Gold Fields 20-F 2007
Documents found in this filing:
As filed with the Securities and Exchange Commission on December 7, 2007
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the fiscal year ended June 30, 2007
For the transition period from to
Date of event requiring this shell company report
For the transition period from to
Commission file number: 1-31318
Gold Fields Limited
(Exact name of registrant as specified in its charter)
Republic of South Africa
(Jurisdiction of incorporation or organization)
24 St. Andrews Road,
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
(Title of Class)
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the Annual Report:
652,158,066 ordinary shares of par value Rand 0.50 each
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: Yes ¨ No x
NoteChecking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ¨ Item 18 x
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court: Yes ¨ No ¨
The Worldwide Locations of Gold Fields Operations
Presentation of Financial Information
Gold Fields Limited, or Gold Fields or the Company, is a South African company and the majority of its operations, based on gold production, are located there. Accordingly, its books of account are maintained in South African Rand and its annual and interim financial statements are prepared in accordance with International Financial Reporting Standards, or IFRS, as prescribed by law. Gold Fields also prepares annual financial statements in accordance with United States Generally Accepted Accounting Principles, or U.S. GAAP, which are translated into U.S. dollars. Except as otherwise noted, the financial information included in this annual report has been prepared in accordance with U.S. GAAP and is presented in U.S. dollars, and descriptions of critical accounting policies refer to accounting policies under U.S. GAAP.
For Gold Fields financial statements, unless otherwise stated, balance sheet item amounts are translated from Rand to U.S. dollars at the exchange rate prevailing on the date that it closed its accounts for fiscal 2007 (Rand 7.15 per $1.00 as of June 25, 2007), except for specific items included within shareholders equity that are translated at the rate prevailing on the date the relevant transaction was entered into, and statement of operations item amounts are translated from Rand to U.S. dollars at the weighted average exchange rate for each period (Rand 7.20 per $1.00 for the year ended June 30, 2007).
In this annual report, Gold Fields presents the financial items total cash costs, total cash costs per ounce, total production costs and total production costs per ounce, which have been determined using industry standards promulgated by the Gold Institute and are not U.S. GAAP measures. The Gold Institute was a non-profit international industry association of miners, refiners, bullion suppliers and manufacturers of gold products that ceased operation in 2002, which developed a uniform format for reporting production costs on a per ounce basis. The Gold Institute has now been incorporated into the National Mining Association. The guidance was first adopted in 1996 and revised in November 1999. An investor should not consider these items in isolation or as alternatives to production costs, net income/(loss), income before tax, operating cash flows or any other measure of financial performance presented in accordance with U.S. GAAP. While the Gold Institute has provided definitions for the calculation of total cash costs and total production costs, the calculation of total cash costs, total cash costs per ounce, total production costs and total production costs per ounce may vary significantly among gold mining companies, and by themselves do not necessarily provide a basis for comparison with other gold mining companies. See Key InformationSelected Historical Consolidated Financial Data, Information on the CompanyGlossary of Mining TermsTotal cash costs per ounce and Information on the CompanyGlossary of Mining TermsTotal production costs per ounce.
Defined Terms and Conventions
In this annual report, all references to South Africa are to the Republic of South Africa, all references to Ghana are to the Republic of Ghana, all references to Australia are to the Commonwealth of Australia, all references to Venezuela are to the Bolivarian Republic of Venezuela, all references to Finland are to the Republic of Finland and all references to Peru are to the Republic of Peru.
This annual report contains descriptions of gold mining and the gold mining industry, including descriptions of geological formations and mining processes. In order to facilitate a better understanding of these descriptions, this annual report contains a glossary defining a number of technical and geological terms. See Information on the CompanyGlossary of Mining Terms.
In this annual report, R and Rand refer to the South African Rand and Rand cents refers to subunits of the South African Rand, $, U.S.$ and U.S. dollars refer to United States dollars, U.S. cents refers to subunits of the U.S. dollar, A$ and Australian dollars refer to Australian dollars, C$ refers to Canadian dollars and VEB and Bolivars refer to Venezuelan bolivars.
In this annual report, gold production figures are provided in troy ounces, which are referred to as ounces or oz, and ore grades are provided in grams per metric ton, which are referred to as grams per ton or g/t. All references to tons or t in this annual report are to metric tons. See Information on the CompanyGlossary of Mining Terms for further information regarding units of measurement used in this annual report and a table providing rates of conversion between different units of measurement.
In this annual report, except where otherwise noted, all production and operating statistics are based on Gold Fields total operations, which include production from the Tarkwa and Damang mines in Ghana which is attributable to the minority shareholders in those mines.
For the convenience of the reader, certain information in this annual report presented in Rand and Australian dollars has been translated into U.S. dollars. Unless otherwise stated, the conversion rates for these translations are Rand 7.15 per $1.00 and A$1.00 per $0.85, which were the noon buying rates on June 25, 2007. For Bolivars, the conversion rate is VEB 2,150 per $1.00, which was the rate fixed by the Venezuelan government as of June 30, 2007. By including convenience currency translations, Gold Fields is not representing that the Rand, Australian dollar or Bolivar amounts actually represent the U.S. dollar amounts shown or that these amounts could be converted into U.S. dollars at the rates indicated.
Information on South Deep, Western Areas and BGSA
This annual report contains certain information relating to Western Areas Limited, or Western Areas, Barrick Gold South Africa (Pty) Limited, or BGSA, and the South Deep gold mine, or South Deep, including information contained in Risk Factors, Information on the Company, Operating and Financial Review and Prospects and Additional Information. This information, as it relates to information regarding South Deep, Western Areas and BGSA in the period before Gold Fields acquisition, has been compiled from information published by Western Areas, including information filed with the JSE Limited, or JSE, and certain due diligence materials made available to Gold Fields by Western Areas and Barrick Gold Corporation, or Barrick, and has not been commented on by any representative of Western Areas or Barrick. Gold Fields has sought to ensure that the information presented has been accurately reproduced from these sources. However, Gold Fields is otherwise unable to confirm that the information relating to Western Areas, South Deep and BGSA is in accordance with the facts and does not omit anything likely to affect the import of the information. Gold Fields attributable proven and probable reserves for South Deep are based on the pre-acquisition South Deep operation reserve figures as declared for December 2005 by an independent reserve panel for the Barrick Gold-Western Areas Joint Venture between BGSA (formerly, Placer Dome South Africa Proprietary Limited) and Western Areas, but updated by Gold Fields to June 30, 2007 for mining depletions. See also Risk FactorsGold Fields has not independently confirmed the reliability of the South Deep, BGSA or Western Areas information for the period prior to their respective acquisitions by Gold Fields included in this annual report.
This annual report contains forward-looking statements with respect to Gold Fields financial condition, results of operations, business strategies, operating efficiencies, competitive position, growth opportunities for existing services, plans and objectives of management, markets for stock and other matters. Statements in this annual report that are not historical facts are forward-looking statements.
These forward-looking statements, including, among others, those relating to the future business prospects, revenues and income of Gold Fields, wherever they may occur in this annual report and the exhibits to the annual report, are necessarily estimates reflecting the best judgment of the senior management of Gold Fields and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. As a consequence, these forward-looking statements should be
considered in light of various important factors, including those set forth in this annual report. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, without limitation:
Gold Fields undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.
Table of Contents
ITEM 3: KEY INFORMATION
Selected Historical Consolidated Financial Data
The selected historical consolidated financial data set out below for each of the three years ended June 30, 2007, and as of June 30, 2007 and 2006 have been extracted from the more detailed information, including Gold Fields audited consolidated financial statements for those years and as of those dates and the related notes, which appear elsewhere in this annual report. The selected historical consolidated financial data for each of the two years ended June 30, 2004, and as of June 30, 2005, 2004 and 2003 have been derived from Gold Fields audited consolidated financial statements as of that date, which are not included in this annual report, and adjusted where applicable as described below. The selected historical consolidated financial data presented below have been derived from financial statements which have been prepared in accordance with U.S. GAAP.
Gold Fields believes that the new principle is preferable because: (i) it aligns its accounting principles with those of its global gold mining company industry peers; (ii) it allows for a more direct link between revenue and associated expenditures; (iii) each block of ore can be described as a commencement of a new area of operations, separate and distinct from other existing operations, with the choice to mine based on an approved life-of-mine plan for that particular block of ore; and (iv) the additional costs capitalized under the revised accounting principle meet the definition of an asset. See Operating and Financial Review and ProspectsChange in Accounting PrincipleCapitalization of Costs Relating to Ore Reserve Development at the South African Operations.
The following tables set forth, for the periods indicated, the average, high, low and period-end noon buying rates in New York City for cable transfers in Rand as certified for customs purposes by the Federal Reserve Bank of New York, expressed in Rand per $1.00:
The noon buying rate for the Rand on December 5, 2007 was Rand 6.74 per $1.00. Fluctuations in the exchange rate between the Rand and the U.S. dollar will affect the dollar equivalent of the price of the ordinary shares on the JSE Limited, or JSE, which may affect the market price of the American Depositary Shares, or ADSs, on the New York Stock Exchange. These fluctuations will also affect the U.S. dollar amounts received by owners of ADSs on the conversion of any dividends paid in Rand on the ordinary shares.
In addition to the other information included in this annual report, the considerations listed below could have a material adverse effect on Gold Fields business, financial condition or results of operations, resulting in a decline in the trading price of Gold Fields ordinary shares or ADSs. The risks set forth below comprise all material risks currently known to Gold Fields. However, there may be additional risks that Gold Fields does not currently know of or that Gold Fields currently deems immaterial based on the information available to it. These factors should be considered carefully, together with the information and financial data set forth in this document.
Changes in the market price for gold, which in the past has fluctuated widely, affect the profitability of Gold Fields operations and the cash flows generated by those operations.
Substantially all of Gold Fields revenues are derived from the sale of gold. Historically, the market price for gold has fluctuated widely and has been affected by numerous factors over which Gold Fields has no control, including:
In addition, the current demand for and supply of gold affects the price of gold, but not necessarily in the same manner as current demand and supply affect the prices of other commodities. Since the potential supply of gold is large relative to mine production in any given year, normal variations in current production will not necessarily have a significant effect on the supply of gold or the gold price. Central banks, financial institutions and individuals historically have held large amounts of gold as a store of value, and production in any given year historically has constituted a small portion of the total potential supply of gold. Historically, gold has tended to retain its value in relative terms against basic goods in times of inflation and monetary crisis. Pursuant to a gold sales agreement entered into by 15 European central banks, individual banks may sell up to 500 tons of gold per year, the effect on the market in terms of total gold sales is unclear. This agreement is scheduled to be reviewed in 2009.
While the aggregate effect of these factors is impossible for Gold Fields to predict, if gold prices should fall below Gold Fields cost of production and remain at such levels for any sustained period, Gold Fields may experience losses and may be forced to curtail or suspend some or all of its operations and/or reduce capital expenditure. In addition, Gold Fields might not be able to recover any losses it may incur during that period.
Because Gold Fields does not use commodity or derivative instruments to protect against low gold prices with respect to its production, Gold Fields is exposed to the impact of any significant drop in the gold price.
As a general rule Gold Fields sells its gold production at market prices. Gold Fields generally does not enter into forward sales, derivatives or other hedging arrangements to establish a price in advance for the sale of its
future gold production. In general, hedging reduces the risk of exposure to volatility in the gold price. Hedging also enables a gold producer to fix a future price for hedged gold that generally is higher than the then current spot price. To the extent that it does not generally use commodity or derivative instruments, Gold Fields will not be protected against decreases in the gold price, and if the gold price decreases significantly, Gold Fields runs the risk of reduced revenues in respect of gold production that is not hedged. See Quantitative and Qualitative Disclosures About Market Risk.
Gold Fields reserves are estimates based on a number of assumptions, any changes to which may require Gold Fields to lower its estimated reserves.
The ore reserves stated in this annual report represent the amount of gold that Gold Fields estimated, as of June 30, 2007, could be mined, processed and sold at prices sufficient to recover Gold Fields estimated future total costs of production, remaining investment and anticipated additional capital expenditures. Ore reserves are estimates based on assumptions regarding, among other things, Gold Fields costs, expenditures, prices and exchange rates, many of which are beyond Gold Fields control. In the event that Gold Fields revises any of these assumptions in an adverse manner, Gold Fields may need to revise its ore reserves downwards. In particular, if Gold Fields production costs or capital expenditures increase, if gold prices decrease or if the Rand, Australian dollar, Bolivar or Peruvian Nuevo Sole strengthens against the U.S. dollar, a portion of Gold Fields ore reserves may become uneconomical to recover, forcing Gold Fields to lower its estimated reserves. See Information on the CompanyReserves of Gold Fields as of June 30, 2007.
To the extent that Gold Fields seeks to expand through acquisitions, it may experience problems in executing acquisitions or managing and integrating the acquisitions with its existing operations.
In order to expand its operations and reserve base, Gold Fields may seek to make acquisitions of selected precious metal producing companies or assets. Gold Fields success at making any acquisitions will depend on a number of factors, including, but not limited to:
There can be no assurance that any acquisition will achieve the results intended. Any problems experienced by Gold Fields in connection with an acquisition as a result of one or more of these factors could have a material adverse effect on Gold Fields business, operating results and financial condition.
To the extent that Gold Fields seeks to expand through its exploration program, it may experience problems associated with mineral exploration or developing mining projects.
In order to expand its operations and reserve base, Gold Fields may rely on its exploration program for gold and platinum group metals and its ability to develop mining projects. Exploration for gold and other precious metals is speculative in nature, involves many risks and frequently is unsuccessful. Any exploration program entails risks relating to the location of economic orebodies, the development of appropriate metallurgical processes, the receipt of necessary governmental permits and regulatory approvals and the construction of mining and processing facilities at the mining site. Gold Fields exploration efforts may not result in the discovery of
gold or platinum group metal mineralization and any mineralization discovered may not result in an increase of Gold Fields reserves. If orebodies are developed, it can take a number of years and substantial expenditures from the initial phases of drilling until production commences, during which time the economic feasibility of production may change. Gold Fields exploration program may not result in the replacement of current production with new reserves or result in any new commercial mining operations. Also, to the extent Gold Fields participates in the development of a project through a joint venture, there could be disagreements or divergent interests or goals among the joint venture parties which could jeopardize the success of the project.
In addition, significant capital investment is required to achieve commercial production from exploration efforts. There is no assurance that Gold Fields will have, or be able to raise, the required funds to engage in these activities or to meet its obligations with respect to the exploration properties in which it has or may acquire an interest.
Due to the nature of mining and the type of gold mines it operates, Gold Fields faces a material risk of liability, delays and increased production costs from environmental and industrial accidents and pollution.
The business of gold mining by its nature involves significant risks and hazards, including environmental hazards and industrial accidents. In particular, hazards associated with Gold Fields underground mining operations include:
Hazards associated with Gold Fields open pit mining operations include:
Hazards associated with Gold Fields rock dump and production stockpile mining and tailings disposal include:
Gold Fields is at risk of experiencing any and all of these environmental or other industrial hazards. The occurrence of any of these hazards could delay production, increase production costs and result in liability for Gold Fields.
Gold Fields insurance coverage may prove inadequate to satisfy potential claims.
