Commission File Number 1-31318
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"fiscal 2004 has been a
difficult but eventful year"
Dear Shareholder
For Gold Fields Limited fiscal 2004 has been a difficult but eventful year. Some of the difficulties in the form of the transformation mandates imposed by government were predictable and expected but the principal problem, the strengthening of the improbable rand, was not. The rand averaged R6.90 to the U.S. dollar compared with R9.07 for fiscal 2003, a rise of over 24 per cent. As a result, the once indomitable South African gold mining industry is struggling to achieve profitability despite a gold price that hovers around US$400 an ounce. But for the success of our non-South African operations, the financial results for the year would have been quite poor.
Net earnings for the year were a satisfactory R768 million (US$111 million) down substantially from R2,953 million (US$326 million) for last year. Similarly, operating profit was down from R4,741 million (US$423 million) to R2,315 million (US$336 million). Attributable production
was down 4 per cent to 4,158,000 ounces due largely to a 225,000 ounce drop in production from the South African mines and the sale of the St Helena mine. Conversely, cash costs on the South African mines rose in both rand and dollar terms, driven largely by the expensive union settlement in July 2003. Rand cash costs per kilogram rose 9 per cent to R67,075 per kilogram. After adjusting for the currency changes the US dollar cash cost per ounce rose an extraordinary 42 per cent to US$302 per ounce. With the rand recently trading below R6 to the US dollar, the South African operations are now under extreme pressure. Further strengthening of the rand or weakening of the gold price will inevitably lead to shaft closures and lay-offs. In this environment it would be unrealistic for the union to look for above inflation awards in the next round of negotiations.
Our international operations meanwhile have done well, contributing the bulk of the pre-tax profits for the year. Tarkwa, Damang, St Ives and Agnew all had good results with Agnew having a stand out performance.
Letter from the Chairman
Chris Thompson
"the need to expand and diversify
Gold Fields outside South Africa
remains a continuing imperative"
"The gold price outlook remains
firm, underscored by declining gold
production, high international tensions,
the almost certain resumption of
inflation in the USA and strongly rising
investment demand for gold"
PAGE 3
Despite all the operating difficulties, some corporate milestone achievements were reached. In March 2004 a transaction with Mvelaphanda Resources (Mvela) was concluded, in terms of which Mvela, through a wholly- owned subsidiary, will acquire a 15 per cent equity interest within five years in the South African gold mining assets of Gold Fields for a cash consideration of R4.1 billion. These funds will be used to pursue Gold Fields' capital projects both locally and internationally. This transaction is a remarkable black economic empowerment highlight in that it was extremely creative, and was demonstratively fair to Gold Fields' shareholders in that the consideration paid was determined directly from market prices and paid in cash. I am also confident that the transaction will prove to be a very successful one for Mvela shareholders. Gold Fields' investment of R300 million in Mvelaphanda Resources underscores this. Management of both sides can justifiably be proud of this landmark deal.
A second notable achievement was the purchase in August 2003 of the remaining 49 per cent of the Arctic Platinum Project (APP) for an aggregate consideration of US$31 million made up of cash and Gold Fields shares. To date 12 million ounces of resources have been defined and the APP land holdings cover a large province that is liberally endowed with platinum group metals. A bulk sample of 5,300 tons from the Suhanko deposit is being metallurgically assessed. In addition further work has allowed for prospective improvements in metallurgical recoveries, and overall prospective economics continue to improve. Infill drilling programmes were also successfully completed at Suhanko to upgrade 34 million tons of inferred Mineral Resource to Indicated and Measured status. We expect a final feasibility to be completed by the end of 2004 and, if the results are what I expect, we will be well into construction of Europe's largest platinum group mine by this time next year.
Fiscal 2004 also saw the announcement of our intended purchase of the Cerro Corona copper gold project in northern Peru and the initiation of expansions at St Ives in Australia and Tarkwa in Ghana. St Ives is constructing a new 4.5 million tons per annum mill and Tarkwa a 4.2 million tons per annum mill and CIL plant. In addition Tarkwa has almost completed the conversion from contractor mining to owner mining. At both of these mines the expansions allow for reduced operating costs and, in the case of Tarkwa, a significantly expanded reserve base. A decision was also made in 2004 to establish a Gold Fields presence in China, a bold and forward thinking
move that I expect will bring long-term dividends. Joint ventures have been established with Sino Gold Limited and Zijin Mining Corporation, to explore in the Shandong and Fujian provinces respectively, and a representative office has been established in Beijing.
The surprise of 2004 was the unheralded purchase by Norilsk Nickel of Russia of the 20 per cent Gold Fields shareholding formerly held by Anglo American. Norilsk is the world's largest nickel producer and also a large producer of platinum group metals. Since the break-up of the Soviet Union, the new owners have been quick to adopt western management practices turning Norilsk into a formidable and very profitable public company. Gold Fields personnel have travelled to visit Norilsk's substantial gold properties and found some of them to be of good quality and well established. Despite many regulatory difficulties, we have been exploring with Norilsk owners the opportunities embedded in this situation. Nothing conclusive can yet be reported.
Turning to the outlook, the need to expand and diversify Gold Fields outside South Africa remains a continuing imperative, and there will be an increasing focus on this in the coming months. At the same time, further success in reducing costs in South Africa is vital while we reassess the possibilities of investing in further down-dip extensions in Kloof and Driefontein. The gold price outlook remains firm, underscored by declining gold production, high international tensions, the almost certain resumption of inflation in the USA and strongly rising investment demand for gold. The only negative is the continued slide in jewellery consumption of gold in India and the Middle East over the last three years. The balance of probabilities is that gold will trade higher rather than lower in the coming months.
Finally, on behalf of the board and myself I would like to welcome Mr Kofi Ansah, formerly head of the Ghanaian Minerals Commission, to the board. He brings a wealth of needed Ghanaian perspective to the board. Further, on behalf of all of us on the board I would like to express heartfelt thanks to management and the workforce for a strong effort in very difficult times. Considering the difficulties, the company has done quite well, indeed.
Chris Thompson Chairman
3. Chris I von Christierson, 4. Patric J Ryan,
5. Kofi Ansah, 6. Michael J McMahon,
7. Nicholas J Holland,
8. Bernard R van Rooyen, 9. Jakes G Gerwel,
10. Ian D Cockerill,
11. Christopher M T Thompson,
12. Alan J Wright
PAGE 5
Executive directors
Ian D Cockerill (50)*
BSc (Geology) Hons, London, MSc (Mining), Royal School of Mines. Chief Executive Officer
Mr Cockerill has been a director of Gold Fields since October 1999 and became chief executive officer on 1 July 2002. He was chief operating officer and managing director of Gold Fields from October 1999 to 30 June 2002. He has over 29 years of experience in the mining industry. Prior to joining Gold Fields he was the executive officer for Business Development and African International Operations for AngloGold Limited.
Nicholas J Holland (45)*
B.Comm, BAcc, Witwatersrand; CA(SA) Chief Financial Officer
Mr Holland has been a director of Gold Fields since February 1998 and executive director of finance since March 1998. On 15 April 2002 his title changed to chief financial officer. He has 24 years of experience in financial management. Prior to joining Gold Fields he was financial director and senior manager of corporate finance of Gencor Limited. He is also a director of Rand Refinery Limited, and Teba Bank.
Non-executive Directors
Christopher M T Thompson (56)*
BA Rhodes; MSc (Management Studies), Bradford Chairman
Mr Thompson has been a director of Gold Fields since May 1998 and chairman of the board since October 1998. He was the chief executive officer of Gold Fields from October 1998 to 30 June 2002. He has over 35 years of experience in the mining industry. He is also chairman and member of the executive committee of the World Gold Council, director of TeckCominco Corporation and Frontera Copper Corporation and a past director of the South African Chamber of Mines and of Business against Crime.
Alan J Wright (63)°
CA(SA) Deputy Chairman
Mr Wright has been deputy chairman of Gold Fields since November 1997. Prior to September 1998, he was the chief executive officer of Gold Fields of South Africa Limited.
Kofi Ansah (60)°
BSc (Mech. Eng) UST Ghana; MSc (Metallurgy)
Georgia Institute of Technology
Mr Ansah was appointed a director in April 2004. He is a director of Metropolitan Insurance Company Limited, Ecobank (Togo) Limited and Aluwoks Limited.
Michael J McMahon (57)°
BSc (Mech. Eng), Glasgow
Mr McMahon has been a director of Gold Fields since December 1999. He serves as non-executive director of Impala Platinum Holdings Limited. Previously, he was chairman and an executive director of Gencor Limited and executive chairman and chief executive officer of Impala Platinum Holdings Limited.
Gordon R Parker (68)°
BS, MS, Montana College of Mineral Science and Technology; MBA, Cape Town
Mr Parker has been a director of Gold Fields since May 1998. He is a director of Caterpillar Inc, and Phelps Dodge Corporation. Previously, he was chairman, president and chief executive officer of Newmont Mining Corporation.
Patric J Ryan (67)°
PhD (Geology), Witwatersrand
Dr Ryan has been a director of Gold Fields since May 1998. He is president and chief executive officer of Frontera Copper Corporation and a director of Fronteer Development Group Inc. He was previously the executive vice president, mining operations, development and exploration at Phelps Dodge Corporation.
Tokyo M G Sexwale (51)*
Certificate in Business Studies, University of
Botswana, Lesotho and Swaziland
Mr Sexwale has been a director of Gold Fields since January 2001. He is chairman of Mvelaphanda Resources Limited, Northam Platinum Limited and Trans Hex Group Limited and a director of a number of other companies.
Bernard R van Rooyen (70)*
BA, LLB, Witwatersrand
Mr van Rooyen has been a director of Gold Fields since May 1998. He is the deputy chairman of Trans Hex Group Limited and a director of Mvelaphanda Resources Limited and Northan Platinum Limited.
Chris I von Christierson (56)°
BComm, Rhodes; MA, Cambridge
Mr von Christierson has been a director of Gold Fields since February 1999. He is the chairman of Rio Narcea Gold Mines Limited and Afri-Can Marine Minerals Corporation Limited and a director of Southern Prospecting (UK) Limited.
Jakes G Gerwel (58)°
D.litt et Phil (magna cum laude) Brussels
Professor Gerwel has been a director of Gold Fields since August 2002. He is chancellor of Rhodes University; Nelson Mandela Distinguished Professor in the Humanities at the University of the Western Cape, chairman of Brimstone Investment Corporation and a director of a number of other companies.
Rupert L Pennant-Rea (56)°
BA (Trinity College Dublin);
MA (Univ. of Manchester)
Mr Pennant-Rea has been a director of Gold Fields since July 2002. He is chairman of The Stationery Office Holding Limited. He is a director of British American Tobacco plc, Sherrit International Corporation, First Quantum Minerals, Rio Narcea, and a number of other companies. Previously he was editor of The Economist and deputy governor of the Bank of England.
* Non-independent directors ° Independent directors
PAGE 6
"The challenge for management is to ensure that the South African operations survive the margin pressures caused by the current rand gold price, while remaining flexible enough to take advantage of changing economic conditions"
"We have evolved a three-pronged strategy that embraces optimising our operations, growing Gold Fields and developing the gold market"
"The Mvelaphanda transaction fulfilled the Mining Charter's requirement that 15 per cent of our South African assets be under black empowerment ownership within five years"
I am pleased to report that Gold Fields realised many
achievements during the past year in spite of many
challenges. For this reason, SUSTAINABLE GROWTH is the
theme of our annual report.
It is appropriate for many reasons: We refined our
international growth strategy; made significant progress
in the way we manage and develop our people; advanced
the systems that will establish Gold Fields as a leading
global company; and fostered our relationships with
stakeholders.
The persistent strength of the rand necessitated, at
the beginning of the year, a critical review of operating
strategies at all of our South African operations.
The 2004 financial year brought significant challenges
and achievements for Gold Fields. We have made
substantial progress across the group in bedding
down sustainable development as a key performance
indicator, and in introducing a triple bottom line
approach to our strategic planning.
To reflect these changes and allow stakeholders to
assess performance throughout our business, we have
integrated our reporting on business, social activities
and environmental issues into one report: a true triple
bottom line approach.
We hope you will find this document comprehensive,
useful and accessible.
Chief Executive Officer's review
Ian Cockerill
PAGE 7
Recognising that the rand was likely to remain stronger
for longer, we moved to protect our margins by changing
our strategy from lower grade, high volume mining to
higher grade, lower volume. This repositioned our South
African operations for further strengthening of the rand
during the rest of the year and enabled us to maintain the
overall margin for the group at approximately 20 per cent
through the year.
We also transformed Gold Fields significantly in line
with the objectives of the Minerals and Petroleum
Resources Development Act and the accompanying
Mining Charter, (which became effective on 1 May 2004),
by the conclusion of a groundbreaking transaction with
Mvelaphanda Resources pursuant to which Mvelaphanda
Resources, through a wholly-owned subsidiary, will acquire
a 15 per cent equity interest in the South African gold
mining assets of Gold Fields within five years for a cash
consideration of R4.1 billion. The transaction seeks to
fulfil the mining charter requirement that 15 per cent
of our South African assets are owned by historically
disadvantaged South Africans (HDSAs) within five years.
Advancing markedly towards our stated goal of
substantially enlarging our international production
profile, particularly in US dollar denominated jurisdictions,
we initiated expansions at our Tarkwa and St Ives mines,
and made major progress with the Arctic Platinum Project,
for which an investment decision is expected by the end
of December 2004. We also entered into an agreement
to acquire an effective 80.7 per cent economic interest
in the Cerro Corona Project in Peru, which is currently
undergoing a final feasibility study.
Following Anglo American plc's disposal of its 20 per cent
stake in Gold Fields to MMC Norilsk Nickel, and Norilsk's
indication that it intends to use this holding to pursue a
common gold strategy for the two companies, we have
begun the process to determine the potential for future
cooperation between our respective companies.
Operations
Operational performance was satisfactory. With the
sale of St Helena in South Africa, the lower grades
mined and the closure of unprofitable areas, such as
the Driefontein 10 and Kloof 9 shafts, attributable gold
production of 4.2 million ounces was only marginally
down from the record high of 4.3 million ounces in
F2003. Total cash costs for F2004 were well controlled
at R67,075 per kilogram (US$302 per ounce), despite
an above-inflation wage increase at the South African
operations, agreed in July 2003.
Gold market fundamentals were strong for most of the
year, principally due to a relatively weak US dollar and
global geo-political and financial uncertainty. The average
US$ gold price achieved for the year was US$387 per
ounce, compared to US$333 per ounce during F2003.
Because the strength of the rand more than offset this
gain, the year's average rand gold price was 11 per cent
lower than last year's, which had a significant impact
on revenue and reduced net earnings by 75 per cent on
F2003, to R768 million, or 158 cents per share.
Safety, health and environment
A sustained, intense focus on risk management since
the launch of our Full Compliance Health and Safety
Programme in June 2000, improved health and safety
performance and practices across the group, enabling us to
cut the fatal injury frequency rate by 18 per cent, the lost-
day injury frequency rate by 28 per cent and the serious
injury frequency rate by 25 per cent, over this period.
While these improvements are encouraging, it becomes
increasingly difficult to raise the bar on safety
performance year-on-year, as we found during F2004.
I am deeply saddened to report that 37 of our colleagues
lost their lives in 34 separate accidents at our operations
during the year. I extend my personal condolences, and
those of our board and management team, to their
families, colleagues and friends. Our efforts to eliminate
fatal accidents at all our operations are described on
PAGE 8
page 50. The challenge, to which we remain committed, is to find new ways to
motivate employees to be vigilant and committed to continual improvement in this
critical area of our work.
During the year we implemented an integrated, computerised health and safety risk
management system, called Palladium, at all South African operations. We are also
comprehensively reviewing the Full Compliance Programme, using the Occupational
Health and Safety Assessment Series (OHSAS) 18001, which we hope to achieve for
the South African operations later in the year. Our Australian operations have already
been certified to the Australian Standard 4801, the equivalent of OHSAS 18001.
A similar process is under way at our operations in Ghana.
External audits of our operations in South Africa, Australia and Ghana during the year, and
the retention of their ISO 14001 certifications, reflect the emphasis we place on excellence
and continual improvement in environmental management.
Strategy
The Gold Fields vision is to be the leading, value adding, globally diversified, precious
metal producer, through the responsible, sustainable and innovative development of
quality assets. To realise this vision, we have evolved a three-pronged strategy that
embraces:
• optimising our operations;
• growing Gold Fields; and
• developing the gold market.
It demands both robust financial positioning and retention of our licence to operate
through development of our people, good community relations and the general
transformation of Gold Fields to play its part in a democratic South Africa and the
rest of the world.
1. Optimising our operations
The returns available from cost reductions and the optimising of existing operations,
the platform from which we pursue our vision, significantly exceed external
investment opportunities. Inward investment makes good business sense, and
supports our commitment to operational excellence, people development and
optimal mine designs and layouts.
Such investment at our operations in South Africa, Ghana and Australia totalled
R2,719 million during the year under review (R878 million in South Africa) and offers
The Full Compliance Health and Safety
Programme aims to eliminate all fatal
accidents at Gold Fields operations;
reduce accident rates by 50 per cent by
2005, and to maintain a safe and healthy
working environment at all times, through
quality training, good practice and total
employee commitment.
During the year Beatrix mine as a whole
achieved one million fatality free shifts no
fewer than three times, and, on
3 June 2004, two million fatality free
shifts. In particular, Beatrix 4 Shaft went
16 months without a fatal injury, a
significant improvement on the prior year,
when it had four fatal injuries. Damang
mine also went more than a year without
any lost day injuries.
Chief Executive Officer's review
continued
The Beatrix young lions took top honours with their achievement of two million fatality-free shifts
PAGE 9
Gold Fields shareholders the potential for above average
returns while positioning all our operations well for the
future.
2. Growing Gold Fields
Gold Fields aims to create growth of shareholder value,
not just production ounces. Our way forward is to
diversify geographical, technical and product risk by
acquiring and developing additional long-life, world-
class assets in predominantly US dollar denominated
jurisdictions, thus creating a more balanced portfolio.
We have made good progress towards our target of
finding an additional 1.5 million ounces of international
production ounces within five years. About half of it is
in the pipeline. Expansions at Tarkwa and St Ives will
add approximately 200,000* and 100,000 ounces a
year, respectively. The Arctic Platinum and Cerro Corona
Projects, both currently in latter stages of feasibility and
development, will, if approved, and in the case of Cerro
Corona, if completed, add approximately 450,000 and
350,000 gold equivalent ounces a year to production,
respectively. Spending on our extensive brown fields
and green fields exploration programmes worldwide is
now nearing US$73 million** a year. Encouraging results
are being seen, in particular at the Bibiani and Essakan
projects in West Africa, and at all our brown fields sites in
Ghana and Australia.
3. Gold Market Development
Our conviction that we have a singular responsibility
as a senior gold producer to nurture the market for our
product, led to our adoption, as far back as 1999, of a
no-hedging policy. We also chose to use the World Gold
Council (WGC) as the vehicle to fulfil our role of product
stewardship. The WGC is engaged in a wide range of
initiatives, ranging from marketing gold for jewellery,
to developing new gold-based investment instruments,
and, as a long-standing member, we actively and
enthusiastically support these activities. In addition we
are active funders of research and development efforts,
investigating new markets for gold in industrial uses. Our
Chairman, Chris Thompson, is also the WGC Chairman.
Robust financial positioning
Gold Fields was the first major gold producer to take a
strong public position against the forward selling of gold,
and the policy remains the cornerstone of our financial
strategy. We believe our shareholders invest in gold, and
Gold Fields in particular, seeking full exposure to the gold
price. A natural consequence is that the company should not
be over-leveraged, a philosophy to which we subscribe fully.
We have a strong balance sheet, with cash or near
cash reserves of approximately R5.6 billion available
to fund the growth projects referred to above and any
additional opportunities that may arise. We are also in
a position, if necessary, to approach the capital markets
for funds (as we did when we raised US$225 million in
November 2003) for international growth projects. As
we have demonstrated in the past, our financial strategy
remains prudent, allowing investment only in projects that
are demonstrably accretive to our shareholders, providing
them with a real return on cash investments that exceed
the cost of capital.
At an operational level, we are focused on aggressive cost
management, and ongoing investment in cost reductions.
The operations made meaningful progress in limiting
waste and reduced spending on procurement. Through, for
example, business partnerships with suppliers, risk-reward
sharing arrangements, and vendor rationalisation, total
stores inventory was reduced by 30 per cent and vendor
price increases controlled at between 1 per cent and 2 per
cent below South Africa's PPI. We believe that over the
next 24 to 36 months we will be able to potentially save
a further R200 to R300 million per annum in procurement
spend, through improved efficiencies, leveraging buying
power and strategic sourcing.
