Africa Down Under 2019 NICK HOLLAND: GOLD FIELDS CEO The Gold - - PowerPoint PPT Presentation

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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

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  • Africa Down Under 2019

NICK HOLLAND: GOLD FIELDS CEO The Gold Industry 2019 – Through The Looking Glass

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

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

Forward looking statement

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The cost reporting conundrum

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

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
  • f 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

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

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

1121 1070 955 877 848 858 868 1498 1376 1090 986 977 1014 1048 200 400 600 800 1000 1200 1400 1600 2012 2013 2014 2015 2016 2017 2018

US$/oz Industry AISC and AIC trends

AISC AIC Source: Global Mining Research, Company records

  • From 2012 to 2016, industry AISC

decreased at a compound annual growth rate (CAGR) of 6.7% whilst AIC (including growth capital) fell by a CAGR of 10.1%

  • In 2017, both AISC and AIC increased

YoY, the first annual cost increase in five years. There was a further increase in both measures during 2018

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

But has this been at the expense of longevity?

  • Of concern is the notable decrease in

sustaining capital (SIB capex) from US$313/oz in 2012 to US$166/oz in 2016. It has remained at these levels in 2017 and 2018

  • Exploration budgets were also slashed in the

wake of the gold price crash in 2012 ̵ The bulk of exploration over the past five years has focussed on brownfields projects and near-mine development. Greenfields exploration all but dried up

  • Exploration spend increased in 2017 for the

first time in five years, but was still significantly lower than levels seen in 2012. There was a further increase in 2018

313 240 203 173 166 179 168 360 287 108 76 70 118 139 100 200 300 400 500 600 700 800 50 100 150 200 250 300 350 400 2012 2013 2014 2015 2016 2017 2018

US$/oz US$/oz Industry opex and capex per ounce produced

SIB capex Project capex Opex (rhs) Source: Global Mining Research, Company records 10 20 30 40 50 60 70 80 90 2012 2013 2014 2015 2016 2017 2018

Total exploration: US$/oz

Source: Global Mining Research, Company records Top 25 companies have been used as a proxy for the industry

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

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

0% 1% 2% 3% 4% 5% 6% 7% 20 40 60 80 100 120 2010 2011 2012 2013 2014 2015 2016 2017 2018

Global mine supply vs. supply growth rate

Source: World Gold Council

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Mine production outlook

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Mine supply: structural shifts

Average reserve life of the industry has decreased from >25 years to <15 years since 2012

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Higher throughput rates, lower grades

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

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

100 200 300 400 500 600 700 800 900 1,000 2014 2015 2016 2017 2018

US$ millions Difference between reported and calculated AISC

Source: Global Mining Research, Company records 200 400 600 800 1,000 1,200 1,400 2014 2015 2016 2017 2018

US$/oz The true cost of mining an ounce of gold

Reported AISC Additional calculated AISC Growth capital Interest Tax Gold price

Source: Global Mining Research, Company records

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Is capital being misclassified?

  • Despite the notable slow down in production growth over the past five years, expenditure classified by

the industry as ‘growth’ or ‘non-sustaining’ has increased significantly ̵ growth capital and non-sustaining exploration have grown at 4-year CAGRs of 6.4% and 10.3%, respectively

  • Almost half of all capital and exploration spent in 2018 was classified as non-sustaining and, as such, not

disclosed in reported costs

50 100 150 200 250 300 350 400 2014 2015 2016 2017 2018

Breakdown of capital and exploration expenditure (US$/oz)

Sustaining capital Exploration (sustaining) Non-sustaining capital Exploration (non-sustaining) Source: Global Mining Research, Company records 0.9%

  • 4.5%
  • 2.3%

6.4% 10.3%

  • 6%
  • 4%
  • 2%

0% 2% 4% 6% 8% 10% 12% Production Sustaining capital Exploration: sustaining Non-sustaining capital Exploration: non-sustaining

4-year CAGR

Source: Global Mining Research, Company records

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

But what is the “bottom line” (free cash) telling us?

