Slide 1: Value creation in gold mining
Value creation in gold mining Presentation to KPMG Mining Executive Forum NICK HOLLAND September 2014
Slide 2: Forward looking statements
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
Slide 3: Long-term trends affecting gold mining
Long-term trends affecting gold mining
Slide 4: Economic demand from emerging market remains strong
Economic demand from emerging market remains strong IMF expects continued strong economic growth from emerging markets ● 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 expec
Slide 5: Leading to strong consumer demand for metals from the East
Leading to strong consumer demand for metals from the East 2013 Gold consumer demand by country 450 tonnes 630 tonnes in 2008 in 2008 EAST WEST (tonnes) Total East: 2,840 Total West: 573 tonnes tonnes 1,200 1,000 1,066 975 (83%) (17%) 800 600 400 175 190 200 140 121 92 77 72 68 77 73 57 38 65 25 21
Slide 6: Gold price has been hard hit with little respite in sight
Gold price has been hard hit with little respite in sight Historical & forecast gold prices GOLD PRICING DEVELOPMENT Annual, Real 2013 Terms(a) 2,000 1,800 1,600 Max: $1,500/oz 1,400 (US$/oz, real terms) Median: $1,268/oz 1,200 1,000 Min: $815/oz 800 600 Broker Max & Min 400 200 0 Jan 02 Jan 03 Jan
Slide 7: Gold is becoming scarce (1)
Gold is becoming scarce (1) World gold supply trends – steadily retreating Supply of gold from mines, scrap, ETFs and hedging (tons) 6000 5219 5000 880 4,422 4,476 4,155 4,364 4,138 3,845 4000 15 3,565 3,731 300 35 1610 1615 1371 150 1655 1549 1000 900 3000 1315 875 2000 2812 2861 2968 2855 2709 278
Slide 8: Gold is becoming scarce (2)
Gold is becoming scarce (2) Number and average grades of gold discoveries have dropped dramatically Source: GFL/MinEx Consulting Nick Holland - Presentation to KPMG September 2014 8
Slide 9: Increasing Resource Nationalism
Increasing Resource Nationalism Governments and communities remain antagonistic towards mining “Congo’s mining tax “Resource nationalism increase plan rattles plagues the oil market” investors” Wall Street Journal, Mar 2012 Reuters, March 2014 “Bolivia passes mining “South African minerals law law t
Slide 10: Communities are finding their voice
Communities are finding their voice Number of conflicts between mines and communities Source: ICMM Nick Holland - Presentation to KPMG September 2014 10
Slide 11: New investments and existing operations curtailed
New investments and existing operations curtailed 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 pr
Slide 12: How should the industry respond to long-term and short-term trends?
How should the industry respond to long-term and short-term trends?
Slide 13: 1 – The industry needs to make money again
1 – The industry needs to make money again Equity and debt investors need to return to provide funding to grow the industry ● 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
Slide 14: 2 – The industry needs to innovate
2 – The industry needs to innovate Technology and R&D critical to the future of mining ● 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
Slide 15: 3 – The industry needs to mechanise and upskill
3 – The industry needs to mechanise and upskill From Jurassic to Joystick mining ● 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 – ar
Slide 16: 4 – Sound ESG policies to be maintained and implemented
4 – Sound ESG policies to be maintained and implemented Creating Shared Value with our communities and other stakeholders Moving from philanthropy to systematic creation of shared value, recognising the impact of the GDP multiplier effects Nick Holland - Presentation to KPMG September 2014 16
Slide 17: 5 – Better communication of the mining sector’s benefits (1)
5 – Better communication of the mining sector’s benefits (1) Illustrate the gold industry’s direct economic impact 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
Slide 18: 5 – Better communication of the mining sector’s benefits (2)
5 – Better communication of the mining sector’s benefits (2) 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 200
Slide 19: 5 – Better communication of the mining sector’s benefits (3)
5 – Better communication of the mining sector’s benefits (3) The mining economy has large growth and job multiplier effects • GDP growth is essential for governments targeting effective ~2.5x for transformation South Africa • Growing the mining economy, Mining has ~3.2x for Ghana especially for reso
Slide 20: 6 - Establish partnerships with stakeholders
6 - Establish partnerships with stakeholders 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
Slide 21: How Gold Fields has responded
How Gold Fields has responded
Slide 22: The transformation of Gold Fields
The transformation of Gold Fields The journey started with the speech to the Melbourne Mining Club 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 ca
Slide 23: Implementation of key turnaround strategies
Implementation of key turnaround strategies 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 Underway progressing - Yanfolila and Chuca
Slide 24: Active management of our portfolio
Active management of our portfolio Active Portfolio Management: Strategic Context • Ongoing Strategic Portfolio Review – annual planning & capital allocation process Franchise • Test existing assets, brownfields Strategic Portfolio Review M&A assets Acquire? Operate? opportunities and M&A targets ag
Slide 25: Geographic portfolio breakdown
Geographic portfolio breakdown International diversification 2014 Production Guidance* ● In 2013 Gold Fields transformed its production base 13% 16% ̵ Unbundling of Sibanye Gold in South Africa ̵ Acquisition of Yilgarn South assets in Australia 43% 28% ̵ Marginal production stopped in Australia & Gh
Slide 26: Production and costs heading in the right direction
Production and costs heading in the right direction A structural shift in the production and cost base 1,900 Gold Fields’ costs under control 700,000 ● 7 out of 8 mines at or below gold price 1,700 600,000 (US$1,280/oz) ● 8th Mine (South Deep Project) cash break- 1,500 500,000 even early 2015 1,300
Slide 27: Shareholders are being rewarded
Shareholders are being rewarded Creating value through the unbundling of Sibanye (announced 29 November 2012) 1,800 28 Nov 2012 Gold Price US$1,719.69/oz 28 November 2012 to 3 September 2014 1,700 1,600 1,500 1,400 1,300 1,200 3 Sep 2014 1,100 US$1,269.40/oz 1,000 Total Shareholder Returns 28 Novemb
Slide 28: Executive alignment with shareholder returns
Executive alignment with shareholder returns Alignment of executive and senior management incentives with shareholders ● Short term bonus (Annual) ̵ Based on Board approved annual operational plans and targets ̵ Includes parameters for operational sustainability ● Long term bonus (Three year cycle)
Slide 29: Conclusion: The gold mining industry at a crossroads
Conclusion: The gold mining industry at a crossroads The industry needs to work with stakeholders to grow the mining economy • Long term collaborative partnerships (Miners, Governments, Labour, Mining Communities, Dev. Agencies)… Economy/ • … leading to more investment GDP • The result: increased im