At current prices and exchange rates, we expect the South
African operations to be cash neutral in F2005. The current
* total managed **including spend of US$43.7 million on APP
PAGE 11
Transformation in SA
To ensure the long-term sustainable growth of the
business, environmentally, socially and economically, we
are cementing transformation not merely in our technical
and operational activities but our business conduct
generally.
The spirit and intent of the new Mineral and Petroleum
Resources Development Act and Mining Charter (whose
main objectives are to facilitate the transformation
of the South African mining industry and, in so doing,
allow access for South Africans whose participation
has historically been precluded) are becoming firmly
embedded, most obviously through completion of the
Mvelaphanda transaction mentioned earlier.
However, the Charter sets out nine key performance
areas in which companies are expected to achieve
transformation to convert mineral rights from the old
to the new order as stipulated under the new Mineral
and Petroleum Resources Development Act. In each of
these areas we have made substantial progress. We are
confident we will be able to submit our application for the
conversion of our mineral rights during F2005.
Our commitment to transformation is underlined by
our creation of a new position for a transformation
executive on the Group Executive Committee. While the
incumbent has overall responsibility for transformation in
the group, a key responsibility is to advance employment
equity specifically. During the year we increased the
representation of historically disadvantaged South
Africans (HDSAs) in senior management from 20 per cent
to 27 per cent and in our Group Executive Committee
from 10 per cent to 30 per cent.
The challenge of HIV/Aids in SA
An estimated 28 per cent of all Gold Fields employees
are HIV positive. During 15 years of active management
of HIV and Aids, we have developed comprehensive and
well-recognised expertise in the field, and a programme
that addresses all facets of the condition, including a wide
range of prevention and treatment responses, and the
provision of Highly Active Anti-Retroviral Therapy (HAART)
to people living with Aids.
Outlook for F2005
Prospects will be influenced by the current volatile
operating environment, our need to preserve cash and the
strength of the rand and Australian dollar.
F2005 outlook
Tonnage throughput (Mt)
50
Average yield (g/t)
2.9
Total managed gold production (Moz)
4.69
Attributable gold production (Moz)
4.42
• South Africa
2.96
• International
1.46
South African operations
In line with our focus on achieving quality volumes, and
our stated intention of increasing productivity at our
South African operations by at least 50 per cent over the
next five years, the South African operations are focusing
on Project 500 (see page 16) as the primary initiative to
increase volumes mined to more than 2.0 million square
metres at productivity levels of 4.3 square metres per
Total Employee Costed (TEC). The plan is to maintain rand
per ton and reduce square metre unit costs by mining
higher grades and volumes and tightening cost control.
The development strategy, to ensure Ore Mineral Reserve
flexibility, remains unaltered. The combined main and
2003
30
25
20
15
10
5
0
2004
HDSA representation in senior management
HDSA representation in the Group Executive Committee
PAGE 12
capital development rates are planned at 122 kilometres, slightly below current
performance, yet maintaining close to two years of developed reserves.
International operations
The group will continue to pursue an additional 1.5 million ounces from non-South
African production through a combination of organic growth, acquisition and/or
exploration success within five years.
The owner-mining conversion at Tarkwa will be completed by September this
year, and the Tarkwa mill and CIL plant and the St Ives mill and CIP plants will be
commissioned by December 2004. The life of the Agnew mine in Western Australia
has been extended with the new Songvang pit, construction of which has begun, and
the life extension projects at the Damang mine are proceeding apace.
We aim to complete the necessary work to proceed with the APP (page 36) and Cerro
Corona (page 39) projects in F2005, and to advance exploration projects through our
exploration value chain (page 40). After completion of the current capital projects,
the international operations will be well positioned to pursue organic growth
opportunities and to deliver positive cash flows during the second half of F2005. The
optimisation of operations, through ensuring better mine configurations and cost
reductions, is key to improving unit costs. The net result of the planning cycle for
F2005 indicates total cash costs of US$242 per ounce (US$251 per ounce in F2004)
and total production costs of US$313 per ounce (US$304 per ounce in F2004).
Capital expenditure
Total capital expenditure for all projects amounts to R2,155 million for F2005 with
a 38:62 split between the South African and international operations. Included in
the expenditure plan is the completion of the major capital projects at Driefontein,
Kloof and Beatrix. While these levels of expenditure are currently planned for, they
may have to be reviewed, depending on prices achieved during the year. High levels of
capital expenditure for the new mill and owner-mining conversion at Tarkwa, and the
new mill at St Ives, will continue until December 2004.
Conclusion
The current operating environment is one of the most difficult we have experienced
in our recent history. The challenge for management is to ensure that the South
African operations survive the margin pressures caused by the current rand gold price,
while remaining flexible enough to take advantage of changing economic conditions.
Chief Executive Officer's review
(continued)
Preparing for a blast at Konttijarvi, APP, Finland
Construction of the new CIL plant, Tarkwa gold mine, Ghana
Turning recently poured gold bar to inspect for slag
PAGE 13
Nonetheless, we have made great strides in repositioning
our South African assets and, although there is still work
to do, the underlying inherent quality of our South African
business provides a very solid platform from which we
will continue to grow internationally. We are in a strong
position to deliver against our plans and to create value
for stakeholders. We have the vision, the financial strength
and the people to do so.
Finally, I would like to thank the people of Gold Fields for
their hard work and dedication in what was a particularly
challenging year. We would not have been where we are
had it not been for your commitment and perseverance.
I also thank the board of directors for their support and
guidance throughout the year.
Ian Cockerill
Chief Executive Officer
Gold Fields - IAMGOLD transaction
On 11 August 2004, Gold Fields Limited and IAMGOLD
announced their intention to merge the international
assets of Gold Fields with IAMGOLD to create a major
new gold producer named Gold Fields International.
This new company will have:
• anticipated production of approximately 2 million
ounces in 2005;
• proven and probable attributable gold reserves of
14.9 million ounces;
• measured and indicated resources (including reserves)
of 26.0 million ounces;
• a strong pipeline of near-term development projects
and a portfolio of attractive advanced-stage
exploration projects;
• unhedged production and reserves;
• a srong balance sheet with approximately
US$500 million;
• anticipated operating cash flow in financial year 2005
of approximately US$265 million, assuming a gold
price of US$400 per ounce; and
• a ranking as fourth largest North American gold
producer and seventh largest gold producer in the
world.
Subject to the conditions precedent being fulfilled,
the merger should be finalised towards the end of the
calendar year 2004.
Please refer to Page 100 under the post-balance sheet
events for more detail on this transaction.
PAGE 14
Members of the
executive committee
Ian Cockerill (50)
BSc (Geology) Hons, London, MSc (Mining), Royal School of Mines. Chief Executive Officer
Mr Cockerill has been a director of Gold Fields since October 1999 and became chief executive officer on 1 July 2002. He was chief operating officer and managing director of Gold Fields from October 1999 to 30 June 2002. He has over 29 years of experience in the mining industry. Prior to joining Gold Fields he was the executive officer for Business Development and African International Operations for AngloGold Limited.
Adèle Cleaver (40)
B.A. LLB, University of Cape Town and H.DIP.Tax - Witwatersrand.
Senior Vice President, Legal Counsel. Ms Cleaver joined Gold Fields on 28 February 1998 as Senior Legal Advisor and was promoted to Senior Vice President: Legal Counsel on 1 July 2004. Ms Cleaver previously worked for Gencor for 3 years in the capacity of Legal Advisor.
Jimmy Dowsley (46)
BSc (Mining Engineering), Witwatersrand.
Senior Vice President, Corporate Development. Mr Dowsley has been General Manager of Corporate Development at Gold Fields since March 1998. On 15 April 2002, Mr Dowsley's title changed to Senior Vice President, Corporate Development. Prior to his appointment as General Manager of Corporate Development, Mr Dowsley served as General Manager of New Business, and also as Manager of the Mineral Economics Division of Gold Fields of South Africa Ltd.
Terence Goodlace (45)
National Higher Diploma Metalliferous Mining; B.Comm, Unisa; MBA, Wales.
Senior Vice President, Strategic Planning. On 15 April 2002, Mr Goodlace was appointed Senior Vice President, Strategic Planning. Mr Goodlace had previously served as Senior Manager of Strategic Planning. During the period between June 1998 and May 2000, Mr Goodlace was the Senior Manager for Corporate Finance for Gold Fields. Prior to that, Mr Goodlace was a Manager at various Gencor Limited mines.
Nick Holland (45)
B.Comm, BAcc, Witwatersrand; CA(SA) Chief Financial Officer
Mr Holland has been a director of Gold Fields since February 1998 and Executive director of finance since March 1998. On 15 April 2002 his title changed to chief financial officer. He has 24 years of experience in financial management. Prior to joining Gold Fields he was financial director and senior manager of corporate finance of Gencor Limited. He is also a director of Rand Refinery Limited, and Teba Bank.
Executive
committee
Standing left to right: Jimmy Dowsley, Mike Prinsloo, John Munro, Terence Goodlace, Cain Farrel
Willie Jacobsz (43)
BA, Rand Afrikaans University.
Senior Vice President, Investor Relations and Corporate Affairs. On 15 April 2002, Mr Jacobsz was appointed Senior Vice President, Investor Relations and Corporate Affairs. Since January 1998, Mr Jacobsz had served as Manager and Senior Manager of Investor Relations and Corporate Affairs of Gold Fields. Prior to that Mr Jacobsz was Programme Manager of the Vulindlela Transformation Programme for Gold Fields of South Africa Limited and Administrator of The Gold Fields Foundation.
John Munro (36)
BSc (Chemical Engineering), Cape Town.
Executive Vice President and Head of International Operations. On 1 September 2003, Mr Munro was appointed Executive Vice President and Head of International Operations. Mr Munro had previously served as Senior Vice President and Head of International Operations, Senior Manager and General Manager of Corporate Development for Gold Fields. Prior to that Mr Munro served as Assistant Manager of the Property Division of Gold Fields of South Africa Limited.
Craig Nelsen (52)
BA (Geology), Montana; MSc (Geology), New Mexico.
Executive Vice President, Exploration; President and CEO of Gold Fields Exploration, Inc. Since April 1999, Mr Nelsen has served as Senior Vice President of Exploration for Gold Fields and President and Chief Executive Officer of Gold Fields Exploration, Inc. On 15 April 2002, Mr Nelsen's title changed to Executive Vice President, Exploration. Mr Nelsen was previously Chairman and Chief Executive Officer of Metallica Resources Incorporated.
James Nkosi (53)
D.Com (Leadership in Performance and Change), M.Com (Business Management) Rand Afrikaans University, Masters in Industrial and Organisational Psychology, University of Cape Town.
Senior Vice President, Human Resources and Transformation. On 1 July 2004, Dr Nkosi was appointed Senior Vice President, Human Resources and Transformation. Since July 2001, Dr Nkosi had served as Vice President Human Resources, South African Operations, Gold Fields. Prior to that Dr Nkosi was employed by Eskom for 12 years as an Executive Manager and at Standard Bank as Director: Transformation for four years.
Mike Prinsloo (50)
BSc (Mining Engineering), Witwatersrand; AMP, Harvard.
Executive Vice President, South African Operations. On 15 April 2002, Mr Prinsloo was appointed Executive Vice President, South African Operations. Mr Prinsloo had served as Managing Director of the Driefontein operation since September 2001. Mr Prinsloo was previously Managing Director and Chief Executive Officer of Durban Roodepoort Deep Limited. Prior to that, Mr Prinsloo was an independent consultant to small businesses in South Africa and a Senior Manager with AngloGold Limited.
Corporate Secretary
Cain Farrel (55)
FCIS, MBA, Southern Cross University - Australia.
Mr Farrel was appointed Company Secretary on 1 May 2003. Mr Farrel is President of the Southern African Institute of Chartered Secretaries and Administrators. Previously, Mr Farrel served as Senior Divisional Secretary of Anglo American Corporation of South Africa.
Seated left to right: Willie Jacobsz, Adèle Cleaver, James Nkosi, Craig Nelsen, Nick Holland, Ian Cockerill
PAGE 15
Review of South African operations
Operational performance
It was a particularly challenging year for our South African operations, primarily as a result of the lower rand gold price received, with gold production for the year at 2.8 million ounces. This was 9 per cent lower than F2003 due to lower grades and the sale of St Helena, which accounted for 43,700 ounces. Revenue declined 20 per cent year-on-year, mainly as a result of the strengthening rand and the decrease in production. Compounding difficulties were the higher-than-inflation wage increases which came into effect in July 2003. Cash costs increased by 18 per cent in rand and 55 per cent in US dollar terms. Margins were reduced to 11 per cent compared with 32 per cent in F2003, with the South African operations contributing a disappointing 34 per cent of operating profit to the overall group.
Following our decision to change operational strategy and re-position the South African mines to cope with the strengthening rand, all our local operations switched from the higher volume lower grade thrust of F2003 to the new strategy of lower volume and higher grades. The process of changing the mining mix and moving mining crews from marginal areas was completed in the March 2004 quarter and we are aiming to improve volumes in these new higher grade areas. We have also decided to shut down areas that were not economically viable and as a result the 10 shaft at Driefontein and 9 shaft at Kloof were closed.
Project 500
To support the switch in operational strategy we introduced an initiative called Project 500, which in turn was split into two sub-projects called Project 400 and Project 100.
Project 400 aims to optimise revenue such that an additional R400 million is generated per annum. The aim is to improve the quantity and quality of our outputs by replacing surface tonnage to the plant with increased tonnage from underground and ensuring output of a better quality, by mining higher grades at marginally reduced volume.
Project 100 is designed to save a minimum of R100 million a year from improved standards and norms by reducing wastage and making sure that the mines use only what is required for a successful blast.
Procurement
Gold Fields, as a group, spends in the region of R3 billion* annually on materials and services. Through the establishment of Gold Fields Shared Services (Proprietary) Limited, a wholly-owned subsidary of GFI Mining South Africa (Proprietary) Limited, we aim to reduce procurement spending by 7 to 8 per cent. This translates to potential savings of R200 million to R300 million per annum over the next 24 to 36 months. We aim to achieve these savings by improving efficiencies, leveraging group buying power and adopting strategic sourcing techniques. Forming business partnerships with suppliers, entering into risk reward type sharing arrangements, increasing supply coverage as well as rationalising vendors without compromising quality, are some of the aspects being considered.
Review of operations
*Excluding water and electricity
Net earnings
(Rm)
Capex spend
(Rm)
41%
37%
22%
Gold production split F2004
(Moz)
61%
29%
10%
Operating profit split F2004
(Rm)
PAGE 17
Over the past 15 months we have:
· Improved inventory operations to world-class level;
· Reduced stockholding by 30 per cent in value;
· Maintained overall vendor price increases significantly
below the Producer Price Index (PPI);
· Rationalised the number of stock items from 16,000 to
3,000 and vendors from 3,000 to 870;
· Lifted Black Economic Empowerment (BEE) procurement
to a level of 18 per cent - among the highest in the industry.
Capital expenditure
Capital expenditure for 2004 was R878 million. This was aimed primarily at developing the three major shaft systems at Driefontein, Kloof and Beatrix. We expect to spend R800 million in the coming year mainly for continuation of the major projects: Driefontein 1 and 5 shaft complex, Kloof 4 shaft and Beatrix 3 shaft. The 4 shaft pillar extraction project at Driefontein is now under the spotlight as a major project and extraction of the inner pillar is planned to begin in F2005, building up to full production in F2006.
The Driefontein 1 and 2 plant modernisations have been completed and optimising of these plants is underway. A key thrust at all the mines is to complete all refrigeration and ventilation improvements and changeovers in F2005.
As a result of the tightening margins, cash flows have been severely reduced and our South African operations have had to curtail and reprioritise much of our capital expenditure budget. Therefore certain projects of a less critical nature have been excluded and/or deferred. Should price or over-performance of the plan allow, these projects will be revived. The same process has been followed with all replacement and renewal items.
The feasibilities on the below infrastructure projects have been completed and will be optimised during F2005. These projects depend, however, on an improved and stable rand gold price. More details on these projects are included in the Mineral Resource and Reserve supplement for F2004.
Outlook
A primary focus for F2005 is expanding and re-energising productivity programmes at the mines. To this end efforts will be directed towards:
· Optimal mine design, creating and implementing layouts
conducive to higher productivities;
· Improving quality throughput via active de-bottlenecking
programmes and an adherence to mining mix targets;
· Rationalising infrastructure;
· Reducing underground temperatures (Project 28.5°C);
· Increasing old gold and pillar mining activities; and
· Mobilising our people through initiatives aimed at team work
and increasing mining knowledge.
PAGE 19
Cash costs increased from R58,841/kg to R68,922 R/kg
because of lower production, costs of opening new mining
areas after the underground fires, the need to open areas
as a result of the mining strategy change and increased
wages. In US dollar terms, cash costs increased from
Capital expenditure for the year was significantly lower as
the plant modernisation programme was completed. We
also reprioritised or curtailed a significant amount of capital
expenditure during the year because of the strength of the
rand.
However, critical capital spend related to the 5 sub-
vertical E and 1 tertiary shafts has not been curtailed in
line with our strategy of not jeopardising the productive
capacity of our long-life shaft systems.
Outlook for F2005
·
Completion of major capital projects on 1 tertiary, 4 and
5 sub-vertical shafts;
·
Positioning the operation to withstand a low rand gold
price;
·
Increase quality underground volumes at the right cost
structure; and
·
Improve productivity and efficiencies.
A major focus for Driefontein remains the opening of
quality Mineral Reserves through targeted development.
Normalisation of volumes at the 4 and 5 shaft complexes
shafts should see productivity and square metres
increasing. Importantly, the completion of refrigeration
infrastructure by Q3 F2005 at the 5 shaft complex is
paramount to reducing underground temperatures and
contributing to our productivity drive. Backfill systems
currently affect production rates at the 5 shaft complex
and this system is being re-engineered to remove this
bottleneck. Optimal fragmentation is a pre-requisite
for the newly installed SAG Mills at 1 and 2 plants
and blasting techniques will continue to be improved
and focused upon. Underground yields are expected to
increase as we decrease unpay mining and minimise
dilution. Mining grades are expected to deliver yields
of 8.5 g/t. Unit operating costs are likely to improve as
Project 500 initiatives boost output of gold and loss-
making business units are closed.
The planned capital expenditure of R270 million for the
coming year will be reduced should the current low rand
gold price persist.
US$202/oz to US$311/oz.
PAGE 20
2004
2003
2002
2001
2000
Main development
km
43.9
49.8
44.4
50.5
50.8
Area mined
000m
2
611
655
549
627
773
Productivity
m
2
/TEC*
3.2
3.2
3.0
3.1
3.6
Tons milled
Underground
000
3,452
3,727
3,222
3,493
3,936
Surface
000
1,531
1,111
1,435 439
--
Total
000
4,983
4,838
4,657
3,932
3,936
Yield
Underground
g/t
9.0
9.3
10.4
10.7
11.0
Surface
g/t
0.8
0.7
0.6
0.9
--
Combined
g/t
6.5
7.3
7.4
9.6
11.0
Gold produced
Underground
kg 31,089 34,634 33,365 37,283 43,394
Surface
kg
1,184
830
871
375
--
Total
kg 32,273 35,464 34,236 37,658 43,394
Total
000oz
1,038
1,140
1,101
1,211
1,395
Gold sold
kg 32,273 35,523 34,177 37,658 43,394
Total cash costs
US$/oz
341
215
179
207
214
R/kg 75,645 62,757 57,833 50,702 43,581
Net earnings
Rm
5.8
600.7
601.5
222.5
199.7
US$m
0.8
66.2
59.8
29.2
31.5
Capital expenditure
Rm
344.4
419.7
337.2
344.2
211.9
US$m
49.9
46.3
33.5
45.2
33.4
*TEC = total employee costed
Review of F2004
·
Re-established consistent performance;
·
Switched mining strategy to accommodate the low rand price; and
·
Reduced marginal mining activity and closed the low grade 9 shaft in Q2.
Operational performance
The quality of output from the Kloof orebody improved during the second half of the
year as the mine switched to mining higher grades. Gold production of 32 tons was
some 9 per cent below that achieved in F2003, largely because of the closure of the
low grade 9 shaft and less than planned output at 4 sub-vertical shaft, where unpay
areas and mining constraints affected performance during the first half of the year.