  • There is a stark difference between the reported AISC margin and the Free Cash Flow (FCF) margin

̵ In 2018, the reported AISC margin was US$410/oz vs. the FCF of only US$86/oz

  • To echo this, GMR calculated a FCF cost equivalent (*see footnote for definition) which extrapolates total

costs based on FCF generated by the industry ̵ In 2018, the FCF cost equivalent (before interest and tax) was US$242/oz higher than the reported AISC

50 100 150 200 250 300 350 400 450 200 400 600 800 1000 1200 1400 2014 2015 2016 2017 2018

US$/oz US$/oz Divergence between AISC margin and FCF

Reported AISC Gold price FCF per ounce produced (rhs) AISC margin (rhs) Source: Global Mining Research, Company records * Note: FCF cost equivalent = (gold revenue – reported FCF)/gold sold; “FCF-BIT cost equivalent” = FCF cost equivalent before interest and tax Source: Global Mining Research, Company records 50 100 150 200 250 300 200 400 600 800 1000 1200 1400 2014 2015 2016 2017 2018

US$/oz US$/oz Reported AISC vs. FCF-BIT cost equivalent

Reported AISC FCF-BIT cost equivalent Difference (rhs)

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Taking it one step further…

  • Taking interest and tax into account adds c.US$100/oz to the FCF cost equivalent

̵ In 2018, the FCF cost equivalent (after interest and tax) was US$345/oz higher than the reported AISC

  • So, the ‘true’ margin is significantly lower than reported AISC margin

Source: Global Mining Research, Company records 50 100 150 200 250 300 350 400 200 400 600 800 1000 1200 1400 2014 2015 2016 2017 2018

US$/oz US$/oz Reported AISC vs. FCF cost equivalent

Reported AISC FCF cost equivalent Difference (rhs)

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Is cost reporting going to become more opaque?

  • In November 2018, the World Gold Council updated its guidance note and amended the definition of

Non-sustaining costs to: ̵ Costs incurred at ‘new operations’ and costs related to ‘major projects at existing operations’ where these projects will materially benefit the operation. A material benefit to an existing operation is considered to be at least a 10% increase in one of the following: 1. Annual or life of mine (LOM) production 2. Net present value (NPV) as compared to the LOM NPV prior to the inclusion of the project 3. Reserves as compared to reserves prior to the inclusion of the project

  • So, companies have been allowed more flexibility in allocating costs between ‘sustaining’ and ‘non-

sustaining’

  • As such, AISC will become less representative of what it really costs to produce an ounce of gold
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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

What should the producers do

  • Actual costs are higher than the industry is reporting

̵ The industry needs to maintain discipline with what it classifies as growth ̵ Replacement will become more expensive

  • Gold producers need to be as transparent as possible with their cost reporting

̵ The people being misled (communities and governments) are the ones who want to impose more on the companies. Misreporting costs is feeding the fire of resource nationalism ̵ Investors and analysts have a good understanding of the actual costs involved

  • All costs incurred in mining an ounce of gold should be disclosed – reporting AIC should become industry

standard

  • For some producers, the higher gold price will be the bail out

̵ Capital needs to catch up in order to just maintain current levels of production, never mind grow it

  • The gold producers need to maintain discipline

̵ We need to be responsible with which projects we pursue ̵ We need to be careful of not getting into another debt trap as we catch up on capital ̵ We must not be seduced by the higher gold price The risk is that the increase in gold price is spent on catching up on previous underspending, therefore margins don’t improve and investors are left disappointed… Again

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What has Gold Fields’ strategy been: Focusing on Australia

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Gold Fields in Australia

  • Gold Fields has been in Australia for 17 years
  • We are now the third largest gold producer in

Australia and the proud operator of Western Australia’s newest gold mine

  • The Australian assets generate 43% of Group

production and almost half of Group net cash flow

  • With Gruyere at steady state, our Australian

portfolio will produce 1Moz

  • Average Reserve life of our Australian portfolio is

6 years ̵ Reserve life has increased over the past couple of years due to increased exploration spend and investment in Gruyere ̵ When we first entered Australia, Reserve life was three years

  • With the exploration we are undertaking, our

actual mine life is expected to be significantly longer

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

What has Gold Fields strategy been?