Gold Fields may become subject to liability for pollution, occupational illnesses or other hazards against which it has not insured, cannot insure or has insufficiently insured, including those in respect of past mining activities. Gold Fields existing property and liability insurance contains exclusions and limitations on coverage. Should Gold Fields suffer a major loss, future earnings could be affected. In addition, insurance may not continue to be available at economically acceptable premiums. As a result, in the future, Gold Fields insurance coverage may not cover the extent of claims against Gold Fields, including, but not limited to, claims for environmental or industrial accidents, occupational illnesses or pollution.
Because gold is generally sold in U.S. dollars, while most of Gold Fields production costs are in Rand and other non-U.S. dollar currencies, Gold Fields operating results or financial condition could be materially harmed by an appreciation in the value of these other currencies.
Gold is sold throughout the world principally in U.S. dollars, but Gold Fields operating costs are incurred principally in Rand and other non-U.S. dollar currencies. As a result, any significant and sustained appreciation of any of these currencies against the U.S. dollar may materially increase Gold Fields costs in U.S. dollar terms.
Gold Fields is selling its Venezuelan production primarily in Bolivars. The lack of availability of foreign currency at official exchange rates due to existing exchange controls in Venezuela may have an adverse effect on Gold Fields Venezuelan operations.
Economic or political instability in the countries or regions where Gold Fields operates may have an adverse effect on Gold Fields operations and profits.
Gold Fields has significant operations in South Africa, Ghana, Australia and Venezuela, and a significant development project in Peru. As a result, changes or instability to the economic or political environment in any of these countries or in neighboring countries could affect an investment in Gold Fields.
Several of these countries have, or have had in the recent past, high levels of inflation. Continued or increased inflation in any of the countries where it operates could increase the prices Gold Fields pays for products and services, including wages for its employees, which if not offset by increased gold prices or currency devaluations could have a material adverse effect on Gold Fields financial condition and results of operations.
The South African government has implemented laws aimed at alleviating and redressing the disadvantages suffered by citizens under previous governments and Gold Fields believes it is in compliance with its obligations under them. In the future the South African government may implement new laws and policies, which in turn may have an adverse impact on Gold Fields operations and profits. In recent years, South Africa has experienced high levels of crime and unemployment. These problems may have impacted fixed inward investment into South Africa and have prompted emigration of skilled workers. As a result, Gold Fields may have difficulties attracting and retaining qualified employees.
There has been regional political and economic instability in certain of the countries surrounding South Africa. Any similar political or economic instability in South Africa could have a negative impact on Gold Fields ability to manage and operate its South African operations.
In the past several years, Venezuela has experienced political and social turmoil and instability. There can be no assurance that there will not be further economic or political instability in Venezuela. Although Gold Fields has sold its Venezuelan operations, as part of the consideration for the sale Gold Fields received 140 million newly-issued Rusoro Mining Limited, or Rusoro, shares, which at the time of sale represented approximately 37% of the outstanding shares of Rusoro. For as long as Gold Fields continues to hold a stake in Rusoro, economic or political instability in Venezuela could have a material adverse effect on Gold Fields financial condition and results of operations.
There has been local opposition to mine development projects in Peru. Notwithstanding the fact that Gold Fields is substantially exceeding commitments it had made to the local communities, in mid-October 2006 there was an illegal blockade of the access road to the Cerro Corona Project site resulting in a temporary suspension of construction activities at the site for seven days. The blockade was accompanied by demands for increased employment from local communities and increased use of local contractors. In addition, the Cerro Corona site is located near the Yanacocha mine which is operated by another company. The Yanacocha mine has also been the subject of local protests, including ones that blocked the road between the Yanacocha mine complex and the City of Cajamarca, which also affected access to the Cerro Corona site, although they did not result in a suspension of construction activities. If Gold Fields experiences further opposition in connection with its operations in Peru, or if protests aimed at other mining operations affect operations at Cerro Corona, it could have a material adverse effect on Gold Fields financial condition and results of operations.
Actual and potential shortages of production inputs may have an adverse effect on Gold Fields operations and profits.
Gold Fields results of operations may be affected by the availability and pricing of raw materials and other essential production inputs, including fuel, steel and cyanide and other reagents. The price of raw materials may be substantially affected by changes in global supply and demand, along with weather conditions, governmental controls and other factors. A sustained interruption on the supply of any of these materials would require Gold Fields to find substitute suppliers acceptable to the Company and could require it to pay higher prices for such materials. Any significant increase in the prices of these materials will increase the Companys operating costs and affect production considerations.
Gold Fields Ghana Limited, or Gold Fields Ghana, among other mining companies in Ghana, was asked by its electricity supplier, the Volta River Authority, or VRA, on August 14, 2006 to immediately reduce its electricity demand by 25%. On August 28, 2006, Gold Fields was asked to reduce its demand by a further 25%. The VRA requested these reductions in electricity usage largely because of the low water reservoir level of the VRAs Akosombo generating facility and concerns about its ability to meet future supply and demand at present consumption levels. Gold Fields Ghana agreed to reduce its demand for electricity from the VRA and the Electricity Company of Ghana Limited at the Tarkwa and Damang operations, respectively, and used emergency diesel powered generators situated at both mines to make up the difference. Gold Fields operating costs for fiscal 2007 arising from the use of diesel generators was approximately U.S.$11.2 million. The VRA has indicated that the requirement for reduced electricity demand will last until the water levels in the reservoir have reached appropriate levels. Though the water levels have now increased, the restrictions in respect of mining companies continue. There can be no assurance that Gold Fields will not be asked to further reduce its demand or that there will not be new disruptions to the electricity supply. For as long as the restrictions on electricity demand remain in place, Gold Fields may need to continue using diesel generators which will result in increased exposure to fluctuations in the price of diesel fuel.
Giant tires, of the type used by Gold Fields for its large earthmoving equipment and trucks, are in increasingly short supply, and prices have risen recently and may continue to rise in the future. This shortage of
tires for earthmoving vehicles is causing mining companies to review operating practices, to seek additional methods of preserving tire life and to examine alternative sources of tire supply. As part of measures to ensure a continued supply of tires, Gold Fields Ghana has entered into agreements with OTR Tyres Limited for the construction, installation and management of a tire retread facility. To the extent that Gold Fields is unable to procure an adequate supply of these tires, it may have to alter its mining plans, especially at its open pit operations, which could reduce its gold production and have a material adverse effect on Gold Fields business, operating results and financial condition.
Gold Fields financial flexibility could be materially constrained by South African exchange control regulations.
South Africas exchange control regulations restrict the export of capital from South Africa, the Republic of Namibia, and the Kingdoms of Lesotho and Swaziland, known collectively as the Common Monetary Area. Transactions between South African residents (including companies) and non-residents of the Common Monetary Area are subject to exchange controls enforced by the South African Reserve Bank, or SARB. As a result, Gold Fields ability to raise and deploy capital outside the Common Monetary Area is restricted.
Under South African exchange control regulations, Gold Fields must obtain approval from the SARB regarding any capital raising involving a currency other than the Rand. In connection with its approval, it is possible that the SARB may impose conditions on Gold Fields use of the proceeds of any such capital raising, such as limits on Gold Fields ability to retain the proceeds of the capital raising outside South Africa or requirements that Gold Fields seek further SARB approval prior to applying any such funds to a specific use. These restrictions could hinder Gold Fields financial and strategic flexibility, particularly its ability to fund acquisitions, capital expenditures and exploration projects outside South Africa. See Information on the CompanyRegulatory and Environmental MattersSouth AfricaExchange Controls.
An acquisition of shares in or assets of a South African company by a non-South African purchaser that is subject to exchange control regulations may not be granted regulatory approval.
In some circumstances, potential acquisitions of shares in or assets of South African companies by non-South African resident purchasers are subject to review by the SARB pursuant to South African exchange control regulations. In 2000, the South African Treasury, or the Treasury, refused to approve an acquisition of Gold Fields by Franco-Nevada Mining Corporation Limited, a Canadian mining company. The Treasury may refuse to approve similar proposed acquisitions of Gold Fields in the future. As a result, Gold Fields management may be limited in its ability to consider strategic options and Gold Fields shareholders may not be able to realize the premium over the current trading price of Gold Fields ordinary shares which they might otherwise receive upon such an acquisition. See Information on the CompanyRegulatory and Environmental MattersSouth AfricaExchange Controls.
Gold Fields operations and financial condition may be adversely affected by labor disputes or changes in South African, Ghanaian, Australian and Venezuelan labor laws.
Gold Fields may be affected by certain labor laws that impose duties and obligations regarding worker rights, including rights regarding wages and benefits. For example, laws in South Africa impose monetary penalties for non-compliance with the administrative and the reporting requirements in respect of affirmative action policies while Ghanaian law contains broad provisions requiring mining companies to recruit and train Ghanaian personnel and to use the services of Ghanaian companies. There can be no assurance that existing labor laws will not be amended or new laws enacted to impose additional reporting or compliance obligations or further increase worker rights in the future. Any expansion of these obligations or rights, especially to the extent they increase Gold Fields labor costs, could have a material adverse effect on Gold Fields business, operating results and financial condition.
Gold Fields may suffer adverse consequences as a result of its reliance on outside contractors to conduct its operations in Ghana and Australia.
A significant portion of Gold Fields operations at the operations in Ghana and Australia are currently conducted by outside contractors. As a result, Gold Fields operations at those sites are subject to a number of risks, some of which are outside Gold Fields control, including:
In addition, Gold Fields may incur liability to third parties as a result of the actions of its contractors. The occurrence of one or more of these risks could have a material adverse effect on Gold Fields business, results of operations and financial condition. See Directors, Senior Management and EmployeesEmployeesLabor RelationsGhana and Directors, Senior Management and EmployeesEmployeesLabor RelationsAustralia.
Gold Fields South African operations may be adversely affected by increased labor costs at its mining operations in South Africa.
Wages and related labor costs accounted for approximately 50% of Gold Fields total production costs in South Africa in fiscal 2007. Accordingly, Gold Fields costs may be materially affected by increases in wages and related labor costs, particularly with respect to Gold Fields South African employees, who are unionized. Negotiations with South African unions concluded in August 2007 resulted in above inflation wage increases ranging from 8% to 8.5%, depending upon the category of employee, implemented with effect from July 2007. A further inflation-linked increase of 8% will be implemented with effect from July 1, 2008. Presently, the inflation-linked increase is 5.5% to 6%, depending on the category of employee. The next round of negotiations with the unions in South Africa is expected to commence in May 2009. In total, labor costs increased approximately 14% in South Africa in fiscal 2007 (excluding South Deep), mainly due to the annual wage increase of 5.5% to 6% from July 2006, together with indirect costs and allowances, which increased in line with industry trends, market-related adjustments and an increase in employee numbers necessary to support the increase in mining volumes.
If Gold Fields is unable to increase production levels or implement cost cutting measures to offset these increased wages and labor costs, these costs could have a material adverse effect on Gold Fields mining operations in South Africa and, accordingly, on Gold Fields business, operating results and financial condition. See Directors, Senior Management and EmployeesEmployeesLabor RelationsSouth Africa.
HIV/AIDS poses risks to Gold Fields in terms of lost productivity and increased costs.
The prevalence of HIV/AIDS in South Africa poses risks to Gold Fields in terms of potentially reduced productivity and increased medical and other costs. In October 2006, management estimated that approximately 28.3% of Gold Fields workforce in South Africa was infected with HIV. The actuarial model which the Company has applied consistently since 2001 estimates that peak prevalence has been reached. Based on this
level of prevalence, other existing data and various other assumptions, many of which involve factors beyond Gold Fields control, management estimates that without appropriate interventions the ultimate impact of HIV/AIDS on its operating costs could be as high as $10.00 per ounce of gold produced at its South African operations. This estimate of the potential impact of HIV/AIDS on operations and financial condition is based on a variety of existing data and certain assumptions. These include the incidence of HIV infection among its employees, the progressive impact of HIV/AIDS on infected employees health, and the medical and other costs associated with the infection. Most of these factors are beyond Gold Fields control. Should Gold Fields actual experience significantly differ from the assumptions on which its current estimate is based, the actual impact of HIV/AIDS on its business, operating results and financial condition could be significantly worse than Gold Fields expects. See Directors, Senior Management and EmployeesEmployeesHealth and SafetyHealthHIV/AIDS Program.
Gold Fields operations in South Africa are subject to environmental and health and safety regulations which could impose significant costs and burdens.
Gold Fields South African operations are subject to various environmental laws and regulations including, for example, those relating to waste treatment, emissions and disposal, and must comply with permits or standards governing, among other things, tailings dams and waste disposal areas, water consumption, air emissions and water discharges. Gold Fields may, in the future, incur significant costs to comply with the South African environmental requirements imposed under existing or new legislation, regulations or permit requirements or to comply with changes in existing laws and regulations or the manner in which they are applied. Also, Gold Fields may be subject to litigation and other costs as a result of environmental rights granted to individuals under South Africas Constitution or other sources of rights. These costs could have a material adverse effect on Gold Fields business, operating results and financial condition.
Environmental impact assessment regulations, that were promulgated on July 3, 2006 under the National Environmental Management Act, or NEMA, introduced a more complex South African regime for environmental impact assessments. The specific sections of the regulations which cover mining operations have not yet been brought into effect. However, some activities which are ancillary to mining do require a two-tier authorization process, from the Department of Minerals and Energy and from the Department of Environmental Affairs and Tourism, or DEAT. When the new regulations become effective as to mining operations, they will impact on reconnaissance, exploration, prospecting and mining activities. This will result in more stringent requirements in obtaining environmental approval for new mining activities and, potentially, in the case of recommissioning old operations, which could increase Gold Fields costs for compliance. The new regulations will not have retrospective effect. Rectification and authorization is at the discretion of the environmental authorities and can be accompanied by an administrative fine per activity of up to Rand 1 million. Other changes in legislation or regulations (or the approach to enforcement of them) or other unforeseen circumstances may materially and adversely affect Gold Fields future environmental expenditures or the level and timing of Gold Fields provisioning for these expenditures. See Information on the CompanyRegulatory and Environmental MattersSouth AfricaEnvironmental.
Although South Africa has a comprehensive environmental regulatory framework, enforcement of environmental law has traditionally been poor. The DEAT has indicated that enforcement will improve and Environmental Management Inspectors have been appointed under the NEMA. The Environmental Management Inspectors have commenced with environmental inspections and investigations at some of the major industrial facilities.
