing implementation and enforcement of these requirements, including as a result of any changes thereto following the announced review, may be contentious.

Gold Fields’ operations in Ghana and Peru have recently been, and may in the future be, impacted by increased union activities and new labor laws. In particular, there can be no guarantee that labor unions in either country will not undertake strikes or “go-slow” actions impacting the Group’s operations or those of other related industries or suppliers, or that changes in local regulations will not result in increased costs and penalties being incurred by the Group.

 

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In Ghana, in April 2013, employees represented by the Ghana Mineworkers Union, or GMWU, the Professional Managerial Staff Union and the Branch Union at both Tarkwa and Damang undertook illegal industrial action, resulting in the temporary suspension of production at both operations. The strike lasted six days and ended after Gold Fields and the GMWU reached a settlement. Subsequently, the wage negotiations with the unions in fiscal 2015 and fiscal 2016 were completed and wage agreements for fiscal 2016 and fiscal 2017 have been signed, with a 10% basic salary increase for fiscal 2016 (to be backdated) and a 6% increase for fiscal 2017. Nevertheless, in light of the recent labor unrest there can be no guarantee that negotiations in the future will not be difficult or accompanied by further strikes, work stoppages or other labor actions.

In Peru, the Group may see increased union activity over the course of fiscal 2017 as a result of reduced commodity and mineral prices which may lead to reductions in the annual income of employees. This may in turn cause unions to seek better and/or additional benefits to compensate for any such decrease in their annual income, such as through increased activities and/or industrial action. However, in January 2017, Gold Fields executed a three year agreement with Cerro Corona’s union that provides for a S/. 220 annual wage increase in fiscal 2017 which is equivalent to a 5.3% annual wage increase on average for this group of employees, 5.5% increase in fiscal 2018 and 5.8% increase in fiscal 2019. In addition, there was an increase in labor inspection activities over the course of fiscal 2016, and this may continue into fiscal 2017. See “Information on the Company—Environmental and Regulatory Matters—Peru”.

In the event that Gold Fields experiences further industrial relations related interruptions at any of its operations or in other industries that impact its operations, or increased employment-related costs due to union or employee activity, these may have a material adverse effect on its business, production levels, operating costs, production targets, operating results, financial condition, reputation and future prospects. In addition, lower levels of mining activity can have a longer term impact on production levels and operating costs, which may affect operating life. Mining conditions can deteriorate during extended periods without production, such as during and after strikes, and Gold Fields will not re-commence mining until health and safety conditions are considered appropriate to do so.

Existing labor laws (including those that impose obligations on Gold Fields regarding worker rights) and any new or amended labor laws may increase Gold Fields’ labor costs and have a material adverse effect on Gold Fields’ business, operating results and financial condition.

Power cost increases may adversely affect Gold Fields’ business, operating results and financial condition.

Gold Fields’ South Deep mining operation depends upon electrical power generated by the state-owned power provider, Eskom Limited, or Eskom. See “Operating and Financial Review and Prospects—Overview—Costs”. Eskom holds a monopoly on power supply in the South African market. Eskom tariffs are regulated by the National Energy Regulator of South Africa, or NERSA. During Eskom’s 2013-2014 fiscal year, through a third multi-year-price determination process, or MYPD3, NERSA granted Eskom 8% tariff increases for each fiscal year until 2018-2019. For 2015, NERSA granted Eskom an average tariff increase of 12.69% effective April 1, 2015, being 8% plus 4.69% due to the clawing back by Eskom of prudent costs from the “regulatory clearing account” applicable from April 2010 to March 2013, the first year of the MYPD3. On March 1, 2016, NERSA gave permission to Eskom to raise rates by an additional 9.4%, being 8% plus a net 1.4% due to the 2016 regulatory clearing account charge (for the second year of the MYPD3), in order to make up a cash flow shortfall. A regional group of intensive electricity users challenged NERSA’s decision in court. On August 16, 2016, the North Gauteng High Court overturned NERSA’s decision. On November 17, 2016, the North Gauteng High Court granted NERSA’s appeal to the Supreme Court of Appeal, which is currently pending. The outcome of the Supreme Court of Appeal’s judgment, and possibly the outcome of a further appeal to the Constitutional Court, will likely have notable impacts on the cost of electricity. The increase granted to Eskom for the period beginning April 1, 2017 is 2.2%. Should Gold Fields experience further power tariff increases, its business, operating results and financial condition may be adversely impacted.

 

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In Australia, Gold Fields’ St. Ives and Agnew/Lawlers mines contract for the supply of electricity with BHP Nickel-West under a power purchasing agreement. Granny Smith receives its entire electricity supply from a new gas-fired power station, sourcing gas from a nearby gas pipeline, which has been constructed for the nearby Tropicana mine to supply gas to its operations. Access to this pipeline is facilitated through a newly constructed gas power station, which provides a 24 megawatt power generating system to Granny Smith. If any of Gold Fields’ Australian operations were to lose their supply, replacement of this supply may entail a significant increase in costs due to the volatile Western Australian gas market. Any such increase in costs could have a material adverse impact on Gold Fields’ business and operating results.

The Ghanaian state electricity supplier, the Volta River Authority, or the VRA, supplies power to Gold Fields Ghana Limited (Tarkwa mine), or Gold Fields Ghana, and the Electricity Company of Ghana, or the ECG, provides power to Abosso Goldfields Limited (Damang mine), or Abosso. The ECG’s tariff from January 1, 2015 to December 31, 2015 was U.S.$0.23/kWh. Following negotiations with management, the ECG agreed to decrease its tariff to U.S.$0.20/kWh from August 1, 2015 to January 31, 2016. There has been no revision of the ECG tariff to date. Gold Fields Ghana has agreed tariffs with the VRA with a base tariff of U.S.$0.1674/kWh with effect from January 1, 2015 using a tariff model which inputs actual variables (including the generation mix and input prices) of the previous quarter to determine the tariff for each quarter on a rolling basis. The average VRA tariff for fiscal 2016 was U.S.$0.158/kWh. On December 11, 2015, the Public Utilities Regulatory Commission increased the average electricity tariffs for the transmission grid, or GRIDCo, by approximately 59.2% increasing the tariff paid by Tarkwa only from U.S.$0.01539/kWh to U.S.$0.024252/kWh. In addition, the new Energy Sector Levies Act enacted in 2015 (Act 899) imposed a levy of 9% per kilowatt hour of electricity, on both public lighting and national electrification, applicable to all consumers (resulting in an increased charge to Tarkwa from the VRA of 1.2 c/kWh). While in his budget speech on March 2, 2017, the Minister of Finance announced that the levy of 9% on public lighting and national electrification will be reduced to 2% and 3% respectively there can be no guarantee that this reduction will be enacted. Although Gold Fields Ghana has also entered into an agreement with Genser Power, or Genser, for the supply of off-grid electricity, Genser will require a period of time to stabilize its operational performance and during this phase there is a risk of incurring periods of downtime which, if extended, would require Damang to revert back to ECG grid power. Any further increase in the electricity price could have a material adverse effect on the Group’s business and operating results. See “Information on the Company—Description of Mining Business”.

Power stoppages, fluctuations and usage constraints may force Gold Fields to halt or curtail operations.

Electricity supply in South Africa remains constrained and future power disruptions are possible. In the first quarter of fiscal 2014, rain impacted coal supply and placed serious strain on Eskom’s ability to provide power. In November 2014, Eskom declared a power emergency and required large industrial users, including Gold Fields’ South Deep operation, to reduce their electricity usage by 10% for five hours as part of a broader load shedding program. Gold Fields also experienced rolling load shedding during fiscal 2015. In addition, although NERSA approved an electricity tariff increase of 9.4% for 2016 and 2017, Eskom has expressed concern that this increase may not be adequate to prevent future electricity interruptions.

Gold Fields has been warned of possible load shedding under its voluntary load curtailment agreement with Eskom. While no load shedding was requested by Eskom in 2016, under this agreement, Gold Fields is required to reduce demand by up to 25% of load, depending on the severity of the shortage, for a specified period of time during which the national grid is unable to maintain its load. Any further disruption or decrease in the electrical power supply available to Gold Fields’ South Deep operation could have a material adverse effect on its business, operating results and financial condition.

The Department of Energy is developing a power conservation program in an attempt to improve the power situation in South Africa and Eskom is embarking on the construction of new power stations, among other resources. However, there can be no assurance that these and other interventions will provide sufficient supply for the needs of the country or for Gold Fields to run its operations at full capacity or at all.

 

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Although the VRA has not imposed any power cuts in Ghana since August 2006, frequent power interruptions have occurred in the power supplied by the ECG. In 2015, the Ghanaian government imposed a 33% load shedding program on all mining and industrial companies. While the power supply stabilized during fiscal 2016, there can be no guarantee that further power interruptions will not occur. While Gold Fields has taken steps to source power from an independent power producer to complement its self-generation source, there can be no guarantee that Gold Fields will be able to source enough power to make up for any shortfall in the power supplied by the ECG.

Should Gold Fields continue to experience power outages, fluctuations or usage constraints at any of its operations, then its business, operating results and financial condition may be materially adversely impacted.

An actual or alleged breach or breaches in governance processes, or fraud, bribery and corruption may lead to public and private censure, regulatory penalties, loss of licenses or permits and impact negatively upon our empowerment status and may damage Gold Fields’ reputation.

Gold Fields operates globally in multiple jurisdictions and with numerous and complex frameworks, and its governance and compliance processes may not prevent potential breaches of law or accounting or other governance practices. Gold Fields’ operating and ethical codes, among other standards and guidance, may not prevent instances of fraudulent behavior and dishonesty, nor guarantee compliance with legal and regulatory requirements.

In September 2013, Gold Fields was informed that it is the subject of a regulatory investigation in the United States by the SEC relating to the BBBEE transaction associated with the granting of the mining rights for its South Deep operation. In South Africa, the Directorate for Priority Crime Investigation, BBBEE informed the Company that it had started a preliminary investigation into this BEE transaction to determine whether or not to proceed to a formal investigation, following a complaint by the Democratic Alliance. While Gold Fields was informed on June 22, 2015 that the Foreign Corrupt Practices Act Unit of the SEC concluded its investigation in connection with the BBBEE transaction related to South Deep and, based on the information available to them, would not recommend to the SEC that enforcement action be taken against Gold Fields, it is not possible to determine at this stage what effect the ultimate outcome of these investigations, any regulatory findings and any related developments may have on the Company. Among other things, the notice provided by the SEC regarding the conclusion of its investigation noted that the notice “must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result from the staff’s investigation”. See “Information on the Company—Legal Proceedings and Investigations—Regulatory Investigation”.

To the extent that Gold Fields suffers from any actual or alleged breach or breaches of relevant laws (including South African anti-bribery and corruption legislation or the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA) under any circumstances, they may lead to investigations and examinations, regulatory and civil fines, litigation, public and private censure, loss of operating licenses or permits and impact negatively upon our empowerment status and may damage Gold Fields’ reputation. The occurrence of any of these events could have a material adverse effect on Gold Fields’ business, operating results and financial condition.

Due to the nature of mining and the extensive environmental footprint of the operations, environmental and industrial accidents and pollution may result in operational disruptions such as stoppages which could result in increased production costs as well as financial and regulatory liabilities.

Gold mining by its nature involves significant risks and hazards, including environmental hazards and industrial and mining accidents. These may include, for example, seismic events, fires, cave-ins and blockages, flooding, discharges of gases and toxic substances, contamination of water, air or soil resources, radioactivity and other accidents or conditions resulting from mining activities including, among other things, blasting and the transport, storage and handling of hazardous materials.

 

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The occurrence of any of these hazards or risks could delay or halt production, increase production costs and result in financial and regulatory liability for Gold Fields (including as a result of the occurrence of hazards that took place at the Spin-off operations when they were owned by Gold Fields), which could have a material adverse effect on Gold Fields’ business, operating results and financial condition.

Due to ageing infrastructure at our operations, unplanned breakdowns and stoppages may result in production delays, increased costs and industrial accidents.

Once a shaft or a processing plant has reached the end of its intended lifespan, more than normal maintenance and care is required. Some of Gold Fields’ infrastructure in South Africa, Ghana and Australia falls into this category. Ageing infrastructure may also cause the Group to be unable to maintain throughput at its operations in Peru. Although Gold Fields has comprehensive strategies in place to address these issues, including maintenance and process plant optimization projects, incidents resulting in production delays, increased costs or industrial accidents may occur. Such incidents may have a material adverse effect on Gold Fields’ business, operating results and financial condition.

If Gold Fields loses senior management or is unable to hire and retain sufficient technically skilled employees or sufficient HDSA representation in management positions, its business may be materially adversely affected.

Gold Fields’ ability to operate or expand effectively depends largely on the experience, skills and performance of its senior management team and technically skilled employees. However, the mining industry, including Gold Fields, continues to experience a global shortage of qualified senior management and technically skilled employees. In particular, there is a shortage of mechanized mining skills in the South African gold mining industry. Gold Fields may be unable to hire or retain appropriate senior management, technically skilled employees or other management personnel, or may have to pay higher levels of remuneration than it currently intends in order to do so. Additionally, as a condition of our mining rights at South Deep, we must ensure that there is sufficient HDSA participation in our management and core and critical skills, and failure to do so could result in fines or the loss or suspension of our mining rights. If Gold Fields is not able to hire and retain appropriate management and technically skilled personnel or is unable to obtain sufficient HDSA representation in management positions or if there are not sufficient succession plans in place, this could have a material adverse effect on its business (including production levels), operating results and financial position.

Actual and potential supply chain shortages and increases in the prices of production inputs may have a material adverse effect on Gold Fields’ operations and profits.

Gold Fields’ operating results may be affected by the availability and pricing of raw materials and other essential production inputs, including fuel, steel and cyanide and other reagents. The price and quality of raw materials may be substantially affected by changes in global supply and demand, along with weather conditions, governmental controls and other factors. A sustained interruption in the supply of any of these materials would require Gold Fields to find acceptable substitute suppliers and could require it to pay higher prices for such materials. Any significant increase in the prices of these materials will increase the Company’s operating costs and affect production considerations.

The price of oil has been volatile, fluctuating between U.S.$36.25and U.S.$58.07 per barrel of Brent Crude in 2016. As of April 3, 2017, the price of oil was at U.S.$53.53 per barrel of Brent Crude. Gold Fields does not currently have any significant oil hedges.

Furthermore, the price of steel has also been volatile. Steel is used in the manufacture of most forms of fixed and mobile mining equipment, which is a relatively large contributor to the operating costs and capital expenditure of a mine.

Fluctuations in oil and steel prices may have a significant impact on operating costs and capital expenditure estimates and, in the absence of other economic fluctuations, could result in significant changes in the total expenditure estimates for new mining projects or render certain projects non-viable.

 

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Gold Fields’ insurance coverage may not adequately satisfy all potential claims in the future.

Gold Fields has an insurance program, however, it may become subject to liability against which it has not insured, cannot insure or has insufficiently insured, including those in respect of past mining activities. Gold Fields’ existing property and liability insurance contains exclusions and limitations on coverage. For example, should Gold Fields be subject to any regulatory or criminal fines or penalties, these amounts would not be covered under its insurance program. Should Gold Fields suffer a major loss, future earnings could be affected. In addition, Gold Fields’ insurance does not cover loss of profits. Further, insurance may not continue to be available at economically acceptable premiums. As a result, in the future, Gold Fields’ insurance coverage may not cover the extent of claims against it or any cross-claims made.

Gold Fields’ financial flexibility could be materially constrained by South African exchange control regulations.

South Africa’s exchange control regulations, or the Exchange Control Regulations, restrict the export of capital from South Africa, the Republic of Namibia, and the Kingdoms of Lesotho and Swaziland, known collectively as the Common Monetary Area, or the CMA. Transactions between South African residents (including companies) and non-residents of the CMA are subject to exchange controls enforced by the South African Reserve Bank, or SARB. As a result, Gold Fields’ ability to raise and deploy capital outside the CMA is restricted. These restrictions could hinder Gold Fields’ financial and strategic flexibility, particularly its ability to fund acquisitions, capital expenditures and exploration projects outside South Africa. See “Information on the Company—Environmental and Regulatory Matters—South Africa—Exchange Controls”.

Gold Fields may suffer material adverse consequences as a result of its reliance on outside contractors to conduct some of its operations.

A portion of Gold Fields’ operations in South Africa, Ghana, Australia and Peru are currently conducted by outside contractors. As a result, Gold Fields’ operations at those sites are subject to a number of risks, some of which are outside Gold Fields’ control, including contract risk, execution risk, litigation risk, regulatory risk and labor risk.

In addition, Gold Fields may incur liability to third parties as a result of the actions of its contractors. The occurrence of one or more of these risks could have a material adverse effect on Gold Fields’ business, operating results and financial condition. See “Directors, Senior Management and Employees—Employees—Labor Relations—South Africa”, “Directors, Senior Management and Employees—Employees—Labor Relations—Ghana”, “Directors, Senior Management and Employees—Employees—Labor Relations—Australia” and “Directors, Senior Management and Employees—Employees—Labor Relations—Peru”.

Theft of gold and copper bearing materials and production inputs, as well as illegal and artisanal mining, occur on some of Gold Fields’ properties, are difficult to control, can disrupt Gold Fields’ business and can expose Gold Fields to liability.

A number of Gold Fields’ properties have experienced illegal and artisanal mining activities and theft of gold and copper bearing materials and copper cables (which may be by employees or third parties). The activities of illegal and artisanal miners could lead to depletion of mineral reserves, potentially affecting the economic viability of mining certain areas and shortening the lives of the operations as well as causing possible operational disruption, project delays, disputes with illegal miners and communities, pollution or damage to property for which Gold Fields could potentially be held responsible, leading to fines or other costs. Rising gold and copper prices may result in an increase in gold and copper thefts. The occurrence of any of these events could have a material adverse effect on Gold Fields’ business, operating results and financial condition.

 

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Some of Gold Fields’ tenements in Australia are subject to native title claims and include Aboriginal heritage sites, which could impose significant costs and burdens.

Native title and Aboriginal cultural heritage legislation protects the claims and determined rights of Aboriginal people in relation to the land and waters throughout Australia in certain circumstances. Native title claims could require costly negotiations with the registered claimants and could have implications for Gold Fields’ access to or use of its tenements and, as a result, have a material adverse effect on Gold Fields’ business, operating results and financial condition. Similarly, there are risks that if Aboriginal cultural heritage sites are damaged or materially altered as a result of current or future operations, Gold Fields could be subject to criminal and/or civil penalties under relevant legislation. See “Information on the Company—Environmental and Regulatory Matters—Australia—Land Claims”.

HIV/AIDS, tuberculosis and other contagious diseases pose risks to Gold Fields in terms of lost productivity and increased costs.

The prevalence of HIV/AIDS in South Africa poses risks to Gold Fields in terms of potentially reduced productivity and increased medical and other costs. Compounding this are the concomitant infections, such as tuberculosis, that can accompany HIV illness, particularly at the end stages, and cause additional healthcare-related costs. If there is a significant increase in the incidence of HIV/AIDS infection and related diseases among the workforce, this may have a material adverse effect on Gold Fields’ business, operating results and financial condition. See “Directors, Senior Management and Employees—Employees—Safety and Wellness—Employee Health and Wellness—HIV/AIDS”.

Additionally, the spread of contagious diseases such as respiratory diseases are exacerbated by communal housing and close quarters. The spread of such diseases could impact employees’ productivity, treatment costs and, therefore, operational costs.

Gold Fields utilizes information technology and communications systems, the failure of which could significantly impact its operations and business.

