ag o Africa Down Under 2019 NICK HOLLAND: GOLD FIELDS CEO The Gold Industry 2019 – Through The Looking Glass
Forward looking statement Certain statements in this document constitute “ forward looking statements ” within the meaning of Section 27A of the US Securities Act of 1933 and Section 21E of the US Securities Exchange Act of 1934. In particular, the forward looking statements in this document include among others those relating to the Damang Exploration Target Statement; the Far Southeast Exploration Target Statement; commodity prices; demand for gold and other metals and minerals; interest rate expectations; exploration and production costs; levels of expected production; Gold Fields ’ growth pipeline; levels and expected benefits of current and planned capital expenditures; future reserve, resource and other mineralisation levels; and the extent of cost efficiencies and savings to be achieved. Such forward looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the company to be materially different from the future results, performance or achievements expressed or implied by such forward looking statements. Such risks, uncertainties and other important factors include among others: economic, business and political conditions in South Africa, Ghana, Australia, Peru and elsewhere; the ability to achieve anticipated efficiencies and other cost savings in connection with past and future acquisitions or joint ventures, exploration and development activities; decreases in the market price of gold and/or copper; hazards associated with underground and surface gold mining; labour disruptions; availability terms and deployment of capital or credit; changes in government regulations, particularly taxation and environmental regulations; and new legislation affecting mining and mineral rights; changes in exchange rates; currency devaluations; the availability and cost of raw and finished materials; the cost of energy and water; inflation and other macro-economic factors, industrial action, temporary stoppages of mines for safety and unplanned maintenance reasons; and the impact of the AIDS and other occupational health risks experienced by Gold Fields ’ employees. These forward looking statements speak only as of the date of this document. 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 document or to reflect the occurrence of unanticipated events. Further details of potential risks and uncertainties affecting Gold Fields are described in Gold Fields’ filings with the Johannesburg Securities Exchange and the US Securities and Exchange Commission, including in Gold Fields’ Annual Report on Form-20F for the year ended 31 December 2017, Gold Fields’ Integrated Annual Report 2017 and Gold Fields’ Annual Financial Report 2017 Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019 2
The cost reporting conundrum
Introduction ● Cost reporting appears to be misleading and inconsistent in the context of a gold industry that is undercapitalised ● Gold miners have not been spending enough capital to sustain production, never mind grow it ̵ Any growth capital people speak about is in fact largely sustaining capital ● On the face of it, cost performance of the gold industry has been good… But has this been at the expense of sustainability of production? ● The cost to sustain production is increasing. The industry is mining more tonnes at lower grade to maintain ounces. Therefore, replacement is becoming more expensive ̵ Deeper ̵ Lower grade ̵ More complex geology – higher processing costs; lower recoveries; and harder rock ● What does consolidation (big bang mergers) do? ̵ Assets are recycled and rebadged ̵ Consolidation does not address the undercapitalisation of the industry Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019 4
̵ Cost control has been good (on the face of it) In 2013, the World Gold Council (WGC) published its guidance note on Non GAAP metrics – All In Sustaining Cost (AISC) and All In Cost (AIC) in which non-sustaining costs were defined as: Costs incurred at new operations and costs related to ‘major projects’ at existing operations where these projects will materially increase production ● From 2012 to 2016, industry AISC Industry AISC and AIC trends US$/oz decreased at a compound annual 1498 1600 1376 growth rate (CAGR) of 6.7% whilst AIC 1400 1121 (including growth capital) fell by a 1200 1090 1070 1048 1014 986 977 955 1000 CAGR of 10.1% 877 868 858 848 800 ● In 2017, both AISC and AIC increased 600 YoY, the first annual cost increase in 400 five years. There was a further 200 increase in both measures during 2018 0 2012 2013 2014 2015 2016 2017 2018 AISC AIC Source: Global Mining Research, Company records Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019 5
But has this been at the expense of longevity? Industry opex and capex per ounce produced US$/oz US$/oz 400 800 ● Of concern is the notable decrease in 360 350 700 313 sustaining capital (SIB capex) from 287 300 600 240 US$313/oz in 2012 to US$166/oz in 2016. It 250 500 203 179 173 200 168 400 166 has remained at these levels in 2017 and 139 150 118 300 108 2018 76 100 70 200 ● Exploration budgets were also slashed in the 50 100 0 0 wake of the gold price crash in 2012 2012 2013 2014 2015 2016 2017 2018 SIB capex Project capex Opex (rhs) ̵ The bulk of exploration over the past five Source: Global Mining Research, Company records years has focussed on brownfields Total exploration: US$/oz projects and near-mine development. 90 Greenfields exploration all but dried up 80 ● Exploration spend increased in 2017 for the 70 60 first time in five years, but was still 50 40 significantly lower than levels seen in 2012. 30 There was a further increase in 2018 20 10 0 2012 2013 2014 2015 2016 2017 2018 Source: Global Mining Research, Company records Top 25 companies have been used as a proxy for the industry Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019 6
Production growth has continued to slow ● Growth in global mine supply has slowed significantly ̵ Mine supply increased only 1.8% in 2018 compared to 6.2% in 2013 ● 30% of global reserves are currently associated with assets where a construction decision is yet to be made ● The industry can potentially sustain production at current levels for the next few years before entering a period of secular decline in the longer term ● The World Gold Council estimates an incentive price of US$1,500/oz to maintain global production at current levels Global mine supply vs. supply growth rate 120 7% 6% 100 5% 80 4% 60 3% 40 2% 20 1% 0 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: World Gold Council Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019 7
Mine production outlook Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019 8
Mine supply: structural shifts Average reserve life of the industry has decreased from >25 years to <15 years since 2012 Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019 9
Higher throughput rates, lower grades Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019 10
Is the industry telling the whole story? ● Of the 25 companies included in our study, only 6 reported an AIC number in 2018 ● In addition, the AISC reported by the industry excludes some capital and exploration costs that should be included as per the 2013 WGC guidelines ̵ The amount of capital and exploration excluded in the reported AISC has been increasing over the past five years ̵ In 2018, the 25 sample companies excluded a combined US$920m or US$30/oz from reported AISC ● ‘Growth’ capital is not really growth as the industry is not significantly increasing production, especially not the majors The true cost of mining an ounce of gold Difference between reported and calculated AISC 1,400 1,000 1,200 900 800 1,000 700 US$/oz 800 US$ millions 600 600 500 400 400 200 300 0 200 2014 2015 2016 2017 2018 100 Reported AISC Additional calculated AISC Growth capital 0 2014 2015 2016 2017 2018 Interest Tax Gold price Source: Global Mining Research, Company records Source: Global Mining Research, Company records Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019 11
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