The South African Mine Health and Safety Act No. 29 of 1996 imposes various duties on Gold Fields mines while granting the authorities broad powers to, among other things, close unsafe mines and order corrective action relating to health and safety matters. There have been a number of accidents, many of which have resulted in fatalities, at various mining operations in South Africa recently, including accidents at some of Gold Fields operations. President Thabo Mbeki has ordered the Department of Minerals and Energy to conduct an occupational health and safety audit at all mines. The audit of South African mines will be divided into two parts: (1) Legal Audit and (2) Technical Audit of certain installations and practices at mines. The outcome of these audits is intended to give an indication of the extent to which mines comply with health and safety requirements, and also to help mines develop programs of action to improve their health and safety practices, with the goal of reducing fatal accidents. In addition, the South African mining unions have indicated they may take industrial action to protest what they view as an inadequate safety regime and, in furtherance of this position, on December 4, 2007, the National Union of Mine Workers, the union to which the majority of Gold Fields South African workers belong, staged a one-day, industry-wide work stoppage. The Chamber of Mines of South Africa, an employers industry organization of which Gold Fields is a member, has approached the Minister of Minerals and Energy in an effort to find a solution to the current situation. There is no assurance that the occupational health and safety audit will not result in the introduction of more stringent safety regulations, which could result in restrictions on Gold Fields ability to conduct its mining operations and/or impose additional costs. Regardless of the outcome of the audit or improved health and safety programs, there can be no assurance that the unions will not take industrial action that could lead to losses in Gold Fields production. It is Gold Fields policy to halt production at its operations where serious accidents occur in order to rectify dangerous situations and, if necessary, retrain workers. Any additional stoppages in production, or increased costs, could have an adverse effect on Gold Fields business, operating results and financial condition. See Information on the CompanyRegulatory and Environmental MattersSouth AfricaHealth and Safety.
The Occupational Diseases in Mines and Works Act 78 of 1973, or the Occupational Diseases Act, governs the payment of compensation and medical costs related to certain illnesses contracted by persons employed in mines or at sites where activities ancillary to mining are conducted. Occupational healthcare services are made available by Gold Fields to employees from its existing facilities. Pursuant to changes in the Occupational Diseases Act, Gold Fields may experience an increase in the cost of these services, which could have an adverse effect on Gold Fields business, operating results and financial condition. This increased cost, should it transpire, is currently indeterminate.
Gold Fields mineral rights in South Africa have become subject to new legislation which could impose significant costs and burdens.
The 2002 Minerals Act
The Mineral and Petroleum Resources Development Act No. 28 of 2002, or the 2002 Minerals Act, came into effect on May 1, 2004, together with the implementation of a broad-based socio-economic empowerment charter, or the Mining Charter, for effecting entry of historically disadvantaged South Africans, or HDSAs, into the mining industry. The Mining Charter requires each mining company to achieve a 15% HDSA ownership of mining assets within five years and a 26% HDSA ownership of mining assets within 10 years. Under the Mining Charter, the mining industry as a whole agrees to assist HDSA companies in securing finance to fund participation in an amount of Rand 100 billion over the first five years. In addition, the Mining Charter requires, among other things, that mining companies spell out plans for achieving employment equity at management level with a view to achieving a baseline of 40% HDSA participation in management and achieving a baseline of 10% participation by women in the mining industry, in each case within five years. When considering applications for conversion or renewal of relevant rights, the government will take a scorecard approach, evaluating the commitments of stakeholders to the different facets of promoting the objectives of the Mining Charter. See Information on the CompanyRegulatory and Environmental MattersSouth AfricaMineral RightsThe 2002 Minerals Act.
In order to comply with the terms of the charter, Gold Fields entered into a series of transactions, referred to in this discussion as the Mvelaphanda Transaction, involving the acquisition by Mvelaphanda Resources Limited of a 15% beneficial interest in the South African gold mining assets of Gold Fields for cash consideration of Rand 4,139 million. See Operating and Financial Review and ProspectsOverviewGeneralMvelaphanda Transaction. The Mvelaphanda Transaction is intended to meet the charters requirement that mining companies achieve a 15% HDSA ownership within five years of the charter coming into effect. See Information on the CompanyRegulatory and Environmental MattersSouth AfricaMineral RightsThe 2002 Minerals Act. There is no guarantee, however, that the Mvelaphanda Transaction will not have a negative effect on the value of Gold Fields ordinary shares. In addition, any further adjustment to the ownership structure of Gold Fields South African mining assets in order to meet the mining charters 10-year HDSA ownership requirement of 26% could have a material adverse effect on the value of Gold Fields ordinary shares and failing to comply with the charters requirements could subject Gold Fields to negative consequences, the scope of which has not yet been fully determined. Gold Fields may also incur expenses to give effect to the charters other requirements, and may need to incur additional indebtedness in order to comply with the industry-wide commitment to assist HDSAs in securing Rand 100 billion of financing during the first five years of the mining charters effectiveness. Moreover, there is no guarantee that any steps Gold Fields has already taken or might take in the future will ensure the successful renewal of any or all of its existing mining rights or the granting of further new mining rights or that the terms of any renewals of its rights would not be significantly less favorable to Gold Fields than the terms of its current rights.
The Royalty Bill
The Mineral and Petroleum Royalty Bill, or the Royalty Bill, which was published on October 11, 2006 and remains open for comment from stakeholders, proposes to impose a royalty payable to the State which, in the case of gold mining companies, would be 3% in respect of the gross sales value of unrefined gold and 1.5% in respect of the gross value of refined gold. Gold is regarded as refined once it is processed to at least 99.5% purity and, accordingly, most companies in the South African mining sector, including Gold Fields, are likely to pay the refined rate. The Royalty Bill envisages that the royalty will become payable from May 1, 2009.
There is uncertainty as to what further amendments will be made to the Royalty Bill. If adopted, in either its current or a further revised form, the Royalty Bill could have a negative impact on Gold Fields South African operations and therefore an adverse effect on its business, operating results and financial condition. See Information on the CompanyRegulatory and Environmental MattersSouth AfricaMineral RightsThe Royalty Bill.
Gold Fields land and mineral rights in South Africa could be subject to land restitution claims which could impose significant costs and burdens.
Gold Fields privately held land could be subject to land restitution claims under the Restitution of Land Rights Act 1994, or the Land Claims Act. Under this Act, any person who was dispossessed of rights in land in South Africa as a result of past racially discriminatory laws or practices without payment of just and equitable compensation is granted certain remedies, including the restoration of the land. Under the Land Claims Act, persons entitled to institute a land claim were required to lodge their claims by December 31, 1998. Gold Fields has not been notified of any land claims, but any claims of which it is notified in the future could have a material adverse effect on Gold Fields right to the properties to which the claims relate and, as a result, on Gold Fields business, operating results and financial condition. See Information on the CompanyRegulatory and Environmental MattersSouth AfricaLand Claims.
The Restitution of Land Rights Amendment Act, or the Amendment Act, became law on February 4, 2004. Under the Land Claims Act, the Minister for Agriculture and Land Affairs, or the Land Minister, may not acquire ownership of land for restitution purposes without a court order unless an agreement has been reached between the affected parties. The Amendment Act, however, entitles the Land Minister to acquire ownership of land by
way of expropriation in certain limited circumstances. Expropriation would be subject to provisions of legislation and the South African Constitution which provides, in general, for just and equitable compensation. There is, however, no guarantee that any of Gold Fields privately held land rights could not become subject to acquisition by the state without Gold Fields agreement, or that Gold Fields would be adequately compensated for the loss of its land rights, which could have a negative impact on Gold Fields South African operations and therefore an adverse effect on its business, operating results and financial condition. See Information on the CompanyRegulatory and Environmental MattersSouth AfricaLand Claims.
Gold Fields operations in Ghana are subject to environmental and health and safety regulations which could impose significant costs and burdens.
Gold Fields Ghana operations are subject to various environmental laws and regulations. The Ghanaian environmental protection laws require, among other things, that Gold Fields register with the Ghanaian environmental authorities, and obtain environmental permits and certificates for the Ghana operations, as well as to rehabilitate land disturbed as a result of their mining operations. Gold Fields is required to secure estimated environmental rehabilitation costs in part by posting a reclamation bond. Reclamation bonds posted by Gold Fields Ghana are assessed based on 50% of the agreed current estimated rehabilitation costs for the two-year period after the date of the last reclamation plan. Changes in the required method of calculation for these bonds or an unforeseen circumstance which produces unexpected costs may materially and adversely affect Gold Fields future environmental expenditures. See Information on the CompanyRegulatory and Environmental MattersGhanaEnvironmental.
Ghanaian health and safety regulations impose statutory duties on an owner of a mine to, among other things, take steps to ensure that the mine is managed and worked in a manner which provides for the safety and proper discipline of the mine workers. Additionally, Gold Fields is required under the terms of its mining leases to comply with the reasonable instructions of the relevant authorities for securing the health and safety of persons working in or connected with the mine. A violation of the health and safety regulations or a failure to comply with the reasonable instructions of the relevant authorities could lead to, among other things, a temporary shutdown of all or a portion of the mine, a loss of the right to mine or the imposition of costly compliance procedures and, in the case of a violation of the regulations relating to health and safety, constitutes an offense under Ghanaian law. If Ghanaian health and safety authorities require Gold Fields to shut down all or a portion of its mines or to implement costly compliance measures, whether pursuant to existing or new health and safety laws and regulations, such measures could have a material adverse effect on Gold Fields business, operating results and financial condition. See Information on the CompanyRegulatory and Environmental MattersGhanaHealth and Safety.
Gold Fields, as the holder of the mining lease, has potential liability arising from injuries to, or deaths of, workers, including, in some cases, workers employed by its contractors. In Ghana, statutory workers compensation is not the exclusive means for workers to claim compensation. Gold Fields insurance for health and safety claims or the relevant workers compensation arrangements may not be adequate to meet the costs which may arise upon any future health and safety claims.
Gold Fields mineral rights in Ghana are currently subject to regulations, and may become subject to new regulations, which could impose significant costs and burdens.
In Ghana, the ownership of land on which there are mineral deposits is separate from the ownership of the minerals. All minerals in their natural state in or upon any land or water are, under Ghanaian law, the property of Ghana and vested in the President on behalf of the people of Ghana. Although the Minerals Commission, the statutory corporation overseeing the mining operations on behalf of the government of Ghana, has submitted the Tarkwa property leases for parliamentary ratification along with leases for other mining companies in Ghana, these leases have not yet been ratified as required by law. Gold Fields Ghana has taken all the steps that it can take towards the ratification of its leases and to date this has not affected Gold Fields Ghanas ability to carry on
its operations. To the extent that failure to ratify these leases adversely affects their validity, there may be a material adverse effect on Gold Fields business, operating results and financial condition. In addition, the new Minerals and Mining Act, 2006 (Act 703), or the Minerals and Mining Act, was passed by the Ghanaian Parliament in fiscal 2006. The Minerals and Mining Act repealed the Minerals and Mining Law, 1986 (PNDCL 153) as amended, or the Minerals and Mining Law, although, as regards existing mineral rights, the Minerals and Mining Law continues to apply to Gold Fields Ghana and Abosso Goldfields Limited, or Abosso, unless the minister responsible for mines provides otherwise by legislative instrument. Although the Minerals and Mining Act provides that it shall not have the effect of increasing the holders costs, or financial burden, for a period of five years, if in the future new amendments or provisions are passed under the Minerals and Mining Act or new laws are passed which impose significant new costs or burdens on Gold Fields abilities to mine in Ghana or to obtain new mining leases for properties on which deposits are identified, this could have a material adverse effect on Gold Fields business, operating results and financial condition. See Information on the CompanyRegulatory and Environmental MattersGhanaMineral Rights.
Gold Fields operations in Australia are subject to environmental and health and safety regulations which could impose significant costs and burdens.
Gold Fields Australian operations are subject to various laws and regulations relating to the protection of the environment, which are similar in scope to those of South Africa and Ghana. Gold Fields may, in the future, incur significant costs to comply with the Australian environmental requirements imposed under existing or new legislation, regulations or permit requirements or to comply with changes in existing laws and regulations or the manner in which they are applied. These costs may have a material adverse effect on Gold Fields business, operating results and financial condition.
Australian mining companies are required by law to undertake rehabilitation works as part of their ongoing operation and the Gold Fields subsidiaries that hold its Australian operations guarantee their environmental obligations by providing the Western Australian government with unconditional bank-guaranteed performance bonds to secure the estimated costs. These bonds do not cover remediation for events that were unforeseen at the time the bond was taken. Changes in the required method of calculation for these bond amounts or an unforeseen circumstance which produces unexpected costs may materially and adversely affect future environmental expenditures. See Information on the CompanyRegulatory and Environmental MattersAustraliaEnvironmental.
Gold Fields is obligated to provide and maintain a working environment which is safe for mine workers. A violation of the health and safety laws or a failure to comply with the instructions of the relevant health and safety authorities could lead to, among other things, a temporary shutdown of all or a portion of the mine, a loss of the right to mine or the imposition of costly compliance procedures and penalties (including imprisonment). If health and safety authorities require Gold Fields to shut down all or a portion of the mine or to implement costly compliance measures, whether pursuant to existing or new health and safety laws and regulations, such measures could have a material adverse effect on Gold Fields business, operating results and financial condition. See Information on the CompanyRegulatory and Environmental MattersAustraliaHealth and Safety.
Gold Fields tenements in Australia are subject to native title claims and include Aboriginal heritage sites which could impose significant costs and burdens.
Certain of Gold Fields tenements are subject to native title claims, and there are Aboriginal heritage sites located on certain of Gold Fields tenements. Native title and Aboriginal legislation protect the rights of Aboriginals in relation to the land in certain circumstances. Other tenements may become subject to native title claims if Gold Fields seeks to expand or otherwise change its interest in rights to those tenements. Native title claims could require costly negotiations with the claimants or could affect Gold Fields access to or use of its tenements, and, as a result, have a material adverse effect on Gold Fields business, operating results and financial condition.
Aboriginal heritage sites relate to distinct areas of land which have either ongoing ethnographic, archaeological or historic significance. Aboriginal heritage sites have been identified with respect to portions of some of Gold Fields Australian mining tenements. Additional Aboriginal heritage sites may be identified on the same or additional tenements. Gold Fields may, in the future, incur significant costs as a result of changes in the interpretation of, or new laws regarding, native title and Aboriginal heritage, which may result in a material adverse effect on Gold Fields business, operating results and financial condition. See Information on the CompanyRegulatory and Environmental MattersAustraliaLand Claims.
The acquisition of Western Areas, BGSA and South Deep may expose Gold Fields to unknown liabilities and risks.
Prior to acquiring South Deep from Barrick Gold South Africa (Pty) Limited, or BGSA, a subsidiary of Barrick Gold Corporation, or Barrick, and Western Areas Limited, or Western Areas, Gold Fields was able to conduct only limited due diligence on South Deep, Western Areas and BGSA. There can be no assurance that Gold Fields identified all the liabilities of, and risks associated with, South Deep, BGSA or Western Areas prior to acquiring them or that it will not be subject to unknown liabilities of, and risks associated with, South Deep, Western Areas or BGSA, including liabilities and risks that may become evident only after Gold Fields has been involved in the operational management of South Deep for a longer period of time.
Gold Fields has not independently confirmed the reliability of the South Deep, BGSA or Western Areas information for the period prior to their respective acquisitions by Gold Fields included in this annual report.
