Value creation in gold mining Presentation to KPMG Mining Executive Forum NICK HOLLAND September 2014

Transcription

1 Value creation in gold mining Presentation to KPMG Mining Executive Forum NICK HOLLAND September 2014

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 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. 2

3 Long-term trends affecting gold mining

4 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 expected to increase beyond 2014 as confidence is restored % y-o-y 10 Global economic growth outlook - IMF forecasts f 2015f 2016f 2017f 2018f Mine 2014 Realigning expectations 35 PwC June 2014 Emerging markets & developing economies China Advanced economies 4

5 Leading to strong consumer demand for metals from the East 2013 Gold consumer demand by country 450 tonnes in tonnes in 2008 EAST WEST (tonnes) 1,200 1,000 1, Total East: 2,840 tonnes (83%) Total West: 573 tonnes (17%) Source: World Gold Council - Gold Demand Trends Full Year 2013, February

6 Jan 02 Jan 03 Jan 04 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 (US$/oz, real terms) Gold price has been hard hit with little respite in sight Historical & forecast gold prices 2,000 GOLD PRICING DEVELOPMENT Annual, Real 2013 Terms (a) 1,800 1,600 1,400 1,200 Max: $1,500/oz Median: $1,268/oz 1, Min: $815/oz 600 Broker Max & Min Gold AME Price Broker Average Forward Curve (a) 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 6

7 Gold is becoming scarce (1) World gold supply trends steadily retreating 6000 Supply of gold from mines, scrap, ETFs and hedging (tons) ,138 4,364 4,422 4, ,155 3, , , e 2015e 2016e Mine Supply Scrap ETFs Hedging Source: Credit Suisse (6 Jan 2014), Morgan Stanley (3 Feb 2014), Société Générale (29 Nov 2013), AME, Bloomberg, WGC 7

8 Gold is becoming scarce (2) Number and average grades of gold discoveries have dropped dramatically Source: GFL/MinEx Consulting 8

9 Increasing Resource Nationalism Governments and communities remain antagonistic towards mining Resource nationalism plagues the oil market Wall Street Journal, Mar 2012 Congo s mining tax increase plan rattles investors Reuters, March 2014 South African minerals law facilitates nationalisation and export bans in mining HIS Global Insight, March 2014 Bolivia passes mining law that bans partnerships with multinationals Mining.com, June 2014 Resource Nationalism #1 on mining risk list Ernst & Young, Aug 2011 Tanzania pressures miners for more cash Reuters, June

10 Communities are finding their voice Number of conflicts between mines and communities Source: ICMM 10

11 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 projects, worth US$7.5bn, delayed Mining.com January 2013 South African platinum sector could see 10,000 job losses EWN June 2014 Mining job cuts push Aussie jobless rate to 10-year high Mining.com February 2014 Barrick suspends massive Pascua Lama project in Chile International Business News - September 2013 Ghana mines to trim almost 4,000 jobs in 2014 Ghana Web September

12 How should the industry respond to long-term and short-term trends?

13 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 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 13

14 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 companies: Truck and process plant activities Remote operator controls Drill and blast technologies SA deep level mining: Reef-boring technology (AngloGold Ashanti SA mines) Deep-level mechanised mining (South Deep) 14

15 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 are already highly mechanised Critical areas of mechanisation at our South Deep mine remain: - 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 15

16 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 16

17 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 and 13 largest gold consuming countries This includes: $25bn $70bn $38bn $4bn Gross value added from recycling gold Gross value added from gold jewellery Gross value added from gold bars and coins Gross value added from use in technology fabrication >$78bn Gold mining s economic value-add contribution (GVA) across 15 largest gold producing countries 17

18 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 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 18

19 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 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 One direct mining job supports one indirect job and one impacted job in SA, one job supports on average around nine dependents 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 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 19

20 6 - Establish partnerships with stakeholders Job and livelihood multiplier effect is significant Challenge Partnership Balance Transparency Certainty Simplicity Mitigation Working and collaborative partnerships between miners, governments, labour and communities Balance long-term growth strategies with short-term fiscal imperatives Total transparency in reporting individual asset performance Long-term commitments from governments not to change the rules of the game Simple rules of the game that align interests and can be applied to all assets 20

21 How Gold Fields has responded

22 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 cash not ounces Building a sustainable business at US$1,300/oz 22

23 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 progressing - Yanfolila and Chucapaca concluded Underway Underway Balance sheet strengthened A 15% Free Cash Flow Margin at US$1,300/oz Gold Dividends declared Significant Progress On All Strategic Matters 23

24 Active management of our portfolio Active Portfolio Management: Strategic Context Ongoing Strategic Portfolio Review annual planning & capital allocation process Test existing assets, brownfields opportunities and M&A targets against Gold Fields Franchise Asset objectives: - The right address - Gold focus Strategic Portfolio Review Acquire? Operate? Restructure? Divest? Operate Restructure Acquire M&A Divest Franchise assets Non-franchise assets - Sustainable 15% FCF US$1,300/oz gold price Operate Franchise Assets Operational Excellence The Gold Fields DNA A sustainable 15% FCF US$1,300/oz gold price No greenfields exploration An Ongoing Process of Portfolio Improvement 24

25 Geographic portfolio breakdown International diversification In 2013 Gold Fields transformed its production base Unbundling of Sibanye Gold in South Africa 2014 Production Guidance* 13% 16% Acquisition of Yilgarn South assets in Australia Marginal production stopped in Australia & Ghana 43% 28% 100% mechanised mid-tier producer South Africa Ghana Australia Peru * Attributable production Attributable Production Peru 13% Ghana 28% SA 16% Australia 43% * South Africa Ghana Australia Peru * 2014 Guidance An international gold producer operating in good countries 25

26 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, ,000 (US$1,280/oz) 1, ,000 8 th Mine (South Deep Project) cash breakeven early , , Group guidance ~2.2 Moz at AIC of 1, ,000 US$1,150/oz , , Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Gold Produced Gold Price AIC US$450 million removed from cost base in

27 Shareholders are being rewarded Creating value through the unbundling of Sibanye (announced 29 November 2012) Gold Price 1, Nov ,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 US$1,719.69/oz 28 November 2012 to 3 September Sep 2014 US$1,269.40/oz 60% 40% 20% 0% -20% -40% -60% -80% 47% -20% -26% -30% Total Shareholder Returns 28 November 2012 to 3 September % -43% -45% -55% -55% -61% -61% GFI & Randgold Goldcorp Agnico Eagle Newmont Anglogold Barrick Yamana Newcrest Harmony Kinross Sibanye Source: Bloomberg Combined +47% TSR Despite 26% Fall In Gold Price 27

28 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) Cash rather than shares ensures no shareholder dilution Introduces downside if threshold is not achieved, no bonus 50% Weighting Free Cash Flow 15% Free Cash Flow Margin 50% Weighting + = BONUS Total Shareholder Returns US WACC 6% Real compounded (Threshold) If Shareholders Win, We Win, If Shareholders Lose, We Lose 28

29 Conclusion: The gold mining industry at a crossroads The industry needs to work with stakeholders to grow the mining economy 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. Mining Economy/ GDP impact combined with a greater fiscal take jeopardise further investment The result: loss of jobs, a shrinking pie 29