Plans were put in place to reduce the proportion of the relatively lower grade Kloof
and Main secondary reefs and moving mining crews to higher grade mining areas.
Development rates and areas mined were 12 per cent and 7 per cent lower than
F2003 because of the change in mining strategy. The focus on the Ventersdorp
Contact Reef horizon during the second half of the year delivered underground yields
of 9.8 g/t for this period, an increase of 16 per cent over the first half of the year.
Kloof
Review of operations
(continued)
Gold production
(000oz)
2000
1,400
1,200
1,000
800
600
400
200
0
2004
2001
2002
2003
Surface drilling, Kloof gold mine,
South Africa
PAGE 21
Active debottlenecking programmes at 4 sub-vertical and
7 shafts have raised productivity and throughput, while
the high grade 3 shaft continued to contribute 30 per cent
of the mine's production.
Total cash costs came under pressure, with F2004 realising
R75,645/kg (US$341/oz) as a result of lower production
throughput and high real wage increases. The mine is
scrutinising overheads and variable cost structures to
suit current gold production and the low rand gold price.
Operating margins for the first half of the year were 7 per
cent, improving marginally in the second half of the year
to 9 per cent.
Capital spending was accelerated to meet future
production requirements at the 4 sub-vertical shaft. Total
spend was R344 million, 18 per cent lower than in F2003.
Surface exploration drilling and a 3D seismic survey for
the Eastern Boundary Area and Kloof Extension Area (KEA)
projects were advanced during the year and have proved
invaluable in assessing geological structure and values at
depth.
Outlook for F2005
·
Driving for volumes, at the right mined value and
the required quality, and increasing the "old gold"
contribution;
·
Reducing unit costs through variable and fixed cost
controls; and
·
Driving the production build-up at the 4 sub-vertical
shaft.
Paramount to Kloof is delivery of more than 2.8 tons
of gold per month to establish profitability at current
low rand gold price levels. To achieve this, the mine is
focusing on disciplined mining activity at the stope face
and exploiting high grade pillars throughout all shafts.
Costs will be minimised by optimising infrastructure and
bedding down Project 500 measures.
The completion of the 4 sub-vertical shaft project, a
drop down project at 3 shaft from 43 to 45 level, and the
refrigeration and the main shaft pillar extraction, head
the list of priorities for capital expenditure. Exploration
surface drilling pursuant to increasing geological and
valuation confidence will continue for F2005. Total F2005
capital expenditure is estimated at R260 million, but this
could be revised downward should rand gold prices remain
depressed.
Beatrix gold mine, South Africa
construction of new 4.2mtpa mill
Waste mined
Tons milled
· Good progress made with extending the life-of-mine through exploration and
Waste mined
Ore mined
Tons processed
mine, Western Australia
Waste mined
Ore mined
milled
· Underground volumes and grades exceeded expectation; and
· Songvang project discovered and approved.
There has been a tremendous turnaround at this once challenging mine, both in terms of current operations and the longer-term outlook. Gold production at 202,000 ounces was 40 per cent above that achieved in F2003, while total cash costs of A$317/oz (US$226/oz), were down from the A$437/oz in F2003. As a result, Agnew made a significant contribution to the group's financial results.
As a significant portion of the acquisition price was allocated to tenements of St Ives and Agnew on endowment ounces and also as these two Australian operations are entitled to transfer and then offset losses from one company to another, it is not meaningful to split the income statement below operating profit.
PAGE 35
underground complex was expected early in F2004, but positive exploration results in the upper end of the Deliverer lode resulted in continued mining activity through the entire financial year producing 217,000 tons at 8.2 g/t. The success of these two mines reflects the tenacity and innovation of the Agnew team.
The total volumes treated through the Agnew mill in F2004 were slightly lower than F2003 at 1.18 million tons, demonstrating a conscious decision to reduce mill feed rates to increase overall gold recovery. The balance of ore fed to the mill was sourced from the low grade stockpile produced during the open pit mining campaign undertaken in F2002 and F2003.
Following a change in exploration strategy late in F2003, this programme has now opened up significant long- term alternatives for this mine. The most significant development was the proving of the Songvang open pit, which was approved for development late in the year. It is expected to be brought into production in the second quarter of F2005. This open pit will produce a base load of medium grade ores that, along with the high grade ores from the Waroonga underground complex, should give this mine an assured three to four year life, before alternative ore sources are needed. Beyond this, innovative exploration around the Redeemer, Waroonga and Crusader complexes has turned up ore grade intersections which in all cases are worthy of follow up. Exploration on Agnew's regional tenements, the subject of a joint venture with Breakaway Resources, has also brought the Vivien mine close to final feasibility study.
Outlook for F2005
· The commissioning and ramp up of the Songvang open
pit; and
· Completion of the exploration and feasibility study
of the Main Lode underground mine at the Waroonga complex.
Gold production should remain close to current levels in F2005 with total cash costs similar to levels seen in F2004, thereby maintaining Agnew's status as one of the highest margin mines in the group. Much will depend in the year ahead on continued good performance from the Kim underground mine, while the Crusader and Deliverer underground complex is due for closure early in F2005.
Stripping of the new Songvang open pit will start in early F2005 and the build up of mill feed will take place during the second half. Capital expenditure is planned at approximately A$40 million, including the stripping of the new Songvang pit (A$20 million); continued underground development on the Kim lode (A$10 million); and exploration of A$7 million. Exploration will continue to target Mineral Resource and Reserve expansion and the development of new mining complexes.
PAGE 39
Gold Fields, through its subsidiary, Gold Fields Corona BVI, signed a definitive share purchase agreement to acquire 92 per cent of the voting shares of Sociedad Minera La Cima S.A. from various members of the Gubbins family in December 2003. The common shareholders are 87.73 per cent of La Cima, giving Gold Fields an effective 80.7 per cent economic interest. Sociedad Minera La Cima owns the Cerro Corona Project and other mineral properties in Cajamarca, Peru. Closing of the agreement is conditional upon the completion of the acquisition of required surface rights, approval of the EIS and the issue of construction permits.
Based on a definitive feasibility study completed by GRD Minproc in 2001 and revised by Gold Fields in March 2004, it is believed that the project has the capacity to produce 150,000 ounces of gold and 62 million pounds of copper per year (350,000 ounces of gold-equivalent), with total operating costs of US$185 per ounce of gold equivalent (using a gold price of US$390/oz and a copper price of US$1.27/lb).
The deposit, which lies within the Hualgayoc District to the north of the Yanacocha mine in the Cajamarca Department of northern Peru, is well studied and has robust economics. Previous feasibility studies of the deposit exploited a larger Mineral Resource base indicating potential for expansion over the most recent definitive feasibility study. The district is prospective for discovery of gold and gold-copper deposits and will be the subject of further exploration by Gold Fields.
The Cerro Corona deposit is a gold-copper porphyry with Mineral Resources, based on the definitive feasibility study (GRD Minproc 2001) and revised by Norwest Corporation in August 2004, as presented in the table below. The estimated Mineral Resources are contained within a pit shell using US$400/oz gold price and US$1.00/lb copper price.
Cerro Corona Mineral Resources
Tons
(Mt)
Au
(g/t)
Cu
(%)
Contained Metal
Classifi cation
Au ('000 oz)
Cu (kt)
Measured
12.7
1.04
0.45
424
56.7
Indicated
110.7
0.91
0.46
3,231
505.1
Inferred
47.0
0.64
0.39
964
182.5
Total
170.4
0.84
0.44
4,619
744.3
Source: Cerro Corona pit optimisation report (No. 03-2426), Norwest Corporation
The Cerro Corona Mineral Reserves tabulated below are the result of a defi nitive feasibility study conducted by GRD Minproc in 2001.
Cerro Corona Mineral Reserves
Tons
(Mt)
Au
(g/t)
Cu
(%)
Contained Metal
Classifi cation
Au ('000 oz)
Cu (kt)
Proved
50.7
1.11
0.60
1,809
306
Probable
14.5
1.24
0.62
579
91
Total
65.2
1.14
0.61
2,388
397
Source: Minproc Study 2001 (Au US$275/oz and Cu US$1,984/t)
Project development activities are fully underway and a permitting and fi nal investment decision is scheduled for Quarter 4 F2005.
Cerro Corona
Cerro Corona Project, Peru, South America
Peru
Cerro
Corona
Peru, South America
PAGE 42
Mineral Resources and Reserves
Overview
Mineral Resources and Reserves represent the fundamental foundation of our company value and effective orebody management is an essential component of operational excellence along the value chain. Gold Fields' Mineral Resource and Reserve strategy is to ensure consistency and integrity in reporting and to continue to pursue growth through exploration, acquisition and sustained delivery of value. Despite a decrease across all the South African operations, attributable Mineral Resources (exclusive of Essakan and Cerro Corona) have decreased by only 4.7 million ounces or 2.4 per cent from 195.3 to 190.6 million attributable ounces, including the Arctic Platinum Project. Attributable Reserves (exclusive of Essakan and Cerro Corona) have fallen by 6.0 million ounces or 7.3 per cent to 75.6 million ounces, net of an annual attributable depletion of 4.5 million ounces.
Mineral Reserve growth from the international operations was offset by reductions from all three South African mines as a direct result of the reduced gold price (R90,000/kg versus R95,000/kg), a 2.9 million ounce depletion, closure of Kloof 9 shaft (1 million ounces) and a 2.7 million ounce decrease in below infrastructure ounces at Driefontein.
The Mineral Resource and Reserve figures are derived from a rigorous strategic and operational planning process that is embedded at each of its operating mines. They are estimates derived for the entire life-of-mine and will be affected by fluctuations in the US dollar gold price, exchange rates and short to medium-term operating factors that influence production.
Gold Fields reports its Mineral Resources and Reserves in accordance with the South African Code for the Reporting of Mineral Resources and Mineral Reserves (SAMREC Code). The code sets out the minimum standards, recommendations and guidelines for the public reporting of exploration results, Mineral Resources and Reserves. The main principles governing the operation and application of the SAMREC Code are transparency, materiality and competence.
The code has been incorporated into the rules of the JSE Securities Exchange South Africa regarding listing requirements and continuing obligations. Gold Fields has written an additional internal code of practice that takes cognisance of the diverse nature of its operations and considers the requirements of all internationally recognised codes including industry Guide 7 as interpreted by the staff of the US Securities and Exchange Commission (SEC).
SRK Consulting (SRK) has audited the Mineral Resources and Reserves (2004) for all operating mines in South Africa, Ghana and Australia. SRK consider the statements presented herein to be materially compliant with the terminology and definitions of the SAMREC Code. Snowden Mining Industry Consultants undertook the 2004 Mineral Resource estimation study at the Arctic Platinum Project in Finland, and the Resource estimate is classified in accordance with the JORC code. SRK assisted with the estimation study for part of the SK Reef at APP. The Essakan Mineral Resource estimate in Burkina Faso has been generated in conjunction with SRK and in accordance with the guidelines set out in National Instrument 43-101, SRK also acted as the independent consultant as defined therein. The Cerro Corona figures as presented in this report represent an update of the definitive feasibility study completed by GRD Minproc in 2001. The F2004 estimate has been remodelled and optimised for a US$400/oz pit shell by Norwest Corporation.
Silo, Beatrix 1 Shaft gold mine,
South Africa
Headgear, Beatrix 1 Shaft gold mine, South Africa
Gold pouring, Kloof gold mine,
South Africa
PAGE 43
The following price assumptions were used as a basis for estimation in this declaration
Resource Price
Reserve Price
F2004
Assumption
Assumption
South Africa*
R115,000/kg
R90,000/kg
Ghana*
US$400/oz
US$350/oz
Australia*
A$650/oz
A$580/oz
F2003
South Africa*
R115,000/kg
R95,000/kg
Ghana*
US$400/oz
US$325/oz
Australia*
A$650/oz
A$580/oz
*
Assumed gold prices are in accordance with the US Securities and Exchange Commission (SEC) and approximate to historical three year average commodity prices and exchange rates.
Salient highlights
• South African operations have undergone exhaustive
strategic and operational re-planning at the reduced gold price, with a resultant increased attrition on the Mineral Resource to Reserve conversion, to ensure maintenance of acceptable margins.
• Exploration programmes continued with expenditures
for F2004 in excess of R62 million at Kloof, Beatrix and Driefontein. Exploration is multi-faceted and is a combination of surface, underground drilling and seismic surveys to probe future mining extensions, secondary ore mining potential and understanding structural complexity and values.
• The exploration campaign has provided significant
material improvement to the Mineral Resource modelling at all three South African mines and has greatly reduced geological and evaluation risk inherent to the below infrastructure projects at Kloof.
• International operations have contributed to growth of
the Mineral Reserve base by an additional attributable 3.7 million ounces for an increase to 14.9 million ounces, primarily from a total increase of 4.9 million ounces equating to a 50 per cent growth at Tarkwa. Depletion for the year was 1.6 million ounces.
• Permanent project teams appointed in F2004 at Kloof
and Driefontein have compiled detailed feasibility studies into accessing ounces below infrastructure. The projects targeting expansion through Driefontein 5 shaft and Kloof 4 shaft are both viable at R90,000/kg and a 6 per cent real discount rate.
• The cost benefits from the change to owner mining at
Tarkwa and the improved recoveries anticipated from the new milling infrastructure have been used in the Mineral Resource and Reserve estimates. The Tarkwa mill is planned for completion by December 2004 and the conversion to owner mining by September 2004.
• The construction of a new plant at St Ives is well
advanced and completion is expected in December 2004. The mining opportunities from reduced processing
costs and improved recoveries have been taken into account in the current Mineral Resource and Reserve disclosure.
• Exploration expenditure at St Ives was maintained at
US$20.3 million to create medium to long-term mining flexibility. The exploration strategy has been focused on the Central Corridor of tenements, with 90 per cent of expenditure in five key areas (Greater Revenge, Neptune, Greater Victory, Argo and Greater Intrepide) over the last 2 years. This strategy has been successful in discovering sufficient Mineral Resources to justify the construction of a new and larger mill. Discovery and conversion to Mineral Reserves for F2004 amounted to 0.7 million ounces inclusive of depletion. The expenditure allocation going forward will be approximately 70 per cent on Mineral Resource conversion to Reserves and 30 per cent for exploration on new and early stage targets.
• Brown fields exploration programmes continued at all
the international operations and are reported on below.
Exploration Expenditure International Operations
F2004
F2004
(US$m)*
(metres drilled)
Tarkwa
0,956
10,568
Damang
2,741
21,370
St Ives
20,288
304,250
Agnew
6,319
80,200
Total
30,304
416,388
• The Damang Extension Project (DEP) was set up
to trace the extension of the conglomerate reefs southwards into the Tarkwa Operation and to delineate hydrothermal type orebody opportunities. It was successful in adding Mineral Reserves for Rex, Tomento and Amoanda. The DEP team is continuing to explore other targets within the mine lease.
• Agnew has successfully extended its life-of-mine
primarily through converting the Songvang Mineral Resource to Reserve.
• Gold Fields have full ownership of the Arctic Platinum
Project (APP) post the US$31 million acquisition, in cash and stock, of the 49 per cent previously owned by Outokumpu. A total of 31,000 metres was drilled at APP during F2004, and thus increased the Indicated Resources by 2.3 million ounces. Total Mineral Resources including the SK Reef stand at 168.3 million tons, containing 12.6 million ounces at a grade of 2.33 2PGE+Au, including 0.33 million tons copper and 0.14 million tons nickel.
A summary year-on-year reconciliation of the Mineral Resource and Reserve statement is shown in the Mineral Resource and Reserve supplement to this report.
*R6.90 : US$; A$1.43 : US$.
reserve sensitivity
reserve sensitivity
reserve sensitivity
to Gold Fields
Cerro Corona*
Board
South Africa
safety performance.
• FIFR = 16%
• LDIFR and SLFR = 25%
• DLFR = 29%
management system.
hazards and critical practices.
and Training Programmes
• Management reviews and TIMS
job" practices.
recommendations.
Engineering Controls
conducted.
The major health hazards associated with the group's operations are thermal stress, noise, airborne pollutants and radiation.
gold mine, South Africa
on the heap leach dumps,Tarkwa gold
mine, Ghana
mine, South Africa
1,2 & 3 shafts
4 shaft
1,2,3 &4 shafts
1,2,3 &4 shafts
1,2 & 3 shafts
1,2 & 3 shafts
1,2, 3 & 4 shafts
performance.
•
- Driefontein gold mine;
professionals
representation in South Africa (F2004)
in South Africa
South Africa
• Ensure the retention of talent through innovative
South African operations
Source: Gold Fields actuarial model is based on results from West Driefontein COHORT study, data gathered from the group's community initiatives in the areas around our operations and the South African antenatal statistical data.
Gold Fields costs model is based on R/$ exchange R7.50 and income of R90,000/kg of gold.
Our approach to sustainable development
Each of Gold Fields' business activities, whether it is the operation of a long established mine or an early stage exploration project, is located within a community context, both at a local and a national level. As a responsible corporate citizen we are committed to fostering mutually beneficial relationships with these communities, and to operate not only within the context of the law of the host jurisdiction, but also within the confines of group policies that cover all facets of good corporate citizenship.
At each of our operations community stakeholders are regularly engaged in forums to discuss issues of mutual concern such as environmental management, local affairs and development issues. In some jurisdictions these engagements take place through formalised structures established in consultation with local authorities and in others they are informal in nature. At all of our operations employees are encouraged to play an active role in community affairs.
Through our social investment programmes we aim to contribute meaningfully to the socio-economic development of communities in which our operations are located and those communities where our employees and their families live. While some central coordination of corporate social investment takes place, each operation is encouraged to engage directly with local representative structures, stakeholders and community organisations to achieve this objective.
The principles of sustainable development, as adopted by Gold Fields internally, also serve as guiding principle for our engagement with communities. In South Africa, we are also guided by the requirements of the Mining Charter and operations engage actively with local structures and district municipalities to facilitate the implementation of their own integrated development plans. In each of these communities a process is underway to identify specific projects, with which our operations can assist.
Over the past 10 years we have invested more than R150 million in various community development projects throughout Southern Africa. In each community the types of projects supported is informed by the specific needs of the community.
The corporate social investment activities of the group are funded according to a set formula based on 0.5 percent of pre-tax profits and R1.00, US$1.00 and A$1.00 in South Africa, Ghana and Australia respectively, for every ounce of gold produced.
Students at Mnyakanya School, KwaZulu Natal, South Africa
GFI presented commemorative plaque at the opening of Mnyakanya School to Mr Nelson Mandela
During F2004, the social investment spending in Southern Africa amounted to a total of R10.2 million. In Ghana, a total of US$683,000 was spent and in Australia a total of A$221,000.
In South Africa, the focus remains on the provision of primary health care facilities and infrastructure as well as health care education, including HIV/Aids; primary, secondary and tertiary education; social development projects; and environmental education. Funding is distributed evenly between communities in which our mines are located and those more remote communities where many of our employees have their homes.
In Ghana, Tarkwa and Damang mines maintain a regular programme of interaction with stakeholder communities and local government authorities. Numerous tours of the properties, with emphasis on environmental management aspects including rehabilitation and community development projects, are provided to government ministers, parliamentary committees, district administration officials, chiefs and leaders of stakeholder communities, NGOs, and school children. Senior representatives of the company attend all district assembly planning committee meetings to discuss land use planning issues associated with, or having an impact on the company's operations. The company also holds monthly meetings with leaders and representatives of adjacent communities to discuss issues of mutual interest and operational developments at the mines. In Ghana, social investment support focuses on assistance for construction and repair of infrastructure and support for sustainable livelihood projects in communities. Project types include those related to sanitation, water supply, education, medical services, roads and alternative livelihood training.
Gold Fields Australia's community activities operate within the local community and includes assistance to local education institutions, sporting clubs, through to broader community needs such as suicide intervention, residential care facilities for the aged and the "partnerships for success programme", an education programme for assisting Indigenous youths to succeed in high school. In a very short time Gold Fields Australia has managed, through the considerable efforts of our employees and the platform of the Gold Fields Foundation, to have a very positive impact in leading and developing a variety of community projects.
Gold Fields has embarked on a programme to build classrooms in rural communities, particularly where children are taught in informal classrooms and under trees. During the past year we have spent R6.4 million building additional classrooms, libraries, computer and media centres, ablution facilities and libraries. All of these projects are done in partnership with the education authorities who assist to identify projects for support and who, after completion, assume responsibility for the maintenance and staffing of the facilities. The Mnyakanya Senior Secondary School in the Eshowe region of KwaZulu Natal, which was officially opened by Mr Nelson Mandela on 5 March 2004, is one such school which Gold Fields supported.