In respect of information relating to South Deep or Western Areas presented in this annual report for the period before their respective acquisitions by Gold Fields, Gold Fields relied upon publicly available information, including information publicly filed by Western Areas with the JSE Limited, or the JSE, and certain due diligence materials supplied by Western Areas and Barrick. For example, Gold Fields attributable proven and probable reserves are based on the pre-acquisition South Deep operation reserve figures as declared for December 2005 by an independent reserve panel for the Barrick GoldWestern Areas Joint Venture between Barrick Gold South Africa (Pty) Limited (formerly, Placer Dome South Africa Proprietary Limited) and Western Areas Limited, but updated by Gold Fields to June 30, 2007 for mining depletions. Although Gold Fields has no knowledge that would indicate that any statements contained in this annual report based upon that publicly available information and those due diligence materials are inaccurate, incomplete or untrue, Gold Fields was not involved in the preparation of the information and materials and has not had the opportunity to perform due diligence on them and, therefore, cannot verify the accuracy, completeness or truth of the information or materials or any failure by Western Areas or Barrick to disclose events that may have occurred, but that are unknown to Gold Fields, that may affect the significance or accuracy of any such information.
Gold Fields may continue to face potential risks associated with operating in Venezuela due to its stake in Rusoro Mining Limited.
On November 30, 2007, Gold Fields disposed of its operations in Venezuela. Gold Fields received U.S.$180 million in cash and 140 million newly-issued Rusoro shares, which at the time of sale represented approximately 37% of the outstanding shares of Rusoro. As a result of its stake in Rusoro, Gold Fields will be indirectly exposed to the risks of operating in Veneuzuela, which has experienced intense political and social turmoil in recent years. These risks include the costs associated with complying with a rigorous exchange control regime, the costs and other challenges associated with complying with labor laws, the risk of expropriation or other state intervention in the operation of mining businesses, risks associated with the implementation of a new mining rights regime, costs associated with a plan announced by the Venezuelan government to emphasize compliance with tax laws and the costs and other risks associated with complying with environmental, health and safety and worker protection laws. See Information on the CompanyRecent DevelopmentsSale of Choco 10.
Investors in the United States may have difficulty bringing actions, and enforcing judgments, against Gold Fields, its directors and its executive officers based on the civil liabilities provisions of the federal securities laws or other laws of the United States or any state thereof.
Gold Fields is incorporated in South Africa. The majority of Gold Fields directors and executive officers (and certain experts named herein) reside outside of the United States. Substantially all of the assets of these persons and substantially all of the assets of Gold Fields are located outside the United States. As a result, it may not be possible for investors to enforce against these persons or Gold Fields a judgment obtained in a United States court predicated upon the civil liability provisions of the federal securities or other laws of the United States or any state thereof. A foreign judgment is not directly enforceable in South Africa, but constitutes a cause of action which will be enforced by South African courts provided that:
It is the policy of South African courts to award compensation for the loss or damage actually sustained by the person to whom the compensation is awarded. Although the award of punitive damages is generally unknown to the South African legal system, that does not mean that such awards are necessarily contrary to public policy. Whether a judgment is contrary to public policy depends on the facts of each case. Exorbitant, unconscionable or excessive awards will generally be contrary to public policy. South African courts cannot enter into the merits of a foreign judgment and cannot act as a court of appeal or review over the foreign court. South African courts will usually implement their own procedural laws and, where an action based on an international contract is brought before a South African court, the capacity of the parties to the contract will usually be determined in accordance with South African law. It is doubtful whether an original action based on United States federal securities laws may be brought before South African courts. A plaintiff who is not resident in South Africa may be required to provide security for costs in the event of proceedings being initiated in South Africa. Furthermore, the Rules of the High Court of South Africa require that documents executed outside South Africa must be authenticated for the purpose of use in South Africa.
Investors may face liquidity risk in trading Gold Fields ordinary shares on the JSE Limited.
Historically, trading volumes and liquidity of shares listed on the JSE have been low in comparison with other major markets. The ability of a holder to sell a substantial number of Gold Fields ordinary shares on the JSE in a timely manner, especially in a large block trade, may be restricted by this limited liquidity. See The Offer and ListingJSE Limited.
Gold Fields may not pay dividends or make similar payments to its shareholders in the future.
Gold Fields pays cash dividends only if funds are available for that purpose. Whether funds are available depends on a variety of factors, including the amount of cash available and Gold Fields capital expenditures and
other cash requirements existing at the time. Under South African law, Gold Fields will be entitled to pay a dividend or similar payment to its shareholders only if it meets the solvency and liquidity tests set out in the Companies Act No. 61 of 1973, or the Companies Act, and Gold Fields Articles of Association. Cash dividends or other similar payments may not be paid in the future.
Gold Fields non-South African shareholders face additional investment risk from currency exchange rate fluctuations since any dividends will be paid in Rand.
Dividends or distributions with respect to Gold Fields ordinary shares have historically been paid in Rand. The U.S. dollar or other currency equivalent of any dividends or distributions with respect to Gold Fields ordinary shares will be adversely affected by potential future reductions in the value of the Rand against the U.S. dollar or other currencies. In the future, it is possible that there will be changes in South African exchange control regulations, such that dividends paid out of trading profits will no longer be freely transferable outside South Africa to shareholders who are not residents of the Common Monetary Area. See Additional InformationSouth African Exchange Control Limitations Affecting Security Holders.
Gold Fields ordinary shares are subject to dilution upon the exercise of Gold Fields outstanding share options and the Mvela Gold share exchange option.
As of November 20, 2007, Gold Fields had an aggregate of 1,000,000,000 ordinary shares authorized to be issued and as of that date an aggregate of 652,337,476 ordinary shares were issued and outstanding. Gold Fields currently has two securities option plans which are authorized to grant options in an amount of up to an aggregate of 25,071,013 ordinary shares. At their annual general meeting on November 17, 2005, Gold Fields shareholders approved two new securities option plans which will replace the two existing plans. The first allocation of shares under The Gold Fields Limited 2005 Share Plan was made in March 2006, when 430,500 performance vesting restricted shares were awarded. In November 2005, 33,000 restricted shares were awarded to the non-executive directors under The Gold Fields Limited 2005 Non-Executive Share Plan. The second allocation of shares under The Gold Fields Limited 2005 Share Plan was made in March 2007, when 1,496,897 performance vesting restricted shares were awarded. A further 69,100 performance vesting restricted shares were awarded in October, 2007. In November 2006 and November 2007, 18,900 and 29,600 restricted shares, respectively, were awarded to the non-executive directors under The Gold Fields Limited 2005 Non-Executive Share Plan.
Gold Fields employees and directors had outstanding, as of November 20, 2007, options to purchase a total of 5,369,632 ordinary shares at exercise prices of between Rand 20.90 and Rand 154.65 that expire between June 18, 2008 and October, 15, 2013 under The GF Management Incentive Scheme and 174,400 ordinary shares at exercise prices of between Rand 43.70 and Rand 110.03 that expire between December 16, 2008 and March, 28, 2010 under The GF Non-Executive Director Share Plan. Gold Fields has outstanding, as of November 20, 2007, 846,211 share appreciation rights at a strike price of Rand 125.28, which expire on March 24, 2012, and 330,081 performance vesting restricted shares due to be settled on March 24, 2009, under The Gold Fields Limited 2005 Share Plan. Gold Fields has outstanding, as of November 20, 2007, 890,440 share appreciation rights at a strike price of Rand 124.19, which expire on March 1, 2013, and 1,480,754 performance vesting restricted shares due to be settled on March 1, 2010, under The Gold Fields Limited 2005 Share Plan As of the same date, Gold Fields had outstanding 33,000 restricted shares due to be settled on November 17, 2008, 18,900 restricted shares due to be settled in November 2009 and 29,600 restricted shares due to be settled on November 2, 2010 under The Gold Fields Limited 2005 Non-Executive Share Plan. Shareholders equity interests in Gold Fields will be diluted to the extent of future exercises of these rights and any additional rights. See Directors, Senior Management and EmployeesThe GF Management Incentive Scheme, Directors, Senior Management and EmployeesThe Gold Fields Limited 2005 Share Plan, Directors, Senior Management and EmployeesThe GF Non-Executive Director Share Plan and Directors, Senior Management and EmployeesThe Gold Fields Limited 2005 Non-Executive Share Plan.
As part of the Mvelaphanda Transaction, Mvelaphanda Gold (Proprietary) Limited, or Mvela Gold, is obliged to subscribe for 15% of the share capital of GFI Mining South Africa (Proprietary) Ltd, or GFIMSA, a wholly-owned subsidiary of Gold Fields, upon repayment of the Mvela Loan. Under the Subscription and Share Exchange Agreement entered into on December 11, 2003, between Gold Fields, GFIMSA, and Mvela Gold in connection with the Mvelaphanda Transaction, for a period of one year after the subscription of the GFIMSA shares each of Gold Fields and Mvela Gold will be entitled to require the exchange of Mvela Golds GFIMSA shares for ordinary shares of Gold Fields of an equivalent value, but numbering not less than 45,000,000 and not more than 55,000,000 Gold Fields ordinary shares, adjusted as necessary to reflect changes to Gold Fields capital structure and certain corporate activities of Gold Fields. Shareholders equity interests in Gold Fields will be diluted if Gold Fields or Mvela Gold requires the exchange of GFIMSA shares for Gold Fields shares. See Operating and Financial Review and ProspectsOverviewGeneralMvelaphanda Transaction.
ITEM 4: INFORMATION ON THE COMPANY
Gold Fields is a significant producer of gold and major holder of gold reserves in South Africa, Ghana, Australia and Peru. Gold Fields is primarily involved in underground and surface gold mining and related activities, including exploration, extraction, processing and smelting. Gold Fields also has strategic interests in platinum group metal exploration. Gold Fields is currently the largest gold producer in South Africa and one of the largest gold producers in the world, based on annual production.
The majority of Gold Fields operations, based on gold production, are located in South Africa. Its South African operations include Driefontein, Kloof, Beatrix and South Deep. Gold Fields also owns the St. Ives and Agnew gold mining operations in Australia, has a 71.1% interest in each of the Tarkwa gold mine and the Damang gold mine in Ghana. On November 30, 2007, Gold Fields sold the Choco 10 gold mining operation in Venezuela. See Recent DevelopmentsSale of Choco 10.
Gold Fields also owns an 80.72% economic interest in the Cerro Corona Development Project, which is due to start producing in the fourth quarter of fiscal 2008. In addition, Gold Fields has gold and other precious metal exploration activities and interests in Africa, Australasia, China, Europe, North America and South America. See Gold Fields Mining OperationsDevelopment ProjectsCerro Corona Development Project, ExplorationGold Fields Greenfields Exploration Projects and Recent Developments.
Based on the figures reported by Gold Fields mining operations together with the recently acquired South Deep operation reserve figures, as declared for December, 2005 by an independent reserve panel for the Barrick GoldWestern Areas Joint Venture between Barrick Gold South Africa (Pty) Limited, or BGSA (formerly, Placer Dome South Africa Proprietary Limited), and Western Areas Limited, or Western Areas, but updated by Gold Fields to June 30, 2007 for mining depletions (see Risk FactorsGold Fields has not independently confirmed the reliability of the South Deep, BGSA or Western Areas information for the period prior to their respective acquisitions by Gold Fields included in this annual report), as of June 30, 2007, Gold Fields had attributable proven and probable reserves of approximately 89.7 million ounces of gold, as compared to the 61.8 million ounces reported as of June 30, 2006. In the year ended June 30, 2007, Gold Fields processed 52.2 million tons of ore and produced 4.285 million ounces of gold, of which 44.1 million tons and 4.024 million ounces were attributable to Gold Fields.
Since the beginning of fiscal 2007, the following significant events have occurred:
On December 1, 2006, Gold Fields acquired the entire issued share capital of BGSA (formerly, Placer Dome South Africa Proprietary Limited), which held a 50% interest in the Barrick GoldWestern Areas Joint Venture (previously, the Placer DomeWestern Areas Joint Venture), an unincorporated entity in which Barrick Gold Corporation, or Barrick, and Western Areas, each held an interest of 50%. The Barrick GoldWestern Areas Joint Venture owned the developing South Deep gold mine adjacent to Gold Fields Kloof gold mine, located in the Witwatersrand basin near Johannesburg. Barrick received consideration of U.S.$1.525 billion, comprised of U.S.$1.2 billion in cash and 18.7 million Gold Fields shares, valued at U.S.$325 million. The Barrick GoldWestern Areas Joint Venture, which was the entitys name at the time of acquisition, is now known as the South Deep Joint Venture.
On October 30, 2006, Gold Fields commenced an offer, referred to herein as the Offer, to acquire the entire issued share capital of Western Areas not already owned by Gold Fields by offering 35 Gold Fields ordinary shares for every 100 Western Areas shares. Western Areas principal asset was its 50% interest in South Deep. Pursuant to the Offer and the subsequent compulsory acquisition of Western Areas shares, Gold Fields issued a total of 33,461,565 Gold Fields Ordinary Shares to Western Areas shareholders.
In support of the Offer, and pursuant to an agreement between Gold Fields, JCI Limited, or JCI, and certain subsidiaries of JCI, Gold Fields, on November 16, 2006, acquired 27 million Western Areas shares from one of the subsidiaries of JCI in exchange for the issue to JCI of 9,450,000 Gold Fields shares. In addition, pursuant to the agreement, Gold Fields, on November 28, 2006, exercised call options in respect of a further 9.96 million Western Areas shares held by the JCI subsidiaries. As a result of these transactions and the Offer, Gold Fields acquired 100% of Western Areas and the South Deep mine in fiscal 2007.
On November 30, 2007, Gold Fields disposed of its assets in Venezuela to Rusoro Mining Ltd., or Rusoro, for a total consideration of approximately U.S.$532 million (based on the volume weighted average price, or VWAP, of Rusoro shares as quoted by Bloomberg for the 10 days prior to the date the agreement was signed). Gold Fields received U.S.$180 million in cash and 140 million newly-issued Rusoro shares, which at the time of sale represented approximately 37% of the outstanding shares of Rusoro. Pursuant to the transaction, Rusoro acquired Gold Fields stake in the Choco 10 gold mine, as well as the contiguous mineral rights owned by Gold Fields.
Gold Fields is a public company incorporated in South Africa, with a registered office located at 24 St. Andrews Road, Parktown 2193, South Africa, telephone number +27-11-644-2400.
Gold Fields is a holding company with its significant ownership interests organized as set forth below.
Gold Fields is a significant producer of gold and a major holder of gold reserves in South Africa, Ghana, Australia and Peru. Gold Fields also has reported gold and copper reserves at the Cerro Corona Project, a development project in Peru which is presently under construction. The gold industry has historically been highly fragmented and a trend has been underway to consolidate the industry through mergers and acquisitions.
Gold Fields strategy was developed in the context of a global market characterized by an extended period of low gold prices, reduced global expenditure on gold exploration and increasing industry consolidation. This strategy has evolved over time, but despite the recent increase in the price of gold, Gold Fields has maintained a strategy of general caution with respect to financial commitments while maintaining full exposure to the effects of the gold price.
Generally, Gold Fields strategy consists of the following key elements:
Management believes that improved profitability at existing operations can be achieved by increasing mining rates, increasing mining quality and reducing costs. Management believes that significant opportunity exists to do this, specifically through:
Acquisitions and Exploration
Gold Fields is one of the largest producers of gold in the world. Gold Fields corporate development mandate is to grow as a world leader in developing and operating low-cost, long-life precious metal mines. Gold Fields is sensitive to the fact that increased competition for acquisitions and higher gold prices are pushing asset prices to levels that threaten returns. The impact on returns has been exacerbated by higher input costs, particularly as significant increases in base metal prices has led to increased mining of base metals, which uses some of the same inputs as gold mining, and therefore has increased overall demand for those products.