Gold Fields utilizes and is reliant on various information technology and communications systems, in particular SAP, payroll and time and attendance applications. Damage or interruption to Gold Fields’ information technology and communications systems, whether due to accidents, human error, natural events or malicious acts, may lead to important data being irretrievably lost or damaged, thereby adversely affecting Gold Fields’ business, prospects and operating results.

These systems may be subject to security breaches (e.g. cyber-crime or activists) or other incidents that can result in misappropriation of funds, increased health and safety risks to people, disruption to our operations, environmental damage, loss of intellectual property, disclosure of commercially or personally sensitive information, legal or regulatory breaches and liability, other costs and reputational damage. While no material losses related to cyber security breaches have been discovered, given the increasing sophistication and evolving nature of this threat, Gold Fields cannot rule out the possibility of them occurring in the future. An extended failure of critical system components, caused by accidental, or malicious actions, including those resulting from a cyber security attack, could result in a significant environmental incident, commercial loss or interruption to operations.

Shareholders outside South Africa may not be able to participate in future issues of securities (including ordinary shares) carried out by or on behalf of Gold Fields.

Securities laws of certain jurisdictions may restrict Gold Fields’ ability to allow participation by certain shareholders in future issues of securities (including ordinary shares) carried out by or on behalf of Gold Fields. In particular, holders of Gold Fields securities who are located in the United States (including those who hold

 

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ordinary shares or ADSs) may not be able to participate in securities offerings by or on behalf of Gold Fields unless a registration statement under the Securities Act is effective with respect to such securities or an exemption from the registration requirements of the Securities Act is available thereunder.

Securities laws of certain other jurisdictions may also restrict Gold Fields’ ability to allow the participation of all holders in such jurisdictions in future issues of securities carried out by Gold Fields. Holders who have a registered address or are resident in, or who are citizens of, countries other than South Africa should consult their professional advisors as to whether they require any governmental or other consents or approvals or need to observe any other formalities to enable them to participate in any offering of Gold Fields securities.

Investors in the United States and other jurisdictions outside South Africa may have difficulty bringing actions, and enforcing judgments, against Gold Fields, its directors and its executive officers based on the civil liabilities provisions of the federal securities laws or other laws of the United States or any state thereof or under the laws of other jurisdictions outside South Africa.

Gold Fields is incorporated in South Africa. All of Gold Fields’ directors and executive officers reside outside of the United States. Substantially all of the assets of these persons and substantially all of the assets of Gold Fields are located outside the United States. As a result, it may not be possible for investors to enforce against these persons or Gold Fields a judgment obtained in a United States court predicated upon the civil liability provisions of the federal securities or other laws of the United States or any state thereof. In addition, investors in other jurisdictions outside South Africa may face similar difficulties.

Investors should be aware that it is the policy of South African courts to award compensation for the loss or damage actually sustained by the person to whom the compensation is awarded. Although the award of punitive damages is generally unknown to the South African legal system, it does not mean that such awards are necessarily contrary to public policy. South African courts cannot enter into the merits of a foreign judgment and cannot act as a court of appeal or review over the foreign court. South African courts will usually implement their own procedural laws and, where an action based on an international contract is brought before a South African court, the capacity of the parties to the contract will usually be determined in accordance with South African law. It is doubtful whether an original action based on United States federal securities laws or the laws of other jurisdictions outside South Africa may be brought before South African courts. Further, a plaintiff who is not resident in South Africa may be required to provide security for costs in the event of proceedings being initiated in South Africa. In addition, the Rules of the High Court of South Africa require that documents executed outside South Africa must be authenticated for the purpose of use in South Africa.

Investors should also be aware that a foreign judgment is not directly enforceable in South Africa, but constitutes a cause of action which will be enforced by South African courts only if certain conditions are met.

Investors may face liquidity risk in trading Gold Fields’ ordinary shares on JSE Limited.

Historically, trading volumes and liquidity of shares listed on the JSE have been low in comparison with other major markets. The ability of a holder to sell a substantial number of Gold Fields’ ordinary shares on the JSE in a timely manner, especially in a large block trade, may be restricted by this limited liquidity. See “The Offer and Listing—JSE Limited”.

Gold Fields may not pay dividends or make similar payments to its shareholders in the future and any dividend payment may be subject to withholding tax.

Gold Fields pays cash dividends only if funds are available for that purpose. Whether funds are available depends on a variety of factors, including the amount of cash available and Gold Fields’ capital expenditures (on both existing infrastructure as well as on exploration and other projects) and other cash requirements existing at the time. Under South African law, Gold Fields will be entitled to pay a dividend or similar payment to its shareholders

 

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only if it meets the solvency and liquidity tests set out in the Companies Act No. 71 of 2008, or the Companies Act, and Gold Fields’ Memorandum of Incorporation, or MOI. Given these factors and the Board of Directors’ discretion to declare cash dividends or other similar payments, dividends may not be paid in the future. It should be noted that a 20% withholding tax on dividends declared by South African resident companies to non-resident shareholders or non-resident ADS holders was introduced with effect from February 22, 2017. See “Additional Information—Taxation—Certain South African Tax Considerations—Withholding Tax on Dividends”.

Gold Fields’ non-South African shareholders face additional investment risk from currency exchange rate fluctuations since any dividends will be paid in Rand.

Dividends or distributions with respect to Gold Fields’ ordinary shares have historically been paid in Rand. The U.S. dollar or other currency equivalent of future dividends or distributions with respect to Gold Fields’ ordinary shares, if any, will be adversely affected by potential future reductions in the value of the Rand against the U.S. dollar or other currencies. In the future, it is possible that there will be changes in South African exchange control regulations, such that dividends paid out of trading profits will not be freely transferable outside South Africa to shareholders who are not residents of the CMA. See “Additional Information—South African Exchange Control Limitations Affecting Security Holders”.

Gold Fields’ ordinary shares are subject to dilution upon the exercise of Gold Fields’ outstanding share options.

Shareholders’ equity interests in Gold Fields will be diluted to the extent of future exercises or settlements of rights under the Gold Fields 2012 Share Plan, or the 2012 Plan, the Gold Fields 2005 Share Plan, or the 2005 Plan, the revised Gold Fields Limited 2012 share plan, or the revised Gold Fields Limited 2012 Share Plan, and any additional rights. See “Directors, Senior Management and Employees—The Gold Fields Limited 2005 Share Plan” and “Directors, Senior Management and Employees—The Revised Gold Fields Limited 2012 Share Plan”. Gold Fields shares are also subject to dilution in the event that the Board is required to issue new shares in compliance with BBBEE legislation.

 

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ITEM 4: INFORMATION ON THE COMPANY

Introduction

Gold Fields is a significant producer of gold and a major holder of gold reserves in South Africa, Ghana, Australia and Peru. In Peru, Gold Fields also produces copper. Gold Fields is involved in underground and surface gold and copper mining and related activities, including exploration, development, extraction, processing and smelting.

In 2016, the South African, West African, Australasian and South American operations produced 13%, 32%, 43% and 12% of Gold Fields total gold-equivalent production, respectively. Gold Fields’ currently holds a 91.3% interest in the South African operation, South Deep. Gold Fields also owns the St. Ives mine, the Yilgarn South Assets and has a 90.0% interest in each of the Tarkwa gold mine and the Damang gold mine in Ghana. Gold Fields also owns a 99.53% economic interest in the Cerro Corona mine in Peru. In November 2016, Gold Fields entered into a 50:50 unincorporated joint venture with Gold Road Resources, or Gold Road, for the development and operation of the Gruyere Gold Project in Western Australia. In addition, Gold Fields has gold and other precious metal exploration activities and interests in Africa, Eurasia, Australasia and the Americas.

As of December 31, 2016, Gold Fields reported attributable proven and probable gold and copper reserves of 48.0 million ounces of gold and 454 million pounds of copper, as compared to the 46.1 million ounces of gold and 532 million pounds of copper, reported as of December 31, 2015. See “—Reserves of Gold Fields as at December 31, 2016”.

In fiscal 2016, Gold Fields processed 34.2 million tonnes of ore and produced 2.22 million ounces of gold equivalent ounces. On an attributable basis, Gold Fields produced 2.15 million ounces of gold equivalent ounces.

Competitive Position

Gold Fields is a producer of gold and major holder of gold reserves in South Africa, Australia, Ghana, and Peru. Gold is a commodity product generally sold in U.S. dollars, with London being the world’s primary gold trading market. Gold is also actively traded using futures and forward contracts. The price of gold has historically been significantly affected by macroeconomic factors, such as inflation, exchange rates and reserves policy and by global political and economic events, rather than simple supply and demand dynamics. As a general rule, Gold Fields sells the gold it produces at market prices to obtain the maximum benefit from prevailing gold prices.

Historically, the key gold producers globally have been Barrick, Newmont Mining Corporation, or Newmont, AngloGold Ashanti, Goldcorp Inc., or Goldcorp, and Gold Fields before the Spin-off. In fiscal 2016, Barrick, Newmont, AngloGold Ashanti and Goldcorp were, in that order, the four largest gold producers in the world, producing 5,517, 4,898, 3,628 and 2,873 thousand ounces respectively, and together accounted for 16% of the total global production for the year, according to the information provided by the companies and industry reports. Gold Fields was the seventh largest gold producer in the world in 2016, producing 2.15 million gold equivalent ounces on an attributable basis.

According to publicly available sources, at December 31, 2016 for each of Barrick, Newmont, AngloGold Ashanti and Goldcorp, Barrick had 13 operations in eleven countries, Newmont had 15 operations in five countries, AngloGold Ashanti had 17 operations in nine countries and Goldcorp had 12 operations in six countries.

Gold Fields attempts to attract and retain motivated high caliber employees through a mix of guaranteed and performance-based remuneration, as well as short-term and long-term incentives, and non-financial rewards relating to work experience. However, the worldwide mining industry, including Gold Fields, continues to

 

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experience a shortage of qualified senior management and technically skilled employees. In order to maintain competitiveness in the global labor market, regular industry market surveys are conducted to benchmark remuneration practices and to keep abreast of industry movements regarding employee benefits and non-financial employee reward and recognition programs.

Developments since December 31, 2015

Since the end of fiscal 2015, the following significant events have occurred:

On February 19, 2016, Gold Fields Australasia (Proprietary) Limited, or GFA, a wholly owned subsidiary of Gold Fields, announced an offer to purchase U.S.$200 million of the notes due October 7, 2020, issued October 7, 2010, or the U.S.$1 billion Notes. Gold Fields accepted for purchase an aggregate principal amount of U.S.$1 billion Notes equal to U.S.$147.6 million at the purchase price of U.S.$880 per U.S.$1,000 in principal amount of U.S.$1 billion Notes. Gold Fields intends to hold the U.S.$1 billion Notes acquired until their maturity date on October 7, 2020. See “Additional Information—Material Contracts—U.S.$1 billion Notes Issue”.

On March 17, 2016, Gold Fields concluded the Development Agreement with the government of Ghana for both the Tarkwa and Damang mines. See “—Environmental and Regulatory Matters—Ghana—Mineral Rights”.

On March 18, 2016, Gold Fields successfully completed a U.S.$151.5 million (R2.3 billion) non-U.S. accelerated equity raising by way of a private placement, or the Placing, to institutional investors. A total number of 38,857,913 new Gold Fields shares were placed at a price of R59.50 per share which represents a discount of 6.0% to the 30-day volume weighted average traded price, for the period ended March 17, 2016 and a 0.7% discount to the 50-day moving average. The net proceeds from the Placing were applied to the U.S.$1,510 million term loan and revolving credit facilities that were utilized to purchase the U.S.$1 billion U.S.$1 billion Notes amounting to U.S.$147.6 million, as described above.

On March 29, 2016, the Full Court of the Federal Court of Australia overturned a July 2014 Federal Court decision that the re-grant of certain tenements to Gold Fields Australia’s St. Ives mine in 2004 by the State was not compliant with the correct processes in the Native Title Act. The Applicants’ application to seek leave to appeal this decision to the High Court of Australia was unsuccessful, and the matter is now finalized. See “—Legal Proceedings and Investigations—Ngadju Native Title Claim”.

On May 13, 2016, the South Gauteng High Court ordered, among other things, the certification of two separate classes for silicosis and tuberculosis on behalf of current or former mineworkers (and their dependents) who have allegedly contracted silicosis and/or tuberculosis while working for one or more of the mining companies listed in the application. Subsequently the mining companies listed in the application were granted leave to appeal against all aspects of the class certification judgment. See “—Legal Proceedings and Investigations—Silicosis”.

On June 7, 2016, Gold Fields successfully refinanced its U.S.$1,510 million credit facilities due in November 2017. The new facilities amount to U.S.$1,290 million and comprise three tranches:

 

   

U.S.$380 million: 3 year term loan maturing in June 2019 – margin 250 basis points (bps) over Libor;

 

   

U.S.$360 million: 3 year revolving credit facility also maturing in June 2019 (with an option to extend to up to 5 years) – margin 220bps over Libor; and

 

   

U.S.$550 million: 5 year revolving credit facility maturing in June 2021 – margin 245bps over Libor.

The new facilities were concluded with a syndicate of 15 banks. On average, the interest rate on the new facilities is similar to the interest rate on the existing facilities. A total of US$645 million was drawn down from the new facilities on 13 June 2016 to repay the group’s existing US$ facilities, with US$645 million remaining unutilized. The refinancing is a key milestone in Gold Fields’ balance sheet management and increases the maturity of its total borrowings, with the first maturity now only in June 2019 (previously November 2017).

 

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On December 13, 2016, Gold Fields acquired a 50% interest in the Gruyere Gold Project for a total purchase consideration of A$350 million (U.S.$259 million) payable in cash and a 1.5% royalty on Gold Field’s share of production after the total mine production exceeds 2 million ounces. The purchase consideration comprises A$250 million (U.S.$185 million) payable on the effective date (December 13, 2016), and A$100 million (U.S.$74 million) payable according to an agreed construction cash call schedule. In addition, transaction costs of A$19 million (U.S.$13 million) were incurred and capitalized. The 1.5% royalty will be accounted for as the production milestones are met. The 50% unincorporated interest in the project was accounted for as a joint operation. Based on an assessment of the relevant facts and circumstances, the Group concluded that the acquisition of the Gruyere Gold Project did not meet the criteria for accounting as a business combination and the transaction was accounted for as an asset acquisition. Refer note 15.2 to the consolidated financial statements.

During fiscal 2016, Gold Fields established a new Technology and Innovation, or the T&I, division This division has technical oversight throughout the Group and has developed a new T&I strategy by determining the best ways to improve safety, increase production and reduce operating costs. See “—Group Performance Scorecard—Business Optimization—Technology and Innovation”.

On February 16, 2017, Gold Fields announced the results of the Rebase Plan. The Rebase Plan defines the updated Mineral Reserve and LoM plan for South Deep and incorporates all recent revisions and improvements in mine design, production scheduling and geotechnical parameters. In addition, the supporting infrastructure equipment, labor, ore handling, ventilation and refrigeration, backfill, water and power provisions required to support the production plan have been incorporated. South Deep is now targeting steady-state annual production of approximately 500,000 ounces by fiscal 2022 at an AIC of U.S.$900 per ounce.

In October 2016, Gold Fields announced its reinvestment plan for the Damang Gold mine in Ghana, or the Damang Reinvestment Plan, which is expected to extend the LoM by eight years from 2017 to 2024. The Damang Reinvestment Plan is expected to enhance Gold Fields presence in one of our key operating regions and result in significant social benefits for the country, including the creation and preservation of 1,850 direct and indirect employment positions.

On December 4, 2016, Gold Fields continued to streamline its portfolio by selling 11 producing and non-producing royalties to Toronto-listed Maverix Metals Inc. in return for a 32% stake in the company (refer note 15.1(b) to the consolidated financial statements).

Effective March 31, 2017, ABSA Bank Limited, GFIJVH, GFO and certain wholly owned subsidiaries of Gold Fields entered into a R500 million Revolving Credit Facility. The purpose of the facility is to fund capital expenditure and general corporate and working capital requirements of the Gold Fields group. The tenor of the facility is six years. The final maturity date of this facility is March 31, 2020.

Effective March 31, 2017, Standard Bank, GFIJVH, GFO and certain wholly owned subsidiaries of Gold Fields entered into a R500 million Revolving Credit Facility. The purpose of the facility is to fund capital expenditure and general corporate and working capital requirements of the Gold Fields group. The tenor of the facility is six years. The final maturity date of this facility is March 31, 2020.

Planned Disposals

Gold Fields, in line with its strategy of efficient portfolio management, identifies and earmarks for divestment assets that are not aligned with the Group’s business objectives. The Arctic Platinum Project, or APP, in Finland remains earmarked for divestment.

In addition, Gold Fields has stated that it will, in the first half of fiscal 2017, commence a sales process for Darlot. Darlot was acquired in fiscal 2013 as part of the acquisition of Barrick Gold’s Yilgarn South Assets in Western Australia. Gold Fields has invested heavily to extend the LoM beyond the initial projected six months which has resulted in Darlot producing more than 228,000 ounces of gold in the past three years. The ongoing

 

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multi-year investment in exploration as well as the discovery of new mineral deposits at Darlot could increase the current LoM, which extends to early fiscal 2018 based on current reserves. However, without additional conversion or discovery, the production levels are expected to decline over time, which may adversely affect the current LoM of Darlot to mid-fiscal 2018 and the full reserve may not therefore be exploited. Management believes that Darlot needs a more intensive exploration focus, which Gold Fields is unable to provide given its significant exploration activities at its other Australian assets as well as the development of the Gruyere Gold Project.

Organizational Structure

Gold Fields is a holding company with its significant ownership interests organized as set forth below.

 

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Group Structure(1)(2)

 

LOGO

 

Notes:

(1) As of April 3, 2017, unless otherwise stated, all subsidiaries are, directly or indirectly, wholly-owned by Gold Fields.

 

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(2) See “Additional Information—Material Contracts—Additional Black Economic Empowerment Transactions”.
(3) Not all other subsidiaries and investments are wholly-owned.

Gold Fields is a limited public company incorporated in South Africa, with a registered office located at 150 Helen Road, Sandown, Sandton, 2196, South Africa, telephone number +27-11-562-9700.

Strategy

Overview

After almost four years of belt-tightening and consolidation, fiscal 2016 was the year in which Gold Fields started strengthening and expanding its portfolio of mines and projects to ensure longer-term sustainable cash generation.

Gold Fields began fiscal 2016 in much better financial and operational shape than when our transformation journey started in fiscal 2012. While we benefited from a stronger than planned for gold price our 2016 successes are attributable to remaining focused on achieving our key strategic priorities, which were:

 

   

South Deep—finalize and successfully implement the Rebase Plan for long-term success;

 

   

Cash-flow generation—improve cash flow and margin;

 

   

Dividends—pay between 25% and 35% of normalized earnings;

 

   

Balance sheet—reduce net debt to adjusted EBITDA, ratio to 1.0 times or below by the end of fiscal 2016; and

 

   

Growth and expansion—through brownfields exploration, project development and opportunistic, value-accretive acquisitions.

The Company has made progress on each of these priorities during fiscal 2016.

In February 2017, we announced the long-term production and cost guidelines for the South Deep mine in South Africa after two years of extensive rebasing work by the management team appointed in fiscal 2015. We are now targeting steady-state production of approximately 500,000 ounces by fiscal 2022 at an AIC of U.S.$900 per ounce. Of significance, South Deep was cash-positive in fiscal 2016 for the first time, helped by the higher Rand gold price.