Gold Fields funded the introduction of the Education Quality Improvement Programmes (EQUIP), in 10 schools in communities around our West Rand mines. The initiative aims to improve school governance and upgrade the skills of teachers in critical subjects such as mathematics and physical science over a period of three years. Our total commitment to this programme is in excess of R1.8 million. Project implementation reflects a true private-public partnership as education non-governmental organisations (NGOs) have been contracted as professional service providers while government district officials oversee and monitor integration of the project to ensure continuity and sustainability.
Environmental education and sustainable development
Over the past 14 years Gold Fields has, through its partnership with Rhodes University and its support for the Gold Fields Environmental Education Unit at the University, participated in the redefining of environmental education and education for sustainable development in Southern Africa. The Gold Fields Participatory Course in Environmental Education, which is offered by the unit throughout the SADC region, including the Portuguese speaking countries of Mozambique and Angola, has been running for more than 10 years.
In 2002, Tarkwa implemented a pilot scale programme in the nearby community of New Atuabo, designed to assist residents with developing alternative and sustainable livelihoods. This programme, which was developed
in consultation with the residents of New Atuabo and the regional government administration, utilised the expertise of specialists from the Ghana Ministry of Food and Agriculture. Practical training and initial material support were provided to 400 persons in areas including farming of poultry, pigs, snails and cane rats (a local delicacy), improved cultivation methods for food crops, and batik tie and dye. In F2004, a second phase of the alternative livelihood programme commenced, involving 300 residents from the nearby communities of Samahu and Abekoase. Committees from each community have been formed to liaise with company officials in management of these projects, which will also include fish farming, beekeeping, rabbit farming, mushroom cultivation and other food crop farming activities. A formal monitoring and evaluation programme will be established to guide the future progress of these programmes towards achieving self-sufficiency and improved economic security in the communities involved.
For Gold Fields Australia one of the key projects for the next four years is the support of the Royal Flying Doctors Service (RFDS). The RFDS is an Australian icon set up to service remote areas by flying medical experts to the patient or transporting patients to regional centres. This not-for-profit service is run independent of government support and as an essential service in the Australian outback regions where our mines are located. This year, we have had employees and their families access the service in urgent medical situations outside of work and had a contractor evacuated from site for urgent medical care in Perth. The success of the RFDS is dependent upon their ability to have reliable aircraft available to cover the vast regions of the outback. The RFDS has recently embarked upon an exercise to upgrade their fleet of aircraft and Gold Fields Australia was one of the first corporate supporters of their campaign. We are proud to be associated with one of Australia's great institutions.
Gold Fields, in collaboration with TEBA and local communities, has initiated a unique agricultural development project in the rural parts of Lesotho and the Eastern Cape province in South Africa, aimed at equipping rural families for sustainable living. The main aim of the project is to alleviate poverty through improving food security and increasing opportunities for successful agricultural entrepreneurs. The programme has three main components: • A sheep and goat fleece project as well as livestock farming; • Irrigated crop projects for small scale growers; and • Household food security projects.
Participants are empowered to acquire skills through mentoring and hands on learning, farmer to farmer extension, field days and exchange programmes. The project has been extremely successful and enjoys government support throughout Lesotho. Owing to the positive impact, the programme was extended into neighbouring districts in South Africa with similar cultural, socio-economic and climatic conditions.
Sheep and goat fleece project, South Africa
Agnew Gold Mine's community engagement process prior to the development of the Songvang ore body south of its operations in the desert of the north eastern goldfields demonstrates clear confirmation of its appreciation of community concerns about its mining activities and impacts.
The Songvang ore body stretches across 800 metres of desert area, and intersects with an intermittent stream called Lawlers Creek. While the creek runs dry for most of the year, it is of cultural importance to the indigenous people and native title claimants of Western Australia.
Despite initial opposition from some members of the community, agreement was reached for the redirection of Lawlers Creek. The Aboriginal Cultural Material Committee (ACMC) and the Minister for Indigenous Affairs, gave approval for the removal of the creek to facilitate mine construction. However, Agnew has undertaken to re-direct the creek and to rehabilitate the affected catchment area and the ecosystem fed by the creek, in line with stakeholders' recommendations.
The ongoing participation of all parties in the rehabilitation and assessment of its success will ensure that the outcome meets their expectations and constitutes a lasting, positive record of mining and community cooperation. Stakeholders' input on other aspects of the project has also been incorporated in the planning processes.
The stream restoration will combine best practices of engineering and environmental conservation with an indigenous understanding of natural systems and traditional methods of assessing and monitoring stream health.
This project is a first for Gold Fields and offers the opportunity to document, synthesise and embed, in mainstream natural resource management principles and practices, traditional, more holistic indigenous approaches to total catchment management. The chance to record and publish the knowledge gained will underpin the traditional value of the area and help native title claimant groups to preserve cultural records for indigenous people.
Eliminate, minimise or control at source any impact our activities might have on the environment by applying appropriate proactive and remedial measures to foster environmentally sustainable economic development.
Gold Fields' environmental performance for this year has advanced well with our mining operations in South Africa, Ghana and Australia retaining their ISO 14001 certification. Reforestation initiatives continue to dominate the rehabilitation of waste dumps at the Ghana operations. At Driefontein the implementation of energy and water consumption targets, has been included in a monthly operational review and this will be rolled out to all operations. Waste management efforts have ensured that recycling efforts are being maximised. These activities continue to dominate the strategic planning efforts of our environmental management teams.
Our commitment to the continual improvement of our environmental performance often goes beyond legal requirements to implementing codes of best practice and internation- ally accepted management systems. This year, our environmental teams sought to align our operations with the World Bank Draft Environmental, Health and Safety Guidelines for Precious Metals Mining. Each operation was audited internally against the standards set out and all operations were found to substantially comply with the requirements.
Open house participants discussing crops at South Tailings, Damang gold mine, Ghana
Water run off, Tarkwa gold mine, Ghana
Management System confirming ISO 14001 standard has yielded numerous benefits, including:
document control, contribution to overall governance, as it relies on integration and buy-in of all stakeholders.
The increase in level 2 incidents is considered to be a positive indicator of the greater awareness and more stringent reporting standards that have come about as a result of the ongoing focus and training in environmental issues.
As water is integral to virtually all our mining activities and, typically, a prime carrier of pollutants into the wider environment, sound water management is fundamental to most mining operations' achievement of environmental best practice. We adopt an integrated cradle to grave approach at every stage of the project life, not only to minimise the impacts on the surrounding environment during the operational phase, but to `fine tune' rehabilitation planning and, in turn, maximize potentially beneficial post-mining land uses and reduce potential liabilities. The quantity of water purchased by each operation is taken as the first level yardstick to assess our water consumption from billed water sources. This year the group purchased approximately 37 megalitres per day (13.7 million m per annum). Water sources differ largely among our operations from ground water supplies, to rivers and salt lakes. A common approach to reporting is proving challenging as water qualities, water consumption and recycling uses preclude a common understanding.
Numerous feasibilities of potential water treatment have been initiated as part of the process of realising our sustainable development objectives.
with our group-wide EMS and for seeking conformance with the policy.
Research and development of a pilot desalination plant at Beatrix
Tons of timber purchased per ton gold
produced for South African operations
Agriculture, and Environmental and Economic Affairs were also closely involved in the rehabilitation of the cyanide plant.
structures were reduced in size and sold as scrap. The uncontaminated concrete from the uranium plant was broken up and, after steel reinforcement was removed, buried according to the minimum requirement of the Department of Agriculture at least 0,5 metres underground.
The concrete from the cyanide plant was taken to the waste rock dump and the excavated contaminated soil was put through the metallurgical plant. When the area was clear of contamination, stockpiled topsoil was trucked in and contoured. Topsoil from an unused evaporation dam was contoured over it to allow for storm water run-off.
Natural vegetation has since established itself at the sites, making grass planting unnecessary.
Employment In F2004 Gold Fields employed 44,592 people globally. Our total wage and salary bill including all wage related costs such as pension and medical contributions, housing allowances and other employee benefits, was
R3.7 billion.
Procurement Our mining activities have helped create and support a number of downstream businesses. In F2004, approximately 39 per cent* of total costs was attributable to procurement of suppliers and services. R2.1 billion was spent on procurement in South Africa and R1.3 billion internationally.
In South Africa, we also support the government's initiatives to increase Historically Disadvantaged South Africans participation in the economy by doing business with small and medium size enterprises operated by HDSAs. Procurement from these
As the world's fourth largest gold producer, we are proud of the numerous socio-economic benefits we have created and intend to build on that platform.
According to the GRI guidelines, the total economic contribution that an organisation makes can be assessed both directly and indirectly. Direct impacts focus on traditional financial indicators and measure monetary flows between the organisation and its key stakeholders. Indirect impacts focus on intangible benefits that do not appear in financial statements.
companies increased from 8 per cent last year to 18 per cent of our total spend in South Africa.
Providers of capital In F2004 Gold Fields paid out R102 million in interest to the providers of debt capital and our shareholders, who are based through out the world, received R669 million in dividends. Gold Fields has maintained a policy of paying 50 per cent of earnings for the year before taking into account investment opportunities. Since 1998 Gold Fields has paid out R4.3 billion rand in dividends to our shareholders.
Supporting public sector initiatives Because of the long-term nature of our business, we are a reliable source of revenue enabling governments to develop and maintain various public sector initiatives. In F2004 Gold Fields paid a total of R523 million rands in taxes (R386 million in South Africa, R87 million in Ghana and R50 million in Australia).
Progressing empowerment We support the need for economic transformation in South Africa and encourage broad-based participation of historically disadvantaged South Africans in the economy as reflected by the successful conclusion of our empowement transaction with Mvelaphanda Resources. This deal will see Mvela acquiring a 15 per cent equity interest in the South African gold mining assets of Gold Fields within five years for a cash consideration of R4.1 billion.
We also support the South African government's initiatives on the New Partnership for Africa Development (NEPAD) and its commitment to contribute to the development of the entire African continent. We are a member of the NEPAD business initiative and a signatory to the initiative's business covenant on corporate governance; business declaration on corporate responsibility; business covenant in the elimination of corruption and bribery; as well as the business declaration on accounting and audit practices.
Foreign direct investment (FDI) Gold Fields has been and will continue to be a source of FDI to Ghana and Australia. FDI not only creates employment and adds to the economic health of a nation but it also stimulates support industries and creates a platform from which the transfer of knowledge, skills (human capital), technology and best practice can be achieved. We have invested in a US$160 million capital project (conversion to owner mining and mill expansion) at our Tarkwa mine in Ghana and we are also completing a A$125 million mill expansion programme at our St Ives mine in Australia.
Community development During F2004, we invested R16 million in uplifting communities in which we operate by investing in numerous development projects. Many of these communities suffer from poverty, poor infrastructure and low literacy levels. Therefore our community projects are focused largely on improving these aspects and creating better community relations.
Benefi ciation Gold Fields, Anglo Gold and Mintek have been primary partners in Autek, which is a company focused on research and development of new industrial uses for gold. Autek has been able to expand its focus into nano technology and other advanced technologies to find new uses for gold. In addition Gold Fields and other industry partners are in the process of establishing a gold loan scheme for the South African Jewellery manufacturing industry.
We will also implement a vendor score card system with a strong focus on BEE development; grow BEE vendors to 250 and SME vendors to 50; implement a structured support programme between BEE/SME suppliers and Gold Fields operations; implement interfaces with NGOs, the local government SME desk, the Department of Trade and Industry and other mining houses; identify and appoint organisations to support, identify and train SME suppliers; and, with other stakeholders, investigate the establishment of an industrial park in the West Wits area.
Gold Fields is committed to upholding good corporate governance in all of its business dealings in respect of all relevant stakeholders. All board members are expected to act in a professional manner, thereby upholding the core values of integrity, transparency and enterprise, with due regard to their fiduciary duties and responsibilities and in accordance with the company's Code of Ethics.
The company supports the recommendations of the 2002 King Code of Corporate Practices and Conduct ("the 2002 King Report") and believes that it substantially and materially complies with its provisions.
In South Africa, the company's shares are listed on the JSE Securities Exchange South Africa ("JSE") and the company is accordingly required to comply with the listings requirements of the JSE, including those recommendations of the 2002 King Report that have been codified in the listings requirements ("the JSE listings requirements"). The company is also listed in the United States of America ("USA") on the New York Stock Exchange ("NYSE") and its shares are registered with the United States Securities and Exchange Commission. As a result, the company must comply with the corporate governance standards of the NYSE, in so far as it relates to foreign private issuers such as Gold Fields, as well as those provisions of the Sarbanes-Oxley Act of 2002 which are applicable to foreign private issuers.
Gold Fields has a unitary board structure with two executive directors and 11 non-executive directors. At least eight of the directors are considered to be independent directors, as defined in the JSE listings requirements. Details of the directors appear on page 5 of this annual report.
The board operates in accordance with a board charter which, amongst other things, regulates the division of responsibilities at board level to ensure a balance of power and authority, such that no one individual has unfettered powers of decision-making. The board is responsible, inter alia, for: • evaluating, determining and ensuring the
The longest serving one-third of directors must retire from office at each annual general meeting of the company. Retiring directors are free to make themselves available for re-election and may, as such, be re-elected at the annual general meeting at which they retire. Non- executive directors do not receive any remuneration from the company for their services as directors other than the fees and the share options detailed in the Directors' Report on page 102. The non-executive directors are experienced professionals and make a significant contribution towards the board's deliberations and decisions.
The directors have unrestricted access to the advice and services of the corporate secretary and the Executive Committee, and are entitled to seek independent professional advice at the group's expense, should they need to do so.
In the opinion of the board, and based on the financial position of the group at the financial year-end, the group is able to continue its business as a going concern. However, the group's ability to continue as a going concern could be affected by a significant reduction in the gold price and/or a significant strengthening of the rand/US dollar exchange rate.
During the year under review, board meetings were held on the following dates and were attended by all members except the following:
R L Pennant-Rea, C M T Thompson and C I von Christierson
The Executive Committee comprises two executive directors and eight executive officers of the group. The two executive directors are the chief executive officer, as chairman of the committee, and the chief financial officer. This committee meets regularly to review the current performance of the group, develop group strategy and policy proposals for consideration by the board and to implement the board's directives. The names of the members of the committee appear on page 14.
The board has established a number of standing committees comprised entirely of non-executive directors. These committees comprise the Nominating and Governance Committee, Audit Committee, Compensation Committee and Health, Safety and Environment Committee, all of which operate in accordance with written terms of reference, copies of which are available from the company secretarial office on request. With the exception of the Nominating and Governance Committee, all committees are chaired by an independent non-executive director. The remuneration of non-executive directors for their services on the various committees has been approved by the shareholders.
The Nominating and Governance Committee is chaired by C M T Thompson, who is also the chairman of the company's board. P J Ryan, T M G Sexwale and B R van Rooyen are the other members of this committee. The committee is responsible, inter alia, for:
• considering the mandate of board committees, selection and rotation of
The JSE Listings Requirements stipulate that all members of this committee must be non-executive directors, of whom the majority must be independent. While all of the members of this committee are non-executive directors, the chairperson of the board, required in terms of the JSE Listings Requirements to be the chairperson of this committee, only ceased to be an executive director of the company on 30 June 2002 and is, as such, considered not to be independent. Messrs Sexwale and van Rooyen may, in certain circumstances, not be considered independent in light of the contractual arrangements existing between members of the Gold Fields group and Mvela Resources, of which both are executive directors.
The Nominating and Governance Committee met on three occasions during the year under review, as follows:
The Audit Committee, which comprises A J Wright (Chairman), G J Gerwel, R L Pennant-Rea, B R van Rooyen and C I von Christierson, inter alia, monitors and reviews:
• the effectiveness of the group's information systems
• the reports of both the external and internal auditors;
• the quarterly and annual reports and specifically the
• the accounting policies of the group and any proposed
All members of the Audit Committee are non-executive directors. The majority are also considered to be independent as defined in the 2002 King Report.
The internal and external auditors have unrestricted access to the Audit Committee and its chairman, ensuring that their independence is in no way impaired. Meetings were held on five occasions during the year under review.
The group internal audit function is headed by the Senior Manager, Internal Audit. The Audit Committee monitors the internal audit function, which reports to the CEO but has access to both the board chairperson and the chairperson of the Audit Committee. The Audit Committee has the authority to appoint and dismiss the head of the group internal audit function.
The Audit Committee has adpoted formal terms of reference and has satisfied its responsibilities for the past financial year in compliance with such terms of reference.
The Audit Committee meetings were held as follows during the year under review:
All present except for C I von Christierson
The Compensation Committee comprises P J Ryan (Chairman), J M McMahon, G R Parker, C M T Thompson and A J Wright. In accordance with the recommendation of the 2002 King Report, the committee comprises a majority of independent non-executive directors and is chaired by an independent non-executive director. This committee has established the group's compensation philosophy, the terms and conditions of employment of executive directors and other executives, including a short-term performance-linked bonus scheme and a long-term share incentive scheme. All executive directors are subject to normal employment contracts, with the group's maximum exposure in this regard limited to two years' remuneration in the event of any executive director's services being terminated as a result of a take- over or merger. This committee met on a quarterly basis for the year under review, as follows:
The Health, Safety and Environment Committee meets on a quarterly basis and comprises J M McMahon (Chairman), G R Parker, T M G Sexwale and C I von Christierson. This committee comprises a majority of independent non-executive directors as recommended by the 2002 King Report. The committee seeks to minimise health, safety and mining-related accidents, to ensure that the group's operations are in compliance with all environmental regulations and to establish policy in respect of HIV/Aids and health matters.
The board has established and maintains internal controls and procedures which are reviewed regularly for effectiveness. These controls and procedures are designed to manage, rather than eliminate, the risk of failure, and provide reasonable, but not absolute, assurance that there is an adequate system of internal control in place.
Internal control is implemented through the proper delegation of responsibility within a clearly defined approval framework, though accounting procedures and also the adequate segregation of duties. The group's internal accounting controls and systems are designed to provide reasonable assurance as to the integrity of the company's financial statements and to safeguard, verify and maintain accountability for its assets.
Internal auditors monitor the operation of the internal control systems and report their findings and recommendations to the Audit Committee, the directors and management. Corrective action is taken to address any deficiencies as and when they are identified. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review.
The company has adopted a Code of Ethics which applies to directors and employees across the group. The Code of Ethics requires all directors and employees to maintain the highest ethical standards in ensuring that the group's business practices are conducted in a manner which, in all reasonable circumstances, is beyond reproach. In addition, the group operates a closed period prior to the publication of its quarterly and year-end financial results during which period employees, directors and officers of the group may not deal in the shares of the company. Where appropriate, this is also extended to other sensitive periods.
The board is committed to ensuring the consistent application of the Code of Ethics. The responsibility for overseeing compliance with the Code of Ethics forms part of the functions of the Senior Vice President - Legal Counsel and the Audit Committee. The group has also contracted the services of "Tip-off Anonymous", an independent hotline service provider, to facilitate the confidential reporting of fraud and other inappropriate behaviour. Employees found guilty of ethical breaches are disciplined in accordance with the group's disciplinary code and, should the breach include a criminal act, it is the group's policy to pursue prosecution of the employee concerned. Feedback to date suggests that the ethical standards espoused in the Code are generally being upheld across the group.
The group places a high emphasis on the development of human capital and, to this end, employees undergo intensive induction courses and refresher courses. Before new employees are offered permanent employment with the group, an external party carries out routine credit, criminal and reference checks on the individual. Should the situation warrant it, these checks are also conducted in respect of existing employees where appropriate.
All employees in a position of authority are governed by a decision framework which sets out the limits of their authority in terms of expenditure, the extent to which they can contractually bind the company and the level at which they can offer employment to new employees. This authority is reviewed annually and is an integral part of the budgeting process.
PricewaterhouseCoopers Inc
Chartered Accountants (SA)
Registered Accountants and Auditors
The following table sets out for each operation and the group, total ounces produced, total cash costs and total production
Total South African operations
(1) In fiscal 2004 and 2003, 391,100 ounces and 383,900 ounces were attributable to Gold Fields respectively.
(2) In fiscal 2004 and 2003, 219,200 ounces and 212,700 ounces were attributable to Gold Fields respectively.
(3) Total production costs for the Australian operations are not split between the two operations.
(4) Total cash costs and total production costs are calculated in accordance with the Gold Institute industry standard.
