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Value creation in gold mining Presentation to KPMG Mining Executive - - PowerPoint PPT Presentation

Value creation in gold mining Presentation to KPMG Mining Executive Forum NICK HOLLAND September 2014 Forward looking statements Certain statements in this document constitute forward looking statements within the meaning of Section 27A


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Value creation in gold mining

NICK HOLLAND

September 2014

Presentation to KPMG Mining Executive Forum

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Forward looking statements

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, 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

  • ccurrence of unanticipated events.

Nick Holland - Presentation to KPMG September 2014

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Long-term trends affecting gold mining

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Economic demand from emerging market remains strong

  • Emerging markets continue to be the world’s growth engine
  • China is leading the way with an envious growth rate of 6.8% by 2018
  • Growth rates in developed markets are also expected to increase beyond 2014 as

confidence is restored

Nick Holland - Presentation to KPMG September 2014

IMF expects continued strong economic growth from emerging markets

Mine 2014 • Realigning expectations 35 PwC • June 2014 2012 2013 2014f 2015f 2016f 2017f 2018f 1 2 3 4 5 6 7 8 9 10

Global economic growth outlook - IMF forecasts

Emerging markets & developing economies China Advanced economies

% y-o-y

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Leading to strong consumer demand for metals from the East

Nick Holland - Presentation to KPMG September 2014

2013 Gold consumer demand by country

Source: World Gold Council - Gold Demand Trends Full Year 2013, February 2014

1,066 975 175 140 92 77 72 68 57 38 25 21 18 16 190 121 77 73 65 23 20 2 200 400 600 800 1,000 1,200

(tonnes)

EAST WEST

Total East: 2,840 tonnes

(83%)

Total West: 573 tonnes

(17%)

630 tonnes in 2008 450 tonnes in 2008

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Gold price has been hard hit with little respite in sight

Nick Holland - Presentation to KPMG September 2014

Historical & forecast gold prices

Source: Broker Research, AME, FactSet as at 6 January 2014 (a) Points on the curve represent the average price for the year. Nominal forward curve adjusted by US inflation of 2.0% per annum

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Jan 02 Jan 03 Jan 04 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18

Gold AME Price Broker Average Forward Curve (US$/oz, real terms)

(a)

GOLD PRICING DEVELOPMENT

Broker Max & Min Annual, Real 2013 Terms(a) Max: $1,500/oz Median: $1,268/oz Min: $815/oz

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Gold is becoming scarce (1)

Nick Holland - Presentation to KPMG September 2014

World gold supply trends – steadily retreating

Source: Credit Suisse (6 Jan 2014), Morgan Stanley (3 Feb 2014), Société Générale (29 Nov 2013), AME, Bloomberg, WGC

2416 2589 2709 2812 2861 2968 2855 2780 2655 1315 1549 1655 1610 1615 1371 1000 900 875 880 300 150 15 35 3,731 4,138 4,364 4,422 4,476 5219 4,155 3,845 3,565 1000 2000 3000 4000 5000 6000 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e

Mine Supply Scrap ETFs Hedging

Supply of gold from mines, scrap, ETFs and hedging (tons)

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Gold is becoming scarce (2)

Nick Holland - Presentation to KPMG September 2014

Number and average grades of gold discoveries have dropped dramatically

Source: GFL/MinEx Consulting

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Increasing Resource Nationalism

Nick Holland - Presentation to KPMG September 2014

Governments and communities remain antagonistic towards mining

“Resource nationalism plagues the oil market”

Wall Street Journal, Mar 2012

“South African minerals law facilitates nationalisation and export bans in mining”

HIS Global Insight, March 2014

“Resource Nationalism #1 on mining risk list”

Ernst & Young, Aug 2011

“Congo’s mining tax increase plan rattles investors”

Reuters, March 2014

“Bolivia passes mining law that bans partnerships with multinationals”

Mining.com, June 2014

“Tanzania pressures miners for more cash”

Reuters, June 2014

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Communities are finding their voice

Nick Holland - Presentation to KPMG September 2014

Number of conflicts between mines and communities

Source: ICMM

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New investments and existing operations curtailed

Nick Holland - Presentation to KPMG September 2014

Miners are cutting back on new projects and trimming existing operations

  • Existing mines under pressure from price decreases and cost increases
  • Low margins and declining equity prices have put new mining investments under threat

135 Peru mining projects, worth US$7.5bn, delayed

Mining.com – January 2013

Barrick suspends massive Pascua Lama project in Chile

International Business News - September 2013

Mining job cuts push Aussie jobless rate to 10-year high

Mining.com – February 2014

South African platinum sector could see 10,000 job losses

EWN – June 2014

Ghana mines to trim almost 4,000 jobs in 2014

Ghana Web – September 2013

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How should the industry respond to long-term and short-term trends?