During fiscal 2016, we generated U.S.$294 million in net cash flow (non-IFRS measure-see “Information on the Company—Glossary of mining terms—net cash flow” for a reconciliation to “net cash flow from operations” in accordance with IFRS) compared with U.S.$123 million in fiscal 2015. While our Australian mines and South Deep were undoubtedly aided by the weaker Australian Dollar and South African Rand, improved cash generation is also attributable to tight cost management by our operational teams, as well as the improved operating performance at South Deep, which recorded a U.S.$92 million swing in cash-flow from an outflow of U.S.$80 million in fiscal 2015 to an inflow of U.S.$12 million in fiscal 2016. The 17% cash-flow margin at the average gold price received of U.S.$1,241 per ounce in fiscal 2016 is well ahead of target (15% at a gold price of U.S.$1,300 per ounce).

The total dividend for the year of R1.10 per share equates to 32% of normalized earnings, at the upper end of our dividend policy and 340% ahead of the total dividend declared in fiscal 2015.

Through a combination of improved cash-flows, debt restructuring and equity raising, we managed to achieve a net debt to adjusted EBITDA ratio of 0.95 times at the end of fiscal 2016 (even after the upfront A$250 million payment for the Gruyere Gold Project), compared with 1.38 times at the end of fiscal 2015. We are confident of maintaining a responsible net debt position during fiscal 2017, despite funding new, lower-cost projects.

 

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A significant investment in the future of Gold Fields positions us to generate future profits at the current gold price and offer leverage to a rising gold price. In support of this strategy, we launched some key projects during fiscal 2016, in addition to the South Deep rebase announcement:

 

   

In October, we announced a US$341 million investment at our Damang mine to extend the life of the mine by 1.6 million ounces and eight years. Production will be at a low AIC of around US$950/oz and be cash- generative in about three years’ time.

 

   

In November, we acquired a 50% joint venture interest in and management control of the Gruyere Gold Project in Western Australia owned by Australian exploration company Gold Road Resources for a consideration of A$350 million. Once in production, which is forecast for late fiscal 2018 or early fiscal 2019 and will require a total of A$507 million in capital for the construction, the Gruyere Gold Project will produce about 270,000 ounces a year (100% basis) over a 13-year reserve life at an AIC of less than U.S.$805 per ounce;

 

   

Also in Western Australia, we spent A$102 million (U.S.$76 million) on near-mine (brownfields) exploration at our four mines, adding 450,000 ounces in mineral reserves (after depletion) during the year. This was driven by successful exploration programs at St. Ives and Granny Smith. For fiscal 2017, we have planned a further A$89 million (U.S.$65 million) in brownfields exploration spend at the operating mines as well as A$4 million (U.S.$3 million) at the Gruyere Gold Project; and

 

   

Finally, we streamlined our portfolio by selling 11 producing and non-producing royalties to Toronto-listed Maverix Metals Inc., or Maverix, in return for a 32% stake in Maverix, which has already provided a noticeable increase in value.

All of our key decisions regarding the Company’s future growth relied on collaboration with our stakeholders to achieve meaningful cash-flow for the benefit of all stakeholders:

 

   

Gold Fields showed a vastly improved safety performance in fiscal 2016. Our TRIFR improved by 33% to 2.27 recordable injuries per million hours worked. Regrettably, we still had one fatality in fiscal 2016, compared to three fatal mine accidents in fiscal 2015. We have found that there is a strong correlation between a safe mine and a strong operating performance, and remain committed to realizing our Zero Harm policy;

 

   

The long-term Rebase Plan for South Deep is critically dependent on the co-operation of our employees, and the three-year agreement we entered into with their representative trade unions in fiscal 2015 was a vital underpin to the plan. We have also engaged the local community through a variety of projects focused on improving their social and economic wellbeing with a specific emphasis on host community procurement and employment. This, we believe, will ensure that these communities will grant us our social license to operate, which is critical given South Deep’s significant mine life;

 

   

The investment in Damang was facilitated in part by the signing of a Development Agreement with the Ghanaian government in March 2016. This agreement provides tax and other concessions in return for future investment at our operations. Furthermore, the investment guarantees the creation and protection of about 1,850 direct jobs as well as sizeable community programs over the mine’s new eight-year life; and

 

   

A significant investment in low-carbon and renewable energy projects at many of our mines is intended to ensure that we reduce the future cost of electricity and facilitate long-term security of supply, thereby mitigating two critical risks facing the Company. A majority of our Australian and Ghanaian operations are now powered by gas, after new gas-fired power plants were commissioned to supply our Granny Smith, Tarkwa (currently 50% supply) and Damang mines. In addition, we have appointed a renewable energy firm to develop a 40MW solar plant at South Deep over the next two years, which apart from lower costs and security of supply, has the added benefit of reducing carbon emissions at the mine.

 

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Supporting our integrated management approach is robust and effective corporate governance throughout the Group. During fiscal 2016, the Company revised its Code of Conduct, which forms the ethical basis of the business and informs how we conduct ourselves and interact with all stakeholders. We have also committed to implementing the recommendations of the King IV Report on Corporate Governance.

Our focus on viable cash-generation was supported by the recovery in the gold price during fiscal 2016. After falling by 45% between September 2011 and December 2015, when it hit a low of U.S.$1,060 per ounce, the gold price recovered in fiscal 2016, ending the fiscal year at U.S.$1,130 per ounce. Since then it stabilized at around the U.S.$1,200 per ounce level towards the end of February 2017. To some extent, we were also supported by weaker currencies in commodity-exporting nations, though this effect was less pronounced than in fiscal 2015.

The ability to generate cash is critical in distributing the benefits from mining to our stakeholders. In fiscal 2016, Gold Fields’ value distribution, as measured by the WGC definitions, totaled U.S.$2.505 billion, slightly more than the U.S.$2.425 billion we distributed in fiscal 2015. This amount was dispensed as follows during fiscal 2016:

 

   

U.S.$122 million (fiscal 2015: U.S.$117 million) to shareholders and debt providers, who are seeking a return on their invested capital through dividend and interest payments;

 

   

U.S.$482 million (fiscal 2015: U.S.$435 million) to our employees, whose work is rewarded through salaries and other benefits;

 

   

U.S.$1,648 billion (fiscal 2015: U.S.$1.663 billion) to contractors and suppliers, from whom we procure goods and services;

 

   

U.S.$235 million (fiscal 2015: U.S.$196 million) to governments and regulators, who grant us our mining licenses and who benefit from our tax and royalty payments; and

 

   

U.S.$16 million (fiscal 2015: U.S.$14 million) in social investment programs among our host communities, whose support is critical for our social license to operate and who benefit significantly through host community jobs and procurement.

Group Performance Scorecard

Each year, Gold Fields adopts a Group performance scorecard that incorporates the strategic priorities and seeks to instill the right culture and behaviors among our workforce, driven by the strategic imperative of cash generation.

By integrating all of the key value drivers into the business, the scorecard also aims to enhance the Group’s sustainability. The scorecard consists of four key performance areas and elements against which we measure our performance. These are financial performance; our social license to operate; people; and business optimization.

Financial Performance

The first key performance area of the Group scorecard is financial performance, as measured by cash flow generation and debt reduction as well as improving investor confidence. Our strategy is driven by the objective of generating a 15% FCF Margin at a gold price of U.S.$1,300 per ounce, as we believe that this is a reasonable long-term price for bullion. The premise is that when the gold price trades above U.S.$1,300 per ounce, the FCF Margin will grow commensurately. Conversely, when prices trade below U.S.$1,300 per ounce, as we have seen since 2012, the inclusion of the 15% FCF Margin at that level provides Gold Fields with a safety cushion down to our cash breakeven level of approximately U.S.$1,050 per ounce. The Group’s FCF Margin for 2016 was 17%, despite the fact that at U.S.$1,241 per ounce, the actual annualized gold price received was again below the planning price of U.S.$1,300 per ounce. It illustrates that our strategy of boosting margin growth is paying off.

 

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Net Cash Flow and Focus on Cost

Net cash flow is one of the key measurements of Gold Fields’ turnaround strategy since fiscal 2012. Despite the 25% decline in the average price of gold between fiscal 2012 and fiscal 2016, Gold Fields’ ability to generate cash has improved substantially. During fiscal 2016, this was aided by the higher average gold price received, as well as a weakening of the Rand and the Australian dollar against the U.S. dollar. The improved Rand gold price also helped South Deep breakeven for the first time. Our cash flow progression over the past five years has seen us turn around a net cash outflow of U.S.$280 million in fiscal 2012 to a net cash inflow of U.S.$294 million in fiscal 2016.

Central to our ability to generate free cash flow is a commitment to cost management, which we have implemented rigorously over the past few years, though we have been careful not to cut sustaining capital expenditure critical to maintaining the long-term integrity of our ore bodies.

During fiscal 2016, costs were marginally lower than in fiscal 2015 as a result of exchange rate benefits, lower oil prices and cost controls by our operations. Both AIC at U.S.$1,006 per ounce and AISC at U.S.$980 per ounce were below their respective 2016 guidance ranges of U.S.$1,035 per ounce to U.S.$1,045 per ounce and U.S.$1,000 per ounce to U.S.$1,010 per ounce, respectively. Cumulative reduction for AIC between fiscal 2012 and fiscal 2016 has been 35%.

Debt Reduction

One of Gold Fields’ key strategic objectives has been to reduce the amount of debt on our balance sheet. In this regard, management set itself a target of reducing the net debt to adjusted EBITDA ratio to below 1.0x by the end of fiscal 2016.

Over the year, the Group entered into a number of transactions which impacted the debt balance, including a bond buy-back of U.S.$148 million funded from an equity raising of U.S.$152 million to decrease the level of net debt. The first upfront payment for the Gruyere transaction (A$250 million) in December 2016 had the effect of increasing the Group’s net debt. Despite this, the bond buy-back and equity raising, as well as the U.S.$294 million in net cash flow generated during the year, helped decrease our net debt by U.S.$214 million, from U.S.$1,380 million at the end of December 2015 to U.S.$1,166 million at the end of December 2016. This resulted in a net debt to adjusted EBITDA ratio of 0.95x, below our stated target of 1.0x.

Improving Investor Confidence

Our portfolio has undergone a fundamental change since fiscal 2013. We spun off the Sibanye Gold assets to shareholders, eliminated marginal mining, stopped all projects in our growth pipeline that did not provide an adequate return and, in October 2013, acquired the Yilgarn South Assets in Western Australia from Barrick.

In fiscal 2016, we expanded our portfolio to take advantage of the improved gold price and our significant cash-flow generation.

The only operating asset in the Group that still has to be brought fully to account is our South Deep mine. Here we achieved cash breakeven for the first time in fiscal 2016. The mine reported net cash inflow of U.S.$12 million compared to an outflow of U.S.$80 million in fiscal 2015 and in February 2017 announced the mine’s long-term production and cost metrics (the Rebase Plan).

Gold Fields also remains one of the higher dividend payers among its peers. The total dividend declared for the year of R1.10 per share (fiscal 2015: R0.25 per share) is equivalent to 32% of normalized earnings, close to the top end of our dividend policy of paying out 25% to 35% of normalized earnings as dividends. We believe that Gold Fields has established a solid base which will maintain the confidence of our current shareholders and attract long-term investors seeking value and leverage to the gold price.

 

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Business Optimization

Underpinning the financial performance of the business is Gold Fields’ commitment to running its operations safely, efficiently and cost-effectively without undermining the longevity of our mines. We measure the success of business optimization by looking at our progress on Safety and Health; the performance and growth of our portfolio of mines and projects; setting up the South Deep project for long-term success; running our mines energy efficiently; and using technology and innovation to optimize their future performance.

Gold Fields’ operating and financial performance during fiscal 2016 showed that our efforts in this regard are paying off. Highlights were:

 

   

Production of 2.15 million gold-equivalent attributable ounces, broadly in line with our updated guidance for the full year of 2.10 to 2.15 million ounces;

 

   

Strong cost management across the Group resulted in a good cost performance with AISC of U.S.$980 per ounce and AIC of U.S.$1,006 per ounce in fiscal 2016, below guidance for the year; and

 

   

Net cash flow increased strongly to U.S.$294 million in fiscal 2016 compared with U.S.$123 million in fiscal 2015.

Safety and Health

Safety is management’s first priority in running our operations, and it is critical that we continuously emphasize that our first value is “if we cannot mine safely we will not mine.” Nevertheless, we had one fatality during fiscal 2016 (compared with four fatalities in fiscal 2015, three resulting from operational accidents and one from crime). On September 10, 2016, Mr. Vakele Thafeni, a learner miner, was killed after a 1.5 magnitude seismic event caused an underground rock burst at South Deep. Post year-end, on January 1, 2017, Thankslord Bekwayo, a dump truck operator, and on February 16, 2017, Nceba Mehlwana, a loco driver, were killed in underground accidents.

While any fatality is an undoubted setback on our journey to Zero Harm, we are encouraged by the progress made in terms of our overall safety performance during 2016. Our TRIFR showed a further 33% improvement to 2.27 per million hours worked from 3.40 in fiscal 2015.

The work on safety is integral to our operational discipline and has been accepted as the foundation for improved performance. As such, there is no conflict between pursuing safety and productivity at the same time. Behavior-based safety programs are in place across the Company and our work at embedding these into our day-to-day performance, along with visible management leadership on the ground, continues. At South Deep, the CEO’s “Zero Harm” task team has been strengthened with the addition of a Board director to the team. The Group has also intensified operation-specific health and wellness programs, focusing on improving the physical and mental health of our employees.

Quality Portfolio of Assets

During fiscal 2016, Gold Fields made a conscientious effort to invest in enhancing the quality of its existing portfolio while at the same time identifying value-accretive acquisitions. This active portfolio management approach requires an ongoing strategic review of all existing assets as well as potential acquisition targets against our strategic imperatives. Similarly, growth at Gold Fields is not just a matter of increasing the Group’s mineral resources and mineral reserves or boosting the production profile; it is about growing cash flow per ounce and per share in the medium and long term.

In this context, Gold Fields continued to focus on improving the cash-generation performance of its existing operations and identifying value-adding projects. The pillars that support this strategy are:

 

   

Protection of the commercial sustainability of our mines by avoiding high-grading and investing in ore development on an ongoing basis;

 

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The cessation of all early greenfields exploration activity and a focus on brownfields (near-mine) exploration for LoM, particularly at our Australian operations;

 

   

Production and strategic planning based on the delivery of a 15% FCF margin at a gold price of U.S.$1,300 per ounce; and

 

   

The identification of cash-generative acquisition opportunities that are aligned with Gold Fields’ core competencies.

To ensure that our business has a strong future, we have made ongoing investment in brownfields exploration as well as the development of ore bodies strategic priorities. These are among the last activities we would cut, even in a sustained low gold price environment the costs associated with maintaining the integrity of our ore bodies is built into our mines’ cash-flow models.

Key decisions since January 2016 that improved the quality of our portfolio of assets included:

 

   

The Damang Reinvestment Plan which will extend the mine’s LoM by eight years to 2024 at costs that will lower the Company’s average cost of production;

 

   

The acquisition of 50% of the Gruyere Gold Project in Western Australia from Gold Road;

 

   

The progression of the Salares Norte project in Chile to a pre-feasibility study;

 

   

The sale of our royalty portfolio to Maverix in return for a 32% holding in the company; and

 

   

The decision to commence with the sale of the Darlot mine in Western Australia.

Gold Fields believes that near-mine exploration offers the best route to low-cost ounce replacement that can generate cash in the short- and medium-term. In fiscal 2016, Gold Fields raised its total near-mine exploration expenditure by 5% to U.S.$80 million, on top of the U.S.$162 million spent in the preceding three years, in pursuit of this strategy. Much of this activity was focused on the Australia region, where the four mines in our portfolio spent A$102 million (U.S.$76 million) in fiscal 2016, in line with the A$91 million (U.S.$72 million) spent in fiscal 2015.

This is part of a multi-year strategy to both replace and increase quality reserves and resources at our operations in Australia. In addition to exploration drilling to extend current ore bodies, activity focused on developing early-stage generative targets on the prospective leases. Some successes from fiscal 2016 included:

 

   

St. Ives’ Invincible mine was extended to Invincible Underground and Invincible South;

 

   

Work at Agnew/Lawlers showed good potential at the Waroonga North ore body, adjacent to the Waroonga underground operation; and

 

   

Exploration at Granny Smith indicated further mineralization at depth of the existing Wallaby underground mine.

To build on the work undertaken to date, we have budgeted A$89 million (U.S.$65 million) for fiscal 2017. This includes exploration at the Gruyere Gold Project, which is a departure from the brownfields approach, but which we believe will enhance our portfolio in Western Australia and expand our exposure to this new and emerging goldfield. Furthermore, we have proven our ability to absorb new operations into the Gold Fields Australia portfolio by leveraging off existing resources. Gold Fields took over management of the Gruyere Gold Project on February 1, 2017, and first production is expected by late fiscal 2018 or early fiscal 2019.

Pursuing cash-generative acquisition opportunities is an integral part of our strategy although by necessity, opportunistic in nature. However, given our existing commitments, further merger and acquisitions, or M&A, during fiscal 2017 or fiscal 2018 appears unlikely except in countries in which we already have a presence and where it has synergistic benefits. It would be modelled on our successful U.S.$262 million acquisition of the Yilgarn South Assets from Barrick Gold in October 2013. An acquisition like this will be difficult to replicate in terms of the price we paid, but the structural benefits and subsequent management efforts have given us a model to replicate.

 

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Finally, we are examining whether a return to judicious greenfields exploration would be a viable proposition in view of the sharp price escalation of mines already in operation. This strategic consideration is at an early stage and includes an evaluation of whether Gold Fields should pursue greenfields exploration on its own or in co-operation with junior miners.

During fiscal 2016, Gold Fields increased attributable gold mineral reserves (net of depletion) by 4% to 48.1Moz. Attributable copper mineral reserves totaled 454 million pounds (fiscal 2015: 532 million pounds). Encouragingly, in Australia, we added 450,000oz in mineral reserves (after depletion) during fiscal 2016.

South Deep

In fiscal 2015, the new management team at South Deep took a decision to take a step back and “get the basics right” to ensure a stronger foundation for sustainable growth in the future. During fiscal 2016, this rigorous approach showed signs of success, with the following encouraging indicators of improvement:

 

   

The mine’s safety performance was the best it has been since Gold Fields bought the project in fiscal 2006, though we regrettably had one fatal mining accident (fiscal 2015: two fatalities);

 

   

Production of 290,400 oz in fiscal 2016 was 47% higher than the 198,000oz produced in fiscal 2015;

 

   

Costs were reduced with AIC of U.S.$1,234 per ounce showing a significant 21% improvement on the U.S.$1,559 per ounce reported in fiscal 2015;

 

   

Most significantly, South Deep was cash positive for the first time, aided by a currency hedge and the stronger Rand gold price of R584,894/kg (fiscal 2015: R478,263/kg) received during the year. The mine generated U.S.$12 million in net cash flow during fiscal 2016 compared with an outflow of U.S.$80 million in fiscal 2015; and

 

   

Full implementation of the high profile destress mining method.

Key to improvements at South Deep were strategic interventions on a number of fronts:

 

   

People: The recruitment of identified critical skills was completed during fiscal 2016 and most of the core mining and engineering positions have now been filled, a process supported by intensified training programs for our existing staff. In addition, the signing of a three-year wage deal with trade unions in March 2015, which will govern wages and other working conditions until March 2018, is expected to give South Deep a degree of labor stability as the mine builds up;

 

   

Fleet: As part of the fleet renewal strategy, 58 category 1 units have been commissioned over the past two years. The total category 1 fleet currently stands at 111 units. The renewed fleet is expected to have a positive impact on fleet availability and utilization. The maintenance capacity at South Deep improved during the year through the implementation of supplier maintenance contracts in corridor 2 (approximately 35% of total mining), as well as the commissioning of the 93 level workshop; and

 

   

Mining method: During fiscal 2015, South Deep management, in collaboration with a team of leading international and local geotechnical experts, reviewed the destress mining method. Following the recommendations, we implemented a strategic change in the design of destress methodology, and converted from low profile to high profile destress mining during fiscal 2016. By year-end, most of the mine was employing this approach, which contributed significantly to simplifying and de-risking the mining process.