Gold Fields Limited Annual Report 2004
PAGE 98
Gold Fields Limited Annual Report 2004
Shareholding in the company The issued capital of the company is held by public and non-public entities as follows:
Number of shares
000
%
Public
392,426
79.8
Non-public
249
0.1
Directors
350
0.1
Holding over 10%
98,468
20.0
Total
491,493
100.00
On 29 March 2004 Anglo American plc released details of the sale of its 20 per cent stake in Gold Fields to MMC Norilsk Nickel.
As at June 2004 MMC Norilsk Nickel held 98.5 million shares in the company (20 per cent). The other significant shareholders in the group are listed on page 147.
The GF Management Incentive Scheme
At the annual general meeting on 10 November 1999, shareholders approved the adoption of the GF Management Incentive Scheme to substitute the scheme in place prior to the reverse takeover of Driefontein by Gold Fields in 1999. This scheme was introduced to provide an incentive for certain officers and employees of the group to acquire shares in the company.
Details of the scheme are as follows:
Number
Average option
of shares
price (cps)
Outstanding at 1 July 2003
7,824,164
5,658
Granted during the year
2,910,900
8,825
Exercised and released
1,300,977
2,083
Forfeited
740,248
7,421
Outstanding at 30 June 2004
8,693,839
6,352
The executive directors' participation which is included in the above figures, is as follows
930,900
4,803
The directors are authorised to issue, allot and grant options to acquire up to a maximum of 22,791,830 ordinary shares in the unissued share capital of the company in terms of the incentive scheme. At 30 June 2004 this represented 4.64 per cent of shares in issue. The unexercised options under the scheme represented 1.77 per cent of shares in issue as at 30 June 2004.
The salient features of the scheme are that:
•
A third of the total share option grant vests upon the second anniversary of the grant date and a further third of the total option grant vests annually on future anniversaries of the grant date; and
• Share options expire no later than seven years from the grant date.
The GF Non-Executive Director Share Plan
At the annual general meeting on 31 October 2001, shareholders approved a resolution to proceed with the allocation of options to non-executive directors. As a result each non-executive director has been allocated the options detailed on page 104.
The salient features of the scheme are as follows: • Share options vest one year after allocation; • 10,000 share options will be issued annually to non-executive directors provided there is 75 per cent attendance at meetings; and • Share options will be forfeited 30 days after directors leave the board.
Directors' report
(continued)
Gold Fields Limited Annual Report 2004
Gold Fields Limited Annual Report 2004
PAGE 99
Financial affairs
Dividend policy The company's dividend policy is to declare an interim and final dividend in respect of each financial year, based on 50 per cent of the earnings for the year before taking account of investment opportunities. Earnings are adjusted to exclude unrealised gains and losses on financial instruments and foreign debt, but actual cash flows on maturity of financial instruments are included in the determination of adjusted earnings.
Dividends for the year ended 30 June 2004 The company declared an interim dividend of 40 cents per share on 28 January 2004. The dividend was paid on 23 February 2004.
A final dividend of 40 cents per share was declared on 28 July 2004. The dividend was declared in the currency of the Republic of South Africa. The dividend was paid on 23 August 2004.
The dividend resulted in a payout of 67 per cent for the year based on net earnings excluding gains and losses on financial instruments and foreign debt as well as exceptional items. The dividend was also influenced by the significant capital expenditure, which was R2.9 billion for the year.
Borrowing powers In terms of the provisions of Article 12.1 of the Articles of Association, the borrowing powers of the company are unlimited.
Fixed assets
Capital expenditure Capital expenditure for the year amounted to R2,880 million (2003: R2,294 million). Estimated capital expenditure for the 2005 financial year is R2,368 million and will be funded from internal sources and, to the extent necessary, borrowings. On 18 September 2003 Driefontein sold a block of ground, referred to as block 1C11, to AngloGold for a cash consideration of R315 million at a profit net of taxation of R240 million.
Investments
Disposals During the year under review the company disposed of its holdings in ARMgold, Committee Bay Resources, Glamis Gold Limited, Orezone Resources Inc. and Kisenge resulting in a profit of R96 million.
Acquisitions R707 million of investments were made during the year which included investments in Arctic Platinum Partnership, Bolivar Gold Corporation, CMQ Resources, Medoro Resources, Mvelaphanda Resources, Radius Corporation and Zijin Mining Group Company Limited.
Going concern
The financial statements have been prepared using appropriate accounting policies, supported by reasonable judgements and estimates. The directors have reasonable belief that the company and the group have adequate resources to continue as a going concern for the foreseeable future.
Property
The register of property and mineral rights is available for inspection at the registered office of the company during normal business hours.
Gold Fields Limited Annual Report 2004
PAGE 100
Gold Fields Limited Annual Report 2004
Directors' report
(continued)
Post-balance sheet events
Combination of Gold Fields' international assets with IAMGOLD to create a major new gold producer
On 11 August 2004, Gold Fields Limited ("Gold Fields") and IAMGOLD Corporation ("IAMGOLD"), announced that they have agreed to combine the international assets of Gold Fields located outside the Southern African Development Community ("SADC") with IAMGOLD in exchange for Gold Fields receiving IAMGOLD shares. IAMGOLD will issue 351,690,218 ordinary shares to Gold Fields and its affiliates, which based on IAMGOLD's volume weighted share price over the 20 trading days prior to 10 August 2004 have a market value of approximately US$2.1 billion. The issue of these shares will result in Gold Fields holding approximately 70 per cent of the enlarged company with the remaining 30 per cent being held by IAMGOLD shareholders. The number of shares to be issued will be subject to adjustment based on the total cash contribution by Gold Fields to the international assets of Gold Fields to be acquired by IAMGOLD from and after 24 June 2004 through closing. This adjustment will be made based on the 20 day average trading price of IAMGOLD shares prior to closing and is capped at US$50 million. The transaction is subject to the fulfilment of various conditions precedent and is anticipated to close prior to the end of this calendar year.
Following completion of the transaction, IAMGOLD will be renamed "Gold Fields International Limited" ("Gold Fields International") and will become an international growth vehicle outside of the SADC region for Gold Fields and IAMGOLD shareholders.
Occupational health care services
Occupational health care services are made available by Gold Fields to employees from its existing facilities. There is a risk that the cost of providing such services could increase in the future depending upon changes in the nature of underlying legislation and the profile of employees. This increased cost, should it transpire, is currently indeterminate. The group is monitoring developments in this regard.
Environmental obligations
The group has made provision in the financial statements for environmental rehabilitation costs amounting to R715 million (2003: R715 million). Cash contributions of R31 million (2003: R29 million) have been paid during the year to a dedicated trust fund created to fund these provisions with the total amounts invested at the year-end amounting to R331 million (2003: R275 million).
Special resolution
A special resolution, requiring disclosure in terms of the listings requirements of the JSE Securities Exchange South Africa, was passed at the annual general meeting of shareholders held on 18 November 2003 in regard to a general authority to enable the company to acquire its own shares and shares in any holding company of the company and for any of the company's subsidiaries to acquire shares in the company.
Black economic empowerment transaction
On 8 March 2004, shareholders of both Gold Fields Limited ("Gold Fields") and Mvelaphanda Resources Limited ("Mvela Resources") voted decisively in favour of all shareholder resolutions necessary to implement the transaction in terms of which Mvelaphanda Gold (Proprietary) Limited ("Mvela Gold"), a wholly-owned subsidiary of Mvela Resources, will acquire a 15 per cent beneficial interest in the South African gold mining assets of Gold Fields, including the world-class Beatrix, Driefontein and Kloof mines for a cash consideration of R4,139 million. All conditions precedent to the transaction were fulfilled following the completion by Mvela Resources of a domestic and international private placement on 15 March 2004. Following completion of the private placement Mvela Gold advanced a loan of R4,139 million ("the GFI-SA Loan") to GFI Mining South Africa (Proprietary) Limited ("GFI-SA"), a wholly-owned subsidiary of Gold Fields, on 17 March 2004. This loan was financed by way of commercial bank debt of approximately R1,349 million, mezzanine finance of R1,100 million (which includes R200 million of redeemable preference shares in Micawber 325 (Pty) Limited subscribed for by Gold Fields) and the balance of approximately R1,690 million raised by the Mvela Resources private placement (which includes R100 million of equity in Mvelephanda Resources Limited subscribed for by Gold Fields as part of the above private placement). At the end of five years, the GFI-SA loan will be repaid and Mvela Gold will subscribe for 15 per cent of the share capital of GFI-SA.
Gold Fields Limited Annual Report 2004
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PAGE 101
The proceeds of the GFI-SA loan have been applied towards settling R4.1 billion of the R4.7 billion payable by GFI-SA to Beatrix Mining Ventures Limited, Driefontein Consolidated (Pty) Limited and Kloof Gold Mining Company Limited following implementation of the internal reorganisation pursuant to which GFI-SA has acquired the gold mining assets of these companies as well as ancillary assets.
Legal
As reported in the annual report last year, a lawsuit was filed by Zalumzi Singleton Mtwesi against Gold Fields Limited in the State of New York on 6 May 2003. Mr Mtwesi alleges, inter alia, that during the apartheid era, he was subjected to human rights violations. Mr Mtwesi filed the lawsuit on behalf of himself and as representative of all other victims and all other persons similarly situated. In summary, Mr Mtwesi and the plaintiffs' class demand an order certifying the plaintiffs' class and compensatory damages from Gold Fields Limited. A complaint has not been served on Gold Fields Limited. If and when service of the complaint takes place it will be vigorously contested.
On 9 July 2004, a lawsuit was filed in a federal district court in New York by six individuals against Gold Fields and a number of other defendants including IBM Corporation, Anglo American plc, UBS AG, Union Bank of Switzerland, Fluor Corporation, Strategic Minerals Corporation, the Republic of South Africa and President Thabo Mbeki. The lawsuit alleges, among other things, that one of the plaintiffs was a victim of apartheid, including by virtue of acts committed at facilities in Randfontein, South Africa, that were owned by one or more predecessors of Gold Fields and that Gold Fields is liable for various wrongful acts and property expropriation, as well as violations of international law, allegedly committed during the apartheid era in South Africa. The plaintiffs are seeking, on each of two counts, unspecified compensatory damages, punitive damages and interest and costs and seek those penalties against the various defendants jointly and severally. A complaint has not been served on Gold Fields. If and when service of the complaint takes place it will be vigorously contested.
Community development projects
Gold Fields has an extensive programme of community interaction and development in communities where employees and their families live.
Mnyakanya, a school in KwaZulu-Natal, which was suffering from an acute lack of facilities and amenities for both scholars and teachers, has been given a R6 million extension by Gold Fields. This project is an example of how Gold Fields is working with these communities to build the future. Education is perhaps the greatest need of young people in South Africa today and we, in Gold Fields, are playing our part in ensuring that as many as possible receive that opportunity in conditions that are conducive to learning.
During the past ten years Gold Fields has invested more than R150 million into education, community development, healthcare, employment and physical infrastructure projects in such communities, through The Gold Fields Foundation.
Directorate
Composition of the board The directors of the company at the date of this report are shown on pages 4 and 5.
The directors retiring in terms of the company's Articles of Association are Messrs K Ansah, G R Parker, T M G Sexwale, C M T Thompson and Dr P J Ryan, and being eligible, offer themselves for re-election. At the forthcoming annual general meeting, members will be requested to consider the necessary resolutions. A brief summary of their curricula vitae appears on page 5.
The directors are not required to hold shares in Gold Fields, although a shareholding qualification may be imposed at any meeting of the shareholders.
The Articles of Association do not provide for a mandatory retirement age for directors. However, in terms of the board charter of the company the retirement age is 72 years.
** As the executive directors' emoluments are payable partly in US dollars in terms of an agreement with one of the company's subsidiaries, the directors' emoluments in rand will be affected by fluctuations in the exchange rate.
Gold Fields Limited Annual Report 2004
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PAGE 103
The company's remuneration policy is determined by the Compensation Committee, which over the past year has utilised the services of Deloitte and Touche Human Capital Corporation as independent advisers to the committee.
Gold Fields' remuneration philosophy is aimed at attracting and retaining motivated high calibre executives aligned with the interests of shareholders. Such alignment is achieved through an appropriate mix of fixed and performance-based remuneration. The company aims to set fixed remuneration around the mean of the markets in which we operate and to reward high performing executives through short and long-term incentives based on both company and personal performance.
Executives are paid gross remuneration packages, which the committee's advisers confirmed during the year are aligned with the markets within which the company operates. All fixed elements of remuneration, with the exception of a standard 24 working days leave per annum, are included in the package, with the company having no contingent retirement or medical liabilities. A portion of the fixed remuneration of executives with international responsibilities is paid in US dollars. Increases are determined annually by the Compensation Committee informed by remuneration surveys to which the company subscribes. Despite market data indicating higher levels of increase for top management in 2003, Members of the Executive Committee received on average a 4.4 per cent increase in fixed remuneration in January 2004, in line with the South African inflation rate at the time.
The short-term incentive is an annual incentive bonus in terms of which the Executive Directors are able to earn bonuses of 50 per cent of their GRPs for on target performance. Incentive Bonuses are based on targets approved in advance by the Compensation Committee, comprising corporate, operational and personal objectives. In the case of the chief executive, 70 per cent of his incentive is based on corporate objectives. In other cases corporate and operational objectives (where applicable) comprise 40 per cent to 60 per cent of the incentive with personal objectives making up the balance. In F2004 the weighted average incentive bonus paid to members of the executive team was 33 per cent of GRP.
The corporate objectives comprise three elements. 45 per cent of the corporate objective relates to the relative performance of the Gold Fields share price against the average performance of the AngloGold Ashanti and Harmony share prices over the year in question. No incentive is paid under this heading if the company's share price at the end of the year is lower than that at the beginning of the year even if the company's share price has outperformed the average of the AngloGold Ashanti and Harmony share price performances. The remaining corporate objectives, as measured against the operational plan approved by the board, relate to cash costs per kilogram produced (30 per cent) and total gold produced (25 per cent).
Operational objectives are measured against the operational plans approved by the board and cover safety, production, costs and progress in developing long-term ore reserves. Personal objectives are developed each year for each executive based on key areas and are approved at the beginning of each year by the Compensation Committee. Performance against these objectives is measured quarterly and the final outcome approved by the Compensation Committee at the end of the year.
Long-term incentives are catered for in the GF Management Incentive Scheme, a pure option scheme. Options have a life of seven years and vest as to a third of each grant, on the second, third and fourth anniversary of the grant. Awards are made by the Compensation Committee at fixed times twice a year to ensure cost averaging. The standard allocations at each management level were fixed during the last year following a review by Deloitte and Touche, with the committee having the right to vary individual allocations on performance grounds.
In light of developments with regard to share option schemes over the last year, the committee has appointed Deloitte and Touche to make recommendations to the committee on the redesign of the company's long-term incentives.
The fees for non-executive directors are dealt with by the Nominating and Corporate Governance Committee. Following a review during the year, the Committee agreed to increase significantly the fee of the chairman of the board, taking into account competitiveness as well as the time spent by the chairman on the company's affairs. Non-executive directors also participate in
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Gold Fields Limited Annual Report 2004
Directors' report
(continued)
a non-executive share plan, which provides for an annual allocation of share options to non-executive directors who attend at least 75 per cent of board meetings. These options vest after one year and have a life of five years. The plan is administered by a committee comprising the chief executive and two other nominees of the chief executive, none of whom may be participants under the scheme.
Directors' options
The following table records details of the share options of the executive and non-executive directors during the year.
Executive directors
Options
held as at
1 July 2003
Average
exercise
price per
share
R
Exercised
during the
year
Pre-tax
gain at
date of
exercise
R
Lapsed
during
the year
Options
issued
during
the year
Average
exercise
price per
share
R
Options
held as at
30 June
2004
Average
exercise
price per
share
R
I D Cockerill
529,200
45.38
--
--
--
74,200
88.28
603,400
51.36
N J Holland
296,700
36.14
4,000
358,959
--
34,800
87.86
327,500
41.90
Total
825,900
42.06
4,000
358,959
--
109,000
88.07
930,900
48.03
Non-Executive directors
K Ansah
--
--
--
--
--
--
--
--
--
G J Gerwel
5,000
110.03
--
--
--
10,000
88.38
15,000
95.60
J M McMahon
31,000
65.10
--
--
--
10,000
88.38
41,000
70.78
G R Parker
35,000
62.65
--
--
--
10,000
88.38
45,000
68.37
R L Pennant-Rea
5,000
110.03
--
--
--
10,000
88.38
15,000
95.60
P J Ryan
35,000
62.65
--
--
--
10,000
88.38
45,000
68.37
T M G Sexwale
12 ,000
82.39
--
--
--
10,000
88.38
22,000
85.11
C M T Thompson
290,000
46.83
--
--
--
10,000
88.38
300,000
48.22
B R van Rooyen
35,000
62.65
--
--
--
10,000
88.38
45,000
68.37
C I von Christierson
29,000
66.57
19,000 1,058,726
--
10,000
88.38
20,000
99.03
A J Wright
35,000
62.65
--
--
--
10,000
88.38
45,000
68.37
Total
512,000
55.45
19,000
1,058,726
--
100,000
88.38
593,000
61.37
Administration
Mr C Farrel is corporate secretary of Gold Fields Limited. GFL Mining Services Limited continues to act as administrative, financial and technical advisers to the company.
Mr N J Holland acted as public officer for the year under review.
Computershare Investor Services 2004 (Proprietary) Limited is the company's South African transfer secretaries and Capita Registrars is the United Kingdom registrars of the company.
Gold Fields Limited Annual Report 2004
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PAGE 105
Accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
1. Basis of preparation
The consolidated financial statements of the group have been prepared in accordance with International Financial Reporting Standards (IFRS), South African Statements of Generally Accepted Accounting Practice and the South African Companies Act. The consolidated financial statements have been prepared under the historical cost convention, as modified by available-for- sale financial assets, and financial assets and liabilities (including derivative instruments), which have been brought to account at fair value through profit or loss or through the fair value adjustment reserve under shareholders' equity.
2. Consolidation
2 .1 Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.
The group financial statements consolidate the activities, assets and liabilities of the company and its subsidiaries. Operating results of subsidiaries acquired or disposed of are included in the group statements from the effective dates on which control is obtained or excluded from such statements as from the date on which control ceases.
The formation of the group was accounted for using the pooling-of-interests method. Subsequent to the formation of the group, the purchase method of accounting is used to account for the acquisition of subsidiaries by the group.
The cost of an acquisition is measured as the fair value of assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition.
Any excess or shortfall between the cost of acquisition and the fair value of the attributable net assets of subsidiaries at the date of acquisition is recorded as goodwill or negative goodwill.
Inter-company transactions comprising unrealised gains and losses between group companies are eliminated, unless such losses cannot be recovered. Inter-company balances are eliminated.
2.2 Associates
The equity method of accounting is used for an investment over which the group exercises significant influence, but not control, and normally owns between 20 per cent and 50 per cent of the voting equity. Associates are equity accounted from the effective dates of acquisition to the effective dates of disposal.
Results of associates are equity accounted from their most recent audited annual financial statements or unaudited interim financial statements. Any losses of associates are brought to account in the consolidated financial statements until the investment in such associates is written down to a nominal amount. Thereafter, losses are accounted for only insofar as the group is committed to providing financial support to such associates.
3. Foreign currencies
Foreign currency transactions are translated into the reporting currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. Translation differences on available-for-sale equities are included in the revaluation reserve in equity.
3.1 Foreign entities
Foreign entities are regarded as those entities that are considered to be self-sustaining. The balance sheets and income statements are translated on the following basis:
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Gold Fields Limited Annual Report 2004
Accounting policies
(continued)
Assets and liabilities are translated at the exchange rate ruling at year-end. Income statement items are translated at the average exchange rate for the year. Exchange differences on translation are accounted for in shareholders' equity. These differences will be recognised in earnings upon realisation of the underlying operation.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at transaction date.
4. Property, plant and equipment
4.1 Mine development and infrastructure
Mining assets, including mine development and infrastructure costs and mine plant facilities, are recorded at cost of acquisition.
Expenditure incurred to evaluate and develop new orebodies, to define mineralisation in existing orebodies, to establish or expand productive capacity, is capitalised until commercial levels of production are achieved, at which times the costs are amortised as set out below.
Development of orebodies includes the development of shaft systems and waste rock removal. These costs are capitalised until the reef horizons are intersected and commercial levels of production can be realised on a sustainable basis. Subsequent to this, costs are capitalised if the criteria for recognition as an asset are met. Access to individual orebodies exploited by the group is limited to the time span of the group's respective mining leases.
Borrowing costs incurred in respect of assets requiring a substantial period of time to prepare for their intended future use are capitalised to the date that the assets are substantially completed.