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1 – The industry needs to make money again

  • Capital providers will not return to the

sector unless their investments yields a strong return

  • The focus needs to be on cash returns –

not production growth

  • Cost control is fundamental to improving

cash returns

  • Full transparency over total costs facing

the mining industry. Launch of All-in Costs and All-in Sustaining Costs metrics

  • Diversification of geographic and
  • perational risk essential

Nick Holland - Presentation to KPMG September 2014

Equity and debt investors need to return to provide funding to grow the industry

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2 – The industry needs to innovate

  • Innovation can help the industry enhance

profitability, address labour shortages, costs and develop technologies required in more difficult conditions (deep level, etc).

  • Areas of further innovation for mining

companies: ̵ Truck and process plant activities ̵ Remote operator controls ̵ Drill and blast technologies ̵ SA deep level mining:

  • Reef-boring technology

(AngloGold Ashanti SA mines)

  • Deep-level mechanised mining (South Deep)

Nick Holland - Presentation to KPMG September 2014

Technology and R&D critical to the future of mining

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3 – The industry needs to mechanise and upskill

  • Further mechanisation is critical for the future of

the mining industry as it enables mines to be run more efficiently, safer and attract the right skills

  • The bulk of our mines – either open-cast or

underground – are already highly mechanised

  • Critical areas of mechanisation at our South

Deep mine remain:

  • Move the man from the ore face

̵ Remote operator controls for most machines ̵ Underground workshops to maintain and repair equipment ̵ De-stress mining ̵ Supported by world-class surface infrastructure

Nick Holland - Presentation to KPMG September 2014

From Jurassic to Joystick mining

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4 – Sound ESG policies to be maintained and implemented

Moving from philanthropy to systematic creation of shared value, recognising the impact of the GDP multiplier effects

Nick Holland - Presentation to KPMG September 2014

Creating Shared Value with our communities and other stakeholders

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5 – Better communication of the mining sector’s benefits (1)

World Gold Council – The direct economic impact of gold in 2012

  • >$210bn

Gold’s total direct economic value-add contribution (GVA) to annual global GDP across 15 largest gold producing and 13 largest gold consuming countries This includes:

  • $25bn

Gross value added from recycling gold

  • $70bn

Gross value added from gold jewellery

  • $38bn

Gross value added from gold bars and coins

  • $4bn

Gross value added from use in technology fabrication

  • >$78bn

Gold mining’s economic value-add contribution (GVA) across 15 largest gold producing countries

Nick Holland - Presentation to KPMG September 2014

Illustrate the gold industry’s direct economic impact

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5 – Better communication of the mining sector’s benefits (2)

Nick Holland - Presentation to KPMG September 2014

Illustrate the gold industry’s total value creation and impact

World Gold Council - Total global expenditure by leading gold companies to employees, governments, capital providers, suppliers and communities:

2009: $30.5bn 2012: $55.6bn

2009 2012 Start Payments in country (producing operations)

23,320 39,243

Payments in country (non-producing operations)

1,756 5,425

Payments out of country

4,975 10,926

2009 2012 Start Payments in country (producing operations)

23,320 39,243

Payments in country (non-producing operations)

1,756 5,425

Payments out of country

4,975 10,926

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5 – Better communication of the mining sector’s benefits (3)

  • GDP growth is essential for

governments targeting effective transformation

  • Growing the mining economy,

especially for resource-rich developing countries, has significant direct and indirect impacts

  • Mining punches above its weight

with its GDP multiplier effect through procurement, socio-economic spending in mining communities and technology transfers

  • One direct mining job supports one

indirect job and one impacted job

  • …in SA, one job supports on

average around nine dependents

Nick Holland - Presentation to KPMG September 2014

The mining economy has large growth and job multiplier effects

Source: Facts about mining ins South Africa (South Africa Chamber of Mines, November 2012), The Socio-Economic Impact of Newmont Ghana Gold Limited (Newmont Ghana Gold Limited, June 2011), The economic contribution of large scale gold mining in Peru (World Gold Council, May 2012). South Africa: IDC and Quantec study

Mining has boosted RSA GDP by R468 billion or 18.7%

  • f total GDP

~2.5x for South Africa ~3.2x for Ghana ~1.7x in Peru

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6 - Establish partnerships with stakeholders

Nick Holland - Presentation to KPMG September 2014

Job and livelihood multiplier effect is significant

Challenge Mitigation Partnership Working and collaborative partnerships between miners, governments, labour and communities Balance Balance long-term growth strategies with short-term fiscal imperatives Transparency Total transparency in reporting individual asset performance Certainty Long-term commitments from governments not to change the rules of the game Simplicity Simple rules of the game that align interests and can be applied to all assets

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How Gold Fields has responded

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The transformation of Gold Fields

Nick Holland - Presentation to KPMG September 2014

The journey started with the speech to the Melbourne Mining Club Building a sustainable business at US$1,300/oz

Portfolio Review Aug - Dec 2012 Sibanye Gold Dec - Jan 2012 New Cash Strategy 2013 Business Plan A New Paradigm 15 April 2013

