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The state of the gold mining sector
NICK HOLLAND28 June 2014
Society of Mining Professors’ 2014 Silver Anniversary
2
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
occurrence of unanticipated events.
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Long-term trends affecting the mining industry
4
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
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
IMF expects continued strong economic growth from emerging markets
Mine 2014 • Realigning expectations 35 PwC • June 2014
5
Leading to strong consumer demand for metals from the East
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
2013 Gold consumer demand by country
Source: World Gold Council - Gold Demand Trends Full Year 2013, February 2014
1 066
975
175140
92 77 72 68 57 38 25 21 18 16
190
12177 73 65
23 20 20
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
6
But, commodity prices have been weak, volatile
● 2013 was another challenging year, with double digit decreases not uncommon
● Gold lead the way with a 28% price drop, its biggest decline in 30 years
● Nickel and gold have recovered some ground in 2014, but other metals continue to fall
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Commodity prices continued to fall last year
Mine 2014 • Realigning expectations 35 PwC • June 2014 – Source: World Bank
7
Gold price has been hard hit with little respite in sight
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 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
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2 000
Jan
02
Jan
03
Jan
04
Dec 0
4
Dec 0
5
Dec 0
6
Dec 0
7
Dec 0
8
Dec 0
9
Dec 1
0
Dec 1
1
Dec 1
2
Dec 1
3
Dec 1
4
Dec 1
5
Dec 1
6
Dec 1
7
Dec 1
8
Gold AME Price Broker Average Forward Curve
(US
$/o
z, re
al te
rms
)
(a)
GOLD PRICING DEVELOPMENT
Broker Max & Min
Annual, Real 2013 Terms(a)
Max:
$1,500/oz
Median:
$1,268/oz
Min:
$815/oz
8
Gold is becoming scarce (1)
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 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
24162589 2709 2812 2861 2890 2855 2780 2655
1315
15491655
1610 1615
11201000
900875
840
300
150
15
353 731
4 138
4 364 4 422 4 476
4 850
4 155
3 845
3 565
0
1000
2000
3000
4000
5000
6000
2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e
Mine Supply Scrap ETFs Hedging
Supply of gold from mines, scrap, ETFs and hedging (tons)
9
Gold is becoming scarce (2)
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Number and average grades of gold discoveries have dropped dramatically
Source: GFL/MinEx Consulting
10
Increasing Resource Nationalism
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Governments and communities are increasingly antagonistic towards mining
“Resource nationalism
a key threat to mining”BlackRock, Oct 2011
“Resource nationalism
plagues the oil market”Wall Street Journal, Mar 2012
“Resource nationalism:
the usual suspects or a
wider problem?”RigZone, May 2012
“Resource Nationalism
#1 on mining risk list”Ernst & Young, Aug 2011
“Miners encounter the
hard rock of resource
nationalism”The Telegraph (UK), Nov 2011
“Resource nationalism is
miners’ number one fear
and major threat to
global security”Mining.com, December 2012
“Canada’s veto of
Petronas deal raises
spectre of resource
nationalism”Daily Telegraph (UK), Oct 2012
11
Communities are finding their voice
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Number of conflicts between mines and communities
Source: ICMM
12
Industry costs are piling up while yields are down
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Key KPIs in terms of costs and new discoveries have turned against gold miners
Note: Cost per tonne is the weighted average of 8 major gold producers by total ore mined; average grade is the weighted average of 8 major gold producers by total ore mined;
Major Gold producers: AngloGold Ashanti, Barrick, Harmony, Kinross, Goldcorp, Gold Fields, Newmont and Newcrest.