Building on this work, in February 2017, the Board approved the long-awaited Rebase Plan for South Deep, which sketches the long-term production and cost profile of the mine. The key features of this plan are:

 

   

Increasing the tonnes milled to 2,861 kt by fiscal 2022;

 

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Ramping up production to 500,000 oz by fiscal 2022;

 

   

Reducing AIC to U.S.$900 per ounce by fiscal 2022; and

 

   

Growth of capital expenditure of R2.3 billion (U.S.$151 million) over the next six years.

Managing Energy Costs and Climate Change Risks

Energy remains a major performance driver, accounting for 19% of Group operating costs in fiscal 2016, having gradually risen from 18% in fiscal 2013, amid increasing energy demand and supply constraints in all of our operating regions. As part of the Integrated Energy and Carbon Management strategy implemented in 2014, each of our regions has set energy reduction targets, which have already delivered around U.S.$41 million in savings (against plans) between fiscal 2014 and fiscal 2016. For fiscal 2016, this equates to energy savings of around 3% against our business plans, with an additional benefit of 4% savings in our CO2e. Most critically though is that the average energy spend per ounce of gold produced has declined by 18% to US$130/oz between 2014 and 2016, with energy efficiency initiatives contributing the equivalent of US$5/oz to these savings.

At the same time, the regions have been tasked with securing access to future energy sources. In Ghana, where the government required our mines to reduce their electricity consumption by 25% to 30% over the past few years, both Tarkwa and Damang have signed power purchase agreements with an independent power producer, which successfully commissioned new gas-powered plants at both of these mines during fiscal 2016. The plants at Tarkwa (3 x 11MW units) and Damang (5 x 5.5MW units) are expected to result in reliable supply and significant electricity cost savings for both operations. As at the end of fiscal 2016, 100% of Damang’s and 50% of Tarkwa’s power requirements were supplied by the new gas-powered plants. It is expected that these plants will supply 100% of Tarkwa’s power requirements from the beginning of fiscal 2018.

With the successful commissioning of a new gas power plant at Granny Smith, each of our four mines in Western Australia is now supplied by gas and new long-term supply agreements have been entered into with various utilities. While lower global diesel prices have somewhat mitigated the current cost benefits of a switch to gas, we believe that the long-term price differential will favor gas over diesel. Gas is also a cleaner fuel with resultant environmental benefits. Our Cerro Corona mine in Peru also has a long-term power agreement in place with a private gas company.

The improved power supply environment in South Africa ensured that our South Deep mine was not subject to load-curtailment programs during fiscal 2016. In keeping with our commitment to renewable energy, we solicited proposals for an on-site 40MW photovoltaic solar plant at the mine. In October 2016, we appointed an independent renewable power company to build, own and operate the solar plant for the next 20 years. The plant will provide around 19% of the mine’s annual power requirements at costs that are at least on par with Eskom tariffs.

Gold Fields remains committed to our goal of 20% renewable energy generation over the LoM at all new projects and is investigating this requirement for our Salares Norte project in Chile.

Greater use of renewables has the added benefit of reducing our carbon footprint, which is one of Gold Fields’ key environmental priorities. During fiscal 2016, our total CO2 emissions increased to 1.96 million tonnes (fiscal 2015: 1.75 million tonnes), but we expect longer-term benefits to our emissions arising from the energy efficiency projects we have put in place at our mines. During fiscal 2016, we implemented a Group climate change policy that addresses the risks faced by our operations as a result of the change in climate arising from global warming.

Technology and Innovation

An important addition to our fiscal 2016 scorecard was the inclusion of the T&I division. A new division was established under EVP: Technical, Richard J. Butcher, who joined us from the Minerals and Mining Group,

 

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or MMG, in February 2016. Richard J. Butcher and his team developed a new Gold Fields’ T&I strategy which was completed and presented to the Board in November 2016. The key features of this strategy are:

 

   

A five-year implementation plan commencing with a foundational phase over the first two years, optimizing our operations by year three and implementing new technologies and innovation over the full five-year period;

 

   

Tasking our regions to develop and implement three-year technology plans starting in fiscal 2017, with the corporate office consolidating and driving the process;

 

   

Developing a platform to share lessons learned and roll out successful projects across the Group; and

 

   

The ultimate goal of the strategy is to work towards the “Gold Fields Mine of the Future”, which will be premised on automation, an integrated digital data platform, remote machine operation, virtual reality and reduced mining waste.

During the foundational phase, Gold Fields has already identified opportunities to enhance efficiencies within Gold Fields’ current regional portfolios:

 

   

The key focus for the Australia region is reducing exploration time through real time data management and the use of leading practice technologies;

 

   

In Ghana, the focus will be on data analysis to achieve end-to-end business optimization. A key part of this program is to complete fleet automation studies and trials;

 

   

The South Deep mine will upgrade its underground wireless connectivity and radio-communications systems to use technologies such as online maintenance and dispatch systems and remote operating equipment more effectively;

 

   

The Cerro Corona mine will be using upgraded operating software and a new dispatch system that will focus on porphyry ore blending to reduce variation of stock feed, thereby optimizing plant recoveries; and

 

   

Investigating the potential for an automated and remote-controlled underground trial mine at one of our Australian operations.

Recent advances in digitization, automation and mechanization make it critical that we develop strategies to implement new technologies and partner with IT companies and original equipment manufacturers, or OEMs, that are leaders in the field.

License to Operate

The success of our business is critically dependent on relationships with a number of key external stakeholders that determine both our regulatory and social licenses to operate: governments at national, regional and local level and, above all, the communities that host our mines. Over the years we have devoted considerable resources and energy to securing and maintaining our relationship with these key stakeholders.

A number of elements are critical in achieving sound and supportive community relations: Extensive engagement work, investment in these communities, as well as the responsible management of environmental resources, particularly water. These resources, if not managed sustainably, can have an adverse impact on the nearby environment and create tensions with host communities, thus threatening our licenses to operate. At the same time, we need to ensure that we plan for the closure of our operations throughout the LoM, ensuring that when we eventually exit, we have optimized operating costs, our environmental footprint is mitigated and the economy of the host community continues to thrive.

Improved Community Relations and Shared Value

The communities in which we operate are directly and often exclusively dependent on the sustainability and growth of our mines and they seek a greater share of the benefits of mining than they have received to date. One

 

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of the biggest challenges facing mining companies is building relationships and trust with these host communities, without which there is potential for operational disruption, project delays and cancellations—the loss of the “social license to operate” referred to previously.

Host community procurement and employment are critical pillars of our community investment strategies at all our operations in developing countries. At present, host community employment accounts for 23% of our workforce at Cerro Corona in Peru, 13% at South Deep in South Africa (in line with Mining Charter definitions) and 72% at our two Ghanaian operations. The percentages of host community procurement spend was 8%, 14% and 7%, respectively. Gold Fields is proactively looking at ways to increase local employment and procurement opportunities over the next few years, including engaging with our large multi-national suppliers to support investment in these communities. At South Deep, we have set ourselves the target of procuring 25%, equivalent to an estimated R500 million a year, of goods and services from the mine’s Westonaria host community, creating around 500 new jobs in the process. We are making good progress in this regard; in fiscal 2016, host community procurement spend rose by 85% to R356 million, the number of host community suppliers to South Deep increased to 83 (fiscal 2015: 76).

Gold Fields has also invested in communities through a range of educational, skills development, health and infrastructure projects and, more recently, through Shared Value-based projects. However, it is evident that mining companies need to expand and deepen their investment in and engagement with host communities.

Our contribution to host communities is on a more sustainable footing as we increasingly use a Shared Value approach to structure our investments in community projects, thereby taking into account social and economic benefits rather than just spend.

To date, our regions have implemented six Shared Value projects ranging from the promotion of mathematics and science education among South Deep’s host communities to multi-lateral water management projects at Cerro Corona and increased sourcing from community suppliers at all our mines. The most high-profile project is the U.S.$17 million, three-year upgrade of the dirt road between the Tarkwa and Damang mines in Ghana. We are working with government in building the road which, when completed, will significantly improve access for our operations’ host communities. In addition, the bulk of the labor required for completing the project is being sourced from these communities.

Environmental Management

Responsible environmental management remains a vital component of Gold Fields’ regulatory and social license to operate at all our operations and projects. In fiscal 2016, we reported three incidents of limited non-conformance or non-compliance that resulted in ongoing but limited environmental impact, or Level 3 environmental incidents (fiscal 2015: five). All three incidents took place at our Ghanaian operations in the first quarter of fiscal 2016. The two incidents at our Tarkwa operation involved accidental damage to fuel units and hoses that spilt large volumes of fuel into the environment. The incident in Damang involved the overflow of about 20,000 liters of tailings slurry and supernatant water into a nearby event pond as a result of blockages in the tailings delivery pipeline and heavy rainfall. In all cases, corrective actions were implemented to prevent future recurrence.

Water is a particular focus of our environmental strategy, as it is becoming an increasingly scarce and expensive resource globally. Managing the risks around current and anticipated water security, which includes the quantity and quality of supply as well as associated costs, is essential to ensure sustainable production for existing operations and the future viability of projects. Water withdrawal across the Group decreased to 30,321Mℓ (2015: 35,247Mℓ), while water withdrawal per ounce was lower at 13.67kℓ in fiscal 2016 compared with 15.77kℓ in fiscal 2015.

The Group’s water management guideline requires operations to identify opportunities to enhance water reuse, recycling and conservation practices. In fiscal 2016, a total of 16 initiatives were implemented in line with these guidelines, including the use of in-pit tailings disposals at our St. Ives and Tarkwa mines. Many of these initiatives

 

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deliver multiple benefits, including cost savings, reduced impact in water scarce areas, improved regulatory compliance, identification and mitigation of water-related risks and reduction of mine closure liabilities, thereby enhancing Gold Fields’ social license to operate. These efforts will continue into the future.

Following the Mount Polley (Canada, August 2014) and Samarco (Brazil, November 2015) tailings dam disasters, the 23 mining companies that are members on the International Council of Mining and Metals, or the ICMM, agreed to convene to review the standards for tailing storage facilities. The resultant working group, which is chaired by Gold Fields, announced in December 2016 a new agreement that will encourage members to further improve the management of mine tailings throughout their global operations. In fiscal 2017, external consultants will conduct Gold Fields’ three-yearly review of all the 26 tailings facilities at our mines and projects and will assess our tailings management against the new position statement.

The total gross mine closure liability for Gold Fields increased from U.S.$353 million in fiscal 2015 to U.S.$381 million in fiscal 2016. We plan on further enhancing our integrated approach to mine closure management with a focus on post-closure water management. The program is currently being finalized and implementation is scheduled for fiscal 2017.

People

The profile of our workforce was profoundly impacted during the initial years of our transformation journey from fiscal 2012 to fiscal 2014, with large-scale reductions in the number of employees and contractors. Since then, our human resource base has stabilized with 8,964 employees and 9,127 contractors at the end of fiscal 2016.

With the shift towards mechanization and automation, we have found that in addition to the continued development and training of our workforce, it is important to recruit the appropriate skills for our mines. At South Deep, we completed the recruitment of necessary mining skills during fiscal 2016 and continue to train our workforce in underground mechanical mining skills. During fiscal 2016, we spent over U.S.$17 million globally on training and development, in addition to recruiting the best mining skills to supplement our existing talent pool.

Since the restructuring process, our smaller, yet more skilled workforce has ensured that Gold Fields works more efficiently to improve productivity. The key to this is that employees are incentivized to deliver against clearly defined performance targets that directly support the achievement of business objectives. Our remuneration strategy is evolving to attract and retain these skills, and our people development approach is

being adjusted to ensure that we build a robust internal skills pipeline that can supply the skills that the Company needs, now and in the future.

Our people strategy is based on achieving the following key objectives, to:

 

   

Create and sustain a high-performance culture;

 

   

Become an “Employer of Choice” for the best talent in the industry;

 

   

Ensure we have the right people in the right jobs at the right time;

 

   

Ensure a sufficient supply of the right leaders; and

 

   

Build great people managers.

Achievement of this strategy is reflected in our Group scorecard objectives for fiscal 2016:

 

   

Performance management;

 

   

Improved people management skills;

 

   

Create a conducive work environment;

 

   

Improved talent management; and

 

   

Communication and engagement.

 

 

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Of these five scorecard objectives, we have identified “communication and engagement” as an especially important component of people management. Our engagement with trade unions is critical in this respect, particularly in Ghana and South Africa, where a large portion of our workforce is represented by various unions. In March 2015, we signed a three-year comprehensive wage deal that recognizes the mechanized mining requirements of South Deep as we take it to full production. Negotiations on a new agreement, which is due in fiscal 2018, will commence in fiscal 2017. In Ghana, negotiations with the unions have been concluded with a 10% basic salary increase for fiscal 2016 (to be backdated to January 1, 2016) and a 6% increase for fiscal 2017 being the main outcome of the negotiations.

We continue to invest in building cordial relationships with unions in both Ghana and South Africa, but the journey from confrontation to collaboration is an ongoing one. At South Deep, in particular, the priorities of the business in terms of delivering the mine’s Rebase Plan are sometimes in conflict with the views and aspirations of the main trade union. This potential conflict now requires urgent resolution.

In Ghana, the aspirations of the unions for continued above inflation wage increases is undermining our business and a new wage model is in the process of being evolved through dialogue with the union. Without consensus, a restructuring of our business is likely. Our goal remains to develop our relationships with trade unions further so that they do not compromise the delivery of our business objectives.

Group Strategy

Fiscal 2017 will be a year of re-investment for Gold Fields, the benefits of which are expected to be realized in the years to follow. In addition to its cash-generative mines within the portfolio, Gold Fields now has development and growth projects in each of the four regions in which it operates.

In South Africa, we have South Deep which is still a mine in build-up. In Ghana, the re-capitalization of Damang is essentially the equivalent of developing a new mine, while our investment in the Gruyere joint venture will lead to the construction of a new mine in Western Australia. Finally, in the Americas region, we are set to conclude a pre-feasibility study on the Salares Norte project in northern Chile by the second half of fiscal 2017.

These projects are important in terms of their contribution to the strategic objectives of Gold Fields, namely to maintain and grow cash flow on a sustainable basis. They are all forecast to operate at AIC which are lower than the current AIC of the Group once steady-state levels of production are realized and as such, the Group’s overall cost of production will reduce over time and the quality of the portfolio will improve.

At South Deep, we have announced the Rebase Plan, which is anticipated to position the mine at a steady-state production of 500,000 ounces per year by fiscal 2022, at AIC (in 2017 terms) of below U.S.$900 per ounce. Similarly, the Damang project has projected AIC, including upfront capital development, of U.S.$950 per ounce, and the Gruyere Gold Project AIC of U.S.$805 per ounce. Although the Salares Norte pre-feasibility study is still being concluded, we anticipate that AIC is likely to be lower than these levels due to the high grades and the likelihood that this will be an open-pit operation.

Furthermore, we continue to invest in brownfields exploration in Australia with the objective of not only replacing what we mine each year, but also with the aim of increasing our resources and reserves at a higher quality than what has been mined previously. We will continue to look for life extension opportunities at Cerro Corona through economic additions to both the tailings and waste facilities, as well as through brownfields exploration on Cerro Corona porphyry style systems in the vicinity of the mine. Tarkwa has a strong resource position, but we are stepping up our efforts to convert some of these to reserves and to look for opportunities for other styles of mineralization across the lease. The Kobada Hill prospect has emerged as an interesting hydrothermal style target with encouraging geology and controlled mineralization with good continuity. In due course underground mining could also potentially offer opportunities at Tarkwa.

 

 

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These investments, we believe, will achieve a measure of success over the next three years, thereby maintaining and sustaining strong cash flows from the operations. Amid the strong investment drive at Gold Fields, some shareholders have been asking whether we have changed our strategic focus from cash generation to a drive for long-term production. This is not the case as the main objective underpinning Gold Fields’ strategy remains the generation of sustainable and increasing cash-flow. The focus on cash flow is two-fold in that it entails growing our cash margin and absolute cash flow and then distributing this in the form of dividends and repaying debt.

To continue expanding margins and distributing cash, the long-term sustainability of the business must be kept intact. This requires investing to extend the life of our assets, ensuring we maintain our regulatory and social licenses to operate, strong corporate governance and retaining our people, who are key to the success of our business. It also entails maintaining a healthy balance sheet and not taking on too much debt, which might lead the Company into financial difficulties should the macro-economic environment turn against it.

The challenge facing Gold Fields’ management will be to balance distributing the cash we generate with reinvestment into our assets to ensure that our portfolio of mines generates cash sustainably into the foreseeable future.

The key financial objectives of Gold Fields’ strategy include:

 

   

Meeting our production and cost guidance;

 

   

Generating a 15% FCF margin at a U.S.$1,300 per ounce planning gold price;

 

   

Paying 25% – 35% of normalized earnings as dividends;

 

   

Maintaining a net debt to adjusted EBITDA ratio to 1.0x or below if possible in the long term;

 

   

Extending the life of our Australian portfolio through brownfields exploration;

 

   

Pursuing value-accretive M&A; and

 

   

Successfully implementing the South Deep Rebase Plan.

Fiscal 2017 is a year where the Company is expected to spend more than it will bring in, but with the view to achieving and increasing sustainable cash flow generation over the medium to long-term. The alternative is to harvest the assets over five or six years, which we don’t believe that this is in the best long-term interests of either shareholders or other stakeholders in the Company.

As we embark on the Company’s reinvestment drive, we will pursue only those investments and capital expenditures that have a clear path to pay-backs and returns. Furthermore, we need to optimally manage our ore bodies in terms of grade management and ongoing sustainable capital expenditure by planning for outcomes that optimize the life of the ore body (and thus optionality) and cash flow.

Stakeholder Engagement for Fiscal 2017

Gold Fields’ prosperity in the short- and longer-term is critically dependent on societal acceptance. This can only be achieved through transparent and mutually beneficial relationships with governments at all levels (national, regional and local), organized labor and host communities. Our corporate and regional management teams have been tasked with intensifying stakeholder engagements in fiscal 2017 to ensure that we operate in a business environment that allows us to work profitably to the benefit of all stakeholders.

The Development Agreement that we entered into with the Ghanaian government in fiscal 2016 is testament to the benefits of open and honest dialogue with stakeholders. The new royalty regime ensures that both parties share the pain in a low gold-price environment but benefit when the price rises above targeted levels. It is a model we believe can be replicated in all our jurisdictions.

 

 

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In South Africa, Gold Fields has dedicated substantial human and capital resources towards meeting the targets of the 2010 Mining Charter, including the BBBEE target of 26% ownership, which we exceed. We will continue to support the transformation of the sector to make it truly representative of the South African population.

True transformation will take time and cannot happen without the financial backing of investors, many of whom have fled the sector over the past few years amid poor returns on their capital. As the South African government drafts critical policies based on these engagements we urge it to avoid additional fiscal or regulatory burdens that will inevitably further stifle the growth of the sector. Directly, and through the Chamber, we have and will be engaging the South African government on three key issues that were supposed to be addressed in fiscal 2016, but have still not been finalized: The review of the Mining Charter; the once-empowered, always-empowered principle in BBBEE ownership of mining companies; and the finalization of amendments to the MPRDA. In addition, we remain committed to extensive engagement with communities around our South Deep mine, both through direct interaction but also in alliance with other gold miners operating in the area, particularly Sibanye Gold.