To be considered by Gold Fields, generally an exploration project must have the potential to meet certain target criteria (which vary depending on other strategic objectives and the quality of the project): the potential for a minimum of 5,000,000 ounces of reserves; production rates in the range of 500,000 gold equivalent ounces per year; and a double-digit rate of return. If these criteria are met and the project fits within Gold Fields strategic development goals, Gold Fields will consider taking on the project. Great effort is also placed on reviewing non-geological aspects of prospective projects, such as social, political, environmental and commercial risks, insuring that an appropriate risk versus reward tradeoff analysis is factored into the decision.
For acquisitions of gold assets or companies outside South Africa, Gold Fields is at somewhat of a disadvantage to certain of its competitors, but this also has offsetting strengths. South African exchange control regulations limit Gold Fields ability to provide guarantees or borrow outside South Africa without express approval from the South African Reserve Bank, or the SARB. However, in his speech to Parliament toward the end of October 2004, the Minister of Finance outlined the South African Treasurys medium-term budget policy statement and repeated that it was the governments eventual goal to replace all remaining exchange controls with prudential benchmarks. He also announced the abolition of exchange control limits on new outward foreign direct investments by South African corporations and the lifting of their obligation to repatriate foreign dividends. There have subsequently been further indications from the Ministry of Finance that it remains the governments intention to gradually phase out the remaining exchange controls over time. On the other hand, Gold Fields has a strong balance sheet and low debt-to-equity ratio and also has a skilled and effective corporate evaluation and acquisition team, and a sound track record in project development.
Gold Fields also maintains an active global exploration effort for gold and PGMs through exploration offices worldwide and an exploration philosophy that management believes is well focused and cost efficient.
Gold Fields does not enter into forward sales, derivatives or other hedging arrangements to establish a price in advance for future gold production. Gold Fields believes that investors in Gold Fields shares seek an unlimited exposure to movements in the U.S. dollar gold price and the resulting effect on Gold Fields earnings. However, commodity hedges are sometimes undertaken on in one or more of the following circumstances to protect cash flows at times of significant capital expenditure; for specific debt servicing requirements; and to safeguard the viability of higher cost operations.
Gold Fields may from time to time establish currency and/or interest rate financial instruments to protect underlying cash flows or to take advantage of potential favorable currency movements.
Reserves of Gold Fields as of June 30, 2007
This reserve statement is a restatement of Gold Fields declared reserves as at December 31, 2006 figures to June 30, 2007. In this regard, the process followed was similar to that used by an independent mining industry consultant to restate Gold Fields declared reserves as of December 31, 2005 to June 30, 2006, with the primary difference being that this restatement was generated, documented and signed internally and then, after suitable internal corporate governance processes, provided to an independent mining industry consultant for review.
The methodology used by Gold Fields to produce its reserve statement as at December 31, 2006 and that used to restate those reserves to June 30, 2007 were similar in scope and methodology and involved for each mining asset, reviews and assessments of (i) the mining asset, including title, rights and applicable laws; (ii) the geology; (iii) mineralized material from which ore reserves are derived; (iv) the mine plan, schedule and ore reserves; (v) the processing method; (vi) tailings management; (vii) the engineering infrastructure, expected overhead costs and planned capital projects; (viii) human resources; (ix) safety and health issues; (x) any environmental issues, including legislation and liabilities; (xi) valuation, including financial models and resultant net present values; and (xii) risk assessment, including general risks, specific risks and remediation measures.
The main differences in the process for preparing the statement for June 30, 2007 was in the shorter timeframes involved, as only half the time had passed since the preparation of the immediately prior statements, resulting in limited new data, reviews and processes to which the resulting figures were exposed. This restatement therefore focused on a review of all available new information, updates, and any other material issues apparent since the Gold Fields reserve statement as at December 31, 2006, which was fully audited. In arriving at the final statement for the June 30, 2007 declaration, following and based on the reviews and assessments outlined above, the reserve estimates were updated where material changes were apparent, other figures associated with the items outlined above were also updated, and finally mining depletions were applied at the various operations.
While there are some differences between the definition of the South African Code for Reporting of Mineral Resources and Mineral Reserves, or SAMREC Code, and that of the Securities and Exchange Commissions, or SECs, industry guide number 7, only reserves at each of Gold Fields operations and exploration projects as of June 30, 2007 which qualify as reserves for purposes of the SECs industry guide number 7 are presented in the table below. See Glossary of Mining Terms. In accordance with the requirements imposed by the JSE, Gold Fields reports its reserves using the terms and definitions of the SAMREC Code. Mineral or ore reserves, as defined under the SAMREC Code, are divided into categories of proven and probable reserves and are expressed in terms of tons to be processed at mill feed head grades, allowing for estimated mining dilution and recovery factors.
Gold Fields reports reserves using cut-off grades (mainly for open pit operations) and pay limits to ensure the reserves realistically reflect both the cost structures and required margins relevant to each mining operation. Cut-off grade is the grade that distinguishes the material within an orebody that is to be extracted and treated from the remaining material. The pay limit is the grade at which an orebody can be mined without profit or loss calculated using an appropriate gold or copper price and working costs, plus modifying factors. Modifying factors used to calculate the pay limit grades include adjustments to mill delivered amounts, due to dilution incurred in the course of mining. Modifying factors applied in estimating reserves are primarily historical, but commonly incorporate adjustments for planned operational improvements such as those described below under Description of Mining BusinessProductivity Initiatives. Tonnage and grade may include some mineralization below the selected pay limit and cut-off grade to ensure that the reserve comprises blocks of adequate size and continuity. Reserves also take into account cost levels at each operation and are supported by mine plans.
The estimation of reserves at the South African underground operations is based on surface drilling, underground drilling, surface three-dimensional reflection seismics, orebody facies, structural modeling,
underground channel sampling and geostatistical estimation. The reefs are initially explored by drilling from the surface on an approximately 500 meter to 2,000 meter grid. Once underground access is available, drilling is undertaken on an approximately 30 meter by 60 meter grid. Underground channel sampling perpendicular to the reef is undertaken at three meter intervals in development areas and five meter intervals at stope faces.
The following sets out the reserve estimation methodologies for the different categories of reserves at the underground operations of each of the South African mines (other than South Deep, where Gold Fields is still evaluating the reserve position following its acquisition of the mine).
For proven reserves, the orebody is opened-up and sampled on a three meter spacing for development (such as raises), and a five meter grid for stoping, together with underground borehole spacings ranging from tens to hundreds of meters. Blocks classified as proven are therefore generally adjacent to close spaced sampling and generally pierced by a relatively dense irregular pattern of boreholes. Estimation is constrained within both geologically homogenous structural and facies zones, and is generally derived from either ordinary or simple kriged small-scale grids, ranging from 10 meter to 20 meter block sizes.
For above infrastructure probable reserves, the estimates access the significant numbers of samples on a three meter spacing for development, and a five meter grid for stoping bordering these areas. In addition underground borehole spacings ranging from tens to hundreds of meters are used together with surface drillholes and seismic surveys. Blocks classified as probable (AI) are generally adjacent to blocks classified as proven. Estimation is constrained within homogenous structural and facies zones, and is generally derived from either ordinary or simple kriged medium to macro scale sized grids ranging from 40 meter to 420 meter sizes, or through declustered averaging or Sichel t techniques. For planning purposes these blocks are further evaluated to facilitate the selection of blocks above the cut-off grade.
For below infrastructure probable reserves, the estimates access the significant numbers of samples on a three meter spacing for development, and a five meter grid for stoping above these areas. In addition underground borehole spacings ranging from tens to hundreds of meters are used together with surface drillholes and seismic surveys. Blocks classified as probable (BI) are generally below blocks classified as proven or probable (AI). Estimation is constrained within homogenous structural and facies zones, and is generally derived from either ordinary or simple kriged medium to macro scale sized grids ranging from 40 meters to 420 meter sizes, or through declustered averaging or Sichel t techniques. For planning purposes these blocks are further evaluated to facilitate the selection of blocks above the cut-off grade.
Estimations for proven reserves are made on the same basis as at Driefontein.
Estimations for above infrastructure probable reserves are made on the same basis as at Driefontein, but with medium sized kriged grids starting from 40 meters to macro blocks of 400 meters. For planning purposes these blocks are further evaluated to facilitate the selection of blocks above the cut-off grade.
Estimations for below infrastructure probable reserves are made on the same basis as at Driefontein, but with medium-sized kriged grids starting from 40 meters to macro blocks of 400 meters. The distinction between estimation techniques for above infrastructure and below infrastructure probable reserves is the same as at Driefontein. For planning purposes these blocks are further evaluated to facilitate the selection of blocks above the cut-off grade.
Estimations for proven reserves are made on the same basis as at Driefontein but with kriging blocks ranging from 16 meters to 32 meters.
Estimations for above infrastructure probable reserves are made on the same basis as at Driefontein but with medium-sized kriged blocks of 32 meters, and macro geological zone estimates being made through declustered averaging or Sichel t techniques. For planning purposes these blocks are further evaluated to facilitate the selection of blocks above the cut-off grade.
Estimations for below infrastructure probable reserves are made on the same basis as at Driefontein but with medium-sized kriged blocks being 32 meters, to macro geological zone estimates through declustered averaging or Sichel t techniques. The distinction between estimation techniques for above infrastructure and below infrastructure probable reserves is the same as at Driefontein. For planning purposes these blocks are further evaluated to facilitate the selection of blocks above the cut-off grade.
The primary assumptions of continuity of the geologically homogenous zones are driven by the geological model, which is updated only if new information arises. Any changes to the model are subject to peer, internal technical corporate consultant and independent consultant review. Historically, mining at South African deep level gold mines has shown significant geological continuity, so that new mines were started based on limited surface borehole information. Customarily, geological facies are primarily based on the definition of different facies within each conglomerate horizon. These facies are extrapolated into new, undeveloped areas taking into account any surface borehole data in those areas. Normally these facies are continuous, supported by extensive historical sample databases, and can be incorporated in the macro kriging of large blocks.
For the Tarkwa open pit operation, estimation of reserves is based on a combination of an initial 100 or 200 meter grid of diamond drilling and in certain areas a 12.5 meter to 25.0 meter grid of reverse circulation drilling. For the Damang open pit operation, estimation of reserves is based on a 20 meter to 80 meter grid of diamond drilling and in certain areas reverse circulation drilling.
At the Australian operations, the estimation of reserves for both underground and open pit operations is based on exploration, sampling and testing information gathered through appropriate techniques, primarily from drill holes and mine development. The locations of sample points are spaced closely enough to deduce or confirm geological and grade continuity. Generally, drilling is undertaken on grids, which range between 20 meters by 20 meters to 40 meters by 40 meters, although this may vary depending on the continuity of the orebody. Due to the variety and diversity of resources at St. Ives and Agnew, sample spacing may also vary depending on each particular ore type. For Choco 10 and the Cerro Corona Project, estimation is based on diamond drill and reverse circulation holes. The spacing of holes at Cerro Corona is generally around 50 meters, with some areas approximating a 25 meter grid. The drill spacing at Choco 10 is varied, depending on geological and grade continuity, with a general spacing of 50 meters by 25 meters to 25 meters by 25 meters.
As of June 30, 2007, Gold Fields had aggregated attributable proven and probable gold reserves of approximately 89.7 million ounces as set forth in the following table.
Gold ore reserve statement as of June 30, 2007(1)
The following table sets forth the proven and probable copper reserves of the Cerro Corona Project as of June 30, 2007 that are attributable to Gold Fields.
Copper ore reserve statement as of June 30, 2007
Gold and copper price sensitivity
The amount of gold mineralization that Gold Fields can economically extract, and therefore can classify as reserves, is very sensitive to fluctuations in the price of gold. At gold prices different than the gold price of $550 per ounce used to estimate Gold Fields attributable reserves of 89.7 million ounces of gold as of June 30, 2007 listed above, Gold Fields operations would have had significantly different reserves. Based on the same methodology and assumptions as were used to estimate Gold Fields reserves as of June 30, 2007 listed above, but applying different gold prices that are 10% above and below the $550 per ounce gold price used to estimate Gold Fields attributable reserves, the attributable gold reserves of Gold Fields operations would have been as follows:
The London afternoon fixing price for gold on December 5, 2007 was $793.00 per ounce. Gold Fields attributable gold reserves increased from 61.8 million ounces at June 30, 2006 to 89.7 million ounces at June 30, 2007, primarily due to the inclusion of the South Deep mine in fiscal 2007.
The amount of copper mineralization that Gold Fields can economically extract, and therefore can classify as reserves, is sensitive to fluctuations in the price of copper. Based on the same methodology and assumptions as were used to estimate Gold Fields copper reserves as of June 30, 2007 listed above, but applying different copper prices that are 10% above and below the copper price of $1.25 per pound used to estimate Gold Fields attributable copper reserves, the attributable copper reserves of Gold Fields operations would have been as follows:
Gold Fields methodology for determining its reserves is subject to change and is based upon estimates and assumptions made by management regarding a number of factors as noted above under Methodology. Accordingly, the sensitivity analysis of Gold Fields reserves provided above should not be relied upon as indicative of what the estimate of Gold Fields reserves would actually be or have been at the gold or copper prices indicated, or at any other gold or copper price, nor should it be relied upon as a basis for estimating Gold Fields ore reserves based on the current gold or copper price or what Gold Fields reserves will be at any time in the future. See Risk FactorsGold Fields reserves are estimates based on a number of assumptions, any changes to which may require Gold Fields to lower its estimated reserves.
The majority of Gold Fields gold production is derived from deep-level underground gold mines located along the northern and western margins of the Witwatersrand Basin in South Africa. These properties include the Beatrix operation, the Driefontein operation, the Kloof operation and the South Deep operation. These mines are typical of the many Witwatersrand Basin operations, which have been the primary contributors to South Africas production of a third (over 1.6 billion ounces) of the worlds recorded gold production over the last 122 years.
The Witwatersrand Basin comprises a 6,000 meter vertical thickness of sedimentary rocks, extending laterally for some 300 kilometers northeast to southwest by some 100 kilometers northwest to southeast, generally dipping at shallow angles toward the center of the basin. The basin outcrops at its northern extent near Johannesburg but to the west, south and east it is overlaid by up to 4,000 meters of volcanic and sedimentary rocks. The Witwatersrand Basin is Achaean in age, meaning the sedimentary rocks are of the order of 2.7 to 2.8 billion years old.
Gold mineralization occurs within laterally extensive quartz pebble conglomerate horizons called reefs, which are developed above unconformable surfaces near the basin margin. As a result of faulting and primary controls on mineralization structure, the gold fields are not continuous and are characterized by the presence or dominance of different reef units. The reefs are generally less than two meters in thickness and are widely considered to represent laterally extensive braided fluvial deposits or unconfined flow deposits, which formed along the flanks of alluvial fan systems around the edge of an inland sea. Dykes and sills of diabase or doleritic composition are developed within the Witwatersrand Basin and are associated with several intrusive and extrusive events.
The gold generally occurs in native form, often associated with pyrite and carbon. Pyrite and gold within the reefs display a variety of forms, some obviously indicative of detrital transport within the depositional system and others suggesting crystallization within the reef itself.