Source: Gold Fields company data; annual reports, Condemned to Excellence report(IAMGOLD Corporation, Dec 2012)
2012/13
costs
have
come
down
2012/13 costs have
come down, but at
what consequence:
• Reduced mine
development
• High grading
• Project deferrals
• Mine closures
13
Industry is halting new investments…
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Low margins and declining equity prices are putting mining investments under threat
Sources: Factiva, Literature search
A harsh environment with new projects increasingly being
delayed and cancelled
14
… and cutting back on existing operations
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Existing mining operations are being curtailed and may shut down prematurely
Existing mines under pressure from price
decreases and cost increases; greater taxes
will aggravate the problem
150 jobs go as Tanami closes mine
The West Australia\n – April 24, 2013
Brunswick Mine closes Bathurst-area
operation: Unemployment hit 20.2%
CBC News - May 1, 2013
Xstrata's Sinclair
mine in WA to close,
follows closure of
nearby Cosmos
Dow Jones - May 2, 2013
South African miner
Amplats closes
shafts and cuts jobsBBC – Jan, 2013
Sibanye Gold to Cut 1,110 Jobs to
Return Beatrix West to ProfitBloomberg – May 29, 2013
The mining industry in 2013Sourced from PwC Top 40 Mining Companies survey
16
Mining revenues continued to fall
● The Top 40 realised a decline of 2% in mining revenues to US$512-bn in 2013
● Copper and iron ore revenue increased in 2013, supported by demand from China
● Emerging market factors, such as China’s urbanisation, will keep demand strong
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
As commodity prices fell revenues for mining firms decreased
Mine 2014 • Realigning expectations 35 PwC • June 2014
17
Operating costs remain stubbornly high
● With costs up, aggregate net profits for the year dropped to US$20bn, the lowest level for the
Top 40 in a decade
● Cost saving initiatives are taking time to bear fruit, but early 2014 reporting indicates some
successes, particularly with gold companies reporting substantial all-in cost reductions
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Top 40 are struggling to bring rising operating costs under control
Mine 2014 • Realigning expectations 35 PwC • June 2014
18
Industry had record impairments … again
● 2013 was another year of write downs for
the Top 40 with US$57-bn of impairment
charges recorded, on top of around
US$40-bn in 2012
● One quarter of the Top 40 recorded over
US$1-bn of impairments each in 2013,
primarily gold miners and the Top 5
diversified miners
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
The mining industry had to make record impairment charges
Mine 2014 • Realigning expectations 22 PwC • June 2014
Source: PwC analysis
19
Share prices of mining stocks have dived
● The performance of the Top 40 mining stocks was down 23% in 2013 to US$985bn
● The HSBC and JSE mining indices declined by 23% and 21% respectively in 2013, while the
Dow Jones and FTSE-100 rose by 27% and 15% respectively
● Gold miners hardest hit with the segment losing 40% off its market cap to US$110-bn
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Both SA and international mining indices have underperformed the general markets
Mine 2014 • Realigning expectations 35 PwC • June 2014; Source - Bloomberg
● Source: IMF
27%
15%
(23)%
How should the industry respond to long-term and
short-term trends?
21
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
operational risk essential
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Equity and debt investors need to return to provide funding to grow the industry
22
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,
remote locations, etc).
● Areas of innovation for mining companies:
Truck and process plant activities
Remote operator controls
Drill and blast technologies
Reef-boring technology
(AngloGold Ashanti SA mines)
Deep-level mechanised mining (South Deep)
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Technology and R&D critical to the future of mining
23
3 – The industry needs to mechanise
● Mechanisation is critical for the future of the
mining industry as it enables the mine to be
run more efficiently, safer and attract the right
skills
● Critical areas of mechanisation at our South
Deep mine:
- 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
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Mechanisation will ensure a safer, more modern and more profitable mine
24
4 – The industry needs to upskill to survive
● Mechanisation is critical for the future of the
mining industry as it enables the mine to be
run more efficiently, safer and attract the right
skills
● Critical areas of mechanisation at our South
Deep mine:
- 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
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
From Jurassic to Joystick mining
25
5 – 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
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Creating Shared Value with our communities and other stakeholders
26
6 – 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
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Illustrate the gold industry’s direct economic impact
27
6 – Better communication of the mining sector’s benefits (2)
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 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 0 0
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 0 0
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
28
6 – 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
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
The mining economy has large 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%
of total GDP
~2.5x for
South
Africa
~3.2x for
Ghana
~1.7x in
Peru
29
6 – Better communication of the mining sector’s benefits (4)
• Mining punches above its weight
with its GDP multiplier effect
• One direct mining job supports one
indirect job and one impacted job
• …in SA, one job supports on
average around nine dependents
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
Job and livelihood multiplier effect is significant
Note: Peru study based on five mines and Ghana study based on analysis of one mine
Source: The Rise of Resource Nationalism report (South African Institute of Mining and Metallurgy, February 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);
IDC and Quantec study
~27x for S.
Africa
~28x for
Ghana
~18-19x in
Peru
30
7 - Establish partnerships with stakeholders
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 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
How Gold Fields has responded
32
The transformation of Gold Fields
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 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 PlanA New Paradigm
15 April 2013
Gold Price
< US$1,300/oz
A Fundamental Shift In Strategy
“It’s all about cash – not ounces”
33
The transformation of Gold Fields
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 2014
A structural shift in the production and cost base
US$450 million removed from cost base in 2013
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2012 2012 2012 2012 2013 2013 2013 2013 2014
Gold Produced Gold Price AIC
Gold Fields’ costs under control ● 7 out of 8 mines at or below gold price
(US$1,283/oz)
● 8th Mine (South Deep Project) cash break-
even end 2014 early 2015 – (Q1 2014:
US$1,597/oz v Q1 2013: US$2,223/oz)
● 2014 Group guidance ~2.2 Moz at AIC of
US$1,150/oz
2012 Q1 2013 2013 Q1 20142014
Guidance
AISC US$/oz
1,310 1,303 1,202 1,066 1,125
AICUS$/oz
1,537 1,476 1,312 1,114 1,150
Production oz
2,031 477 2,022 557 2.200
34
The transformation of Gold Fields
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 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
.
0
500
1000
1500
2000
2500
3000
3500
2012 2013 2014*
Attributable Production
South Africa Ghana
Australia Peru
* 2014 Guidance
SA
16%
35
Conclusion: The gold mining industry at a crossroads
The state of the gold mining sector - Society of Mining Professors | Nick Holland | 28 June 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