In Peru, the mining industry is working closely with the new business-friendly government to find joint solutions to the social and environmental issues that appear to be the root causes of the distrust towards the sector by local communities. Engagement with these communities and their representative organizations is already engrained in the DNA of our Cerro Corona mine, but will only yield sustainable success if it is supported by government at national, regional and local levels.

Reserves of Gold Fields as at December 31, 2016

Methodology

While there are some differences between the definition of the South African Code for Reporting of Exploration Results, Mineral Resources and Mineral Reserves, or SAMREC Code, and that of the SEC’s Industry Guide 7, only the reserves at each of Gold Fields’ operations, growth and advanced exploration projects as at December 31, 2016 which qualify as reserves for purposes of the SEC’s Industry Guide 7 are presented in the table below. See “—Glossary of Mining Terms”. In accordance with the requirements imposed by the JSE, Gold Fields reports its reserves using the terms and definitions of the SAMREC Code (2016 edition). Mineral or ore reserves, as defined under the SAMREC Code, are divided into categories of proved and probable reserves and are expressed in terms of tonnes to be processed at mill feed head grades, allowing for estimated mining dilution, ore loss, mining recovery and other factors.

All of Gold Fields’ operations report reserves using cut-off grades or net smelter return cut-offs, or NSR, in the case of multi-metal deposits. Cut-off grade is the grade that distinguishes the economic material within an ore body that is to be extracted and treated from the remaining material. Cut-off grade is typically calculated using an appropriate metal price and the development, stoping, processing, general and administration and sustaining capital costs to derive a total cost per tonne. NSR is the net revenue (total revenue less production costs) that the owner of a mining property receives from the sale of the mine’s metal products less transportation and refining costs. Modifying factors applied in estimating reserves are primarily based on historical empirical information, but commonly incorporate adjustments for planned operational improvements. Tonnage and grade may include some mineralization below the selected cut-off grade to ensure that the reserve comprises blocks of adequate size and continuity to facilitate practical mining. Reserves also take into account operating cost levels as well as necessary capital and sustaining capital provisions required at each operation, and are supported by “life of mine” plans.

South Africa

South Deep’s Rebase Plan, which forms the basis for the South Deep’s mineral reserves, will continue to be refined and enhanced as other rebasing project outcomes are delivered and as the mine evolves to steady state production. This plan incorporates all recent improvements in mine design, geotechnical parameters as well as infrastructure required to support the production plan.

 

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At South Deep (except as noted above), the estimation of reserves is based on surface drilling, underground diamond drilling, surface three-dimensional reflection seismics, ore body facies modeling, structural modeling, underground mapping, detailed ore zone wireframes and geostatistical estimation. The reefs, which are sedimentary in nature and reflect extensive intra-basinal fluvial deposits, are initially explored by drilling from the surface on an approximately 500 meter to 2,000 meter grid. Once underground access is available, diamond drilling is undertaken on an approximate 30 meter to 90 meter grid, to provide the necessary ore body definition to support mine design and production scheduling.

The following sets out the drill spacing ranges used to classify the different categories of reserves at South Deep.

 

Reserve Classification

   Sample
Spacing
Range
Min/Max
     Maximum
Distance
Data is
Projected
 
     (meters)  

Proved

     0 to 60        220  

Probable

     60 to 650        650  

For proved reserves, the planned grade control diamond drilling must be designed at an approximate 50 meter by 50 meter grid spacing, depending on the accessibility for the diamond drill rigs. The destress mining extracts 2.5 to 5.5 meter high cuts that are generally mined horizontally at 17 meter vertical intervals, and it reduces the in situ rock stress from approximately 80 MPa to 30 to 40 MPa to facilitate bulk mechanized mining. Estimation is constrained within both geologically homogenous structural and defined facies zones, and is generally derived from either ordinary or simple kriged small-scale grids.

For probable reserves, the estimates access a significant number of samples on spacing greater than the spacing for development and stoping bordering these areas. In addition, borehole spacings ranging from tens to hundreds of meters are used in conjunction with 3D seismic survey results that confirm certain structural reef elevations and key stratigraphic surfaces. Reserves classified as probable are generally adjacent to those classified as proved. Estimation is constrained within homogenous structural and facies zones, and is derived using a localized direct conditioning technique (used to derive recoverable block estimates) based on simple kriging.

The primary assumptions of continuity of the geologically homogenous zones are driven by the geological model, which is updated when new information arises. Any changes to the model are subject to peer and internal technical corporate review and external independent consultant review when deemed necessary. Historically, mining at South African deep-level gold mines has shown significant geological continuity, so that new mines were started based on limited surface borehole information. Customarily, geological models are primarily based on the definition of different sedimentary facies within each conglomerate horizon. These facies are extrapolated along palaeocurrent and grade trends into new, undeveloped areas taking into account inherent proximal to distal depositional relationships and any surface borehole data in those areas. Normally these facies are continuous, supported by extensive historical sample databases, and can be incorporated in the macro kriging of large blocks.

Ghana

For the Tarkwa open pit operation, estimation of probable reserves is based on a combination of an initial 100- or 200-meter grid of diamond drilling and proved reserves are typically based on drilling a 12.5 meter to 25 meter grid of reverse circulation drill holes. For the Damang open pit operation, estimation of probable reserves is based on a 40 meter to 80 meter grid of combined reverse circulation and diamond drilling and proved reserves on a five meter by eight meter grid up to a 20 meter grid, depending on an orebody type. Advance grade control drilling is employed in certain areas to provide detailed estimation to greater depths than normal grade control drilling where information is required to confirm structural and grade trends.

 

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Diamond drilling provides continuous (solid) core from diamond drill bits, using water and chemicals for lubrication. Consequently, diamond drilling provides greater resolution of geological parameters such as lithologies, alterations, mineralization, rock hardness and structures.

In surface drilling programs, reverse circulation drilling provides chip samples from percussion hammers powered by compressed air. The chips are transferred to surface up a central tube with the rods to eliminate contamination from the outer hole. Sampling is generally conducted at intervals relevant to the block model and mining dimensions. Reverse circulation drilling is generally quicker and less expensive than diamond drilling. However, there is a depth limitation to reverse circulation drilling and consequently all deep holes are conducted by diamond drilling.

Generally exploration programs will consist of a mix of reverse circulation and diamond drilling in order to provide the necessary geological resolution, as well as bulk analytical data for evaluation, geotechnical and geometallurgical purposes. Infill drilling programs are usually conducted using both diamond drilling and reverse circulation, depending on the resolution required. Grade control drilling programs use reverse circulation.

Australia

At the Australian operations, the estimation of reserves for both underground and open pit operations is based on exploration and sampling information gathered through appropriate techniques, primarily from diamond drilling, reverse circulation drilling, air-core and sonic drilling techniques. The locations of sample points are spaced close enough to deduce or confirm geological and grade continuity. Generally, drilling is undertaken on grids, which range between 20 meters by 25 meters for proved reserves and up to 40 meters by 60 meters typically for probable reserves, although this may vary depending on the continuity of the ore body. Due to the variety and diversity of mineralization at the Australian operations, sample spacing may also vary depending on each particular ore type.

Peru

For the Cerro Corona operation, estimation is based on diamond drill and reverse circulation holes. The spacing of holes at Cerro Corona is generally on a grid ranging from 40 meters to 60 meters for probable reserves with some areas approximating a 25 meter grid where geology becomes more complex. The blast hole rock chips are used as grade control samples and are drilled on an average 5.5 meter by 4.8 meter grid.

 

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Reserve Statement

As at December 31, 2016, Gold Fields had aggregate attributable proved and probable reserves of approximately 48.1 million ounces of gold and 454 million pounds of copper, as set forth in the following tables:

 

    Gold ore reserve statement as at December 31, 2016(1)  
    Proved reserves     Probable reserves     Total reserves     Attributable
gold
production
in fiscal
2016(2)
 
    Tonnes     Head
Grade
    Gold     Tonnes     Head
Grade
    Gold     Tonnes     Head
Grade
    Gold    
    (million)     (g/t)     (M oz)     (million)     (g/t)     (M oz)     (million)     (g/t)     (M oz)     (M oz)  

Underground (“UG”)

               

South Africa

               

South Deep(3)(4)

    13.78       5.6       2.479       184.85       5.3       31.593       198.63       5.3       34.072       0.29  

Australia

               

St. Ives

    0.29       4.4       0.041       3.28       5.1       0.533       3.57       5.0       0.574       0.10  

Granny Smith

    1.38       5.4       0.239       8.46       5.3       1.435       9.84       5.3       1.674       0.28  

Darlot

    —         —         —         0.45       3.8       0.056       0.45       3.8       0.056       0.07  

Agnew/Lawlers(5)

    0.14       5.4       0.024       2.74       5.5       0.482       2.88       5.5       0.506       0.23  

Total Underground

    15.59       5.6       2.783       199.78       5.3       34.098       215.38       5.3       36.882       0.97  

Surface (Production Stockpile)

               

Ghana

               

Tarkwa(5)

    7.60       0.8       0.186       53.98       0.4       0.694       61.57       0.4       0.880       —    

Damang(5)

    2.73       0.7       0.066       2.73       0.7       0.066       2.73       0.7       0.066       —    

Australia

               

St. Ives(5)

    3.32       1.0       0.107       —         —         —         3.32       1.0       0.107       —    

Granny Smith

    0.09       6.3       0.019       —         —         —         0.09       6.3       0.019       —    

Darlot

    —         —         —         —         —         —         —         —         —         —    

Agnew/Lawlers

    0.09       3.0       0.009       —         —         —         0.09       3.0       0.009       —    

Peru

               

Cerro Corona

    3.81       0.8       0.100       —         —         —         3.81       0.8       0.100       —    

Surface (Open Pit)

               

Ghana

               

Tarkwa(4)

    48.19       1.3       1.980       66.74       1.2       2.613       114.92       1.2       4.593       0.51  

Damang(4)

    5.08       1.5       0.238       20.76       1.8       1.203       25.85       1.7       1.441       0.13  

Australia

               

St. Ives(4)

    2.51       1.9       0.152       12.12       2.3       0.908       14.63       2.3       1.060       0.27  

Gruyere Gold Project

    7.44       1.1       0.260       38.35       1.2       1.500       45.79       1.2       1.760       —    

Peru

                   

Cerro Corona

    33.32       1.0       1.028       8.77       0.6       0.168       42.09       0.9       1.196       0.15  

Total Surface

    114.17       1.1       4.145       200.71       1.1       7.085       314.88       1.1       11.230       1.06  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Grand Total

    129.76       1.7       6.928       400.50       3.2       41.184       530.26       2.8       48.112       2.03  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals by Mine

                   

South Deep

    13.78       5.6       2.479       184.85       5.3       31.593       198.63       5.3       34.072       0.29  

Tarkwa

    55.78       1.2       2.166       120.71       0.9       3.307       176.50       1.0       5.473       0.51  

Damang

    5.08       1.5       0.238       23.49       1.7       1.268       28.58       1.6       1.506       0.13  

St. Ives

    6.11       1.5       0.300       15.40       2.9       1.441       21.51       2.5       1.740       0.36  

Granny Smith

    1.48       5.4       0.258       8.46       5.3       1.435       9.93       5.3       1.693       0.28  

Darlot

    —         —         —         0.45       3.8       0.056       0.45       3.8       0.056       0.07  

Agnew/Lawlers

    0.23       4.4       0.033       2.74       5.5       0.482       2.97       5.4       0.515       0.23  

Gruyere Gold Project

    7.43       1.1       0.260       38.35       1.2       1.500       45.79       1.2       1.760       —    

Cerro Corona

    37.13       0.9       1.129       8.77       0.6       0.168       45.90       0.9       1.296       0.15  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Grand Total

    129.76       1.7       6.928       400.50       3.2       41.184       530.26       2.8       48.112       2.03  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes:

(1)

(a)

Quoted as mill delivered metric tonnes and Run of Mine, or RoM, grades, inclusive of all mining dilutions and gold losses except mill recovery. Metallurgical recovery factors have not been applied to the reserve figures. The approximate metallurgical recovery factors are as follows: (i) South Deep 96.5%; (ii) Tarkwa 97%; (iii) Damang 90%; (iv) St. Ives 78% to 94%; (v) Agnew 94.9%; (vi) Granny Smith 92.6%; (vii) Darlot 92.5%; and (viii) Cerro Corona 69% for gold and 87% for copper. The metallurgical recovery is the ratio, expressed as a percentage, of the mass of the specific mineral product actually recovered from ore treated at the plant to its total specific mineral content before treatment. The South African operation has a consistent metallurgical recovery, while the recoveries on the International operations vary according to the mix of the source material and method of treatment.

 

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  (b) The metal prices used for the 2017 LoM plans were as follows: For the Ghana operations, ore reserve figures are based on an optimized pit at a gold price of U.S.$1,200 per ounce. For the Australian operations, ore reserve figures are based on a gold price of A$1,600 per ounce (at an exchange rate of A$1.33 per U.S.$1.00). Open pit ore reserves at the Australian operations are similarly based on optimized pits and the underground operations on appropriate mine design and extraction schedules. At South Deep, a gold price of R550,000 per kilogram (at an exchange rate of R14.26 per U.S.$1.00) was applied in valuing the ore reserve. The gold price used for reserves approximates the three year trailing average (U.S.$1,225oz), calculated on a monthly basis, of the London afternoon fixing price of gold. For the Cerro Corona gold reserves, the optimized pit is based on a gold price of U.S.$1,200 per ounce and a copper price of U.S.$2.8 per pound. The reserves used a copper price of U.S.$2.3 per pound for fiscal 2017, U.S.$2.5 per pound for fiscal 2018/2019 and U.S.$2.8 per pound from fiscal 2020 onwards. Due to the nature of the deposit and the importance of net smelter returns, the gold and copper price need to be considered together.
  (c) Dilution relates to planned and unplanned waste and/or low-grade material being mined and delivered to the mill. Ranges are given for those operations that have multiple ore body styles and mining methodologies. The mine dilution factors are as follows: (i) South Deep 7.9%; (ii) Tarkwa 30cm hanging wall and 20 cm footwall; (iii) Damang 20% to 25%; (iv) St. Ives 2% to 49% (open pits) and 15% to 25% (underground); (v) Agnew/Lawlers 10%; (vi) Granny Smith 15%; (vii) Darlot 15% to 20%; and (viii) Cerro Corona 0%.
  (d) The mining recovery factor relates to the proportion or percentage of ore mined from the defined ore body at the gold price used for the declaration of reserves. This percentage will vary from mining area to mining area and reflects planned and scheduled reserves against total potentially available reserves (at the gold price used for the declaration of reserves), with all modifying factors, mining constraints and pillar discounts applied. The mining recovery factors are as follows: (i) Tarkwa 100%; (ii) Damang 95%; (iii) St. Ives 95% to 98% (open pits) and 90% to 95% (underground); (iv) Agnew/Lawlers 80% to 95%; (v) Granny Smith 91%; (vi) Darlot 90% to 95%; (vii) South Deep 96%; (viii) Cerro Corona 98%.
  (e) The cut-off grade may vary per shaft, open pit or underground mine, depending on the respective costs, depletion schedule, ore type and dilution. The following are the average or range of values applied in the planning process: (i) South Deep 3.8 to 4.2 g/t; (ii) Tarkwa 0.47 g/t for mill feed; (iii) Damang 0.71 g/t to 0.81 g/t for fresh ore and 0.56 g/t to 0.62 g/t for oxide ore; (iv) St. Ives 0.5 g/t for mill feed—open pit, and 2.6 g/t to 3.0 g/t for mill feed—underground; (v) Agnew/Lawlers 2.8 to 4.3 g/t for mill feed—underground; (vi) Granny Smith 2.4 to 3.1 g/t; (vii) Darlot 3.7 g/t for mill feed-underground; and (viii) Cerro Corona U.S.$16.6 to 22.0/t net smelter return (combined copper and gold).
  (f) Totals may not sum due to rounding. Where this occurs it is not deemed significant.
  (g) An ounces-based Mine Call Factor based primarily on historic performance but also on realistic planned improvements where appropriate is applied to the reserves. The following Mine Call Factors have been applied: Damang 95%, Tarkwa 97%, with Agnew/Lawlers, Granny Smith, Darlot, St. Ives, South Deep and Cerro Corona at 100%.
(2) Actual gold/copper produced after metallurgical recovery.
(3) Based on life of mine ownership share due to step-up of minority interest over time.
(4) In line with other international operations, all South Deep reserves are classed as above infrastructure, as the reserves will be accessed by means of ongoing declines from current infrastructure.
(5) Includes some gold produced from stockpile material, which cannot be separately measured.

The following table sets forth the proved and probable copper reserves of the Cerro Corona mine as at December 31, 2016 that are attributable to Gold Fields.

 

    Copper ore reserve statement as at December 31, 2016(1)(2)  
    Proved reserves     Probable reserves     Total reserves     Attributable
copper
production
in fiscal
2016(2)
 
    Tonnes     Grade Cu     Cu     Tonnes     Grade Cu     Cu     Tonnes     Grade Cu     Cu    
    (million)     (g/t)     (M lb)     (million)     (g/t)     (M lb)     (million)     (g/t)     (M lb)     (M lb)  

Surface (Open Pit & Stockpiles) Peru

                   

Cerro Corona

    37.1       0.5       374       8.8       0.4       80       45.9       0.45       454       66  

 

Notes:

(1) Metallurgical recovery factors have not been applied to the reserve figures. The approximate metallurgical factor for copper at Cerro Corona is 61% to 88%.
(2) For the copper reserves, the optimized pit is based on a gold price of $1,200 per ounce and a copper price of $2.8 per pound, which, due to the nature of the deposit, need to be considered together.

 

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Gold and copper price sensitivity

The amount of gold mineralization that Gold Fields can economically extract, and therefore can classify as reserves, is sensitive to fluctuations in the price of gold. The following table indicates Gold Fields’ attributable reserves at different gold prices that are 10% above and below the base case presented in the ‘gold reserve statement’ table above. The reserve sensitivities are, however, not based on detailed depletion schedules and should be considered on a relative and indicative basis only.

 

     -10%(1)      Base(1)      +10%(1)  
     (Moz)  

South Deep(2)

     33.2        34.1        35.0  

Tarkwa

     4.2        5.5        6.0  

Damang

     1.2        1.5        1.8  

St. Ives(3)

     1.4        1.7        2.0  

Agnew/Lawlers(3)

     0.5        0.5        0.6  

Granny Smith(3)

     1.6        1.7        1.7  

Cerro Corona(4)

     1.3        1.3        1.3  

 

Notes:

(1) Darlot is excluded from the sensitivities as a result of the current short life of mine, which is less than one year, and limited mining flexibility.
(2) The equivalent gold prices used for the sensitivities in South Africa are R500,000/kg, R550,000/kg and R600,000/kg.
(3) The equivalent gold prices used for the sensitivities in Australia are A$1,440/oz, A$1,600/oz and A$1,760/oz.
(4) Under the current tailings dam design at Cerro Corona, reserves would not respond to an upward movement of the gold price because of current capacity constraints at the tailings storage facility for the Cerro Corona mine. A decrease of 10% in gold price is insufficient to affect the level of gold reserves.

The London afternoon fixing price for gold on April 3, 2017 was U.S.$1,247 per ounce. Gold Fields’ attributable gold reserves increased from 46.1 million ounces at December 31, 2015 to 48.1 million ounces at December 31, 2016, primarily due to the acquisition of Gruyere, growth in Australia (Granny Smith and St. Ives) and the re-investment plan at Damang.