The most fundamental controls of gold distribution are the primary sedimentary features such as facies variation and channel directions. Consequently, the modeling of sedimentary features within the reefs and the correlation of payable grades with certain facies is key to in situ reserve estimation as well as effective operational mine planning and grade control.
For a discussion of the geological features present at the Tarkwa, Damang, St. Ives, Agnew and Choco 10 mines, see the geology discussion contained in the description of each of those mines found below under Gold Fields Mining OperationsGhana OperationsTarkwa Mine, Gold Fields Mining Operations Ghana OperationsDamang Mine, Gold Fields Mining OperationsAustralia OperationsSt. Ives, Gold Fields Mining OperationsAustralia OperationsAgnew and Gold Fields Mining OperationsVenezuela OperationChoco 10.
Description of Mining Business
The discussion below provides a general overview of the mining business as it applies to Gold Fields.
Exploration activities are focused on the extension of existing orebodies and identification of new orebodies both at existing sites and at undeveloped sites. Once a potential orebody has been discovered, exploration is extended and intensified in order to enable clearer definition of the orebody and the potential portions to be mined. Geological techniques are constantly refined to improve the economic viability of prospecting and mining activities.
Gold Fields currently mines only gold, with silver as a by-product. As and when the Cerro Corona Project begins production, Gold Fields expects also to have copper as a by-product. The mining process can be divided into two principal activities: (1) developing access to the orebody; and (2) extracting the orebody once accessed. These two processes apply to both surface and underground mines.
Developing Access to the Orebody
For Gold Fields South African underground mines, access to orebodies is provided through vertical, inclined and declined shaft systems. If additional depth is required to fully exploit the reef, and it is economically feasible, then secondary (sub-vertical) or tertiary shafts are sunk from the underground levels. Horizontal development at various intervals of a shaft, known as levels, extends access to the horizon of the reef to be mined. On-reef development then provides specific mining access. South African mine layouts generally follow a linear, crisscross pattern, while Australian mines have more varied layouts and typically use a spiral-shaped decline layout to descend alongside the orebody.
Extracting the Orebody
Once an orebody has been accessed, drilling, blasting, supporting and cleaning activities are carried out on a daily basis and broken ore is scraped into and down gullies to ore passes, where it is channeled to the crosscut below. The ore is then hauled by rail to shaft ore passes, where it is tipped into loading stations for hoisting to the surface. Mining methods employed at Gold Fields operations include longwall mining, closely spaced dip pillar mining and conventional scattered mining. In Australia, extraction methods are highly mechanized, with mechanized equipment used within the declines and at the stope for drilling, loading and hauling. South African mining methods tend to be more labor-intensive than the Australian operations.
Open Pit Mining
Developing Access to the Orebody
In open pit mining, access to the ore is achieved by stripping the overburden in benches of fixed height to expose the ore below. This is most typically achieved by drilling and blasting an area, loading the broken rock with excavators into dump trucks and hauling the rock and/or soil to dumps.
Extracting the Orebody
Extraction of the orebody in open pit mining involves the same activity as in stripping the overburden. The rock is drilled and blasted, and lines are established demarcating ore from waste material. The ore is loaded into dump trucks and hauled to the crusher or stockpile, while the waste is hauled to waste rock dumps.
Rock Dump and Production Stockpile Mining
Gold Fields mines surface rock dumps and production stockpiles using mechanized earth moving equipment.
Mine Planning and Management
Operational and planning management on the mines receives support from corporate management and centralized support functions. The current philosophy is one of top-down/bottom-up management, with the non-financial operational objectives at each mine defined by the personnel at the mine based on parameters, objectives and guidelines provided by Gold Fields head office. This is based on the premise that the people on the ground have the best understanding of what is realistically achievable.
Gold Fields has a seamless mine planning process. Each operation compiles a detailed one-year operational plan that rolls into a life of mine, or LoM, plan during the second half of each fiscal year. The plans are based on financial parameters issued to the operation by Gold Fields Operating Committee. See Directors, Senior Management and EmployeesOperating Committees. The operational plan is presented to Gold Fields Board
for approval before the commencement of each fiscal year. The planning process is sequential and is based upon geological models, evaluation models, mine design, depletion schedules and, ultimately, financial analysis. Capital planning is formalized pursuant to Gold Fields capital spending planning process. Projects are categorized in terms of total expenditure, and all projects involving amounts exceeding Rand 75 million (South Africa), A$15 million (Australia) and U.S.$10 million (Ghana/Peru/Venezuela) are submitted to the full Board for approval.
The South African operations have implemented an integrated electronic reserve and resource information system, called IRRIS, to enhance LoM planning capabilities. This system provides a common planning platform to facilitate quicker, more flexible and more accurate short- and long-term planning and more timely identification of production shortfalls. Short-term planning on the operations is conducted monthly and aligned with the operational plan. Financial and economic parameters for the LoM and the operational plan are issued to the operations from the head office and relevant survey and evaluation factors are determined in accordance with Gold Fields guidelines. Significant changes in the LoM plans may occur from year to year as a result of mining experience, new ore discoveries, changes in the ore reserve estimates, changes in mining methods and rates, process changes, investment in new equipment and technology and gold prices.
Gold Fields currently has 15 gold processing facilities (8 in South Africa, 4 in Ghana and 3 in Australia) which treat ore to extract gold. A typical gold processing plant circuit includes two phases: comminution and treatment.
Comminution is the process of breaking up the ore to expose and liberate the gold and make it available for treatment. Conventionally, this process occurs in multi-stage crushing and milling circuits, which include the use of jaw and gyratory crushers and rod, tube, ball and semi-autogenous grinding, or SAG, mills. Most of Gold Fields milling circuits utilize SAG milling where the ore itself and steel balls are used as the primary grinding media. Through the comminution process, ore is ground to a minimum size before proceeding to the treatment phase.
In all of Gold Fields metallurgical plants, gold is extracted into a leach solution by leaching with cyanide in agitated tanks. Gold is then extracted onto activated carbon from the solution using either the CIL or CIP process. The activated carbon is then eluted with gold recovered by electrowinning.
Gold Fields has three heap leach operations. In the heap leach process, crushed ore is stacked on impervious leach pads and a cyanide leaching solution is sprayed on the pile. The solution percolates through the heap and dissolves liberated gold. A system of underdrains removes the gold-containing solution, which is then passed through columns containing activated carbon. The loaded carbon is then eluted and the gold recovered by electrowinning.
As a final recovery step, gold recovered from the carbon using the above processes is smelted to produce rough gold bars. These bars are then transported to the refinery which is responsible for refining the bars to good delivery status.
Gold Fields has undertaken a number of initiatives, such as Project 500, Project 100, Project 100+ and Project Beyond, intended to increase productivity and cost efficiencies at its mines. These initiatives form part of
the strategic objective of operational excellence and focus on activities such as creating ongoing and sustainable cost savings, optimizing the supply chain, optimizing spending on explosives, increasing productivity, improving mine design and employee training. In fiscal 2007, the Mining School of Excellence, which focuses on the training and development of core mining skills, became fully operational. Also in fiscal 2007, Gold Fields introduced its Tactics and Strategy Drive, which is focused on implementing appropriate technology to improve the flow of reef, people, equipment and material. Gold Fields intends to continue to advance productivity through various team mobilization initiatives in place at the mines and improve working practices through applying operational management principles combined with the application of the theory of constraints.
Each operation has a program in place to motivate its employees toward the goals of increased productivity and operational excellence, which is reinforced by a recognition and reward program. Gold Fields is committed to human resource development programs aligned with the Companys skills and competency needs.
Refining and Marketing
Gold Fields has appointed Rand Refinery Limited, or Rand Refinery, to refine all of Gold Fields South African produced gold. Rand Refinery is a non-listed public company in which Gold Fields holds a 34.9% interest, with the remaining interests held by other South African gold producers.
Since October 1, 2004, Gold Fields treasury department arranges the sale of all the gold production from the South African operations. Rand Refinery advises Gold Fields on a daily basis of the amount of gold available for sale. Gold Fields sells the gold at a price benchmarked against the London afternoon fixing price. Two business days after the sale of gold, Gold Fields deposits an amount in U.S. dollars equal to the value of the gold at the London afternoon fixing price into Rand Refinerys nominated U.S. dollar account. Rand Refinery deducts refining charges payable by Gold Fields relating to such amount of gold and deposits the balance of the proceeds into the nominated U.S. dollar account of Gold Fields. Rand Refinery charges a refining fee of $0.31 per troy ounce of gold and a refining charge of R70 per kilogram.
All gold produced by Gold Fields at the Tarkwa and Damang mines in Ghana is refined by Rand Refinery pursuant to two non-exclusive agreements entered into in October 2004 between Rand Refinery and Gold Fields Ghana Limited, or Gold Fields Ghana, and between Rand Refinery and Abosso Goldfields Limited, or Abosso. Under these agreements, Rand Refinery collects, refines and sells gold as instructed by Gold Fields Ghana and Abosso. Rand Refinery assumes responsibility for the gold upon collection at either the Tarkwa or Damang mine. The gold is then transported to the Rand Refinery premises in Johannesburg, South Africa, where it is refined. Gold Fields Ghana and Abosso reimburse Rand Refinery for transportation costs. Under these agreements, Rand Refinery sells the refined gold on behalf of Gold Fields Ghana and Abosso at the London afternoon fixing price for gold on the date of delivery. Rand Refinery receives refining fees of $0.36 per ounce of gold received, and a realization fee equal to $0.16 per ounce of gold refined. Each of these agreements continues until either party terminates it upon 90 days written notice.
In Australia, all gold produced by St. Ives and Agnew is refined by AGR Matthey, which is a partnership between WA Mint, Australian Gold Alliance and Johnson Matthey (Australia). Under an agreement which became effective on September 1, 2002 and which was last amended on January 1, 2007 and expires on December 31, 2008, among St. Ives Gold Mining Company Pty Ltd, Agnew Gold Mining Company Pty Ltd and AGR Matthey, AGR Matthey refines the gold produced by St. Ives and Agnew for a refining fee of A$0.38 per ounce of gold, which further increased to A$0.44 per ounce of gold from January 1, 2007, plus a transportation fee. The transportation fee is calculated as A$0.096 per ounce plus fixed fees per shipment. AGR Matthey retains 0.1% of the gold and 1.0% of any silver it refines to cover losses in the refining process. AGR Matthey collects the gold from St. Ives and Agnew, refines it and credits the gold to the relevant metals account held by St. Ives and Agnew with AGR Matthey. St. Ives and Agnew then inform the Gold Fields corporate office in Johannesburg of the amount available for sale in Perth, Australia. After confirming the relevant amount with AGR Matthey, Gold Fields either sells the gold directly to AGR Matthey at the London afternoon fixing price per
ounce or it swaps the gold into London at a fee of $0.33 per ounce, which means that AGR Matthey provides gold in London for sale by Gold Fields in an amount equal to the gold from St. Ives and Agnew located in Perth. In the case of a location swap, AGR Matthey is instructed to credit St. Ives or Agnews metal account held with Deutsche Bank, London. Once the gold is sold to a third party, Deutsche Bank, London is instructed by Gold Fields to deliver the gold to the relevant counterparty bank. This agreement continues indefinitely until terminated by either party upon 90 days written notice.
In Venezuela, a minimum of 15% of the gold produced must be sold locally. However, Gold Fields has been selling all its Venezuelan production to local buyers. These buyers pay in advance of collection of the gold at a price determined in Bolivars. The price is equivalent to the London afternoon fixing price on the day the transaction is negotiated, converted into Bolivars at the official exchange rate of 2,150 Bolivars per dollar, plus a premium. The premium is negotiated with each purchaser, but also includes certain deductions. Actual delivery takes place approximately four days later, once the proceeds have been deposited in Gold Fields bank account. On November 30, 2007, Gold Fields sold its assets in Venezuela. See Recent DevelopmentsSale of Choco 10.
Gold Fields supports and participates in the gold marketing activities of the World Gold Council, or WGC, and contributes $1.75 per ounce of the gold it produces in South Africa and Australia and $1.75 per ounce of its attributable production from Tarkwa to the WGC in support of its activities.
Mining activities require extensive services, located both on the surface and underground at the mines. Services include:
Most of these services are provided directly by Gold Fields, either at the operational level or through the head office, although some are provided by third-party contractors.
Gold Fields Mining Operations
Gold Fields conducts underground mining operations at each site except Tarkwa, Damang and Choco 10 and conducts some processing of surface rock dump material at Driefontein, Kloof and South Deep. Beatrix ceased surface operations in 2005. Tarkwa, Damang and Choco 10 are open pit mines and also process material from production stockpiles. St. Ives and Agnew together include underground and open pit operations and also process material from production stockpiles.
The following chart details the operating and production results for each of fiscal 2005, 2006 and 2007 for all operations owned by Gold Fields as of the end of that fiscal year. The results of operations for mines acquired during the relevant period are included as from the date of control, which is March 1, 2006 for Choco 10 and December 1, 2006 for South Deep.
The following chart details the operating and production results for Gold Fields underground operations for fiscal 2005, 2006 and 2007. The underground operations include all of the mines in the South African operations and the underground portions of the mines in the Australian operations. The results of operations for mines acquired during the relevant period are included as from the date of control, which is March 1, 2006 for Choco 10 and December 1, 2006 for South Deep.
Tons milled from the underground operations increased from 12.8 million tons in fiscal 2006 to 13.4 million tons in fiscal 2007. At the South African operations, the increase was mainly due to the inclusion of South Deep and improved mining flexibility at Kloof. This was partially offset by a decrease in underground production at St. Ives and Agnew as a result of lower availability of underground ores. However, total tons at St. Ives and Agnew were similar year on year, as the loss of underground tons was replaced with tons from open pit and surface stockpiles. The amount of gold produced from underground operations decreased from 2.915 million ounces in fiscal 2006 to 2.884 million ounces in fiscal 2007. This decrease was due to the lower average underground yield which decreased from 7.1 grams per ton in fiscal 2006 to 6.7 grams per ton in fiscal 2007. Except for St. Ives, all mines reported lower yields and South Deep averaged 6.2 grams per ton during the seven months of control during fiscal 2007.
The following chart details the operating and production results for Gold Fields surface operations for fiscal 2005, 2006 and 2007. Surface operations include all of the mines in the Ghana and Venezuela operations, the open pit portions of the mines in the Australian operations and the surface rock dump material at the mines in the South African operation. The results of operations for mines acquired during the relevant period are included as from the date of control, which is March 1, 2006 for Choco 10 and December 1, 2006 for South Deep.
Tons milled from the surface operations increased from 36.5 million tons in fiscal 2006 to 38.8 million tons in fiscal 2007, primarily because of increased production from the Australian operations, which replaced reduced underground tons with surface tons, together with the tons gained from both the newly acquired Choco 10 and South Deep mines, and increased tons from Tarkwa.
