GFI

Business Context and Reporting Period

Company: Gold Fields Limited (South African incorporated)

Filing Type: Form 20-F (Annual Report)

Reporting Period: Fiscal year ended June 30, 2008

Operations: Gold Fields is a major global gold producer with operations in South Africa (Driefontein, Kloof, Beatrix, South Deep), Ghana (Tarkwa, Damang), Australia (St. Ives, Agnew), and Peru (Cerro Corona). The company sold its Venezuelan operations (Choco 10) in November 2007. Financial statements are prepared in accordance with U.S. GAAP and presented in U.S. dollars.

Key Financial Metrics (Fiscal 2008)

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 17.2% to $3,206.2 million, driven primarily by a 28.4% increase in the average realized gold price ($638 to $819/oz), which offset an 8.7% decline in gold sold.
• Production Decline: Total gold production decreased to 3.915 million ounces from 4.285 million ounces in 2007.
  • South Africa: Production dropped 9% due to severe power disruptions (load shedding) by Eskom in the second half of the year, affecting Driefontein, Kloof, and Beatrix.
  • International: Production dropped 9%. St. Ives (Australia) declined 14% due to lower grades; Tarkwa (Ghana) declined 7% due to heavy rainfall.
• Cost Increases: Total cash costs per ounce rose 28.2% to $505, and total production costs per ounce rose 26.0% to $610. Increases were driven by lower production volumes (spreading fixed costs over fewer ounces), inflation in labor and fuel, and higher power costs.
• Profitability: Net income increased significantly to $452.5 million from $246.1 million in 2007, despite lower production, due to the substantial rise in gold prices.
• Acquisitions/Disposals:
  • South Deep: Fully consolidated for the full year (acquired Dec 2006), contributing 0.232 million ounces.
  • Venezuela: Choco 10 sold in Nov 2007; results included only through sale date.
  • Essakane: Sold 60% stake in Burkina Faso project in Nov 2007.

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Strategic Targets: Management aims to return to 4 million ounces of annualized production by Q3 fiscal 2009 and reduce Notional Cash Expenditure (NCE) to approximately $725 per ounce.
• Growth Projects: Key drivers for future growth include the ramp-up of the Cerro Corona Project (Peru), CIL plant expansion at Tarkwa (Ghana), and new underground mines at St. Ives (Australia).
• Regional Restructuring: The company is restructuring into four autonomous regions (South Africa, West Africa, South America, Australasia) to improve operational efficiency.

Material Risks and Contingencies

• Power Disruptions (South Africa): Severe load shedding by Eskom forced production suspensions and reduced output to 71-90% of capacity. Future power constraints and tariff increases remain a critical risk.
• Health and Safety: 47 worker fatalities occurred in fiscal 2008. A major accident at South Deep (9 fatalities) in May 2008 led to temporary suspension of underground mining. The company has made safety its top strategic priority.
• Regulatory Environment:
  • South Africa: Compliance with the Mining Charter (26% HDSA ownership target) and potential implementation of the Royalty Bill (approx. 2% of revenue).
  • Ghana: Electricity supply issues and potential increases in repatriation requirements.
  • Peru: Community opposition and road blockades affecting access to Cerro Corona.
• Commodity Prices: The company does not hedge gold production, exposing it to price volatility. Reserves are sensitive to gold price fluctuations.
• Legal Proceedings: A summons was received by subsidiary Western Areas regarding alleged historical share disposals; management believes it has strong defenses.

Investor Verification Checklist

• Power Supply Stability: Verify the current status of Eskom power allocations and the impact of potential future load shedding on South African production targets.
• Safety Performance: Monitor the implementation of new safety protocols and the reduction in fatality rates following the 47 fatalities in 2008.
• Cost Inflation: Assess the trajectory of labor costs (wage negotiations) and fuel/power prices, which significantly impact the $822 NCE per ounce metric.
• Reserve Reconciliation: Review the re-modeling of South Deep reserves, as a significant portion is based on pre-acquisition data not independently confirmed by Gold Fields.
• Regulatory Compliance: Track the status of the South African Royalty Bill and the Mining Charter compliance requirements, which could impact future cash flows and equity structure.
• Cerro Corona Ramp-up: Confirm the timeline and capital expenditure for the Cerro Corona project, which is critical for meeting the 4 million ounce production target.