GFI

Business Context and Reporting Period

Company: Gold Fields Limited (NYSE & JSE: GFI)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter ended September 30, 2010
Announcement Date: November 4, 2010

Gold Fields reported its third-quarter results, highlighting a record quarterly production level since Q3 2008. The company is in the process of changing its financial year-end from June to December to align with industry peers. Significant post-quarter developments include the successful issuance of a US$1 billion bond and the execution of a new mining right for the South Deep project.

Key Financial Metrics

Material Changes vs. Prior Periods

• Production: Attributable gold production increased 1% quarter-on-quarter to 908,000 ounces, the highest level since Q3 2008. South African production rose to 497,000 ounces, while West African production declined 6% to 172,000 ounces.
• Revenue & Profit: Revenue increased 5% to US$1,230 million, driven by higher production and a 3% increase in the average gold price (US$1,223/oz). Operating profit rose 7% to US$533 million.
• Costs: Total cash costs increased to US$697/oz from US$688/oz in the prior quarter, primarily due to higher operating costs in South Africa (wage increases, electricity) and the introduction of new royalties. However, costs decreased in West Africa and Australia.
• Exceptional Items: The quarter included an exceptional loss of US$19 million (R138 million) related to voluntary separation packages and business process re-engineering costs. This contrasts with a gain in the same period in 2009.
• Associates: A significant loss of US$30 million was recorded from associates, primarily due to a translation loss from Rusoro applying hyper-inflationary accounting, resulting in a write-down of the investment to nil.

Guidance, Outlook, and Management Commentary

• Full Year Guidance: Management maintains its guidance for the year ended June 30, 2011:
  • Production: 3.5 to 3.8 million ounces.
  • Total Cash Cost: US$650 to US$690 per ounce.
  • Notional Cash Expenditure (NCE): US$925 to US$975 per ounce.
• Strategic Initiatives:
  • Business Process Re-engineering (BPR): Commenced across the group to improve NCE margins to at least 20% at key mines (Driefontein, Kloof, Beatrix, Tarkwa, St Ives) over the next 12-18 months. Restructuring of Driefontein and Kloof management structures has begun.
  • Growth Projects: Progress continues on South Deep (South Africa), Yanfolila (Mali), Chucapaca (Peru), and the Far Southeast (FSE) deposit in the Philippines (60% option signed).
• Capital Markets: Successfully issued a US$1 billion, 10-year bond at a 4.875% coupon (lowest rate for a South African corporate in the USD market). Proceeds will refinance existing debt and improve liquidity without increasing net debt levels.
• Safety: The Fatal Injury Frequency Rate (FIFR) regressed to 0.18 from 0.07 in the prior quarter, with 7 fatalities reported (6 in South Africa, 1 in West Africa). Management is implementing extensive audits and reorganizing safety departments.

Investor Verification Checklist

• Bond Impact: Verify the pro-forma debt maturity profile following the US$1 billion bond issuance and the specific refinancing of commercial paper.
• South Deep Progress: Monitor the capital expenditure trajectory and production ramp-up at South Deep, which currently carries a negative NCE margin (-57%) due to development costs.
• Cost Inflation: Assess the sustainability of the 18% NCE margin given the 7.5% wage increases and rising electricity costs in South Africa.
• Safety Metrics: Track the effectiveness of new safety interventions to reverse the regression in the Fatal Injury Frequency Rate.
• Philippines Acquisition: Review the feasibility study timeline and potential capital requirements for the Far Southeast (FSE) deposit option.
• Year-End Change: Confirm the impact of the financial year-end shift from June to December on future reporting periods.