4.2 Mineral and surface rights
Mineral and surface rights are recorded at cost of acquisition. When there is little likelihood of a mineral right being exploited, or the value of mineral rights have diminished below cost, a write-down is effected against income in the period that such determination is made.
4.3 Land
Land is shown at cost and is not depreciated.
4.4 Non-mining assets
Non-mining assets are recorded at cost of acquisition. These assets include the assets of the mining operations not included in the previous categories and all the assets of the non-mining operations.
4.5 Amortisation and depreciation of mining assets
Amortisation is determined to give a fair and systematic charge in the income statement taking into account the nature of a particular ore body and the method of mining that ore body. To achieve this the following calculation methods are used:
• Mining assets, including mine development and infrastructure costs, mine plant facilities and evaluation costs, are
amortised over the lives of the mines using the units-of-production method, based on estimated proved and probable ore reserves above infrastructure.
• Where it is anticipated that the mine life will significantly exceed the proved and probable reserves, the mine life is
estimated using a methodology that takes account of current exploration information to assess the likely recoverable gold from a particular area. Such estimates are adjusted for the level of confidence in the assessment and the probability of conversion to reserves. The probability of conversion is based on historical experience of similar mining and geological conditions.
• Where exploration results at a particular defined area do not suggest a reasonable likelihood of an exploitable deposit
that warrants further exploration, such exploration costs are expensed.
• At certain of the group's operations, the calculation of amortisation takes into account future costs which will be
incurred to develop all the proved and probable ore reserves.
Proved and probable ore reserves reflect estimated quantities of economically recoverable reserves, which can be recovered in future from known mineral deposits.
Certain mining plant and equipment included in mine development and infrastructure is depreciated on a straight-line basis over their estimated useful lives.
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4.6 Depreciation of non-mining assets
Other non-mining assets are recorded at cost and depreciated on a straight-line basis over their expected useful lives as follows:
• Vehicles, 20 per cent
• Computers, 33.3 per cent
• Furniture and equipment, 10 per cent
4.7 Mining exploration
Expenditure on advances to companies solely for exploration activities, prior to evaluation, is charged against income until the viability of the mining venture has been proven. Expenditure incurred on exploration "farm-in" projects is written off until an ownership interest has vested. Exploration expenditure to define mineralisation at existing ore bodies is considered mine development costs and is capitalised until commercial levels of production are achieved.
Exploration activities at the group's Australian operations are broken down into defined areas within the mining lease boundaries. These areas are generally defined by structural and geological continuity. Exploration costs in these areas are capitalised to the extent that specific exploration programmes have yielded targets and/or results that warrant further exploration in future years.
4.8 Impairment
Recoverability of the carrying value of the long-term mining assets of the group is reviewed whenever events or changes in circumstances indicate that such carrying amount may not be recoverable, and annually at the end of the fiscal year. To determine whether a long-term mining asset may be impaired, the estimate of future discounted cash flows determined on a pre-tax basis, over the remaining estimated life of the mining asset, calculated on an area-of-interest basis, is compared to its carrying value.
An area-of-interest is defined by the group as its lowest level of identifiable cash flows, generally an individual operating mine, including mines which are included in a larger mine complex. The costs attributable to individual shafts of a mine are written off if the shaft is closed.
Exploration targets in respect of which costs have been capitalised at the group's Australian operations are evaluated on an annual basis to ensure that these targets continue to support capitalisation of the underlying costs. Those that do not are written off.
Management's estimate of future cash flows is subject to risk and uncertainties. It is therefore reasonably possible that changes could occur which may affect the recoverability of the group's mining assets.
4.9 Leases
Operating leases are charged against income as incurred.
5. Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the group's share of the net assets of the acquired subsidiary/associate at the date of acquisition. Goodwill is amortised using the straight-line method over its estimated useful life. At each balance sheet date, the group assesses whether there is any indication of impairment. A write- down is made if the carrying amount exceeds the recoverable amount.
6. Waste normalisation or deferred stripping
At the group's Australian open pit operations, costs are accounted for in the income statement using the waste normalisation method. The objective of this method is to provide that every ounce mined from the relevant pit bears its equal pro rata share of the total in-pit waste removal cost, expected to be incurred over the life of the pit. In-pit waste removal costs are expensed to the income statement by applying the ratio of ounces mined in each period pro rata to total proved and probable reserve ounces expected to be recovered from the pit to the total expected in-pit waste removal costs to be incurred over the life of the pit. The resultant asset or liability created by the timing difference between costs incurred and costs expensed is recorded in the balance sheet as a current asset or liability.
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Gold Fields Limited Annual Report 2004
Accounting policies
(continued)
7. Deferred taxation
Deferred taxation is provided in full, using the liability method, on temporary differences existing at each balance sheet date between the tax values of assets and liabilities and their carrying amounts. Future anticipated effective tax rates are used in the determination of deferred taxation.
These temporary differences are expected to result in taxable or deductible amounts in determining taxable profits for future periods when the carrying amount of the asset is recovered or the liability is settled. The principal temporary differences arise from depreciation on property, plant and equipment, provisions, unutilised capital allowances, tax losses carried forward and interest charges.
Deferred tax assets relating to the carry forward of unused tax losses and/or unutilised capital allowances are recognised to the extent it is probable that future taxable profit will be available against which the unused tax losses and/or unutilised capital allowances can be recovered.
No provision is made for any potential taxation liability on the distribution of retained earnings by group companies.
8. Inventories
Inventories are valued at the lower of cost and net realisable value. Gold on hand represents production on hand after the smelting process. Due to the different nature of the group's international operations, gold-in-process for such operations represents either production in broken ore form or production from the time of placement on heap leach pads. Mineral rights represent those rights not linked to any specific operation.
Cost is determined on the following basis:
• Gold on hand and gold-in-process is valued using the weighted average cost. Cost includes production, amortisation and
related administration costs.
• Consumable stores are valued at weighted average cost, after appropriate provision for redundant and slow-moving items.
• Mineral rights are valued at the lower of cost and net realisable value.
Net realisable value is determined with reference to current market prices.
9. Financial instruments
Financial instruments recognised in the balance sheet include cash and cash equivalents, investments, trade and other receivables, borrowings, trade and other payables and derivative financial instruments. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.
9.1 Investments
Investments comprise (i) investments in listed companies which are classified as available-for-sale and are accounted for at fair value, with unrealised holding gains and losses excluded from earnings and reported as a separate component of shareholders' equity and are released to the income statement when the investments are sold; (ii) investments in unlisted companies which are accounted for at cost since fair value cannot be measured reliably and are adjusted for write-downs where appropriate.
Purchases and sales of investments are recognised on the trade date, which is the date that the group commits to purchase or sell the asset. Cost of purchase includes transaction costs. The fair value of listed investments is based on quoted bid prices.
Realised gains and losses are included in determining net income or loss. Unrealised losses are included in determining net income or loss where a significant decline in the value of the investment, other than temporary, has occurred.
Investments in subsidiaries are recognised at cost less accumulated impairment losses.
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9.2 Derivative financial instruments
The group's general policy with regards to its exposure to the dollar gold price is to remain unhedged. However, hedges are sometimes undertaken on a project specific basis as follows:
• to protect cash flows at times of significant expenditure;
• for specific debt servicing requirements; and
• to safeguard the viability of higher cost operations.
The group may from time to time establish currency and/or interest rate financial instruments to protect underlying cash flows.
On the date a derivative contract is entered into, the group designates the derivative as (1) a hedge of the fair value of a recognised asset or liability (fair value hedge), (2) a hedge of a forecasted transaction (cash flow hedge), (3) a hedge of a net investment in a foreign entity, or (4) should the derivative not fall into one of the three categories above it is not regarded as a hedge.
Derivative financial instruments are initially recognised in the balance sheet at cost and subsequently at their fair value, unless they meet the criteria for the normal purchases normal sales exemption.
Changes in fair value of a derivative that is highly effective, and that is designated and qualifies as a fair value hedge, are recorded in earnings, along with the change in the fair value of the hedged asset or liability that is attributable to the hedged risk.
Changes in fair value of a derivative that is highly effective, and that is designated as a cash flow hedge, are recognised directly in shareholders' equity. Where the forecasted transaction or firm commitment results in the recognition of an asset or liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. Amounts deferred in shareholders' equity are included in earnings in the same periods during which the hedged firm commitment or forecasted transaction affects earnings.
Hedges of net investments in foreign entities are accounted for similarly to cash flow hedges.
Certain derivative transactions, while providing effective economic hedges under the group's risk management policies, do not qualify for hedge accounting. Changes in the fair value of derivatives that are not designated as hedges or that do not qualify for hedge accounting are recognised immediately in the income statement.
Recognition of derivatives which meet the criteria for the normal purchases normal sales exception under IFRS 39 is deferred until settlement.
9.3 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits and investments in money market instruments with an original maturity of less than three months.
The carrying amount of cash and cash equivalents is stated at cost, which approximates fair value.
Bank overdrafts are included within current liabilities in the balance sheet.
9.4 Trade receivables
Trade receivables are carried at anticipated realisable value, that is, original invoice amount less provision for impairment of these receivables. Estimates are made for impairments based on a review of all outstanding amounts at year-end. Irrecoverable amounts are written off during the year in which they are identified.
10. Provisions
Provisions are recognised when the group has a present obligation, legal or constructive resulting from past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
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Gold Fields Limited Annual Report 2004
Accounting policies
(continued)
11. Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred, where applicable.
Interest payable on borrowings is recognised in the income statement over the term of the borrowings using the effective interest method. The debt component of the Mvela loan is determined using a market related cost of debt. This amount is recorded as a liability and is amortised against actual payments made over the life of the loan. The balance of the Mvela loan is included in shareholders' equity, net of income tax effects.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement on the liability for at least 12 months after the balance sheet date.
12. Environmental obligations
Long-term environmental obligations are based on the group's environmental management plans, in compliance with current environmental and regulatory requirements.
Full provision is made based on the net present value of the estimated cost of restoring the environmental disturbance that has occurred up to the balance sheet date. Increases due to additional environmental disturbances are capitalised and amortised over the remaining lives of the mines. These increases are accounted for on a net present value basis.
Annual increases in the provision relating to the change in the net present value of the provision and inflationary increases are accounted for in earnings.
The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation, technology or other circumstances. Cost estimates are not reduced by the potential proceeds from the sale of assets or from plant clean- up at closure.
For the South African operations annual contributions are made to a dedicated rehabilitation trust fund to fund the estimated cost of rehabilitation during and at the end of the life of the relevant mine. These annual contributions are calculated by dividing the unfunded rehabilitation liability by the remaining lives of the mines and such contributions are subject to prior approval by the South African Revenue Service. The amounts contributed to this trust fund are included under non-current assets. Interest earned on monies paid to rehabilitation trust funds is accrued on a time proportion basis and is recorded as interest income.
13. Employee benefits
13.1 Pension and provident funds
The group operates a defined benefit pension plan and a defined contribution retirement plan and contributes to a number of industry-based defined contribution retirement plans. The retirement plans are funded by payments from employees and group companies.
The expected costs of the defined benefit pension plan are assessed in accordance with the advice of independent actuaries. The cost of experience adjustments or planned amendments is charged to earnings over the expected average remaining service lives of the relevant employees. Any shortfalls are funded either immediately or as increased employer contributions to ensure the ongoing soundness of the fund.
Contributions to defined contribution funds are charged against income as incurred.
These funds are governed by the Pension Fund Act of 1956, as amended.
13.2 Post-retirement health care costs
Medical cover is provided through a number of different schemes. Post-retirement health care in respect of qualifying employees is recognised as an expense over the expected remaining service lives of the relevant employees. The group has an obligation to provide medical benefits to certain of its pensioners and dependants of ex-employees. These liabilities have been provided in full, calculated on an actuarial basis. These liabilities are unfunded. Periodic valuation of these obligations is carried out by independent actuaries using appropriate mortality tables, long-term estimates of increases in medical costs and appropriate discount rates.
Gold Fields Limited Annual Report 2004
Gold Fields Limited Annual Report 2004
PAGE 111
14. Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares for the acquisition of a business are included in the cost of acquisition as part of the purchase consideration.
15. Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the group and the amount of revenue can be reliably measured.
Revenue comprises the value of gold sold.
15.1
Revenue arising from gold and silver sales is recognised when the title, risks and rewards of ownership pass to the buyer.
The price of gold and silver is determined by market forces.
15.2
Revenue from services is recognised over the period the services are rendered and is accrued in the financial statements.
15.3
Dividends, which include capitalisation dividends, are recognised when the right to receive payment is established.
15.4
Interest income is recognised on a time proportion basis taking account of the principal outstanding and the effective
rate over the period to maturity.
16. Dividends declared
Dividends and the related taxation thereon are recognised only when such dividends are declared.
17. Earnings/(loss) per share
Earnings per share is calculated based on the net income/(loss) divided by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is presented when the inclusion of ordinary shares that may be issued in the future has a dilutive effect on earnings per share.
18. Segmental reporting
The group has only one business segment, that of gold mining. Segment analysis is based on individual mining operations.
19. Comparatives
Where necessary, comparatives are adjusted to conform to changes in presentation. No comparatives were adjusted in the current year.
20. Additional US dollar financial information
The translation of the financial statements into US dollars is based on the average exchange rate for the year for the income statement and cash flow statement and the year-end closing exchange rate for balance sheet items. Exchange differences on translation are accounted for in shareholders' equity.
This information is provided as supplementary information for convenience purposes only.
Balance at 30 June 2002
investments
investments
of APP
investments
investments
Balance at 30 June 2002
investments
investments
of APP
investments
investments
Gold Fields Limited Annual Report 2004
Gold Fields Limited Annual Report 2004
Figures in millions unless otherwise stated
PAGE 117
United States Dollars
South African Rand
2003
2004
2004
2003
6. Mining and income tax
The components of mining and income tax are the following: South African taxation
(57.3)
(1.7)
- mining tax
(11.7)
(520.4)
(2.4)
(2.2)
- non-mining tax
(15.3)
(21.8)
(2.9)
(4.7)
- compan
y and capital gains tax
(33.0)
(26.2)
(32.3)
59.8
- def
erred
412.7
(293.0)
Foreign taxation
(1.6)
(4.1)
- curr
ent
(9.5)
(14.4)
(16.1)
(17.2)
- f
oreign levies and royalties
(137.1)
(145.8)
(37.7)
(38.6)
- def
erred
(266.6)
(341.9)
(150.3)
(8.7)
Total mining and income tax
(60.5)
(1,363.5)
South African mining tax on mining income is determined on a formula basis which takes into account the profit and revenue from mining operations during the year. Non-mining income is taxed at a standard rate of 38%. Deferred tax is provided at the estimated effective mining tax rate on temporary differences. Major items causing the group's income tax provision to differ from the maximum statutory mining tax rate of 46% were:
Tax on profit before taxation at maximum mining statutory tax rate
(449.9)
(2,040.3)
Rate adjustment to reflect the company tax rate in South Africa of 30.0%, tax rate in Ghana of 32.5% and tax rate in Australia of 30.0%
277.2
202.9
South African mining tax formula rate adjustment
48.0
166.9
Net non-taxable income and non-deductible expenditure
158.8
286.0
Foreign levies and royalties
(137.1)
(145.8)
South African capital gains tax
(12.0)
(19.1)
Use of assessed losses and unredeemed capital expenditure not previously recognised
--
124.1
Other
54.5
61.8
Income and mining tax expense
(60.5)
(1,363.5)
Gold Fields Limited Annual Report 2004
PAGE 118
Gold Fields Limited Annual Report 2004
Notes to financial statements
(continued)
for the year ended 30 June 2004
6. Mining and income tax (continued)
6.1
South African mining tax on mining income is determined according to a formula which takes into account the profit and revenue from
mining operations.
South African mining taxable income is determined after the deduction of all mining capital expenditure, with the proviso that this cannot result in an assessed loss. Capital expenditure amounts not deducted are carried forward as unredeemed capital expenditure to be deducted from future mining income. Depreciation is ignored for the purpose of calculating South African mining taxation.
The formula for determining South African mining tax is:
Y = 46 - 230/X
where Y is the percentage rate of tax payable and X is the ratio of mining profit, after the deduction of redeemable capital expenditure, to mining revenue expressed as a percentage.
6.2
Non-mining income of South African mining operations consists primarily of interest received and is taxed at a rate of 38 per cent.
6.3
South African company tax, for non-mining companies in the group, is determined at a rate of 30 per cent.
6.4
Company tax at Gold Fields Ghana Limited and Abosso Gold Fields Limited is determined at a rate of 32.5 per cent.
6.5
Company tax at St Ives (Pty) Limited and Agnew (Pty) Limited is determined at a rate of 30.0 per cent.
6.6
Deferred tax is provided at the expected future rate for mining operations arising from temporary differences between the book and tax
values of assets and liabilities.
6.7
At 30 June 2004 the group had the following amounts available for set-off against future income:
-
unredeemed capital expenditure at GFI Mining South Africa (Pty) Limited of R1,977.6 million. This comprises R11.9 million at the
Driefontein operation, R233.2 million at the Kloof operation and R1,732.5 million at the Beatrix operation.
-
estimated and assessed losses at GFI Mining South Africa (Pty) Limited of R52.7 million, all of which relate to the Beatrix operation.
-
unredeemed capital expenditure at Beatrix Mining Ventures Limited of R nil million (2003: R1,479.4 million) at the Beatrix mine tax entity. With the rationalisation of the group's South African mining operations into GFI Mining South Africa (Pty) Limited, the unredeemed capital expenditure at Beatrix Mining Ventures Limited was transferred to the new company.
These deductions are available to be utilised against income generated by the relevant tax entity and do not expire unless the tax entity concerned ceases to commercially mine for a period of longer than one year. Under South African mining tax ring-fencing legislation, each tax entity is treated separately and as such these deductions can only be utilised by the tax entities in which the deductions have been generated.
-
estimated tax losses at Orogen Investments SA (Luxembourg) of US$121.8 million (2003: US$85.4 million). No deferred tax asset is recognised in the balance sheet for this amount. In terms of current Luxembourg taxation legislation, losses incurred in accounting periods subsequent to 31 December 1990 can be carried forward indefinitely. All losses incurred by Orogen Investments SA (Luxembourg) were incurred subsequent to 31 December 1990.
-
estimated tax losses at Gold Fields Australia (Pty) Limited of A$75.0 million (2003: A$20.4 million). These estimated tax losses do not have an expiration date.
-
estimated capital allowances at Gold Fields Ghana Limited of US$116.2 million (2003: US$46.2 million) and Abosso Goldfields Limited of US$8.4 million (2003: US$31.9 million), respectively. These estimated capital allowances do not have an expiration date.
Gold Fields Limited Annual Report 2004
Gold Fields Limited Annual Report 2004
Figures in millions unless otherwise stated
PAGE 119
United States Dollars
South African Rand
2003
2004
2004
2003
7. Earnings per share
56
23
7.1 Headline earnings per share - cents
157
507
Headline earnings per share is calculated on the basis of adjusted net earnings attributable to ordinary shareholders of R763.2 million (2003: R2,393.4 million) and 485,020,966 (2003: 471,814,106) shares being the weighted average number of ordinary shares in issue during the year.
Net earnings is reconciled to headline earnings as follows:
325.6
111.3
Net earnings
767.6
2,953.0
--
61.8
Impairment of assets
426.2
--
--
(16.1)
Taxation effect of impairment of assets
(111.3)
--
--
(27.1)
Profit on sale of mineral rights
(187.2)
--
--
(7.7)
Taxation effect of profit on sale of mineral rights
(53.0)
--
(13.4)
--
Profit on disposal of St Helena
--
(121.7)
3.0
--
Taxation effect of profit on disposal of St Helena
--
27.3
(52.9)
(13.9)
Profit on sale of investments
(95.6)
(479.7)
2.1
2.8
Taxation effect of profit on sale of investments
19.2
19.1
(0.5)
(0.5)
Other after tax adjustments
(2.7)
(4.6)
263.9
110.6
Headline earnings
763.2
2,393.4
69
23
7.2 Basic earnings per share - cents
158
626
Basic earnings per share is calculated on the basis of net earnings attributable to ordinary shareholders of R767.6 million (2003: R2,953.0 million) and 485,020,966 (2003: 471,814,106) shares being the weighted average number of ordinary shares in issue during the year.
56
23
7.3 Diluted headline earnings per share - cents
156
504
Diluted headline earnings per share is calculated on the basis of headline earnings attributable to ordinary shareholders of R763.2 million (2003: R2,393.4 million) and 487,698,431 (2003: 475,294,239) shares being the diluted number of ordinary shares in issue during the year.