  • We have continued to spend the exploration dollars necessary to sustain our business in Australia

̵ We increased the level of spend significantly in 2015 and have maintained it at A$90m – A$100m pa since then ̵ Average discovery cost of A$82/oz over the past five years

  • All exploration spend has been included in our reported AISC as we view it as essential to maintain

production and Reserves ̵ Average exploration spend of c.A$100/oz included in our reported AISC ̵ Many producers report exploration below the line and exclude part of it from AISC calculations

We have spent the money and disclosed it in costs

20 40 60 80 100 120 1,000 2,000 3,000 4,000 5,000 2013 2014 2015 2016 2017 2018

A$m koz Mineral Reserves and production vs. exploration spend

Mineral Reserves Production Exploration spend 20 40 60 80 100 120 200 400 600 800 1,000 1,200 1,400 1,600 2014 2015 2016 2017 2018

A$/oz koz Additional Mineral Reserves vs. average discovery cost

Mineral Reserves added Average discovery cost (rhs) * Note: Mineral Reserves are net of depletion

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Lake Surface

N S

500m

The Invincible orebody at St Ives shows why it is necessary to spend on exploration

Invincible December 2011

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

2012 2013 2014 2015 2016 2017 2018 Cumulative Production (koz)

  • 140

394 626 858 Combined Resource (koz) 246 1,329 1,417 1,375 1,438 1,672 1,607 Combined Reserve (koz)

  • 492

796 705 826 731 793 Reserve plus Production (koz)

  • 492

796 845 1,220 1,357 1,651 Resource plus Production (koz) 246 1,329 1,417 1,516 1,832 2,297 2,465 Drilling - Exploration and GC (m) 12,154 54,843 110,055 91,613 117,890 80,998 133,046

Lake Surface

N S

500m

Invincible at St Ives

Invincible December 2012

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

2012 2013 2014 2015 2016 2017 2018 Cumulative Production (koz)

  • 140

394 626 858 Combined Resource (koz) 246 1,329 1,417 1,375 1,438 1,672 1,607 Combined Reserve (koz)

  • 492

796 705 826 731 793 Reserve plus Production (koz)

  • 492

796 845 1,220 1,357 1,651 Resource plus Production (koz) 246 1,329 1,417 1,516 1,832 2,297 2,465 Drilling - Exploration and GC (m) 12,154 54,843 110,055 91,613 117,890 80,998 133,046

Lake Surface

N S

500m

Invincible at St Ives

Resource Reserve

Invincible December 2013

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

2012 2013 2014 2015 2016 2017 2018 Cumulative Production (koz)

  • 140

394 626 858 Combined Resource (koz) 246 1,329 1,417 1,375 1,438 1,672 1,607 Combined Reserve (koz)

  • 492

796 705 826 731 793 Reserve plus Production (koz)

  • 492

796 845 1,220 1,357 1,651 Resource plus Production (koz) 246 1,329 1,417 1,516 1,832 2,297 2,465 Drilling - Exploration and GC (m) 12,154 54,843 110,055 91,613 117,890 80,998 133,046

Lake Surface

N S

500m

Invincible at St Ives

Resource Reserve

Invincible December 2014

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

2012 2013 2014 2015 2016 2017 2018 Cumulative Production (koz)

  • 140

394 626 858 Combined Resource (koz) 246 1,329 1,417 1,375 1,438 1,672 1,607 Combined Reserve (koz)

  • 492

796 705 826 731 793 Reserve plus Production (koz)

  • 492

796 845 1,220 1,357 1,651 Resource plus Production (koz) 246 1,329 1,417 1,516 1,832 2,297 2,465 Drilling - Exploration and GC (m) 12,154 54,843 110,055 91,613 117,890 80,998 133,046

Lake Surface

N S

500m

Invincible at St Ives

Resource Reserve

Invincible December 2015

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

2012 2013 2014 2015 2016 2017 2018 Cumulative Production (koz)

  • 140

394 626 858 Combined Resource (koz) 246 1,329 1,417 1,375 1,438 1,672 1,607 Combined Reserve (koz)

  • 492

796 705 826 731 793 Reserve plus Production (koz)

  • 492

796 845 1,220 1,357 1,651 Resource plus Production (koz) 246 1,329 1,417 1,516 1,832 2,297 2,465 Drilling - Exploration and GC (m) 12,154 54,843 110,055 91,613 117,890 80,998 133,046