The London Metal Exchange, or LME, cash settlement price for copper on April 3, 2017 was U.S.$5,783 per tonne.

Gold Fields’ methodology for determining its reserves is subject to change and is based upon estimates and assumptions made by management regarding a number of factors as noted above under “—Methodology”. Accordingly, the sensitivity analysis of Gold Fields’ reserves provided above should not be relied upon as indicative of what the estimate of Gold Fields’ reserves would actually be or have been at the gold or copper prices indicated, or at any other gold or copper price, nor should it be relied upon as a basis for estimating Gold Fields’ ore reserves based on the current gold or copper price or what Gold Fields’ reserves will be at any time in the future. See “Risk Factors—Gold Fields’ reserves are estimates based on a number of assumptions, which, if changed, may require Gold Fields to lower its estimated reserves”.

Description of Mining Business

The discussion below provides a general overview of the mining business as it applies to Gold Fields.

Exploration

Exploration activities are focused on replacing production depletion and on growth in ore reserves to maintain operational flexibility and sustainability. The Group focuses on the extension of existing ore bodies and

 

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the discovery and delineation of new ore bodies both at existing sites and at undeveloped sites. Once a potential ore body has been discovered, exploration is extended and intensified in conjunction with comprehensive infill drilling, in order to enable clearer definition of the ore body and its technical and economic characteristics so as to profile the potential portions to be mined. Geological, geochemical, geophysical, geostatistical, geotechnical and geo-metallurgical techniques are constantly refined to improve effectiveness and the economic viability of prospecting and mining activities.

Mining

Gold Fields currently mines only gold, with copper and silver as by-products. The mining process can be divided into two principal activities: (i) developing access to the ore body; and (ii) extracting the ore body once accessed. These two processes apply to both surface and underground mines.

Underground Mining

Developing access to the ore body

For Gold Fields’ South African underground mine, primary access to the ore body is provided through vertical shaft systems, while access is through single or multiple decline haulages extended from surface portals at the Australian operations.

Horizontal and decline development at various intervals of the shaft or main decline, known as levels, extend laterally and provide access to the ore horizon. Ore drives open up the ore body for mining.

Extracting the ore body

Once an ore body has been accessed and opened up for mining, production activities consisting of drilling, blasting, supporting and cleaning activities are carried out on a daily basis. All mines are fully mechanized.

At South Deep, the broken ore is loaded from the stope face into trucks using mechanical loaders and hauled along decline corridors to ore pass systems which connect the corridors to the cross cuts below. The ore is then transported by rail or conveyor and tipped into the shaft transfer system, after which it is hoisted to the surface. Mining methods employed include de-stress mining (to provide the appropriate geotechnical conditions for subsequent stoping), long hole open stoping (for reef targets greater than 15 meters in height) and drifting and benching (for reef targets less than 15 meters in height). The mining voids generated once the ore is removed are filled with treated tailings product termed backfill which provide ground support for the mined out areas.

At the Australian underground operations, the broken ore is loaded straight from the stope face into trucks, using mechanical loaders, and hauled to the surface by underground dump trucks via the decline. Application of backfill to the mined out areas is based on local conditions and is not always required in shallow underground mining areas.

Open Pit-Mining

Opening up the ore body

In open-pit mining, access to the ore is achieved by stripping the overburden in benches of fixed height to expose the ore below. This is most typically achieved by drilling and blasting an area, loading the broken rock with excavators into dump trucks and hauling the rock and/or soil to dumps. The overburden material is placed on designated waste rock dumps.

Extracting the ore body

Extraction of the ore body in open pit mining involves the same activity as in stripping the overburden. Lines on the pit floor are established demarcating ore from waste material and the rock is then drilled and

 

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blasted. Post blasting, the ore is loaded into dump trucks and hauled to the crusher at the metallurgical plant or stockpile, while the waste is hauled to waste rock dumps.

Rock Dump and Production Stockpile Mining

Gold Fields mines surface rock dumps and production stockpiles using mechanized earth-moving equipment.

Mine Planning and Management

Operational and planning management on the mines receives support from regional technical support functions as well as corporate management. The current philosophy is one of top-down/bottom-up management, with the operational and commercial objectives at each mine defined by the personnel at the mine based on parameters, objectives and guidelines provided by Gold Fields’ corporate office. This is based on the premise that the people on the ground have the best understanding of the local business and what is realistically achievable.

Each operation identifies a preferred strategic option which, once approved by Gold Fields’ Executive Committee, or the Executive Committee, is used to inform how the detailed one year operational plan is configured, which is rolled out into a life of mine plan, prior to the commencement of each fiscal year. The plans are based on financial parameters determined by the Gold Fields Executive Committee, or the Executive Committee. See “Directors, Senior Management and Employees—Executive Committee”. The operational plan is presented to the Executive Committee, which takes it to the Board for approval before the commencement of each fiscal year. The planning process is anchored by a Group planning calendar, and is sequential and based upon geological models, evaluation models, resource models, metal prices, mine design, depletion schedules and, ultimately, financial analysis. Capital planning is formalized pursuant to Gold Fields’ capital spending planning process. Projects are categorized and reviewed in terms of total expenditure, return on investment, net present value and impact on AIC per ounce and all projects involving amounts exceeding R360 million (South Africa), A$40 million (Australia) and U.S.$40 million (Ghana/Peru) are submitted to the Board for approval. Material changes to the plans have to be referred back to the Executive Committee and the Board.

Capital Expenditure

Gold Fields spent U.S.$649.9 million, U.S.$634.1 million and U.S.$608.9 million in capital expenditure during fiscal 2016, 2015 and 2014, respectively. The major expenditure items in fiscal 2016 were U.S.$77.9 million on the development and equipping of the South Deep mine, U.S.$39.6 million on development and infrastructure of the Waroonga and New Holland underground complexes at Agnew/Lawlers, U.S.$25.8 million on capital waste stripping at Damang, U.S.$16.4 million on the tailings storage facility at Cerro Corona, U.S.$32.3 million on development of the Wallaby underground mine at Granny Smith, U.S.$126.2 million on capital waste stripping at Tarkwa and U.S.$88.7 million on underground and open pit development at St. Ives. The major expenditure items in fiscal 2015 were U.S.$66.9 million on the development and equipping of the South Deep mine, U.S.$46.1 million on development and infrastructure of the Waroonga and New Holland underground complexes at Agnew/Lawlers, U.S.$45.4 million on new mining equipment at Tarkwa, U.S.$29.3 million on the tailings storage facility at Cerro Corona, U.S.$28.7 million on development of the Wallaby underground mine at Granny Smith and U.S.$18.5 million on HME componentization at Tarkwa. The major expenditure items in fiscal 2014 were U.S.$106.1 million on capital waste mining at Tarkwa, U.S.$91.9 million on the development and equipping of the South Deep mine, U.S.$55.6 million on the development and infrastructure of the Waroonga and New Holland underground complexes at Agnew/Lawlers, U.S.$29.4 million on the development of underground mines at St. Ives, U.S.$27.7 million on the tailings storage facility at Cerro Corona and U.S.$19.3 million on the tailings storage facility at Tarkwa. For more information regarding Gold Fields’ capital expenditure, see “—Gold Fields’ Mining Operations—South Africa Operations—South Deep Mine—Capital Expenditure”, “—Gold Fields’ Mining Operations—West Africa Operations—

 

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Tarkwa Mine—Capital Expenditure”, “—Gold Fields’ Mining Operations—West Africa Operations—Damang Mine—Capital Expenditure”, “—Gold Fields’ Mining Operations—Australasia Operations—St. Ives—Capital Expenditure”, “—Gold Fields’ Mining Operations—Australasia Operations—Agnew/Lawlers—Capital Expenditure”, “—Gold Fields’ Mining Operations—Australasia Operations—Darlot—Capital Expenditure”, “—Gold Fields’ Mining Operations—Australasia Operations—Granny Smith—Capital Expenditure”, “—Gold Fields’ Mining Operations—Americas Operations—Cerro Corona—Capital Expenditure”, “Operating and Financial Review and Prospects—Capital Expenditures” and “Operating and Financial Review and Prospects—Liquidity and Capital Resources”.

Processing

Gold Fields has eight active gold processing facilities (one in South Africa, two in Ghana, four in Australia and one in Peru). A typical processing plant includes two stages: comminution (crushing and grinding the ore) and then gold recovery (typically flotation, leaching, carbon adsorption, carbon stripping/EW and/or smelting).

Comminution

Comminution is the process of crushing and breaking up the ore to expose and liberate the gold and make it available for treatment. Conventionally, this process occurs in multi-stage crushing and milling circuits, which include the use of jaw and gyratory or cone crushers followed by rod, semi-autogenous grinding, or SAG, and/or ball mills. For the milling step most of Gold Fields’ processing plants utilize both SAG and ball mills where the ore itself and steel balls are used as the primary grinding media. Through the comminution process, ore is ground to a pre-determined size before proceeding to the gold recovery stage.

Gold Recovery

In most of the Gold Fields’ processing plants, gold is extracted into solution by leaching with cyanide in agitated slurry tanks. The gold is then adsorbed onto activated carbon from the solution using either the carbon in leach, or CIL, process or the carbon in pulp, or CIP, process. The activated carbon is removed from the tanks, eluted in pressurized columns and the gold then recovered by electrowinning.

Most of the Gold Fields’ plants also utilize gravity recovery circuits that use a centrifugal concentrator to recover coarse free gold based on density differences. This gravity gold recovery step is usually undertaken within the grinding stage of the processing plant before the ore progresses to CIL or CIP.

As the final recovery step, the gold recovered by the electrowinning cells is smelted in a furnace to produce gold doré bars. These gold bars are transported to a refinery that is responsible for further refining.

At Cerro Corona, gold/copper concentrate is recovered using a standard flotation process. The concentrate is shipped to a third-party smelter for further processing. The Cerro Corona processing plant therefore does not have a CIL or CIP circuit.

Refining and Marketing

South Africa

On October 16, 2013, Gold Fields Operations Limited, or GFO, and GFI Joint Venture Holdings Proprietary Limited, or GFIJVH, acting jointly in their capacities as participants in an unincorporated joint venture which owns and operates the South Deep mine, known as the South Deep Joint Venture, entered into a new refining agreement with Rand Refinery Proprietary Limited, or Rand Refinery. Rand Refinery is a non-listed private company in which Gold Fields holds a 2.8% interest, with the remaining interests held by other South African gold producers.

 

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This new refining agreement superseded and replaced any and all previous refining agreements between the South Deep Joint Venture and Rand Refinery. Pursuant to this refining agreement, Rand Refinery undertook, among other things, to (i) refine all unrefined gold produced by South Deep, (ii) on each delivery date of unrefined gold to Rand Refinery, notify Gold Fields’ treasury department in writing of the estimated gold and/or silver content of the unrefined gold so delivered, expressed in troy ounces and (iii) retain the refined gold and the refined silver for the South Deep Joint Venture pending written instructions from Gold Fields’ treasury department that the refined gold and/or refined silver have been sold and may be delivered to the buyer in accordance with the buyer’s instructions. Rand Refinery assumes responsibility for the unrefined gold upon arrival of the unrefined gold at the Rand Refinery premises in Johannesburg, South Africa. Rand Refinery invoices the South Deep Joint Venture with the refining charges, who then arranges for direct settlement to Rand Refinery. The refining agreement will continue indefinitely until either party terminates it upon at least 12 months’ written notice.

Gold Fields’ treasury department sells all the refined gold produced by South Deep to authorized counterparties at a price benchmarked against the London afternoon fixing price.

Silver is accumulated and sold on a quarterly basis by Gold Fields treasury to either Rand Refinery, or to an authorized counterpart at a price benchmarked against the London Bullion Market Association, or LBMA, silver price.

Ghana

Up until January 12, 2015, all gold produced by Gold Fields at the Tarkwa and Damang mines in Ghana was refined by Rand Refinery.

With effect from January 12, 2015, gold produced at the Tarkwa and Damang mines is refined by MKS (Switzerland) S.A., or MKS, pursuant to refining agreements entered into by Gold Fields Ghana (in respect of the Tarkwa mine) and Abosso (in respect of the Damang mine) with MKS. Under these agreements, MKS collects the gold from either the Tarkwa or Damang mine and transports it either to its Switzerland refinery or to its Indian refinery, or the Designated Refinery, where the gold is then refined. The MKS refinery in India will be the default Designated Refinery unless either party provides the other party with notice to the effect that a shipment of gold must be transported to MKS’s refinery in Switzerland, provided that MKS shall only be entitled to provide Gold Fields Ghana (Tarkwa operation) and Abosso (Damang operation) with such notice if (i) the arrival date of the gold at the refinery will fall on a day other than a business day in India or during a period of weak physical demand for gold in India; or (ii) the Indian import regulations for the gold have materially and adversely changed.

Once the gold has been refined, the Tarkwa and Damang operations shall be entitled to (i) sell the refined gold through Gold Fields’ treasury department, acting as agent for and on their behalf; or (ii) require MKS to purchase the refined gold; or (iii) request a prepayment in respect of the refined gold. All sales are benchmarked against the afternoon London Bullion Market Association Gold Price, or the London gold fix, or the London Gold Fix pricing mechanism has been replaced by a new electronic LBMA price-discovery process from March 20, 2015. The price continues to be set twice daily, at 10:30 and 15:00 London time. The new LBMA Gold Price is operated and administered by an independent third-party provider, ICE Benchmark Administration, or the IBA, who were chosen following consultation with market participants. IBA provides the price platform, methodology as well as the overall administration and governance for the LBMA Gold Price. The IBA’s platform provides an electronic, auction-based, tradeable, auditable and fully IOSCO-compliant solution for the London bullion market. MKS assumes responsibility for the gold upon collection at either the Tarkwa or Damang mine.

Silver is accumulated and sold on a quarterly basis to MKS, at the LBMA silver price on the date of sale.

The MKS refining agreements expire on January 12, 2018, provided that after January 2017, either party may terminate an agreement by giving the other party no less than three months’ prior written notice of such termination.

 

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Australia

In Australia, all gold produced by St. Ives, Agnew/Lawlers, Darlot and Granny Smith, each an Australian operating company, is refined by the Western Australian Mint. The Western Australian Mint applies competitive charges for the collection, transport and refining services. The Western Australian Mint takes responsibility for the unrefined gold at collection from each of the operations where they engage a sub-contractor, Brinks Australia. Brinks delivers the unrefined gold to the Western Australian Mint in Perth, Australia, where it is refined and the refined ounces of gold and silver are credited to the relevant metal accounts held by each Australian Operating Company with the Western Australian Mint. The arrangement with the Western Australian Mint continues indefinitely until terminated by either party upon 90 days’ written notice.

Gold Fields’ treasury department in the corporate office in Johannesburg, South Africa sells all the refined gold produced by the Australian Operating Companies. On collection of the unrefined gold from an Australian Operating Company’s mine site, the relevant Australian Operating Company will notify Gold Fields’ treasury department of the estimated refined gold content, expressed in troy ounces, available for sale. After such confirmation, Gold Fields’ treasury department will sell the refined gold to authorized counterparties at a price benchmarked against the London afternoon fixing price. All silver is sold to the Western Australian Mint at the LBMA silver price on the last business day of each month.

Peru

Gold Fields La Cima S.A., or La Cima, has three contracts for the sale of approximately 90% of concentrate from the Cerro Corona mine, one with a Japanese refiner, one with a German refiner and one with a global commodities trading entity. Under these contracts, La Cima is to sell approximately 30% of the concentrate to each company and to use reasonable efforts to spread the deliveries evenly throughout the year. Risk passes when the concentrate is loaded in the port of Salaverry, Peru for international (cost, insurance and freight) sales or at a Salaverry warehouse for local sales. Pricing for copper under each of the contracts is based on the daily LME settlement price for copper. Pricing for gold under each of the contracts is based on the daily average of the LBMA morning and afternoon fixing price. All production in excess of the amounts sold under long-term contracts is sold on the spot market.

Gold Fields’ Mining Operations

Gold Fields has eight producing mines located in South Africa, Ghana, Australia and Peru. Gold Fields acquired the Yilgarn South Assets from Barrick on October 1, 2013. Of the three operating mines acquired from Barrick, two (Granny Smith and Darlot) remain discrete operating entities, while the third (Lawlers) has now been incorporated with Agnew to form an integrated Agnew/Lawlers mine. See “—Australasia Operations”. Gold Fields conducts underground and surface mining operations at St. Ives, underground-only operations at Agnew/Lawlers, Granny Smith, Darlot and South Deep and surface-only open pit mining at Damang, Tarkwa and Cerro Corona. Some processing of surface rock dump material occurs at Damang, while some tailings material is processed at South Deep. Material processed from production stockpiles occurs at Tarkwa, Damang and St. Ives.

 

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Total Operations

The following table details operating and production results (including gold equivalents) for each of fiscal 2016, 2015 and 2014.

 

     Fiscal 2016      Fiscal 2015      Fiscal 2014  

Production

        

Tonnes (‘000)

     34,222        33,014        33,513  

Recovered grade (g/t)

     2.0        2.1        2.1  

Gold produced (‘000 eq oz)(1)

     2,219        2,236        2,294  

Results of operations

        

Revenues U.S.$ millions

     2,749.5        2,545.4        2,868.8  

Operating costs (including gold inventory change but excluding amortization and depreciation) U.S.$ millions(2)

     1,387.5        1,456.2        1,677.7  

All-in sustaining cost net of by-product  revenue per ounce of gold sold (U.S.$)(2)

     980        1,007        1,053  

All-in cost net of by-product revenue per ounce of gold sold (U.S.$)(2)

     1,006        1,026        1,087  

All-in sustaining cost gross of by-product revenue per equivalent ounce of gold sold (U.S.$)(2)

     987        1,000        1,053  

All-in cost gross of by-product revenue per equivalent ounce of gold sold (U.S.$)(2)

     1,012        1,018        1,086  

 

Notes:

(1) In fiscal 2014, 2.222 million ounces were attributable to Gold Fields, in fiscal 2015, 2.16 million ounces were attributable to Gold Fields, and in fiscal 2016, 2.15 million ounces were attributable to Gold Fields, with the remainder attributable to noncontrolling shareholders in the Ghana and Peru operations during each of those periods.
(2) For a reconciliation of Gold Fields’ operating costs excluding amortization and depreciation to its AISC and AIC net of by-product revenues per ounce of gold sold for fiscal 2016, 2015 and 2014, see “Operating and Financial Review and Prospects—All-in Sustaining and All-in Cost”.

Underground Operations

The following table details the operating and production results for Gold Fields’ underground operations for fiscal 2016, 2015 and 2014.

 

     Fiscal 2016      Fiscal 2015      Fiscal 2014  

Production

        

Tonnes (‘000)

     5,418        5,622        6,575  

Recovered grade (g/t)

     5.5        5.5        5.3  

Gold produced (‘000 oz)(1)

     963        989        1,119  

 

Note:

(1) In fiscal 2014, 1.119 million ounces were attributable to Gold Fields, in fiscal 2015, 0.989 million ounces were attributable to Gold Fields and in fiscal 2016, 0.963 million ounces were attributable to Gold Fields.

Tonnes milled from the underground operations decreased from 5.6 million tonnes in fiscal 2015 to 5.4 million tonnes in fiscal 2016. The amount of gold produced from underground operations decreased from 0.989 million ounces in fiscal 2015 to 0.963 million ounces in fiscal 2016. The decreases in tonnes milled and in gold produced were primarily a result of the closure of the Cave Rocks mine in fiscal 2015 and the Athena mine in fiscal 2016, both at St. Ives in Australia. This was partially offset by increased tonnes milled and gold produced at the South Deep mine in South Africa.