The weighted average number of shares has been adjusted by the following to arrive at the diluted number of ordinary shares:
Weighted average number of shares
485,020,966
471,814,106
Share options in issue
2,677,465
3,480,133
Diluted number of ordinary shares
487,698,431
475,294,239
69
23
7.4 Diluted basic earnings per share - cents
157
621
Diluted basic earnings per share is calculated on the basis of net earnings attributable to ordinary shareholders of R767.6 million (2003: R2,953.0 million) and 487,698,431 (2003: 475,294,239) shares being the diluted number of ordinary shares in issue during the year.
8. Dividends
96.6
63.2
2003 Final dividend of 100 cents per share
472.4
1,038.5
(2002: 220 cents) declared on 29 July 2003 and paid on 25 August 2003.
87.7
29.4
2004 Interim dividend of 40 cents per share (2003: 150 cents) declared on
196.7
707.9
28 January 2004 and paid on 23 February 2004
184.3
92.6
Total dividends
669.1
1,746.4
Gold Fields Limited Annual Report 2004
Gold Fields Limited Annual Report 2004
Figures in millions unless otherwise stated
PAGE 121
United States Dollars
South African Rand
2003
2004
2004
2003
10. Investment in associate
The group has a 33.1% interest in Rand Refinery Limited, a company incorporated in the Republic of South Africa, which is involved in the refining of bullion and by-products which are sourced inter alia from South Africa and foreign gold producing mining companies. The investment has been equity accounted as from 1 July 2002.
Investment in associate consists of:
1.9
1.9
Unlisted shares at cost
19.4
19.4
--
(0.9)
Share of accumulated losses brought forward
(8.3)
--
1.0
(0.4)
(Loss)/profit after taxation (refer note 3)
(2.9)
9.1
(1.9)
(0.8)
Dividends
(5.7)
(17.4)
0.4
0.6
Translation adjustments
--
--
1.4
0.4
Total investment in associate
2.5
11.1
The group`s effective share of balance sheet items in its associate is as follows:
6.6
8.9
Non-current assets
55.9
51.1
5.3
4.3
Current assets
27.0
41.0
11.9
13.2
Total assets
82.9
92.1
0.6
0.8
Non-current liabilities
4.6
4.4
2.0
1.7
Current liabilities
10.8
15.8
2.6
2.5
Total equity and liabilities
15.4
20.2
9.3
10.7
Net assets
67.5
71.9
Reconciliation of the total investment in associate with net assets:
9.3
10.7
Net assets
67.5
71.9
(7.9)
(10.3)
Negative goodwill
(65.0)
(60.8)
1.4
0.4
Carrying value
2.5
11.1
11. Investments
Listed
36.2
81.9
Cost less permanent write-downs
515.7
282.2
24.8
11.5
Net unrealised gain on revaluation
73.0
192.8
61.0
93.4
Book value
588.7
475.0
61.0
93.4
Market value
588.7
475.0
Unlisted
1.9
32.3
Book value and directors' valuation
203.5
14.8
62.9
125.7
Total listed and unlisted investments
792.2
489.8
1.4
1.1
Loans advanced
6.5
11.2
64.3
126.8
Total investments
798.7
501.0
All investments are classified as available for sale. Details of major investments are given on pages 140 and 141
Gold Fields Limited Annual Report 2004
Figures in millions unless otherwise stated
PAGE 122
Gold Fields Limited Annual Report 2004
United States Dollars
South African Rand
2003
2004
2004
2003
Figures in millions unless otherwise stated
Notes to financial statements
(continued)
for the year ended 30 June 2004
12. Environmental Trust Fund
Gold Fields Mining Environmental Trust Fund
24.4
35.3
Balance at beginning of the year
275.0
252.7
3.2
4.4
Contributions made during the year
30.5
29.1
3.2
3.8
Interest earned during the year
25.9
29.0
(3.1)
--
Payment due to disposal of St Helena
--
(35.8)
7.6
9.1
Translation adjustment
--
--
35.3
52.6
Balance at end of the year
331.4
275.0
The proceeds from this fund are intended to fund environmental rehabilitation obligations of the group's South African mines and they are not available for the general purposes of the group. All income from this asset is reinvested or spent to meet these obligations. These obligations are included in environmental rehabilitation costs under long-term provisions (refer note 20.2)
13. Financial instruments
--
107.3
Amount owing on close-out of financial instruments
676.1
--
--
(37.0)
Current portion included in current assets
(233.5)
--
Total non-current portion of amount owing on close-out of financial
--
70.3
instruments
442.6
--
The amount owing on the close-out of financial instruments relates to the close-out of the Australian dollar/United States dollar financial instruments on 7 January 2004. The close-out of the outstanding open positions of US$275.0 million was executed at an average rate of 0.7670 US$/A$. These transactions locked in a gross profit amounting to US$115.7 million and the underlying cash receipts were deferred to match the maturity dates of the original transactions.
On 7 May 2004, the future US dollar values were fixed in Australian dollars to take advantage of a weakening in the Australian dollar against the US dollar since the close-out of these financial instruments. The net balance on the original value of the future cash flows was US$107.4 million (US$115.7 million less US$8.3 million premium on the call option) or A$140.0 million at 0.7670 US$/A$, the rate at the time of the original transaction. The value fixed in Australian dollars amounted to A$147.0 million, based on a spot rate of 0.7158 US$/A$. Payments against this settlement are receivable on a quarterly basis with the last payment due on 29 December 2006.
14. Inventories
79.4
74.1
Gold-in-process
466.9
618.9
26.2
32.0
Consumable stores
201.4
203.9
8.1
0.6
Mineral rights
3.9
62.9
113.7
106.7
Total inventories
672.2
885.7
Gold Fields Limited Annual Report 2004
Gold Fields Limited Annual Report 2004
Figures in millions unless otherwise stated
PAGE 123
United States Dollars
South African Rand
2003
2004
2004
2003
15. Accounts receivable
34.7
31.4
Gold sale trade receivables
198.1
270.3
8.0
14.0
Other trade receivables
88.3
62.5
--
2.0
Deposits
12.6
--
1.5
1.6
Interest receivable
9.8
11.5
9.3
15.8
Other
99.2
72.4
2.1
3.2
Payroll debtors
20.4
16.6
4.6
6.9
Pre-paid expenses
43.6
35.5
3.0
--
Proceeds outstanding on sale of listed investments
--
23.5
11.7
36.4
Value-added tax
228.9
90.9
74.9
111.3
Total accounts receivable
700.9
583.2
16. Cash and cash equivalents
0.1
4.8
Cash at bank and on hand
30.3
0.6
133.5
651.5
Short-term deposits
4,104.2
1,040.2
133.6
656.3
4,134.5
1,040.8
17. Minority interests
54.7
85.8
Balance at beginning of the year
668.2
567.1
14.1
21.7
Share of profit after taxation
149.9
128.0
(5.8)
--
Dividends paid
--
(51.6)
25.3
(29.1)
Arising on (acquisition)/set-up of minorities in Arctic Platinum
(200.8)
200.8
(9.8)
(2.7)
Loans repaid during the year
(18.8)
(82.7)
--
15.6
Loans advanced during the year
107.4
--
7.3
13.9
Translation adjustment
(43.0)
(93.4)
85.8
105.2
Balance at end of the year
662.9
668.2
18. Deferred taxation
The detailed components of the net deferred taxation liability which results from the differences between the amounts of assets and liabilities recognised for financial reporting and taxation purposes in different accounting periods are: Deferred taxation liabilities
663.1
833.1
- Mining assets
5,248.7
5,165.6
15.0
21.7
- In
vestment in environmental trust fund
136.8
117.1
20.6
23.1
- F
inancial instruments
145.6
160.7
3.3
2.8
- In
ventories
17.4
25.7
2.3
--
- Loans
--
18.2
7.2
5.9
- Other
37.2
55.1
711.5
886.6
Gross deferred taxation liabilities
5,585.7
5,542.4
Deferred taxation assets
(54.8)
(65.3)
- Pr
ovisions
(411.2)
(427.2)
--
(101.4)
- Loans
(638.9)
--
(6.0)
(23.7)
-
Tax losses
(149.5)
(46.3)
(101.3)
(166.7)
- Unr
edeemed capital expenditure
(1,050.0)
(789.3)
549.4
529.5
Net deferred taxation liabilities
3,336.1
4,279.6
360.7
549.4
Balance at beginning of the year
4,279.6
3,736.5
--
(98.1)
Deferred tax effect of the Mvela transaction recorded in equity
(676.6)
--
70.0
(21.2)
Transferred through the income statement
(146.1)
634.9
118.7
99.4
Translation adjustment
(120.8)
(91.8)
549.4
529.5
Balance at end of the year
3,336.1
4,279.6
Gold Fields Limited Annual Report 2004
Figures in millions unless otherwise stated
PAGE 124
Gold Fields Limited Annual Report 2004
United States Dollars
South African Rand
2003
2004
2004
2003
Figures in millions unless otherwise stated
Notes to financial statements
(continued)
for the year ended 30 June 2004
19. Long-term liabilities
- Debt component of Mv
ela loan
On 17 March 2004, Mvelaphanda Gold (Pty) Limited, a wholly-owned subsidiary of Mvelaphanda Resources Limited, advanced an amount of R4,139.0 million to GFI Mining South Africa (Pty) Limited. The loan bears interest at a fixed rate of 10.57% nominal annual compounded semi- annually. Interest is payable semi-annually and the loan amount is repayable five years from the date of advance. All payments under this loan have been guaranteed by Gold Fields Limited and two of its offshore subsidiaries. On the date the loan is repaid, Mvelaphanda Gold (Pty) Limited will subscribe for new shares in GFI Mining South Africa (Pty) Limited such that after the subscription it will own 15% of the enlarged equity of GFI Mining South Africa (Pty) Limited.
The net proceeds of the loan of R4,107.0 million (R4,139.0 million less R32.0 million of costs) was accounted for in two components, a debt component and an equity component.
The debt component on initial recognition, included in long-term liabilities, is the present value of the future interest payments discounted using a market related cost of debt. The residual amount, representing the value of the equity component, is included in shareholders' equity.
The debt component of the Mvela loan is amortised against payments of interest on the loan of R4,139.0 million with a proportionate amount of such payments recognised as interest on the debt component of the Mvela loan.
GFI Mining South Africa (Pty) Limited entered into two interest rate swaps, an amortising and an accreting swap. The amortising swap for R1,653.0 million reflects the profile of the debt component of the Mvela loan and has been designated as a fair value hedge. The accreting swap for R2,486.0 million accretes to R4,139.0 million over five years and is regarded as a derivative and is thus marked to market. The fixed rate receivable on these interest rate swaps is equal to the interest rate payable on the loan from Mvelaphanda Gold (Pty) Limited and the floating rate payable is the three-month JIBAR rate plus a margin of 1.025% (refer note 32).
--
595.2
Loan advanced
4,107.0
--
--
(355.6)
Equity component
(2,453.6)
--
--
239.6
Debt component on initial recognition
1,653.4
--
--
2.6
Fair value adjustment in relation to amortising interest rate swap
(18.1)
--
--
17.4
Translation adjustment
--
--
259.6
Fair value of liability component at end of year
1,635.3
--
The fair value adjustment in relation to the amortising interest rate swap is calculated using cash flows over the remaining period of the debt discounted at the five year forward curve of the three-month JIBAR rate plus a margin of 1.025%.
Gold Fields Limited Annual Report 2004
Gold Fields Limited Annual Report 2004
Figures in millions unless otherwise stated
PAGE 125
United States Dollars
South African Rand
2003
2004
2004
2003
19. Long-term liabilities (continued)
--
259.6
Balance
1,635.3
--
29.5
--
-
Syndicated credit facility
--
229.7
On 26 November 2001, Gold Fields entered into a syndicated credit facility of US$250.0 million. This syndicated facility consists of a US$160.0 million term-loan facility and a US$90.0 million revolving credit facility. These two facilities bear interest at LIBOR plus 1.15%.
On 30 November 2001, the full US$160.0 million of the term loan and US$5.0 million of the revolving credit facility was drawn down. The amounts drawn down were used to fund the acquisition of the St Ives and Agnew mines. On 30 January 2004 the term loan was fully repaid. During the 2003 financial year US$114.5 million of the term loan and US$5.0 million of the revolving credit facility were repaid.
The revolving credit facility is available until 26 November 2006. Interest on this facility is payable at either monthly, three-monthly or six-monthly intervals.
The full facility is collateralised by Gold Fields' shares in St Ives and Agnew. All payments under the facility have been guaranteed by Gold Fields Limited and several of its subsidiaries.
12.1
--
-
Two-year term loan facility
--
94.2
On 31 December 2001, Gold Fields entered into a bilateral two-year term loan and letter of credit facility of US$35.0 million and a two-year term loan facility of US$15.0 million. These two facilities bear interest at LIBOR plus 0.95%.
On 23 January 2002, the full US$35.0 million of the bilateral two-year term loan and letter of credit facility was utilised. US$32.9 million was used to finance the acquisition by Gold Fields of 71.1 % of Abosso Goldfields Limited, US$2.0 million to replace an existing letter of credit for Abosso Goldfields Limited and the remaining US$0.1 million was used for general corporate purposes.
On 23 January 2002, the full US$15.0 million of the bilateral two-year term loan facility was utilised. US$10.0 million was used to refinance existing debt of Abosso Goldfields Limited and the remaining US$5.0 million was used for general corporate purposes.
On 31 December 2003 the bilateral two-year term loan was fully repaid. During the 2003 financial year US$20.9 million was repaid against this loan. The US$15.0 million two-year term loan facility was fully repaid in the 2002 financial year. Interest on both facilities is payable at either monthly, three- monthly or six-monthly intervals.
Both facilities have been secured by Gold Fields' shares in Abosso Goldfields Limited. All payments under the two facilities have been guaranteed by Gold Fields Limited and several of its subsidiaries.
41.6
259.6
Gross long-term liabilities
1,635.3
323.9
(20.5)
(32.8)
Current portion included in current liabilities
(206.7)
(159.7)
21.1
226.8
Total long-term liabilities
1,428.6
164.2
Gold Fields Limited Annual Report 2004
Figures in millions unless otherwise stated
PAGE 126
Gold Fields Limited Annual Report 2004
United States Dollars
South African Rand
2003
2004
2004
2003
Figures in millions unless otherwise stated
Notes to financial statements
(continued)
for the year ended 30 June 2004
20. Long-term provisions
11.6
9.2
20.1 Post-retirement health care costs
58.1
90.7
The group has certain liabilities to subsidise the contributions payable by certain pensioners and dependants of ex-employees on a pay-as-you-go basis. During financial 2004 approximately 6 per cent (2003: 61%) of these pensioners and dependants were bought out of the scheme at a 15% premium to the latest actuarial valuation. The remaining obligation was actuarially valued at 30 June 2004 and the outstanding contributions will be funded over the lifetime of these pensioners and dependants.
The following table sets forth the funded status and amounts recognised
by the group for post-retirement health care costs:
11.6
8.6
Actuarial present value
54.4
90.7
--
--
Plan assets at fair value
--
--
11.6
8.6
Accumulated benefit obligation in excess of plan assets
54.4
90.7
--
--
Unrecognised prior service costs
--
--
--
--
Unrecognised actuarial (gains)/losses
--
--
11.6
8.6
Post-retirement health care liability
54.4
90.7
Benefit obligation reconciliation
25.1
11.6
Balance at beginning of the year
90.7
260.2
4.0
1.7
Interest charge
11.8
36.5
(3.4)
(0.6)
Payments during the year
(4.4)
(30.4)
--
(2.6)
Benefits forfeited
(17.9)
--
3.0
0.7
Premium on buy-out of pensioners and dependants
5.0
26.7
(22.3)
(3.9)
Buy-out of pensioners and dependants
(27.1)
(202.3)
5.2
2.3
Translation adjustments
--
--
11.6
9.2
Balance at end of the year
58.1
90.7
The obligation has been valued using the projected unit credit funding method on past service liabilities. The valuation assumes a health care cost inflation rate of 11% per annum and a discount rate of 13% per annum. Assumed health care cost trend rates have a significant impact on the amounts reported for the health care plans.
A one percentage point increase in assumed health care trend rates would have increased interest cost for 2004 by R1.3 million (10.8%) (2003: R2.9 million (8.0%). The effect of this change on the accumulated post- retirement health care benefit obligation at 30 June 2004 would have been an increase of R5.4 million (9.3%)(2003: R8.9 million (9.8%)).
A one percentage point decrease in assumed health care trend rates would have decreased interest cost for 2004 by R1.4 million (11.7%) (2003: R2.6 million (7.2%)). The effect of this change on the accumulated post retirement health care benefit obligation at 30 June 2004 would have been a decrease of R4.7 million (8.1%) (2003: R7.6 million (8.4%)).
Gold Fields Limited Annual Report 2004
Gold Fields Limited Annual Report 2004
Figures in millions unless otherwise stated
PAGE 127
United States Dollars
South African Rand
2003
2004
2004
2003
20. Long-term provisions (continued) 20.2 Environmental rehabilitation costs
74.3
91.8
Balance at beginning of the year
715.3
770.2
2.8
--
Additional provision due to new disturbances
--
25.2
3.4
6.0
Inflation charge
41.6
30.6
1.5
2.4
Interest charge
16.5
13.2
(1.9)
(1.6)
Payments against provision
(10.6)
(17.2)
(4.9)
--
Payment due to disposal of St Helena
--
(41.6)
16.6
15.0
Translation adjustments
(47.4)
(65.1)
91.8
113.6
Balance at end of the year
715.4
715.3
The group's South African operations contribute to a dedicated environmental rehabilitation trust fund to provide for the estimated cost of rehabilitation at the end of the mines' lives. At 30 June 2004 the balance in this fund was R331.4 million (2003: R275.0 million). Refer note 12.
The expected timing of the cash outflows in respect of the provision is on the closure of the various mining operations. However, certain current rehabilitation costs are charged to this provision as and when incurred.
103.4
122.8
Total long-term provisions
773.5
806.0
21. Accounts payable
93.9
82.1
Trade creditors
516.9
731.6
57.6
127.5
Accruals and other creditors
803.3
449.4
33.2
38.5
Leave pay accrual
242.4
258.4
--
5.4
Net interest payable on debt component of Mvela loan
34.3
--
--
25.4
Financial instrument creditor
159.7
--
184.7
278.9
Total accounts payable
1,756.6
1,439.4
22. Cash generated by operations
325.6
111.3
Net earnings
767.6
2,953.0
150.3
8.7
Taxation
60.5
1 363.5
4.8
14.7
Interest paid
101.7
43.9
(18.1)
(15.6)
Investment income
(107.8)
(164.2)
2.2
2.3
Dividends received
15.7
19.7
15.9
13.3
Interest received
92.1
144.5
14.1
21.7
Minority interest
149.9
128.0
476.7
140.8
Earnings before tax, interest, investment income and minority interest
971.9
4,324.2
27.9
150.4
Non-cash items:
1,037.3
251.9
147.8
179.2
Amortisation and depreciation
1,236.3
1,340.9
(2.2)
--
Dividends in specie received
--
(19.7)
(27.3)
(28.2)
Exchange rate difference
(195.1)
(247.5)
--
61.8
Impairment of assets
426.2
--
4.0
1.7
Interest adjustment to post-retirement health care liability
11.8
36.5
3.4
6.0
Inflation adjustment to rehabilitation liability
41.6
30.6
1.5
2.4
Interest adjustment to rehabilitation liability
16.5
13.2
3.7
(4.8)
Other
(33.4)
32.4
(13.4)
--
Profit on disposal of St Helena
--
(121.7)
--
(27.1)
Profit on sale of mineral rights
(187.2)
--
(52.9)
(13.9)
Profit on sale of investments
(95.6)
(479.7)
3.0
0.7
Retirement of health care obligations
5.0
26.7
(35.7)
(27.4)
Unrealised gain on financial instruments
(189.0)
(324.1)
(4.0)
(3.6)
Unrealised gain on foreign debt, net of cash
(24.6)
(35.7)
--
3.6
Write-off of mineral rights
24.8
--
504.6
291.2
Total cash generated by operations
2,009.2
4,576.1
Gold Fields Limited Annual Report 2004
Figures in millions unless otherwise stated
PAGE 128
Gold Fields Limited Annual Report 2004
United States Dollars
South African Rand
2003
2004
2004
2003
Figures in millions unless otherwise stated
Notes to financial statements
(continued)
for the year ended 30 June 2004
23. Change in working capital
(0.6)
5.4
Inventories
37.1
(5.2)
25.5
(25.6)
Accounts receivable
(176.3)
232.4
(4.0)
46.2
Accounts payable
318.8
(35.6)
20.9
26.0
Total change in working capital
179.6
191.6
24. Tax paid
(44.8)
(52.0)
Amount owing at beginning of the year
(405.3)
(463.6)
(80.3)
(29.9)
SA and foreign current taxation
(206.6)
(728.6)
52.0
14.2
Amount owing at end of the year
89.3
405.3
--
(8.0)
Translation
--
--
(73.1)
(75.7)
Total tax paid
(522.6)
(786.9)
25. Dividends paid
(184.3)
(92.6)
Dividends per statement of shareholders' equity
(669.1)
(1,746.4)
( 5.8)
--
Dividends paid to minority shareholders
--
(51.6)
(190.1)
(92.6)
Total dividends paid
(669.1)
(1,798.0)
26. Additional cash flow information
Disposal of St Helena
With effect from 30 October 2002, the group disposed of the assets and liabilities of St Helena to Freegold. The aggregate fair value of the assets and the liabilities disposed of were as follows:
0.2
--
Property, plant and equipment
--
1.5
0.1
--
Inventory
--
2.6
(4.9)
--
Environmental rehabilitation provision
--
(41.6)
3.1
--
Environmental rehabilitation investment
--
35.8
(1.5)
--
Net liabilities disposed of
--
(1.7)
13.4
--
Profit on disposal of St Helena
--
121.7
11.9
--
Payment received in cash
--
120.0
Acquisition of minority shareholders' interest in Arctic
Platinum
With effect from 4 September 2003 the group acquired the minority
shareholders' interest in Arctic Platinum.