The Driefontein gold mine is located in the Northwest Province of South Africa in the Far West Rand mining district, some 70 kilometers southwest of Johannesburg. Driefontein operates under a mining authorization with a total area of approximately 8,600 hectares. It is an underground mine with nominal surface reserves represented by rock dumps that have been accumulated through the operating history of the mine. Driefontein has multiple operating shaft systems and three metallurgical plants and operates at depths of between 700 meters and 3,420 meters below surface. The Driefontein operation has access to the national electricity grid and water, road and rail infrastructure and is located near regional urban centers where it can routinely obtain needed supplies. In the year ended June 30, 2007, it produced 1.017 million ounces of gold. As of June 30, 2007, Driefontein had approximately 18,300 employees, including approximately 2,100 employed by outside contractors.
Driefontein was formed from the consolidation in 1981 of the East Driefontein and West Driefontein mines. Gold mining began at Driefontein in 1952.
Driefontein is located in the West Wits Line that forms part of the Far West Rand of the Witwatersrand Basin. The operation is divided into an Eastern Section and a Western Section, separated by a bank anticline and associated faulting. Gold mineralization at Driefontein is contained within three reef horizons. The Carbon Leader Reef, or Carbon Leader, the Ventersdorp Contact Reef, or VCR, and the Middelvlei Reef, or MVR, occur at depths of between 500 meters and 4,000 meters. Stratigraphically, the Carbon Leader is situated 40 to 70 meters below the VCR and MVR and is a generally high-grade reef comprising different facies and dips to the south at approximately 25 degrees. The Carbon Leader subcrops against the VCR in the eastern part of the mine. The west-dipping Bank Fault defines the eastern limit of both reefs. The VCR is most extensively developed in the east, and subcrops to the west. The MVR is a secondary reef, situated approximately 50 meters above the Carbon Leader, and, at present, it is a minor contributor to reserves and production. The average gold grades vary with lithofacies changes in all of the reefs.
In the northern, older portions of Driefontein, which include Shaft Nos. 2, 6, 7, 8 and 10, production is focused on remnant pillar extraction and accessing and mining of secondary reef horizons. In the southern, newer portions of the mine, which include Shaft Nos. 1 and 4, the focus is on scattered or longwall mining. The shafts at the deepest levels of the mine, consisting of Shaft No. 1 Tertiary and Shaft No. 5, employ the closely spaced dip pillar mining method. This method provides additional mining flexibility. The closely spaced dip pillar mining method is also planned for Shaft No. 9. During fiscal 2007, various events at Shaft No. 4 including seismicity, an underground fire and the loss of some high grade areas due to geological features caused production to be scaled down. Driefontein is in the process of implementing a contingency plan, which will create alternative access points for logistics and ore flows, in order to ensure that production will be able to continue in the event of shaft barrel failure at Shaft No. 4. Driefontein did not meet its development targets for fiscal 2007, mainly due to seismicity at Shaft Nos. 1 and 4.
In fiscal 2007, Driefontein commenced the pre-sinking phase of the Shaft No. 9 deepening project, with sinking planned to start in the second quarter of fiscal 2008. The drilling program aimed at confirming geological structures and grades in the immediate vicinity of the shaft is still in progress, but is hampered by logistical constraints and some water intersections. In order to leverage the higher gold price, Driefontein has also recommenced mining at Shaft No. 10 (previously closed in fiscal 2004). Production at this shaft is currently in a build up phase and should reach planned levels in fiscal 2008.
Detailed below are the operating and production results at Driefontein for the past three fiscal years.
The decrease in tonnage from fiscal 2006 to 2007 was primarily due to fewer square meters being mined from Shaft No. 4, and a deliberate decrease in surface production in order to improve the recovery at No. 2 Plant. Gold production decreased primarily due to the scaled-down production at Shaft No. 4. Gold Fields experienced an increase in total cash costs and total production costs per ounce of gold from fiscal 2006 to fiscal 2007 at Driefontein, mainly due to the reduced gold production and an increase in labor costs. The increase in tonnage from fiscal 2005 to 2006 was primarily due to an increase in stope width, as a result of which more ore was mined, and an increase in tons from surface operations. Gold production decreased slightly due to a decrease in recovered grade. Gold Fields experienced an increase in total cash costs and total production costs per ounce of gold from fiscal 2005 to fiscal 2006 at Driefontein, mainly due to an increase in labor costs.
Output quality of the Driefontein orebody decreased over the course of fiscal 2007 primarily due to lower production levels at the high grade Shaft No. 4, and a lower Mine Call Factor at No. 2 Plant. Across the other shafts at Driefontein, output quality remained consistent with the grade qualities in fiscal 2006.
In order to improve operational excellence, Driefontein focused in fiscal 2007 on the implementation of various new technologies and intiatives. These initiatives are aimed at improving mining efficiencies and streamlining the mining process. They include the introduction of electric drilling machines at two of the shafts and the conversion from diesel-operated to battery-driven locomotives at the newer shafts. Progress has been made on the building of high performance work teams through the introduction of team leaders, which is intended to improve supervision.
The Driefontein operation is engaged in both underground and surface mining, and is thus subject to all of the underground and surface mining risks discussed in Risk Factors. The primary safety challenges facing the Driefontein underground operation include falls of ground, seismicity, flammable gas, water intrusion and rock temperatures. Water intrusion is dealt with through drilling, cementation sealing techniques and an extensive water-pumping network. Also, because rock temperatures tend to increase with depth, Driefontein requires an extensive cooling infrastructure. In fiscal 2007, Driefontein experienced six underground fires, of which five were disruptive because areas affected had to be closed while damage was assessed and remedied. One of the fires at Shaft No. 4 had a material effect on production, as it rendered two areas inaccessible and contributed to the forced restructuring of that shaft. Driefontein also suffered several seismic events, which resulted in two workers losing their lives. Driefontein is seeking to reduce seismicity problems through using a combination of closely spaced dip pillar mining techniques, the introduction of centralized blasting in areas where the density of mining activities requires a controlled blast and using plant tailings as backfill support to stabilize the working areas. In addition, pre-conditioning, which alters the stress profile immediately ahead of the mining face, is used where required, to reduce the chance of face ejection.
Driefontein continued to process low grade surface material in fiscal 2007, for which the biggest risk is the decrease in grade of the remaining dumps. In order to manage this risk, the grade of the rock dumps is monitored on a daily basis, and the monitoring method can cater for screening (upgrading) if the grade drops below the required cut-off grade. This process reduces the tonnage that will be available for processing. The surface operation safety risks include problems with ground stability, moving machinery and dust generation. Driefontein has a risk management system in place that guides the mining of the rock dumps to minimize these risks.
In total during fiscal 2007, there were 13 fatalities at Driefontein and, to date in fiscal 2008, there have been six fatalities. There were no material work stoppages in connection with the events. The serious injury frequency rate for fiscal 2007 was 7.1 serious injuries for every million hours worked, reflecting an improvement as compared to the serious injury frequency rate of 7.4 for each of fiscal 2005 and 2006. The fatal injury frequency rate improved from 0.33 in fiscal 2006 to 0.28 fatalities for every million hours worked in fiscal 2007. In fiscal 2005, the fatal injury frequency rate was 0.17 fatalities for every million hours worked.
In fiscal 2007, production was not affected by industrial action at Driefontein and there were no material work stoppages. On December 4, 2007, there was a one-day, industry-wide work stoppage in South Africa that affected the Driefontein operation. For more information about labor relations at Driefontein, see Directors, Senior Management and EmployeesEmployeesLabor RelationsSouth Africa. However, Driefonteins productivity improvement strategies continue to be hampered by high levels of worker absenteeism. Although the mine has succeeded in reducing the absenteeism rate, the sick rate, which is one factor of the absenteeism rate, remains an area of concern. Driefontein has embarked on a wellness program as an initiative aimed at improving the health of employees generally. The mine is also experiencing a shortage of skilled labor, with particularly high employee turnover of artisans, occupational health and environment practitioners, surveyors and geologists. Driefontein has introduced a scarce skills allowance for artisans and is in the process of implementing a gross remuneration package for certain categories of employees.
The total shaft hoisting capacity of Driefontein is detailed below.
Assuming that Gold Fields does not increase or decrease reserve estimates at Driefontein and that there are no changes to the current mine plan at Driefontein, Driefonteins June 30, 2007 proven and probable reserves of 20.8 million ounces of gold will be sufficient to maintain production through approximately fiscal 2036. However, as discussed earlier in Risk Factors and Mine Planning and Management, there are numerous factors which can affect reserve estimates and the mine plan, which thus could materially change the life of mine.
The following table sets forth year commissioned, processing techniques and processing capacity per month, as well as average tons milled per month and metallurgical recovery factor during the fiscal year ended June 30, 2007, for each of the plants at Driefontein:
No. 1 Plant was upgraded in fiscal 2004 with the installation of a new comminution circuit and the installation of a CIP treatment facility. The optimization program at the plant was completed in fiscal 2007 so that targeted plan throughput can now be achieved.
In fiscal 2007, the Driefontein plants collectively extracted approximately 96.3% of the gold contained in ore delivered for processing.
Gold Fields spent approximately $113 million on capital expenditure at the Driefontein operation in fiscal 2007, primarily on ore reserve development at all shafts, together with the continuation of ore handling arrangements at Shaft No. 1, shaft pillar extraction at Shaft No. 4, backfill arrangements, upgrading of power distribution, mining equipment, the provision of compressed air at Shaft No. 5 and the Shaft No. 9 deepening project. Gold Fields has budgeted approximately $140 million of capital expenditure at Driefontein for fiscal 2008, principally for ore reserve development, the shaft pillar extraction at Shaft No. 4, the Shaft No. 9 deepening project, a battery locomotive project at the newer shafts, rail track upgrade and compliance with the International Cyanide Management Code.
Kloof is situated approximately 60 kilometers west of Johannesburg, near the towns of Carletonville and Westonaria in the Gauteng Province of South Africa. The Kloof mine operates under a mining lease covering a
total area of approximately 20,100 hectares. It is principally an underground operation, with a limited amount of surface rock dump material being processed. Kloof currently has five operating shaft systems serviced by two metallurgical plants. Kloof is an intermediate and deep-level mine, with operating depths between 1,300 meters and 3,500 meters below surface. The Kloof operation has access to the national electricity grid and water, road and rail infrastructure and is located near regional urban centers where it can routinely obtain needed supplies. In the fiscal year ended June 30, 2007, it produced 0.923 million ounces of gold. As of June 30, 2007, Kloof had approximately 17,900 employees, including approximately 2,800 who were employed by outside contractors.
Kloofs present scope of operations is the result of the consolidation of the Kloof, Libanon, Leeudoorn and Venterspost mines. Gold mining began in the area now covered by these operations in 1934.
The majority of production at Kloof is from the VCR, which occurs at depths between 1,300 meters and 3,350 meters below surface. The VCR is a tabular orebody that has a general northeast-southwest strike and dips to the southeast at between 20 and 45 degrees. The MVR is classified as Kloofs secondary reef and minor production volumes are also delivered from the Kloof Reef, or KR, and Libanon Reef, or LR.
Kloof lies between the Bank Fault to the west, and the north trending West Rand Fault to the east. The latter truncates the VCR along the eastern boundary of the mine, with a 1 to 1.5 kilometer up throw to the east. Normal faults are developed sub-parallel to the westerly dipping West Rand Fault, with sympathetic north-northeast trending dykes that show little to no apparent offset of the stratigraphy. A conjugate set of faults and dykes occurs on a west-southwest trend, with throws of 1 to 15 meters. Structures that offset the VCR increase in frequency toward the southern portion of the mine as the Bank Fault is approached.
The current preferred mining method at Kloof is closely spaced dip pillar mining, with limited application of longwalling and remnant pillar mining in the mature areas. Shaft Nos. 1, 3, 4 and 7 provide the main centers of current production at Kloof.
In fiscal 2007, Kloof faced challenges in meeting several of its planned production targets. Planned production was affected by lower than anticipated grades in the second and third quarters due to unforeseen variability of grade from the primary VCR reef, which compromised the mining flow as crews continually had to be moved to more economical pay areas. As a result, grade management is increasingly focused on capturing the variability of the VCR model. Additionally, in the third quarter of fiscal 2007, lower production and work stoppages resulted from a slow return to standard production after the Christmas break, together with power outages from Kloofs electricity supplier. Finally, planned production in fiscal 2007 was affected by temporary work stoppages after several incidents of seismic related falls of ground and logistical constraints due to infrastructural problems, such as ore pass scalings, which made removing ore from the underground workings from certain areas of the mine more difficult.
Development and shaft infrastructure work for the extraction of the high-grade Shaft No. 1, or the Main Shaft, pillar is at an advanced stage, with support infrastructure for the shafts and ventilation Phase 2 construction nearing completion and exploration drilling to confirm grade and structure fully complete. At Shaft No. 4, management is focusing on improving multiple access points to the reef, de-bottlenecking plans with improved infrastructure layouts and general improvement with regards to environmental conditions with the commissioning of an additional refrigeration plant. Shaft No. 7 has benefited from improved ventilation and refrigeration infrastructure, which has improved working conditions. Shaft No. 8 underperformed for the fiscal 2007 year because the remnant mining on the VCR horizon was plagued by complex geological structures which
resulted in reef elimination and gold loss. In fiscal 2007, programs were implemented at Kloof to accelerate improvements in infrastructure and services to increase flexibility and other conditions that are intended to boost production levels. In line with the overall Gold Fields productivity initiatives, Kloof continues to focus on optimizing mine design and configuration, while ensuring that the high-productivity drivers of workforce motivation and competence are addressed through training and incentive schemes.
Overall for Kloof, management is focusing on improving grade prediction by capturing the variability of the primary VCR horizon onto the IRRIS system and, together with an effective short interval control system in place, managing and improving the recovered grade from the mine. The resource definition drilling for the Kloof Extension area (KEA) is scheduled to be completed in the second quarter of fiscal 2008 although the development layout for the project is subject to changes after the geological model is complete. The mine is engaged in further optimization studies in the eastern part of the mine and a number of scenarios are being considered, utilizing current or new infrastructure, to exploit the higher grade reef.
Detailed below are the operating and production results at Kloof for the past three fiscal years.
Gold production for fiscal 2007 increased by 1% to 0.923 million ounces from 0.914 million ounces in fiscal 2006, as the mining of lower than anticipated grades was offset by the processing of more underground tons. Recovered grade dropped from 7.8 g/t in fiscal 2006 to 7.5 g/t in fiscal 2007, primarily due to a decrease in underground recovered grade. The drop in grade was associated with the unpredictability of variability within the VCR facies and the lower production from high grade work areas as a result of logistical constraints, seismic events and other production-related events. Total cash costs per ounce decreased marginally in fiscal 2007, as the increase in production costs (increase in wages and cost of inputs such as steel) was offset by the appreciation of the Rand against the U.S. dollar and the higher gold production. Operating margins were positively impacted due to the higher gold price during the year.
The Kloof operation is engaged in underground mining, and is thus subject to all of the underground risks discussed in Risk Factors. The primary challenge facing the Kloof operation is seismicity, and to a lesser
extent flammable gas. Gold Fields seeks to reduce the impact of seismicity at Kloof by using the closely spaced dip pillar mining method. Early detection and increased ventilation of the shafts are being used to minimize the risk of incidents caused by flammable gas. Also, as with Driefontein, Kloof requires extensive cooling infrastructure to maintain comfortable conditions for workers due to the extreme depth of its operations.
