GFI

Business Context and Reporting Period

Company: Gold Fields Limited (South Africa)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended June 30, 2007
Accounting Standards: U.S. GAAP (presented in U.S. dollars)
Operations: Major gold producer with operations in South Africa, Ghana, Australia, and Peru. The company sold its Venezuelan operations (Choco 10) on November 30, 2007.

Key Financial Metrics (Fiscal 2007)

Material Changes vs. Prior Period (Fiscal 2006)

• Revenue Growth: Revenues increased 20% to $2,735.2 million, driven primarily by a 21.8% increase in the average realized gold price ($524 to $638/oz), partially offset by a 1.4% decrease in total gold sold.
• Profitability: Net income increased 52% to $246.1 million from $161.7 million. Income before tax rose to $481.6 million from $309.1 million.
• Cost Inflation: Weighted average total cash costs per ounce increased 16.6% to $394/oz. Drivers included higher input costs (fuel, steel, cyanide), increased wages in South Africa, and lower production grades at certain international sites (Damang, St. Ives).
• Acquisitions: The acquisition of South Deep (South Africa) in December 2006 added significant reserves (30.4 million oz) and production capacity, offsetting declines at other South African mines.
• Divestitures: Sold Venezuelan assets (Choco 10) for $532 million (cash and Rusoro shares) in November 2007. Sold 60% stake in Essakane project for $200 million (cash and Orezone shares).
• Accounting Change: Retrospectively applied a change in accounting principle to capitalize underground development costs in South Africa, increasing net income by $24.3 million for 2006 and $21.8 million for 2005.

Guidance, Outlook, and Risks

Management Commentary & Outlook

• Strategy: Focus on operational excellence, cost reduction, and growing reserves through acquisitions and exploration. Targeting 1.5 million ounces of annual production outside South Africa by 2009.
• Cerro Corona Project: Development in Peru delayed by four months; start of production moved to Q4 2008. Capital cost estimate revised upward to $421 million due to tailings dam construction issues and commodity price escalation.
• Reserves: Attributable proven and probable reserves increased to 89.7 million ounces (from 61.8 million in 2006), largely due to the South Deep acquisition.

Key Risks and Contingencies

• Gold Price Volatility: No hedging of future gold production; profitability is directly tied to spot gold prices.
• South African Labor & Regulation: High labor costs (approx. 50% of production costs); wage increases of 8-8.5% implemented in July 2007. Subject to the Mining Charter requiring 26% Historically Disadvantaged South African (HDSA) ownership by 2014. Potential new royalty bill (1.5-3% of gross sales) proposed.
• Operational Hazards: Seismicity, rock bursts, and underground fires at deep-level South African mines. HIV/AIDS prevalence in South African workforce estimated at 28.3%.
• Input Shortages: Electricity shortages in Ghana forced use of diesel generators ($11.2M cost in 2007). Shortages of giant tires for earthmoving equipment.
• Political Instability: Risks in Venezuela (retained 37% stake in Rusoro Mining) and Peru (local community opposition to Cerro Corona).

Investor Verification Checklist

• South Deep Integration: Verify the accuracy of pre-acquisition reserve data for South Deep, as Gold Fields has not independently confirmed all historical data from the previous owners (Barrick/Western Areas).
• Cerro Corona Costs: Monitor capital expenditure overruns and construction delays at the Cerro Corona project in Peru, which recently saw a $78 million cost increase and schedule slip.
• South African Labor Costs: Track the impact of the 8-8.5% wage increases and potential future strikes on the cost per ounce in South Africa.
• Regulatory Changes: Assess the potential financial impact of the proposed South African Royalty Bill and the 26% HDSA ownership requirement under the Mining Charter.
• Electricity Supply in Ghana: Confirm the status of the Mining Reserve Plant (MRP) and whether diesel generator costs will persist or be mitigated.
• Accounting Policy Impact: Review the long-term impact of the change in accounting principle regarding the capitalization of underground development costs on future depreciation and earnings.