 

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Surface Operations

The following table details the operating and production results (including gold equivalents) for Gold Fields’ surface operations for fiscal 2016, 2015 and 2014.

 

     Fiscal 2016      Fiscal 2015      Fiscal 2014  

Production

        

Tonnes (‘000)

     28,804        27,392        26,938  

Recovered grade (g/t)

     1.4        1.4        1.3  

Gold produced (‘000 oz)(1)

     1,256        1,246        1,175  

 

Note:

(1) In fiscal 2014, 1.100 million ounces were attributable to Gold Fields and in fiscal 2015, 1.169 million ounces were attributable to Gold Fields and in fiscal 2016, 1.183 million ounces were attributable to Gold Fields, with the remainder attributable to noncontrolling shareholders in the Ghana and Peru operations during each period.

Tonnes milled and treated from the surface operations increased from 27.4 million tonnes in fiscal 2015 to 28.8 million tonnes in fiscal 2016, mainly due to the ramp-up of the Invincible pit at St. Ives, combined with mining at the A5 and Neptune pits as part of a strategic shift to a primarily open pit operation at St. Ives.

South African Operations

Gold Fields’ South African region consists of the South Deep mine. South Deep remains a strategic imperative for Gold Fields, and is projected to deliver long-term, cash-generative production to the Group once it hits full production. The successful delivery of South Deep, which accounts for 72% of the Group’s Mineral Reserves, is critical for Gold Fields’ long-term, sustainable growth.

South Deep Mine

Introduction

South Deep is situated 45 kilometers south-west of Johannesburg, in the Gauteng Province of South Africa. South Deep is a capital project and remains a developing mine where the majority of the permanent infrastructure to support expanded production has now been installed. South Deep uses trackless mechanized mining methods comprising an array of techniques and mobile machines to achieve the most efficient extraction system for any given area in the ore body.

South Deep is engaged in underground mining and its primary infrastructure comprises one metallurgical plant and two operating shaft systems, the older South Shaft complex and the newer Twin Shaft complex. The South Shaft complex includes a main shaft and three sub-vertical (SV) shafts, two of which are operational. The Twin Shaft complex consists of a single-barrel main shaft for hoisting personnel, rock materials and an adjacent bratticed ventilation shaft, used for both extracting used air and hoisting rock. The South Shaft complex operates to a depth of 2,650 meters below surface and the Twin Shaft complex operates to a depth of 2,995 meters below surface. South Deep’s workings are at depth and therefore require significant cooling infrastructure. The South Deep operation has access to the national electricity grid, water, and road infrastructure and is located near regional urban centers where it can obtain needed supplies and services.

History

The current South Deep operations derive from the Barrick—Western Areas Joint Venture, which Gold Fields acquired in a series of transactions in the second half of fiscal 2007. The Barrick—Western Areas Joint Venture was named the South Deep Joint Venture.

 

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Geology

South Deep is a deep-level underground gold mine located along the northern and western margins of the Witwatersrand Basin, which have been the primary contributors to South Africa’s production of a significant portion of the world’s recorded gold output since 1886.

The Witwatersrand Basin comprises a 6,000 meter vertical thickness of sedimentary rocks, extending laterally for some 350 kilometers northeast to southwest by some 1,200 kilometers northwest to southeast, generally dipping at shallow angles toward the center of the basin. The basin outcrops at its northern extent near Johannesburg, but to the west, south and east it is overlaid by up to 4,000 meters of volcanic and sedimentary rocks. The Witwatersrand Basin is Archaean in age, meaning the sedimentary rocks are of the order of 2.8 billion years old.

Gold mineralization occurs within laterally extensive quartz pebble conglomerate horizons called reefs, which are developed above unconformable surfaces near the basin margin. As a result of faulting and primary controls on mineralization processes, the goldfields are not continuous and are characterized by the presence or dominance of different reef units. The reefs are generally less than two meters in thickness and are widely considered to represent laterally extensive braided fluvial deposits or unconfined flow deposits, which formed along the flanks of alluvial fan systems around the edge of an inland sea. Dykes and sills of diabase or dolerite composition are developed within the Witwatersrand Basin and are associated with several intrusive and extrusive events.

Gold generally occurs in native form, often associated with pyrite, carbon and uranium. Pyrite and gold within the reefs display a variety of forms, some obviously indicative of detrital transport within the depositional system and others suggesting crystallization within the reef itself.

The most fundamental controls of gold distribution are the primary sedimentary features such as facies variation and channel directions. Consequently, the modeling of sedimentary features within the reefs and the correlation of payable grades within certain facies is key to in situ reserve estimation as well as effective reef definition drilling programs, operational mine planning and grade control.

Gold mineralization at South Deep is hosted by conglomerates of the Upper Elsburg reefs and the Ventersdorp Contact Reef, or VCR. The Upper Elsburg reefs sub-crop against the VCR in a northeasterly trend, which defines their western limits. To the east of the sub-crop, the Upper Elsburg reefs are preserved in an easterly diverging sedimentary wedge attaining a total thickness of approximately 120 meters, which is subdivided into the lower “Individuals” and the overlying “Massives.” To the west of the sub-crop, only the VCR is preserved.

The stratigraphic units at South Deep generally dip southward at approximately 12 to 15 degrees and the gold-bearing reefs occur at depths of 1,500 meters to 3,500 meters below surface.

Production at South Deep is currently derived from the Upper Elsburg Reefs. In general terms, the Upper Elsburg succession represents an easterly prograding sedimentary sequence, with the Massives containing higher gold grades and showing more proximal sedimentological attributes in the eastern sector of the mining authorization than the underlying Individuals. The sedimentary parameters of the Upper Elsburg reef units influence the overall tenor of the reefs with gold grade displaying a gradual, general decrease toward the east, away from the sub crop.

The North-South trending “normal” West Rand and Panvlakte faults, which converge on the Western side of the lease area, are the most significant large-scale faults in the area and form the western limit to gold mineralization for the mine.

 

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Mining

South Deep is designed to access and exploit one of the largest undeveloped ore bodies in the world. The 37 Moz reserve is understood to appropriate levels of confidence needed to support a multi-decade life of mine plan. Key required primary infrastructure has been installed and expanded as the mine is still in production build-up. At a steady state, the mine will be a low cost, long life mechanized mining operation. Due to its depth and fully mechanized bulk mining nature, South Deep has no real operating proxy in the gold mining industry, making benchmarking difficult and the current focus therefore remains on establishing a platform to ensure traction is maintained on driving productivity and leveraging unit costs on an ongoing basis.

South Deep entered a critical stage of its evolution at the beginning of fiscal 2015 when Gold Fields made the decision to take a step back and fix the operating base at the mine before determining the new long-term steady state profile. As part of this process, Gold Fields removed the previous production and cost targets to afford the new South Deep management team the time to get the basics right and determine the way forward. However, in the absence of long-term production targets, Gold Fields stated that it was its goal to get the mine to cash breakeven by the end of fiscal 2016, a goal that Gold Fields is pleased to have achieved. For fiscal 2016, South Deep generated net cash flow of U.S.$12 million compared with cash outflows of U.S.$80 million in fiscal 2015. Even after stripping out the benefit of the rand hedge, the mine achieved cash breakeven for the year.

In February 2017, South Deep delivered the Rebase Plan to market. This plan incorporates all recent improvements in mine design, geotechnical parameters as well as the infrastructure required to support the production plan and was approved by the Board in February 2017. The Rebase Plan sets the mine up to reach steady state production of approximately 500,000 oz by fiscal 2022 at an AIC of below U.S.$900 per ounce in fiscal 2017 terms.

The Rebase Plan required a diagnostic of the full value chain, from design to skills training, conducted by management and external consultants. This review highlighted opportunities for improvements. Consequently, South Deep’s own technical abilities were strengthened, along with input from various technical experts, as part of developing a high confidence level mine plan. The actions required in the Rebase Plan are aimed at laying foundations for long term success. The mine design together with infrastructure design was revised and refined for increased efficiency.

These improvements lay the foundation for long term sustainable gold production, supported by a continuous business improvement strategy based on the Sandcone Model of improvement driving quality, dependability, throughput, flexibility and ultimately value, in this order. The process resulted in 68 business improvement projects being identified to create a long-life, sustainable mechanized mine in fiscal 2016. To date, 29 projects have been completed, with 27 expected to be closed out in fiscal 2017 and the remaining 12 expected to be completed in fiscal 2018.

South Deep has faced a number of challenges over the years, which can best be summarized in four broad categories: People and skills; Fleet and maintenance; Underground working conditions; and Mining method. While Gold Fields has made good progress on all categories over the past two years, continued improvement is anticipated during the ramp-up to steady state:

 

   

People and skills: The first priority was to establish an experienced management team with extensive exposure to mechanized and deep level mining. This objective was successfully achieved with most of the new management team now in place since mid-fiscal 2015. A further 168 critical skill positions requiring experienced and skilled staff were identified at the start of fiscal 2015. Most of these positions were filled by the end of fiscal 2016 with only a limited number of appointments still outstanding. Furthermore, the development of mechanized mining skills was highlighted as a specific and critical requirement for the future success of the mine. As such, a mechanized mining skills development program focusing on supervisors, artisans and operators was implemented and relevant South Deep employees have been receiving ongoing training;

 

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Fleet and maintenance: South Deep instituted a number of key strategies to upgrade the condition of its mechanized equipment fleet and effectiveness of its maintenance practices. As part of the fleet renewal strategy, 58 category 1 units have been commissioned since early fiscal 2015. The total category 1 fleet currently stands at 111. An expansive and fully equipped underground workshop spanning a total footprint of 200 x 200m was commissioned on 93 level to provide the working conditions necessary for maintenance personnel to perform their tasks more effectively. Maintenance skills development programs were introduced to upskill our engineering personnel. In addition, outsourced OEM maintenance contracts were concluded with two key suppliers to effect immediate improvements, which will be gradually handed over to South Deep teams;

 

   

Underground working conditions: The new management team identified poor underground working conditions as a key impediment to turning South Deep around. A number of business improvement projects were initiated to remediate this deficiency and focused on various elements of the underground infrastructure, including roadways, water management, backfill and ventilation; and

 

   

Mining method: As a deep level bulk mine, geotechnical considerations and mine design are critical elements in implementing the successful extraction of the ore body. To this end, several improvements in the overall design and mining layouts have been implemented during the past two years.

 

   

Regional Pillars: The overall regional support design was improved by reducing the corridor span between regional pillars from 240m to 180m and by increasing the dimensions of crush pillars in the destress cuts from 10 x 6m to 8 x 20m. Regional pillar width has remained at 60m. The design improvements resulted in lower excavation convergence rates and an increase in overall rockmass stability; and

 

   

High Profile Destress: Over the past two years, South Deep converted from a low profile (2.2m) destress mining method to a high profile (5.5m) layout. This has eliminated an inefficient and cumbersome multi-step mining process, which included footwall or hangwall ripping to open excavations for longhole stoping equipment, and enabled mechanized roofbolt installation. In a significant step for the mine, low profile was completely phased out during fiscal 2016 and all destress development will now entail the high profile method. This method was also further improved with a new pillar layout, increasing ground stability and operational efficiency due to less backfill being required.

The initiatives that were implemented over the past two years have started to yield results during fiscal 2016, which was a milestone year for South Deep.

In terms of the Rebase Plan, it is anticipated that South Deep will reach steady state production in fiscal 2022. During this ramp-up period, tonnes mined are expected to ramp up at a fairly steady rate from the average 135,000 tonnes per month run rate in 2016 to 230,000t/m when at steady state. A big driver of the volume growth to steady state is the increased contribution from longhole stoping.

The production ramp-up is planned from the current mine in the North of Wrench mining area, or NoW, which is a lower extension to the current mining operations and contains reserves of 10.6 Moz. The NoW expands into six corridors with independent operating and ventilation systems. The NoW will build up in production synchronously with current mine area declining in output. The NoW is designed as a massive bulk mine, while the current mine area employed a more selective method. Current primary production is provided from two discrete mining areas, Current Mine and NoW, and are exploited by means of distinctly different mining methods. The current mine area is characterized by conventional mining that was employed historically and before ownership by Gold Fields, which served as destressing for mechanized massive mining, including long hole stoping above and below these horizons in the remaining Elsburg reefs. Mining activities are largely scattered over the whole of current mine. The NoW area is largely unmined and as such will benefit from utilization of the optimized mine design and extraction sequencing which can be effectively applied to a “blank canvass” with no constraints from historical mining. This massive mining method (long hole stoping) is aimed at

 

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the efficient extraction of the thick ore body with minimum dilution and ore loss. Productivity and efficiency of extraction is expected to improve for the future of the mine. Continuous infrastructure expansion is required to support the production build up from the NoW.

Importantly, most of the operating expenditure is now in the cost base of the mine, with the majority of the key skills and fleet now in place. As the mine ramps up to steady state, we expect to see the operational gearing expected from a fixed cost mine like South Deep. As a result, we expect steady state production AIC of below U.S.$900 per ounce (in 2017 terms).

Detailed below are the operating and production results at South Deep for fiscal 2016, 2015 and 2014:

 

     Fiscal 2016      Fiscal 2015      Fiscal 2014  

Production

        

Tonnes (‘000)

     2,248        1,496        1,323  

Recovered grade (g/t)

     4.0        4.1        4.7  

Gold produced (‘000 oz)

     290        198        201  

Results of operations

        

Revenues (U.S.$ million)

     358.2        232.3        254.8  

Operating costs (including gold inventory change but excluding amortization and depreciation) (U.S.$ million)(1)

     271.6        236.6        245.5  

All-in sustaining cost net of by-product revenues per ounce of gold sold (U.S.$)(1)

     1,207        1,490        1,548  

All-in costs net of by-product revenues per ounce of gold sold (U.S.$)(1)

     1,234        1,559        1,732  

 

Note:

(1) For a reconciliation of Gold Fields’ operating costs excluding amortization and depreciation to its AISC and AIC net of by-product revenues per ounce of gold sold for fiscal 2016, 2015 and 2014, see “Operating and Financial Review and Prospects—All-in Sustaining and All-in Cost”. AIC and AISC are calculated per ounce of gold sold, excluding gold equivalent ounces. See “Operating and Financial Review and Prospects—All-in Sustaining and All-in Cost”.

Total tonnes milled increased by 47% from 1.5 million tonnes in fiscal 2015 to 2.2 million tonnes in fiscal 2016. Gold produced increased from 0.198 million ounces in fiscal 2015 to 0.290 million ounces in fiscal 2016. Due to the 40% improvement in tonnes mined, which resulted in higher consumable spend and higher utility consumption as well as improved bonuses, operating costs including gold inventory change but excluding amortization and depreciation, or “net operating costs” increased by 15% from U.S.$236.6 million in fiscal 2015 to U.S.$271.6 million in fiscal 2016 in U.S. dollar terms. The increased costs were also due to negotiated annual salary hikes as well as higher staff numbers following the employment of an additional 164 mechanized mining professionals during fiscal 2015. A decreased AIC of U.S.$1,234 per ounce in fiscal 2016, compared with AIC of U.S.$1,559 per ounce in fiscal 2015, was due to higher gold production, partially offset by higher operating costs and capital expenditure.

South Deep’s power usage has increased over the years as it builds up production and prepares for the development of long-term infrastructure. All required power related infrastructure is installed to support the production ramp up. South Deep sourced its electricity supply from Eskom. See “Risk Factors—Power cost increases may adversely affect Gold Fields’ business, operating results and financial condition”. In order to mitigate the cost impact of these increases, numerous power saving projects were initiated to reduce power consumption. South Deep will be developing a long-term energy security plan (which will include an assessment of renewable energy options) to manage supply risks currently faced by Eskom. In the short term, a load curtailment arrangement has been negotiated with Eskom to minimize production disruptions and ensure the continued safe operation of the mine.

 

 

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Assuming there are no material changes to the reserves estimates at South Deep, or to the life of mine plan, South Deep’s December 31, 2016 proven and probable managed reserves of 37.3 million ounces (34.1 million ounces of which are attributable to Gold Fields, with the rest attributable to non-controlling shareholders) will be sufficient to maintain production through to fiscal 2095 (79 years). However, as discussed earlier in “Risk Factors” and “—Description of Mining Business—Mine Planning and Management”, there are numerous factors which can affect reserve estimates and the mine plan, which could thus materially change the life of mine.

South Deep is engaged in underground mining and is thus subject to all of the underground mining risks discussed in “Risk Factors”. The primary safety issues facing South Deep underground operations include seismicity (including seismically induced falls of ground), falls of ground due to gravity and the risk of pedestrians being struck by mobile equipment. To prevent falls of ground accidents, South Deep has implemented a comprehensive health and safety strategy. For more information about this strategy as well as details about workplace injuries at South Deep, see “Directors, Senior Management and Employees—Employees—Safety and Wellness—Safety Management” and “Directors, Senior Management and Employees—Employees—Safety and Wellness—TRIFR, Fatalities and Fatal Injury Frequency Rate”.

There were no strikes and/or labor stoppages at South Deep in fiscal 2016 and none to date since December 31, 2016.

Processing

All processing at South Deep is carried out at a single gold extraction plant. The following table sets forth the year commissioned, processing techniques and processing capacity per month, as well as average tonnes milled per month and metallurgical recovery factors during fiscal 2016 for the plant.

Processing Techniques

 

Plant

  Year
commissioned(1)
   

Comminution
phase

 

Treatment phase

  Capacity(1)     Average
milled for
fiscal 2016
    Approximate
recovery
factor for
fiscal 2016
 
                  (tonnes/month)        

Twin Shaft Plant

    2002     Primary SAG and Secondary Ball milling   Leach CIP, with elution and electrowinning     330,000       187,000       96

 

Note:

(1) Plant/Mill nameplate capacities are based on a number of operating assumptions, including assumptions regarding the blend of soft and hard ores processed, that can change and which may result in a level of throughput over and above the designed nameplate capacity.

Capital Expenditure

Gold Fields spent U.S.$77.9 million on capital expenditures at the South Deep operation in fiscal 2016, primarily on fleet, the refurbishment of the main winder at the Twin Shaft complex and higher spending on employee accommodation. Gold Fields expects to spend approximately R1,309 million (U.S.$92.6 million) on capital expenditures at South Deep in fiscal 2017, primarily on infrastructure, trackless equipment, new mine development, secondary support and the 80 level fridge plant at south shaft.

West Africa Operations

The West Africa operations comprise the Tarkwa and Damang gold mines in Ghana. The West Africa region had oversight of Gold Fields’ APP in Finland, prior to the transfer of its management to the Corporate office. Gold Fields Ghana, which holds the interest in the Tarkwa mine, and Abosso, which owns the interest in the Damang mine, are 90% owned by Gold Fields and 10% by the Ghanaian government.

 

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For a discussion on the energy supply in Gold Fields Ghana, see “Risk Factors—Power cost increases may adversely affect Gold Fields’ business, operating results and financial condition”.

Tarkwa Mine

Introduction

The Tarkwa mine is located in southwestern Ghana, about 300 kilometers by road, west of Accra. The Tarkwa mine consists of several open pit operations on the original Tarkwa property and the adjacent southern portion of the property, which was formerly referred to as the Teberebie property and was acquired by Gold Fields in August 2000. Gold Fields added a SAG mill, a ball mill and a CIL plant.

The Tarkwa mine operates under mining leases with a total area of approximately 20,800 hectares, the entirety of which are surface operations. The Tarkwa mine has access to the national electricity grid, water, road and railway infrastructure, although rail service has been non-operational for many years. Most supplies are trucked in from either the nearest seaport, which is approximately 90 kilometers away by road in Takoradi, or from Tema, near Accra, which is approximately 300 kilometers away by road.