Gold Price < US$1,300/oz

A Fundamental Shift In Strategy “It’s all about cash – not ounces”

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Implementation of key turnaround strategies

Nick Holland - Presentation to KPMG September 2014

Significant Progress On All Strategic Matters

A 15% Free Cash Flow Margin at US$1,300/oz Gold

Underway Underway

Commitments Made On 22 August 2013

  • Focus remains on generating free cash flow
  • Rebasing of South Deep continues
  • Driving brownfields exploration in Australia and

Ghana

  • Sale of international project portfolio

progressing - Yanfolila and Chucapaca concluded

  • Balance sheet strengthened
  • Dividends declared
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Active management of our portfolio

Nick Holland - Presentation to KPMG September 2014

Active Portfolio Management: Strategic Context An Ongoing Process of Portfolio Improvement

Operate Franchise Assets

  • Operational Excellence
  • The Gold Fields DNA
  • A sustainable 15% FCF margin

@ US$1,300/oz gold price Operate

Strategic Portfolio Review

Acquire? Operate? Restructure? Divest?

  • Ongoing Strategic Portfolio Review –

annual planning & capital allocation process

  • Test existing assets, brownfields
  • pportunities and M&A targets against Gold

Fields’ Franchise Asset objectives:

  • The right address
  • Gold focus
  • Sustainable 15% FCF margin @

US$1,300/oz gold price

  • No greenfields exploration

Acquire Divest

M&A Franchise assets Non-franchise assets

Restructure

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Geographic portfolio breakdown

Nick Holland - Presentation to KPMG September 2014

International diversification An international gold producer operating in good countries

Australia 43% Ghana 28% Peru 13%

  • In 2013 Gold Fields transformed its production base

̵ Unbundling of Sibanye Gold in South Africa ̵ Acquisition of Yilgarn South assets in Australia ̵ Marginal production stopped in Australia & Ghana

  • 100% mechanised mid-tier producer

16% 28% 43% 13%

2014 Production Guidance* South Africa Ghana Australia Peru

* Attributable production

. 500 1000 1500 2000 2500 3000 3500 2012 2013 2014*

Attributable Production South Africa Ghana Australia Peru

* 2014 Guidance

SA 16%

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Production and costs heading in the right direction

Nick Holland - Presentation to KPMG September 2014

A structural shift in the production and cost base US$450 million removed from cost base in 2013

Gold Fields’ costs under control

  • 7 out of 8 mines at or below gold price

(US$1,280/oz)

  • 8th Mine (South Deep Project) cash break-

even early 2015

  • 2014 Group guidance ~2.2 Moz at AIC of

US$1,150/oz

100,000 200,000 300,000 400,000 500,000 600,000 700,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 500 700 900 1,100 1,300 1,500 1,700 1,900 Gold Produced Gold Price AIC

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Shareholders are being rewarded

Creating value through the unbundling of Sibanye (announced 29 November 2012) +47% TSR Despite 26% Fall In Gold Price

Source: Bloomberg

47%

  • 20%
  • 26%
  • 30%
  • 40%
  • 43%
  • 45%
  • 55%
  • 55%
  • 61%
  • 61%
  • 80%
  • 60%
  • 40%
  • 20%

0% 20% 40% 60% GFI & Sibanye Combined Randgold Goldcorp Agnico Eagle Newmont Anglogold Barrick Yamana Newcrest Harmony Kinross

Total Shareholder Returns

28 November 2012 to 3 September 2014

1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800

Gold Price

28 November 2012 to 3 September 2014 28 Nov 2012 US$1,719.69/oz 3 Sep 2014 US$1,269.40/oz

Nick Holland - Presentation to KPMG September 2014

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Executive alignment with shareholder returns

  • Short term bonus (Annual)

̵ Based on Board approved annual operational plans and targets ̵ Includes parameters for operational sustainability

  • Long term bonus (Three year cycle)

̵ Cash rather than shares ensures no shareholder dilution ̵ Introduces downside – if threshold is not achieved, no bonus Alignment of executive and senior management incentives with shareholders If Shareholders Win, We Win, If Shareholders Lose, We Lose

Free Cash Flow Total Shareholder Returns

15% Free Cash Flow Margin US WACC 6% Real compounded (Threshold)

50% Weighting 50% Weighting

+

= BONUS

Nick Holland - Presentation to KPMG September 2014

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Conclusion: The gold mining industry at a crossroads

Nick Holland - Presentation to KPMG September 2014

The industry needs to work with stakeholders to grow the mining economy

Mining Economy/ GDP impact

Mining Economy/ GDP impact

  • Long term collaborative

partnerships (Miners, Governments, Labour, Communities, Dev. Agencies)…

  • … leading to more investment
  • The result: increased

employment, development and GDP growth

____________________________________ __

  • Rising costs of mining….
  • … combined with a greater

fiscal take…

  • …jeopardise further

investment

  • The result: loss of jobs, a

shrinking pie