--
29.1
Minority shareholders' interest
200.8
--
--
(8.7)
Paid for by issue of share capital
(60.4)
--
--
20.4
Paid for by cash
(140.4)
--
The R140.4 million paid for in cash is included in the purchase of investments in the cash flow statement
Gold Fields Limited Annual Report 2004
Gold Fields Limited Annual Report 2004
Figures in millions unless otherwise stated
PAGE 129
United States Dollars
South African Rand
2003
2004
2004
2003
27. Retirement benefits
The Gold Fields Limited Corporate Pension Fund is a defined benefit scheme, which has 14 employee members. Membership to the scheme is closed. The scheme is valued at intervals of not more than three years using the projected unit credit method. This is the only defined benefit pension scheme in the group.
The last actuarial valuation was carried out at 30 June 2004 and the fund showed a deficit of R2.2 million (2003: R8.6 million). This deficit was fully provided for at year-end.
This scheme is in the process of being wound up. On 1 June 2004, all active members were transferred to the Gold Fields Retirement Fund, a defined contribution scheme. Pensioner members will be transferred from the scheme to a retirement scheme of their choice by 30 June 2005.
All other employees are members of various defined contribution retirement schemes.
Contributions to the various retirement schemes are fully expensed during the year in which they are incurred. The cost of providing retirement benefits for the year amounted to R266.8 million (2003: R241.3 million).
28. Commitments
Capital expenditure
607.6
520.7
- author
ised
3,280.1
4,733.5
34.5
57.5
- contr
acted for
362.1
268.6
Operating lease
0.6
0.9
- within one y
ear
5.5
4.6
0.5
3.5
- ther
eafter
22.3
3.5
15.7
44.0
Other guarantees
276.9
122.1
Commitments will be funded from internal sources and to the extent
necessary from borrowings.
29. Contingent liabilities
No material claims have been filed against the group.
World Gold Council Gold Fields is a member of the World Gold Council. In terms of the membership agreement, all members are responsible for certain costs, including core costs on a three year rolling basis, winding up costs, if applicable, and various other contingent liabilities. Apportionment of liabilities to individual members, should they arise, is done proportionate to the member's production relative to the total production of all members. To date, no claims have been made on Gold Fields.
30. Lines of credit
The group has unutilised lines of credit of US$90 million at 30 June 2004 (2003: US$90.0 million).
Gold Fields Limited Annual Report 2004
PAGE 130
Gold Fields Limited Annual Report 2004
Notes to financial statements
(continued)
for the year ended 30 June 2004
31. Risk management activities
In the normal course of its operations, the group is exposed to commodity price, currency, interest rate, liquidity and credit risk. In order to manage these risks, the group has developed a comprehensive risk management process to facilitate control and monitoring of these risks.
Concentration of credit risk The group's financial instruments do not represent a concentration of credit risk as the group deals with a number of major banks. Accounts receivable are regularly monitored and assessed and where necessary an adequate level of provision is maintained.
A formal process of allocating counterparty exposure and prudential limits is approved by the Audit Committee and is applied under the supervision of the group's Executive Committee. No marginal facilities are engaged.
Foreign currency and commodity price risk In the normal course of business the group enters into transactions for the sale of its gold, denominated in US dollars. In addition, the group has assets and liabilities in a number of different currencies (primarily US dollars and Australian dollars). As a result, the group is subject to transaction and translation exposure from fluctuations in foreign currency exchange rates.
Due to the fact that US$165.0 million of debt was drawn down to acquire the St Ives and Agnew operations, it was deemed prudent to establish Australian dollar/US dollar instruments to protect the cash flows of the operations in the event of the strengthening of the Australian dollar. In line with this decision US$500.0 million of US dollar/Australian dollar currency financial instruments were established over five years in respect of the St Ives and Agnew operations. The instruments are a combination of outright forwards and options and provide protection at exchange rates ranging between 49 and 52 US cents.
On 7 January 2004, the remaining instruments were closed out. The existing forward purchases of dollars and the put and call options were closed out by entering into equal and opposite transactions. The close out of the outstanding portion of US$275 million was at an average spot rate of 0.7670 US$/A$. Subsequent to this, on 7 May 2004, the future US dollar values were fixed in Australian dollars at a spot rate of 0.715 US$/A$, to take advantage of the weakened Australian dollar against the US dollar at that time. US dollar nil million of these instruments remain at 30 June 2004 (2003: US$300.0 million).
In order to participate in any further Australian dollar appreciation, a strip of quarterly maturing Australian dollar/US dollar call options were purchased in respect of an amount of US$275.0 million of which the value dates and amounts match the dates of the original structure. The average strike price of these options is 0.7670 US$/A$. US$262.5 million of these instruments remain at 30 June 2004.
Insofar as South African rand/US dollar exposures are concerned, the group does not have a general policy of hedging these exposures, but will from time to time establish positions on an opportunistic basis. In line with this policy, forward cover of US$50.0 million (2003: US$36.0 million) was purchased to hedge the group's commitment in respect of the Tarkwa mill and owner mining projects, since approval has been obtained from the South African Reserve Bank to fund these commitments from South African sources.
At present the group does not hedge its exposure to gold price fluctuation risk and sells at market spot prices (refer accounting policies).
Interest rate and liquidity risk Fluctuations in interest rates impact on the value of short-term investment and financing activities, giving rise to interest rate risk.
In the ordinary course of business, the group receives cash proceeds from its operations and is required to fund working capital and capital expenditure requirements. The cash is managed to ensure surplus funds are invested to maximise returns whilst ensuring that capital is safeguarded to the maximum extent possible by investing only with top financial institutions.
The group entered into an interest rate swap in connection with the Mvela transaction. Full details of the interest rate swaps are provided in note 32.
Uncommitted borrowing facilities are maintained with several banking counterparties to meet the group's normal and contingency funding requirements.
Gold Fields Limited Annual Report 2004
PAGE 132
Gold Fields Limited Annual Report 2004
Notes to financial statements
(continued)
for the year ended 30 June 2004
32.
Fair value of financial instruments (continued) Currency financial instruments Currency financial instruments remaining at year-end are described in the schedule below. It has been decided not to account for these instruments under the hedge accounting rules of International Accounting Standard 39 and accordingly the position has been marked-to- market through earnings.
Year ended 30 June
2005
2006
2007
Total
Australian dollars/US dollars
Call options: Amount (US dollars) - 000's
87,500
100,000
75,000
262,500
Average strike price (US$/A$)
0.7670
0.7670
0.7670
0.7670
The marked-to-market value of the positions in the above table was a gain of R17.6 million (US$2.8 million) at 30 June 2004. The value was based on exchange rates of R/US$6.30 and US$/AU$0.6996 and the prevailing interest rates and volatilities at the time. This gain has been accounted for in the income statement as an unrealised gain on financial instruments.
Year ended 30 June
2005
Total
US dollars/rand
Forward exchange contracts:
Amount (US dollars) - 000's
50,000
50,000
Average strike price (R/US$)
6.6368
6.6368
The forward purchase of US$50 million matured on 3 June 2004. This amount was extended to mature on 3 December 2004, resulting in a cash outflow of R100.0 million (US$16.0 million). The US$50.0 million was purchased to hedge the group's commitment in respect of the Tarkwa mill and owner mining projects. The marked-to-market value of the position in the above table was a loss of R7.0 million (US$1.1 million) at 30 June 2004. The value was based on an exchange rate of R/US$6.30 and the prevailing interest rates and volatilities at the time. This loss has been accounted for in the income statement as an unrealised loss on financial instruments.
Interest rate swap In terms of the Mvela loan, GFI Mining South Africa (Pty) Limited pays Mvelaphanda Gold (Pty) Limited interest on the R4,139 million loan at a fixed rate, semi-annually. The interest rate was fixed with reference to the five-year rand swap rate, at 9.6179 per cent nominal annual compounded semi-annually plus a margin of 0.95 per cent. GFI Mining South Africa (Pty) Limited simultaneously entered into an interest rate swap agreement converting the fixed interest rate exposure to a floating rate. In terms of the swap, GFI Mining South Africa (Pty) Limited is now exposed to the three month Jibar rate plus a margin of 1.025 per cent.The Jibar rate for the current quarter was fixed at 8.02 per cent.
32. Fair value of financial instruments (continued)
For accounting purposes, the Mvela loan is split into a debt component and an equity component and accordingly the net present value of the future interest payments (R1,653.4 million) is classified as debt, while the balance (R2,453.6 million) is classified as equity. The marked-to- market value of the interest rate swap is a loss of R104.3 million at 30 June 2004. The fair value adjustment of the debt portion of the loan is a gain of R23.8 million at 30 June 2004, to which hedge accounting has been applied. In terms of hedge accounting, the liability that exists in the balance sheet is decreased accordingly and the gain of R23.8 million is taken to the income statement, partly offsetting the R104.3 million above. The net settlement gain on the swap for the year was R17.5 million, split R11.8 million which was taken to the income statement and R5.7 million which was allocated to the debt portion of the loan. The value was based on the prevailing interest rates and volatilities at the time.
Gold Fields Limited Annual Report 2004
Gold Fields Limited Annual Report 2004
PAGE 133
33. Related party transactions
None of the directors, officers or major shareholders of Gold Fields or, to the knowledge of Gold Fields, their families, had any interest, direct or indirect, in any transaction during the last two fiscal years or in any proposed transaction which has affected or will materially affect Gold Fields or its investment interests or subsidiaries, other than as stated below.
Pro-Drilling and Mining (Pty) Limited
Michael J. Prinsloo, Executive Vice President, South African Operations sits on the board of and owns 50 per cent of Pro-Drilling and Mining (Pty) Limited, or Pro-Drilling, a privately held drilling company. Pro-Drilling has a contract with GFI Mining South African (Pty) Limited to provide labour, equipment and materials for diamond drilling and core recovery at the Driefontein operation. The contract is valid until terminated upon one month's written notice by either party. Gold Fields employed Pro-Drilling prior to Mr Prinsloo joining Gold Fields. During fiscal 2004 Gold Fields paid Pro-Drilling a total of approximately R2.0 million (2003: R1.6 million).
Mvelaphanda Resources Limited
Tokyo MG Sexwale and Bernard R van Rooyen, non-executive directors of Gold Fields, are, respectively, the chairman of the board and a director of Mvelaphanda Resources Limited, or Mvela Resources.
On 10 July 2002, Gold Fields announced that it had granted Mvela Resources participation rights of a minimum of 5 per cent and a maximum of 15 per cent in any new Gold Fields' precious metals exploration projects in Africa, beginning 1 March 2002. In consideration for the transaction Mvela Resources will issue to Gold Fields options to subscribe in tranches for ordinary shares in Mvela Resources at a 10 per cent premium to the five-day weighted average trading price of such shares on the JSE Securities Exchange South Africa. Mvela Resources initially issued Gold Fields options to subscribe for shares with a value of R10.0 million. Thereafter, each year Mvela Resources will issue to Gold Fields options to subscribe for shares with a value equal to half of the amount spent by Gold Fields on the precious metals exploration projects covered by the agreement between the parties during that year. In F2004 Gold Fields was issued with 521,812 options (F2003: 753,537 options).
The term of the agreement is five years. This transaction was approved by Mvela Resources shareholders on 21 August 2002. In addition, Mvela Resources will be obligated to pay for its proportional share of the costs of any exploration project it elects to participate in.
On 8 March 2004, shareholders of both Gold Fields and Mvela Resources voted decisively in favour of all shareholder resolutions necessary to implement the transaction described more fully on page 100 of this report.
Rand Refinery Limited
GFI Mining South Africa (Pty) Ltd has an agreement with Rand Refinery Limited ("Rand Refinery"), in which Gold Fields holds a 33.1 per cent interest, providing for the refining of substantially all of Gold Fields' South African gold production by Rand Refinery. On 21 November 2000, GFL Mining Services Limited ("GFLMS") entered into an agreement with Rand Refinery in terms of which GFLMS acts as an agent for Rand Refinery with regard to the sale of a maximum of 50 per cent of Gold Fields' South African gold production. On 1 June 2004, GFLMS exercised its right, by giving notice to Rand Refinery, to sell all of Gold Fields' South African gold production with effect from 1 October 2004. Gold Fields Ghana Limited and Abosso Goldfields Limited also have agreements with Rand Refinery since March 2002 to transport, refine and sell substantially all of the gold production from the Tarkwa and Damang mines.
Nicholas Holland, who is the Chief Financial Officer and a director of Gold Fields, has been a director of Rand Refinery since 12 July 2000. As a director of GFL Mining Services Limited, which is a wholly-owned subsidiary of Gold Fields, Mr Holland has declared his interest in the contract between Rand Refinery and GFL Mining Services Limited, pursuant to South African requirements, and has not participated in the decision of Rand Refinery to enter into the agreement with either of GFL Mining Services Limited, Gold Fields Ghana Limited or Abosso Gold Fields Limited. Mr Holland signed the agreement with Rand Refinery on behalf of GFL Mining Services Limited.
Gold Fields believes that the above transactions with related parties have been conducted on terms at least as favourable to it as arm's length terms.
None of the directors or officers of Gold Fields or any associate of such director or officer is currently or has been at any time during the past two fiscal years materially indebted to Gold Fields.
34. Segment reporting
The segment information is shown under the financial summary in the segment report on page 142.
Non-current asset
Capital and reserves
Balance at 30 June 2002
Change in working capital
Dividends per statement of shareholders' equity
ended 30 June 2004
Revenue
Total assets
ended 30 June 2003
Revenue
Total assets
ended 30 June 2004
Revenue
Total assets
The above is a geographical analysis presented by location of assets US DOLLAR FIGURES MAY NOT ADD AS THEY ARE ROUNDED INDEPENDENTLY Exchange rates applied: Average for the year: US$1 = R6.90 Rate at year end: US$1 = R6.30
ended 30 June 2003
Revenue
Total assets
US DOLLAR FIGURES MAY NOT ADD AS THEY ARE ROUNDED INDEPENDENTLY Exchange rates applied: Average for the year: US$1 = R9.07 Rate at year end: US$1 = R7.79
OJSC MMC Norilsk Nickel
Bank of New York Unrestricted Depository Receipts
Old Mutual Group
Public Investment Commissioner
Other Shareholders
Directors
248,274,078
18.7
50.5
Bureau Veritas has been engaged by Gold Fields Limited ("Gold Fields") to conduct an independent performance data review of this Gold Fields Annual Report 2004 ("the Report"), for the reporting period 1 July 2003 to 31 June 200s4. The preparation of the Report izs the responsibility of the management of Gold Fields.
The scope of the work entailed a review of the data reported for the safety, health, environmental and community aspects and performance for operations and activities in South Africa and a limited overview of data for Gold Fields International operations and activities, located on page 48 to page 75 of the Report. Excluded from the scope of our work is assurance against information relating to: • Activities outside the defined assurance period • All data relating to financial, production and operational performance • Positional statements (expression of opinion, belief or future intention provided by Gold Fields) and statements of commitment
The reporting structure is based on the Global Reporting Initiative (GRI) and Gold Fields is reporting herein against a number of its core and additional performance indicators. Our opinion is formed on the strength of available information, observation and discussions with Gold Field's management and operational staff during office and site visits. between the 6th and the 17th September 2004. The work above was planned and carried out to provide a minimum level of assurance and we believe it provides a reasonable basis for our conclusions.
• information that is subject to independent Bureau Veritas review and conveyed in the Report is reliable and free from significant
• clearly describes the commitment to and achievement of, objectives and targets on a on-going basis; and
• has been corrected for mistakes and inaccuracies identified through the assurance process with a positive view to providing
Adoption of financial statements
Ordinary resolution number 2
Re-election of Mr K Ansah as a director
Ordinary resolution number 3
Re-election of Mr G R Parker as a director
Ordinary resolution number 4
Re-election of Mr T M G Sexwale as a director
Ordinary resolution number 5
Re-election of Mr C M T Thompson as a director
Ordinary resolution number 6
Re-election of Dr P J Ryan as a director
Ordinary resolution number 7
Placement of shares under the control of the directors
Ordinary resolution number 8
Issuing shares for cash
Ordinary resolution number 9
Increase of directors' fees
Ordinary resolution number 10
Special retainer for current Chairman on Board
Special resolution number 1
Acquisition of company's own shares
Special resolution number 2
Amendment of company's Articles of Association
Gold Fields Limited Annual Report 2004
PAGE 8
Proxy form
(continued)
Notes
1. A form of proxy is only to be completed by those
shareholders who are:
-
holding shares in certified form; or
-
recorded on sub-register electronic form in "own name".
2. All other beneficial owners who have dematerialised
their shares through a Central Securities Depository Participant ("CSDP") or broker and wish to attend the annual general meeting, must provide the CSDP or broker with their voting instructions in terms of the relevant custody agreement entered into between them and the CSDP or broker.
3. A signatory/ies to the Proxy Form may insert the
name of a proxy or the name of an alternative proxy in the blank spaces provided with or without deleting "the chairman of the meeting", but any such deletion must be initialled by the signatory/ies. Any insertion or deletion not complying with the aforegoing will be deemed not to have been validly effected. The person at the meeting whose name appears first on the list of names above, shall be the validly appointed proxy for the shareholder at the meeting.
4. A shareholders' instructions to the proxy must be
indicated in the appropriate blocks provided. A shareholder or the proxy is not obliged to use all the votes exercisable by the shareholder or by the proxy or to cast all those votes in the same way, but the total of that shareholders' votes cast and in respect whereof abstention is directed, may not exceed the total of the votes exercisable by the shareholder or the proxy. Failure to comply with the above or to provide voting instructions or the giving of contradictory instructions will be deemed to authorise the proxy to vote or abstain from voting at the meeting as such proxy deems fit in respect of all that shareholders' votes exercisable at that meeting.
5. Any alteration or correction made to this Proxy Form
must be initialled by the signatory/ies.
6. Documentary evidence establishing the authority
of a person signing this Proxy Form in a responsible capacity must be attached to this Proxy Form unless previously recorded by the company.
7. When there are joint holders of shares, any one
holder may sign the Proxy Form.
8. A married woman still subject to her husband's
marital power must be assisted by him (if applicable).
9. The completion and lodging of this Proxy Form will not
preclude the shareholder who grants this proxy from attending the meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof should such member wish to do so.
10. Completed Proxy Forms should be returned to the
registered offices in Johannesburg or in London or one of the transfer offices of the company at either of the addresses given below by no later than 09:00 local time (in the country concerned) on Friday, 12 November 2004.
Transfer offices
South Africa
Computershare Investor Services 2004 (Proprietary)
Limited
Ground Floor
70 Marshall Street
Johannesburg, 2001
P O Box 61051
Marshalltown, 2107
Tel: (+27)(11) 370-5000
Fax: (+27)(11) 370-5271
United Kingdom
Capita Registrars
Bourne House
34 Beckenham Road
Beckenham
Kent BR3 4TU
England
Tel: +44 20 8639 2000
Fax: +44 20 8658 3430
Title: Senior Vice President:
Investor