History

Investment in large-scale mining in the Tarkwa area commenced in the last quarter of the nineteenth century. In 1993, Gold Fields of South Africa took over an area previously operated by the State Gold Mining Corporation, or SGMC. SGMC had, in turn, acquired the property from private companies owned by European investors. Mining operations by Gold Fields commenced in 1997 following initial drilling, feasibility studies and project development (which included the removal of overburden and the resettlement of approximately 22,000 people).

Geology

Gold mineralization at Tarkwa is hosted by Proterozoic Tarkwaian metasediments, which overlie but do not conform to a Birimian greenstone belt sequence. Gold mineralization is concentrated in conglomerate reefs and has some similarities to deposits in the Witwatersrand Basin in South Africa. The deposit comprises a succession of stacked, tabular palaeoplacer units consisting of quartz pebble conglomerates. Approximately 10 such separate economic units occur in the concession area within a sedimentary package ranging from 40 meters to 110 meters in thickness. Low-grade to barren quartzite units are interlayered between the separate reef units.

Mining

The existing surface operation currently exploits narrow auriferous conglomerates from six pits, namely Pepe, Akontansi, Teberebie, Atuabo, Maintrain and Kottraverchy. Tarkwa uses the typical open pit mining methods of drilling, blasting, loading and hauling.

During fiscal 2016, mineral reserves at Tarkwa decreased by 9.8% (net of depletion) to 6.1 million ounces. Restructuring the mine to operate at lower total mining volumes (90 – 100Mtpa total mining) is expected to ensure operational flexibility and underpin targeted head grades to deliver 520,000 to 570,000 ounces of gold per year.

No greenfields projects were commenced in fiscal 2016. A geochemical soil sampling program was carried out in Tarkwa in fiscal 2014 to explore part of the concession, which previously had limited exploration. A number of hydrothermal and paleo placer targets were identified as a result of this program, and initial drilling commenced in fiscal 2015. The continuation of the drilling program in respect of these targets was a focal point in fiscal 2016.

 

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Detailed below are the operating and production results at Tarkwa for fiscal 2016, 2015 and 2014.

 

     Fiscal 2016      Fiscal 2015      Fiscal 2014  

Production

        

Tonnes milled (‘000)

     13,608        13,520        13,553  

Recovered grade (g/t)

     1.3        1.3        1.2  

Gold produced (‘000 oz)(1)

     568        586        558  

Results of operations

        

Revenues (U.S.$ million)

     708.9        680.7        706.7  

Operating costs (including gold inventory change but excluding amortization and depreciation) (U.S.$ million)(2)

     327.3        326.9        371.5  

All-in sustaining cost net of by-product revenues per ounce of gold sold (U.S.$)(2)

     959        970        1,068  

All-in costs net of by-product revenues per ounce of gold sold (U.S.$)(2)

     959        970        1,068  

 

Notes:

(1) In fiscal 2016, 2015 and 2014, 0.511 million ounces, 0.527 million ounces and 0.502 million ounces of production, respectively, were attributable to Gold Fields, with the remainder attributable to minority shareholders in the Ghana operations.
(2) For a reconciliation of Gold Fields’ operating costs excluding amortization and depreciation to its AISC and AIC net of by-product revenues per ounce of gold sold for fiscal 2016, 2015 and 2014, see “Operating and Financial Review and Prospects—All-in Sustaining and All-in Cost”. AIC and AISC are calculated per ounce of gold sold, excluding gold equivalent ounces. See “Operating and Financial Review and Prospects—All-in Sustaining and All-in Cost”.

In fiscal 2016, gold production decreased by 3% to 0.568 million ounces from 0.586 million ounces in fiscal 2015, mainly due to shift away from the Teberebie pillar and surrounding high grade areas. Net operating costs increased marginally to U.S.$ 327.3 million in fiscal 2016 from U.S.$326.9 million in fiscal 2015. AIC improved by 1% to U.S.$959 per ounce in fiscal 2016 from U.S.$970 per ounce in fiscal 2015 primarily due to lower capital expenditure, partially offset by lower gold sold.

Assuming that Gold Fields does not increase or decrease ore reserves estimates at Tarkwa and that there are no changes to the current mine plan at Tarkwa, Tarkwa’s December 31, 2016 proven and probable reserves of 6.1 million ounces (5.5 million ounces of which are attributable to Gold Fields, with the remainder attributable to the Ghanaian government) will be sufficient to maintain production through fiscal 2031 which includes re-treatment of the South Heap Leach at the end of the life of mine. However, as discussed earlier in “Risk Factors” and “—Description of Mining Business—Mine Planning and Management”, there are numerous factors which can affect reserve estimates and the mine plan, which could thus materially change the life of mine.

The Tarkwa mine is engaged in open pit mining and is thus subject to all the risks associated with open pit mining discussed in “Risk Factors”. For more information about workplace injuries at Tarkwa, see “Directors, Senior Management and Employees—Employees—Safety and Wellness—Safety Management” and “Directors, Senior Management and Employees—Employees—Safety and Wellness—TRIFR, Fatalities and Fatal Injury Frequency Rate”.

There were no strikes and/or labor stoppages at Tarkwa in fiscal 2016 and none to date since December 31, 2016.

Processing

Tarkwa’s ore is processed using SAG milling at its CIL plant. Prior to the restructuring, the operation also incorporated two separate heap leach circuits, the North Plant and the South Plant. As part of the restructuring, the South Heap Leach Facility was closed in December 2012 and stacking of ore ceased at the North Heap Leach facility in December 2013. The following table sets per month, as well as average tonnes milled per month and metallurgical recovery factors during fiscal 2016, for each of the plants at Tarkwa.

 

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Processing Techniques

 

Plant

   Year
commissioned
   

Comminution

phase

  

Treatment phase

   Capacity(1)      Average
milled for

fiscal 2016
     Approximate
recovery

factor for
fiscal 2016(2)
 
                     (tonnes/month)         

CIL Plant

     2004     SAG milling (with ball mill)(3)    CIL treatment      1,125,000        1,134,000        97

 

Notes:

(1) Nameplate capacity as designed. Plant/Mill nameplate capacities are based on a number of operating assumptions, including assumptions regarding the blend of soft and hard ores processed, that can change and which may result in an increased level of throughput over and above the designed nameplate capacity.
(2) Percentages are rounded to the nearest whole per cent.
(3) The ball mill was added in December 2008.

In fiscal 2016, the carbon-in leach plant throughput increased from 13.5Mt to 13.6Mt, with yield decreasing from 1.35g/t to 1/30g/t due to lower grades processed.

Capital Expenditure

Gold Fields spent U.S.$168.0 million on capital expenditures at the Tarkwa operation in fiscal 2016, principally due to deferred stripping to expose ore, upgrading of the tailings storage facilities and the purchasing of new mining vehicles and equipment. Gold Fields has budgeted approximately U.S.$180.4 million for capital expenditures at Tarkwa for fiscal 2017, as it plans to continue to focus on prestripping and heavy mining equipment, or HME, major components.

Damang Mine

Introduction

The Damang deposits are located in the Wassa West District in southwestern Ghana approximately 330 kilometers by road west of Accra and approximately 30 kilometers by road northeast of the Tarkwa mine. The mine exploits hydrothermal in addition to Witwatersrand-style palaeoplacer gold. The Damang mine consists of an open pit operation with a SAG and ball mill and CIL processing plant. Damang operates under a mining lease with a total area of approximately 8,100 hectares. The Damang mine has access to the national electricity grid and water and road infrastructure. Most supplies are brought in by road from the nearest seaport, Takoradi, which is approximately 135 kilometers away, or from Accra, which is approximately 360 kilometers away by road.

History

Mining on the Abosso concession began with underground mining in the early twentieth century. Surface mining at Damang commenced in August 1997 and Gold Fields assumed control of operations on January 23, 2002. Historically, the underground mine was in operation from 1878 until 1956.

Geology

Damang is located on the Damang Anticline, which is marked by Tarkwaian metasediments on the east and west limbs, around a core of Birimian metasediments and volcanics. Gold in the Tarkwaian metasediments and volcanics is predominantly found in the conglomerates of the Banket Formation and is similar to the Witwatersrand in South Africa; however, at Damang, hydrothermal processes have enriched this palaeoplacer

 

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and the adjacent metasediments within the Banket formation. Within the region, the contact between the Birimian and Tarkwaian metasediments and volcanics is commonly marked by zones of intense shearing and is host to a number of significant shear hosted gold deposits, including Prestea, Bogoso, and Obuasi.

Palaeoplacer mineralization occurs on the west limb of the anticline at Abosso, Chida, and Tomento, and on the east limb of the anticline at the Kwesie, Lima South, and Bonsa North locations. Hydrothermal enrichment of the Tarkwaian palaeoplacer and metasediments also occur at the Rex, Amoanda, and Nyame areas on the west limb and the Damang and Bonsa areas on the east limb.

Mining

Damang uses the typical open pit mining methods of drilling, blasting, loading and hauling. The primary operational challenges include improved grade and dilution control, blasting optimization and maintaining load and haul efficiencies given that the mine has a number of different ore sources (Huni, Saddle Area, Juno and Lima South), and maintaining adequate and timely supply of appropriate plant feed blend (i.e. where possible a blend of fresh and oxide materials).

A comprehensive review of the mine to address the loss making position of Damang, which commenced during the fourth quarter of fiscal 2015, continued during fiscal 2016 with a final decision made to do a push back to expose the higher grade ore under the original Damang pit.

During the period under review, exploration activities at Gold Fields’ West African operations were dominated by resource conversion projects through infill drilling and extensions to known targets at Damang. No greenfields projects were commenced in fiscal 2016.

In October 2016, Gold Fields announced the U.S.$341 million Damang Reinvestment Plan, which is expected to extend the LoM by eight years from fiscal 2017 to fiscal 2024. The Damang Reinvestment Plan will enhance the Group’s presence in one of our key operating regions and result in significant social benefits for the country, including the creation and preservation of 1,850 direct employment positions.

The Damang Reinvestment Plan entails a major cutback to both the eastern and western walls of the DPCB. The cutback will have a total depth of 341m, comprising of a 265m pre-strip to access the base of the existing pit. This will be followed by a deepening of the pit by a further 76m which will ultimately provide access to the full Damang orebody including the high grade Tarkwa Phyllite lithology. To provide short term ore supply whilst the Damang pre-strip is in progress, mining will occur at the Amoanda, and paleaoplacer satellite pits (Lima South, Kwesi Gap and Tomento East). In addition, the plan feed will be supplemented by low grade surface stockpiles. Mining will be undertaken by two mining contractors, which are expected to be mobilized early in fiscal 2017.

Inclusion of the Damang cutback as the key component of the Damang Reinvestment Plan has impacted an increase of 72% in proven and probable reserves from those declared in December 2015, from 0.97 Moz to 1.67 Moz.

 

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Detailed below are the operating and production results at Damang for fiscal 2016, 2015 and 2014.

 

     Fiscal 2016      Fiscal 2015      Fiscal 2014  

Production

        

Tonnes milled (‘000)

     4,268        4,295        4,044  

Recovered grade (g/t)

     1.1        1.2        1.4  

Gold produced (‘000 oz)(1)

     148        168        178  

Results of operations

        

Revenues (U.S.$ million)

     183.4        194.8        224.6  

Operating costs (including gold inventory change but excluding amortization and depreciation) (U.S.$ million)(2)

     136.1        186.4        179.7  

All-in sustaining cost net of by-product revenues per ounce of gold sold (U.S.$)(2)

     1,254        1,326        1,175  

All-in costs net of by-product revenues per ounce of gold sold (U.S.$)(2)

     1,254        1,326        1,175  

 

Notes:

(1) In fiscal 2016, 2015 and 2014, 0.133 million ounces, 0.151 million ounces and 0.160 million ounces of production, respectively, were attributable to Gold Fields, with the remainder attributable to non-controlling to shareholders in Abosso.
(2) For a reconciliation of Gold Fields’ operating costs excluding amortization and depreciation to its AISC and AIC net of by-product revenues per ounce of gold sold for fiscal 2016, 2015 and 2014, see “Operating and Financial Review and Prospects—All-in Sustaining and All-in Cost”. AIC and AISC are calculated per ounce of gold sold, excluding gold equivalent ounces. See “Operating and Financial Review and Prospects—All-in Sustaining and All-in Cost”.

In fiscal 2016, managed gold production decreased by 12% to 0.148 million ounces from 0.168 million ounces in fiscal 2015, mainly as a result of lower than planned plant feed grade. Net operating costs decreased by 27% to U.S.$136.1 million in fiscal 2016 from U.S.$186.4 million in fiscal 2015 mainly due to lower mining and consumable costs in-line with the lower production. Total AISC decreased by 5% to U.S.$1,254 per ounce in fiscal 2016 from U.S.$1,326 per ounce in fiscal 2015, due to lower use of diesel generators as the number of power outages dropped during the year.

Assuming that Gold Fields does not increase or decrease reserves estimates at Damang and that there are no changes to the current mine plan, Damang’s December 31, 2016 proven and probable reserves of 1.67 million ounces (0.17 million of which are attributable to the Ghanaian government, with the remainder attributable to Gold Fields) will be sufficient to maintain production through fiscal 2024 (8 years). However, as discussed earlier in “Risk Factors” and “—Description of Mining Business—Mine Planning and Management”, there are many factors that can affect reserve estimates and the mine plan, which could thus materially change the life of mine.

The Damang mine comprises open pit mining, and is thus subject to all of the risks associated with open pit mining discussed in “Risk Factors”. For more information about workplace injuries at Damang, see “Directors, Senior Management and Employees—Employees—Safety and Wellness—Safety Management” and “Directors, Senior Management and Employees—Safety and Wellness—Employees—TRIFR, Fatalities and Fatal Injury Frequency Rate”.

There were no strikes and/or work stoppages at Damang in fiscal 2016 and none to date since December 31, 2016.

Processing

All ore at Damang is processed through a single facility. The following table sets forth the year commissioned, processing techniques and processing capacity per month, as well as average tonnes milled per month and metallurgical recovery factor during fiscal 2016 for the plant.

 

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Processing Techniques

 

Plant

  Year
commissioned
   

Comminution

phase

 

Treatment phase

  Capacity(1)     Average
milled for
fiscal 2016
    Approximate
recovery

factor for
fiscal 2016(2)
 
                  (tonnes/month)        

Processing Plant

    1997 (3)    Primary and two-
stage secondary crushing with
SAG and ball
milling
  CIL treatment     350,000       356,000       91.9  

 

Notes:

(1) Nameplate capacity as designed. Plant/Mill nameplate capacities are based on a number of operating assumptions, including assumptions regarding the blend of soft and hard ores processed, that can change and which may result in an increased level of throughput over and above the designed nameplate capacity.
(2) Percentages are rounded to the nearest whole per cent.
(3) The secondary crusher was commissioned in 2010.

Preparatory construction works on the new Far East Tailings Storage Facility, or FETSF, commenced in fiscal 2013 but the project was suspended in September 2013, when Abosso received notice of an application for an injunction to restrain from proceeding with the FETSF construction on the basis that it was outside its mining lease. In fiscal 2014, Gold Fields settled with these claimants and resumed work on the FETSF project but the construction was delayed in fiscal 2015 when the investment plan scenarios for the mine were being considered. In fiscal 2015, the ETSF was raised by 5 meters to an elevation of 1,005 mRL. The facility is currently being raised a further 2.5 meters to an elevation of 1,007.5 mRL. The construction began in the fourth quarter of fiscal 2016 and is expected to be completed by end of the first quarter of fiscal 2017.

The ETSF has 3.8Mt of remaining capacity and it is estimated that the ETSF will be at full capacity by November 2017. The FETSF is being constructed to sustain production for the remaining LoM requirement. The full design capacity of the FETSF is 44.4Mt to a 1,000 mRL and the construction will occur in two stages:

 

   

Stage 1—19.7Mt capacity to a 980mRL; and

 

   

Stage 2—24.7Mt additional capacity to the 1,000mRL.

Stage 1 construction will commence in the first quarter of fiscal 2017 and is estimated to be completed by end of fiscal 2017 to ensure continuous production.

Capital Expenditure

Abosso spent U.S.$37.9 million on capital expenditure in fiscal 2016, principally on Amoanda capital waste stripping, ETSF raise and resource infill drilling. Abosso has budgeted approximately U.S.$139.6 million for capital expenditures at Damang for fiscal 2017.

Australasia Operations

St. Ives

Introduction

St. Ives is located 80 kilometers south of Kalgoorlie and 20 kilometers south of Kambalda, straddling Lake Lefroy in Western Australia. It holds exploration licenses, prospecting licenses and mining leases covering a total area of approximately 123,291 hectares. St. Ives is both a surface and underground operation, with a number of

 

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open pits, one operating underground mine and a metallurgical CIP plant. The St. Ives operation obtains electricity pursuant to a contract with BHP Nickel West that expires in January 2023 and has access to water, rail, air and road infrastructure. Consumables and supplies are trucked in locally from both Perth and Kalgoorlie.

History

Gold mining began in the St. Ives area in 1897, with intermittent production until Resources Ltd, or WMC, commenced gold mining operations at St. Ives in 1980. Gold Fields acquired the St. Ives gold mining operation from WMC in November 2001.

Geology

The gold deposits of St. Ives are located at the southern end of the Norseman-Wiluna greenstone belt of the West Australian Goldfields Province. In the St. Ives area, the belt consists of Kalgoorlie Group volcanic rocks, Black Flag group felsic volcanic rocks and sediments and a variety of intrusive and overlying post-tectonic sediments. The area is structurally complex, with metamorphism ranging from lower greenschist and lower amphibolite facies. Shear hosted gold mineralization has been discovered in all stratigraphic units. Deposit styles and ore controls are varied ranging from minor structures, including vein arrays, breccia zones and central, to quartz-rich and mylonitic parts of shear zones.

Mining

Gold production takes place over an extensive tenement area at St. Ives. St. Ives has the Lefroy processing plant and SAG mill that treats primary ore. St. Ives previously had a heap leach facility which treated low- and marginal-grade ore. This heap leach facility operated in a residual leach mode during fiscal 2014, 2015 and through to April 2016 when it closed as leaching was no longer economic.

In fiscal 2016, St. Ives reported decreased production and decreased operational costs. The decreased production was mainly due to lower grades associated with increased open pit mining and a decline in mining at the Athena, underground mine which closed in February 2016. The decreased operational costs were mainly due to a reduction of mining costs in the open pit areas.

In fiscal 2016, exploration expenditure decreased by A$1.0 million to A$40.9 million and 241km of drilling was completed. This exploration discovery and extensional drilling replaced all the 376,000 ounces depleted in 2016 and added a further 198,000 ounces to reserve. This included an additional of 288,000 ounces to the Invincible underground reserve and the declaration of a maiden open pit reserve of 47,000 ounces at Incredible.

Positive results were returned from broad gold intercepts in shallow drilling at the Retribution project. Extensive follow up drilling is expected to be completed during fiscal 2017 to further define the gold mineralization and to define resources.

The exploration strategy at St. Ives is to continue to develop the exploration pipeline and define further resources, with a priority on open pit resources. In addition, St. Ives plans to investigate the potential for significant palaeochannel hosted mineralization, along with alternate methods for mining these gold deposits.

 

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Detailed below are the operating and production results at St. Ives for fiscal 2016, 2015 and 2014.

 

     Fiscal 2016      Fiscal 2015      Fiscal 2014  

Production

        

Tonnes (‘000)

     4,046        3,867        4,553  

Recovered grade (g/t)

     2.8        3.0        2.4  

Gold produced (‘000 oz)

     363        372        362  

Results of operations

        

Revenues (U.S.$ million)

     452.3  </