Lake Surface

N S

500m

Invincible at St Ives

Resource Reserve

Invincible December 2016

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Lake Surface

N S

500m

Invincible at St Ives

2012 2013 2014 2015 2016 2017 2018 Cumulative Production (koz)

  • 140

394 626 858 Combined Resource (koz) 246 1,329 1,417 1,375 1,438 1,672 1,607 Combined Reserve (koz)

  • 492

796 705 826 731 793 Reserve plus Production (koz)

  • 492

796 845 1,220 1,357 1,651 Resource plus Production (koz) 246 1,329 1,417 1,516 1,832 2,297 2,465 Drilling - Exploration and GC (m) 12,154 54,843 110,055 91,613 117,890 80,998 133,046

Resource Reserve

Invincible December 2017

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Lake Surface

N S

500m

Invincible at St Ives

2012 2013 2014 2015 2016 2017 2018 Cumulative Production (koz)

  • 140

394 626 858 Combined Resource (koz) 246 1,329 1,417 1,375 1,438 1,672 1,607 Combined Reserve (koz)

  • 492

796 705 826 731 793 Reserve plus Production (koz)

  • 492

796 845 1,220 1,357 1,651 Resource plus Production (koz) 246 1,329 1,417 1,516 1,832 2,297 2,465 Drilling - Exploration and GC (m) 12,154 54,843 110,055 91,613 117,890 80,998 133,046

Resource Reserve

Invincible December 2018

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Granny Smith mine Wallaby deposit – December 2015

4,600 koz Resource

  • 534 koz Measured
  • 2,310 koz Indicated
  • 1,756 koz Inferred

1,305 koz Reserve

  • 168 koz Proven
  • 1,137 koz Probable

Mined Production (2015)

  • 308 koz

North South

2014-2015 Year on Year Change Resource +1,169 koz (+34%) Reserves +453 koz (+53%)

1.9 km TVD View looking West

Maiden Zone 110-120 Reserve

Zone 250-60 Zone 70 Zone 80 Zone 90 Zone 100 Zone 110-120 Zone 135 Zone 150

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Granny Smith mine Wallaby deposit – December 2016

North South View looking West 1.9 km TVD

5,958 koz Resource

  • 657 koz Measured
  • 3,183 koz Indicated
  • 2,118 koz Inferred

1,674 koz Reserve

  • 239 koz Proven
  • 1,435 koz Probable

Mined Production (2016)

  • 323 koz

2015-2016 Year on Year Change Resource +1,358 koz (+30%) Reserves +369 koz (+28%)

Maiden Zone 135 Resource

Zone 250-60 Zone 70 Zone 80 Zone 90 Zone 100 Zone 110-120 Zone 135 Zone 150

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Granny Smith mine Wallaby deposit – December 2017

6,493 koz Resource

  • 788 koz Measured
  • 3,781 koz Indicated
  • 1,924 koz Inferred

2,191 koz Reserve

  • 239 koz Proven
  • 1,951 koz Probable

Mined Production (2017)

  • 301 koz

North South View looking West 1.9 km TVD

2016-2017 Year on Year Change Resource +535 koz (+9%) Reserves +517 koz (+31%)

Zone 250-60 Zone 70 Zone 80 Zone 90 Zone 100 Zone 110-120 Zone 135 Zone 150

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Granny Smith mine Wallaby deposit – December 2018

7,294 koz Resource

  • 745 koz Measured
  • 4,844 koz Indicated
  • 1,705 koz Inferred

2,239 koz Reserve

  • 175 koz Proven
  • 2,064 koz Probable

Mined Production (2018)

  • 296 koz

North South View looking West Zone 250-60 Zone 70 Zone 80 Zone 90 Zone 100 Zone 110-120 Zone 135 Zone 150

Maiden Zone 135 Reserve

1.9 km TVD

2017-2018 Year on Year Change Resource +801 koz (+12%) Reserves +48 koz (+2%)

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Agnew: Waroonga - 2015

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Agnew: Waroonga - 2016

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Agnew: Waroonga - 2017

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Agnew: Waroonga - 2018

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Africa Down Under 2019 | Nick Holland: CEO Gold Fields | September 2019

Agnew: Waroonga - 2019

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Thank you

QUESTIONS AND ANSWERS