The Risks Facing Gold Fields
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VOL 1 2014 The risks facing Gold Fields – and how we deal with them GOLDEN AGE GOLDEN AGE NOTE FROM NICK TWO YEARS AFTER MELBOURNE – HOW GOLD FIELDS IS DOING A MESSAGE FROM NICK HOLLAND Dear Colleagues It’s been almost two years since my presentation to the Melbourne Mining Club signalled the start of Gold Fields’ most significant restructuring since 1998, when the new Gold Fields was founded. With the focus on “sustainable cash Costs were US$1,476/oz. A year But price volatility does require us generation” we have undergone a later – in the March 2014 quarter to remain focused on our costs and significant transformation that has – they were US$1,114/oz, a 25% ability to generate cash. That is why seen the company close marginal improvement and below our this year the emphasis has been on mining operations, unbundle Sibanye US$1,150/oz cost guidance for improving execution and delivery Gold in South Africa, acquire the the year. across our portfolio of assets. During Yilgarn South assets in Western • A key target of our strategy is for the March 2014 results presentation Australia, achieve cost savings of the Group to achieve a 15% free I highlighted six key initiatives we are US$450 million during 2013 and cash flow margin at a gold price currently focusing on: significantly trim its growth and of US$1,300/oz on an AIC-basis • Continuing to drive margins and exploration project portfolio. plus taxes. The restructuring has cash flow across the portfolio; seen Gold Fields make significant • Reducing net debt; We are now seeing the first fruits of progress in this regard and a • Rebasing South Deep to de-risk this effort and are making significant 13% free cash flow margin was the build-up plan; progress in reducing our costs and reported in the March 2014 • Consolidating the Damang turn- boosting cash generation. Three quarter. around; trends are worth highlighting: • Continuing to bed down and • During the March quarter of Remember that these results have optimise the newly acquired 2014 Gold Fields generated been achieved over a period in which Yilgarn South assets; and US$54 million in cash flow from the gold price declined by 21% to • Disposal of non-core projects. operating activities; a year earlier around US$1,290/oz. Gold price – in the March 2013 quarter – volatility remains a key risk to our We are making good progress on we reported a net outflow of business. Most recently the price fell most fronts and I want to refer you US$46 million, a positive swing of to just under US$1,250/oz and we to our March 2014 quarterly results US$100 million over 12 months. do not expect a significant recovery presentation for details (see page 13). We are one of the very few gold in the gold price until next year. Using I want to dwell on two issues in a bit a margin target of 15% at US$1,300/ more detail. 2014 mining companies that are cash- positive in this difficult gold price oz gives us some room to play with environment. in that we would be trading profitably As we explain in our article on VOL 1 • In the March 2013 quarter – the as a group even if the gold price fell to page 13 of this magazine, we have first quarter post the Sibanye US$1,100/oz. fundamentally changed our approach unbundling – the Group All-in 2GOLDEN AGE 3 We are making good progress in bedding down the new Yilgarn South assets, of which Darlot Mine is one. IN THIS ISSUE 2 Note from Nick Holland to growing Gold Fields. It is no longer a detailed six-month review in 2013 about producing ounces, but growing and early 2014 concluded that the 4 Gold Fields’ changing the cash flow margins per ounce and expected build-up of the project was risk landscape total shareholder return. The best way likely to take longer; we subsequently to achieve this objective in the current announced a revised build-up market is through the acquisition of schedule for the project to steady 10 Gold Fields’ growth in-production or late-stage projects state production of between 650,000 strategy – new – as well as near-mine exploration. and 700,000 ounces per year by the directions and Our Australian operations alone are end of 2017. strategic shifts expected to spend US$50 million on near-mine exploration activities this However, the initiatives we are 13 Q1 results – an year alone. Simultaneously we have currently taking and the steps we overview started to trim our extensive portfolio have implemented under the new of growth and exploration projects, management at the mine, should 14 The world’s top 10 with the sale of our Yanfolila project in result in improved productivity going gold producers Mali this month being the latest. More forward. From 2018 onwards South could follow soon. Deep will add an additional 300 000 16 Performance ratings to 400 000oz plus, to our production The second issue is South Deep, profile. and changes to which has enjoyed a lot of public incentives attention of late. It remains our most The restructuring of Gold Fields will important value driver and a lot of clearly require constant vigilance 18 News in brief successful work has been done to by us all. But the progress we have set the mine on track for sustainable made over the past two years is a 20 South Deep – working growth. credit to your resourcefulness and with communities, the willingness to make some tough creating Shared Value However, we have had to adjust our decisions in the interests of the ramp-up plans for South Deep, after company’s long-term sustainability. 22 Cerro Corona funds construction of Bambamarca Market 23 Gold Fields renews sponsorship of Medeama SC RISK GOLD FIELDS’ CHANGING RISK LANDSCAPE At any point in time Gold Fields faces key risks and challenges to its business. These risks determine the way the leadership of Gold Fields runs the Group and informs the strategy and decisions it makes. 2014 VOL 1 4GOLDEN AGE 5 Our Group, Regional and Mine risk themselves not only to address these registers have become critical in challenges but also to take advantage Our diversification the running of the company. Twice of the opportunities presented by the a year the Gold Fields Board and prevailing business climate. strategy has the Executive Committee undertake lowered our risk a thorough review of the key risks GOLD FIELDS’ REDUCED RISK facing the company, taking into PROFILE further account the global risk landscape In terms of growth projects, we and the circumstances impacting our Over the last few years the risk have traditionally focused on operations. They are also presented profile of the Company has changed identifying and developing a broad with mitigating strategies, put significantly, particularly since the range of exploration opportunities together by the relevant management unbundling of Sibanye Gold Limited, in a variety of geographical teams after detailed consideration. and the incorporation of our new Australian assets into our portfolio. locations. This too has now changed. We dissolved the Growth Doing so enables Gold Fields’ Part of the reason of the continuing and International Projects (GIP) leadership teams to set realistic and restructuring of the Group was to division and we also disposed of achievable goals, and to position achieve a reduced geographic and some projects. We now deliberately focus growth on countries in which we already We now deliberately focus have an operating presence, or new countries that present growth on countries in relatively low execution risks. The latter includes countries which we already have that are part of the Organisation for Economic Co-operation an operating presence, or new and Development (OECD) – an international economic countries that present relatively low organisation of 34 countries committed to democracy and the execution risks. market economy. OECD countries typically have a lower risk profile and include Canada, South Africa and Chile, where Gold Fields has retained a growth project. 2014 production guidance – geographic breakdown RISK operational risk profile and therefore NEW RISKS HAVE COME TO The major external risk facing Gold make us more attractive to investors. THE FORE Fields is the volatility and decline of the gold price – it ranks 2nd in our This process has gained momentum While certain risks have been Group Risk Register compiled in May and is ongoing. In 2012, prior to the reduced, others have increased in 2014. From a company perspective unbundling of Sibanye Gold, South importance. The global risk landscape the biggest risk is failure to deliver the Africa accounted for 48% of all is assessed annually by the World build-up plan (see the table on page managed production. Following the Economic Forum and firms including 8). Clearly a lower price can have unbundling this figure dropped to 13%, PricewaterhouseCoopers, Deloitte an impact on our target of achieving with Ghana taking the lead as our and Ernst & Young. Each of these has 15% free cash flow margin at a largest source of production at 43% produced a list of top risks facing the US$1,300/oz gold price. The gold at the end of Q2 2013. Now, with the mining industry during 2013 (see table price declined sharply in the first half integration of the new Yilgarn South on page 7). While not all of these risks of 2013, from around US$1,700/oz assets, Australia is our largest source of pertain to Gold Fields, many of them to $1,300/oz.