Eleven workers lost their lives at Kloof in fiscal 2007, as compared to sixteen fatalities in fiscal 2006. To date in fiscal 2008, there have been 10 fatalities at Kloof. The serious injury frequency rate at Kloof in fiscal 2007, 2006 and 2005 was 7.0, 8.3 and 7.9 injuries per million hours worked, respectively. The fatality frequency rate in fiscal 2007, 2006 and 2005 was 0.23, 0.37 and 0.28 fatalities per million hours worked, respectively. Additionally, the Kloof Main Shaft complex achieved one million fatality-free shifts and Shaft No. 8 had another fatality-free year. Kloofs safety management system received OHSAS 18001 accreditation in April 2007. Management is committed to reducing serious injuries and fatalities at Kloof mine through its safety and development programs, including the Kloof Eyethu team development program, the Snakes safety campaign and an incident reporting initiative entitled Cabanga Inyoka. These are team development programs that focus on the aspects pertaining to employee behavior that will impact positively on the operational performance, in terms of safety and productivity.
Other than the stoppages associated with the seismicity related falls of ground mentioned above, there were no other interruptions to production due to operational causes in fiscal 2007. In fiscal 2008, Kloof experienced two days of production loss due to an unprotected work stoppage on November 1, 2007. On December 4, 2007, there was a one day industry-wide work stoppage in South Africa that affected the Kloof operation. Additionally, on November 23, 2007, a seismic accident resulted in suspension of mining activities in pillar extraction areas for three days. To date, 15% of the pillars are still not operational. See Directors, Senior Management and EmployeesLabor RelationsSouth Africa.
The total shaft hoisting capacity of Kloof is detailed below.
Assuming that Gold Fields does not increase or decrease reserve estimates at Kloof and that there are no changes to the current mine plan at Kloof, Kloofs June 30, 2007 proven and probable reserves of 13.1 million ounces of gold will be sufficient to maintain production through approximately fiscal 2027. However, as discussed earlier in Risk Factors and Mine Planning and Management, there are numerous factors which can affect reserve estimates and the mine plan, which could thus materially change the life of mine.
The following table sets forth year commissioned, processing techniques and processing capacity per month, as well as average tons milled per month and metallurgical recovery factor during the fiscal year ended June 30, 2007, for each of the plants at Kloof:
In fiscal 2007, the Kloof plants collectively extracted approximately 97.7% of gold contained in ore delivered for processing. An outside contractor, Jet Demolition, has completed the demolition phase of No. 3 Plant. Management expects the rehabilitation phase to be completed by December 2007.
Gold Fields spent approximately $108 million on capital expenditures at the Kloof operation in fiscal 2007, primarily on ventilation, refrigeration and general infrastructure for the Shaft No. 1 pillar extraction, development and refrigeration for the KEA, development at Shaft No. 4 and ore reserve development. Capital expenditure was also focused on mechanized drill and support rigs and the introduction of battery locomotives in fiscal 2007. Gold Fields expects to spend approximately $127 million on capital expenditure in fiscal 2008, primarily on development at Shaft No. 4, the Shaft No. 1 pillar extraction, track upgrades and an ice plant for refrigeration at the KEA and ore reserve development.
The Beatrix operation is located in the Free State Province of South Africa, some 240 kilometers southwest of Johannesburg, near Welkom and Virginia, and comprises the Beatrix mine. The Beatrix operation was formerly known as the Free State operation.
Beatrix operates under a mining license with a total area of approximately 16,800 hectares. It is only an underground operation. Beatrix has four shaft systems, with two ventilation shafts to provide additional up-cast and downcast ventilation capacity, which are serviced by two metallurgical plants. It is a shallow to intermediate depth mining operation, at depths between 700 meters and 2,200 meters below surface. The Beatrix mine has access to the national electricity grid and water, road and rail infrastructure and is located near regional urban
centers where it can routinely obtain needed supplies. In the fiscal year ended June 30, 2007, Beatrix produced 0.543 million ounces of gold. As of June 30, 2007, Beatrix had approximately 11,400 employees, including approximately 900 employed by outside contractors.
Beatrixs present scope of operations is the result of the consolidation with effect from July 1, 1999 of two adjacent mines: Beatrix and Oryx. Gold mining commenced at Beatrix in 1985 and at Oryx in 1991.
The Beatrix mine exploits the Beatrix Reef, or BXR, at Shaft Nos. 1, 2 and 3, and the Kalkoenkrans Reef, or KKR, at Shaft No. 4 (the former Oryx mine). The reefs are developed on the Aandenk erosional surface and dip to the north and north-east at between four degrees and nine degrees.
In general, the BXR occurs at depths of between 570 meters and 1,380 meters and the KKR occurs at depths of between 1,800 meters and 2,200 meters. Both the BXR and KKR reefs are markedly channelized and consist of multi-cycle, upward fining conglomerate beds with sharp erosive basal contacts. A general east-west trending pay-zone, some 500 to 800 meters wide, has been identified east of Shaft No. 4 and is known as the main channel Zone 2. In addition, surface exploratory drilling, including two surface boreholes completed in fiscal 2007, and underground development has confirmed the reserves to the south of Beatrixs Shaft No. 4 main channel in Zone 5, which now represents the majority of the reserves at the operation. Ongoing development and underground exploration drilling has continued over the past fiscal year so that all facies and structures have been updated and layouts and planning adapted. All new information is used as part of customary mine planning practices.
In fiscal 2005, Gold Fields implemented a restructuring project at Beatrix to improve operational efficiencies and reduce costs. As a result, Beatrix is now managed as three operational sections: the North Section (comprising Shaft No. 3 and the lower levels of Shaft No. 1), the South Section (comprising Shaft No. 2 and the upper levels of Shaft No. 1) and the West Section (comprising Shaft No. 4). This operational structure remained in place for fiscal 2007 and is not expected to change.
Mining at Beatrix is based upon the scattered mining method. Shaft Nos. 1, 2 and 4 are the primary sources of production at present, but over time Gold Fields expects mining concentration to shift to Shaft No. 3 as well as Shaft No. 4. During fiscal 2007, management focused on increasing development volumes at all shafts to provide future mining flexibility, orebody definition and grade management. This resulted in a 22% increase in main development volumes at Beatrix in fiscal 2007, as compared to fiscal 2006. This emphasis on development volumes is planned to continue in fiscal 2008.
Overall stoping volumes at each mining section increased marginally, by approximately 2.5%, between fiscal 2006 and 2007. Development was significantly higher in fiscal 2007 due to an increased number of development crews and additional management focus on improving mineable reserves for the mine. Beginning in fiscal 2006, new schedules of routine activities for mining employees and methodologies that reduce the amount of water needed to cool the area and minimize dust and improve gold recovery have helped maintain the mine call factor at all shafts. No shafts were closed or opened in fiscal 2007.
At the North Section in fiscal 2007, activity at Shaft No. 3 focused upon haulage development and initial stoping in order to build up production at the shaft and development and stoping volumes were in line with expectations. The power source being used at Shaft No. 3 for a variety of activities including drilling is primarily hydropower, as opposed to compressed air, with a majority of the mining equipment being run off a high-pressure water system. The benefits of the system include improved cooling underground, improved machine efficiency, lower noise levels and less electrical power usage.
Stoping volumes in the South Section met expectations, although increased frequency of faulting and grade variability contributed to a decrease in the amount and grade of gold mined in fiscal 2007.
There was moderately improved performance at Shaft No. 4 in fiscal 2007 due to improved ventilation and logistics, and consistent grade and volumes at the KKR. The KKR, which was historically characterized as being a highly erratic reef structure, is tending to exhibit greater reef consistency in Zone 5. Stoping and development, coupled with continued underground exploration drilling programs, continued to define and support the higher grade Zone 5 area model. Stoping and main development volumes at the West Section were in line with expectations in fiscal 2007, as a result of an increased number of development crews and the consequent increase in mineable reserves. Shaft No. 4 was impacted in fiscal 2007 by geological structure delays, adverse ground conditions and the impacts of swelling of ground clay due to water absorption on access tunnels at the West Section, the effects of which were limited by remedial action.
In fiscal 2007, ongoing improvements were made to haulage tracks and ventilation conditions, largely through the installation of new bulk air coolers. New locomotives and rolling stock were purchased. These improvements and purchases across the mine are part of a project to increase logistics capacity and support future mining volumes, and they are expected to continue in fiscal 2008. Lower grade and marginal mining activities continued to be curtailed at Beatrix in fiscal 2007, despite the increasing gold price, as the mine plans to maintain operating margins. Where appropriate, localized sections of lower grade material were extracted on an incremental basis at the South Section, and this will continue in the future.
Beatrix requires cooling infrastructure to maintain comfortable conditions for workers at depth. The Beatrix West Section has a refrigeration plant installed on its surface, which provides chilled water to bulk air coolers on surface and mid-shaft to the West Sections primary sub vertical shaft, Shaft No. 4. Presently, this cooling system at Shaft No. 4 extends into Zone 5, where Gold Fields installed two bulk air coolers during fiscal 2007. The surface bulk air cooler project at Shaft No. 3 was completed during the third quarter of fiscal 2007 to provide additional cooling capacity. It became operational during the first quarter of fiscal 2008. This bulk air cooler will be serviced by the surface refrigeration plant installed at Shaft No. 1.
Based on the higher gold price received and in anticipation of improving gold prices in the longer term, a number of incremental expansion opportunities are being examined at Beatrix. For example, work is being done on the Vlakpan project area, which involves an extension of Beatrix on lower levels with access via the infrastructure of Shaft No. 1 and Shaft No. 3, which will continue in fiscal 2008. Under current plans, mining of this area would be expected to commence in fiscal 2009. Additionally, a dip down extension project to access ground below the bottom level of Shaft No. 3 is under way and mining of this area would be expected to commence in fiscal 2010.
Detailed below are the operating and production results at Beatrix for the past three fiscal years.
The increase in tonnage milled from fiscal 2006 to fiscal 2007 was primarily due to the slight increase in production stoping volumes, higher tonnages from the recovery of vamping and sweeping tonnages and a small increase in stoping width. Gold production, however, was lower in fiscal 2007 and the overall recovered grade in fiscal 2007 decreased due to slightly lower stoping grades and the impact of the lower mine call factor at the North and South Sections in the second half of fiscal 2007. The lower mine call factor at the North and South section was offset in part by higher mine call factor values at the West section.
Recovered grade increased in fiscal 2006 primarily due to a cessation of low grade surface material processing and an improvement in quality factors, such as a slight reduction in stoping width, less dilution from shortfall sources and an increase in the mine call factor. Tonnage milled decreased in fiscal 2006, primarily due to the cessation of surface dump treatment, reduced stope widths and reduced shortfall, which means the amount by which reef tonnage hoisted exceeded tonnage broken. Gold produced decreased in fiscal 2006 due to lower stoping volumes, the impact of employee strikes in August 2005 and an overall decrease in the mined grade. However, the lower mine grade was offset in part by increased production volumes from sweepings and vamping, which improved the mine call factor and recovered grade in fiscal 2006.
The increase in total cash costs and total production costs per ounce of gold from fiscal 2006 to fiscal 2007 resulted primarily from the reduced gold produced and the increase in labor costs.
The Beatrix mine is engaged in underground mining, and thus is subject to all of the underground mining risks discussed in Risk Factors. The primary safety risks at Beatrix are falls of ground, tramming accidents and flammable gas explosions. Beatrix does experience seismic events and, while the seismic risk is much lower at Beatrix than it is at Kloof or Driefontein, the operation manages these events with a seismic network consisting of several geophones.
Beatrix embarked on a focused training course and awareness campaign on fall of ground accidents in March 2006. Since the introduction of this campaign, there has been a significant lessening of these types of accidents. This campaign includes miner training, hazard awareness, increased supervision and early stope entry examinations. Methane hazard awareness training is ongoing. During fiscal 2007, Beatrix mine was audited against the requirements of the OHSAS 18001 and received accreditation in the first quarter of fiscal 2008.
There were a total of five underground fires in fiscal 2007, two of which occurred at Beatrix North and three at Beatrix South. None of these fires materially affected production. As part of the operating requirement for hazardous locations on the mine, all relevant areas are equipped with methane, velocity and/or ventilation door sensors, which are electronic devices that indicate if a ventilation door is open and if air flow is affected. These sensors are connected to the mines electronic telemetry system. Furthermore, all critical fans are connected to the telemetry system and, in certain instances, equipped with localized alarms. These safety systems are monitored on a 24-hour basis from a central control room from which action is taken in the event of alarm.
The serious injury frequency rate for fiscal 2007, 2006 and 2005 was 4.02, 4.37 and 4.72 serious injuries for every million hours worked, respectively. In fiscal 2007, the fatal injury frequency rate decreased to 0.13 fatalities for every million hours worked, as compared to 0.24 fatalities for every million hours worked in fiscal
2006. The fatal injury rate for fiscal 2005 was 0.10 for every million hours worked. Although Beatrix achieved one million fatality-free shifts in fiscal 2007, there were four fatalities at its operations in fiscal 2007, as compared to seven fatalities at Beatrix in fiscal 2006. Beatrix experienced no shaft closures for any length of time in fiscal 2007 or to date in fiscal 2008 due to accidents. To date in fiscal 2008, there have been two fatalities at Beatrix.
Production was not affected by any local or national strikes or labor slowdowns in fiscal 2007. Shaft No. 4 was closed for two days in November 2007 due to factional fighting associated with union elections. There were no interruptions to production in fiscal 2007 due to operational causes. On December 4, 2007, there was a one-day, industry-wide work stoppage in South Africa that affected the Beatrix operation. See Directors, Senior Management and EmployeesEmployeesLabor RelationsSouth Africa.
The total shaft hoisting capacities of Beatrix are detailed below.
Assuming that Gold Fields does not increase or decrease reserves estimates at Beatrix and that there are no changes to the current mine plan, Beatrixs June 30, 2007 proven and probable reserves of 8.2 million ounces of gold will be sufficient to maintain production through to approximately fiscal 2020. However, as discussed earlier in Risk Factors and Mine Planning and Management, there are numerous factors which can affect reserve estimates and the mine plan, which could thus materially change the life of mine.
The following table sets forth year commissioned, processing techniques and processing capacity per month, as well as average tons milled per month and metallurgical recovery factor during the fiscal year ended June 30, 2007, for each of the plants at Beatrix:
In fiscal 2007, the Beatrix plants collectively extracted approximately 96% of gold contained in ore delivered for processing, which is the same percentage extracted in fiscal 2006. In fiscal 2004, Gold Fields installed a Knelson concentrator at the No. 1 Plant which removes gold earlier in the metallurgical process. A
gravity concentrating circuit, which was commissioned in November 2006, was installed at No. 2 Plant in order to reduce locked up gold in the mills and to improve the overall recovery. These improvements to capacity are expected to remain effective going forward.
None of the metallurgical plants or facilities were upgraded or temporarily or permanently closed in fiscal 2007, and normal routine maintenance and repairs were carried out as part of regular asset management. No major expansion or upgrades are currently planned.
Gold Fields spent approximately $83 million on capital expenditures at the Beatrix operation in fiscal 2007, primarily on the refrigeration project at Shaft No. 3, including bulk cooling infrastructure and pumping capacity, hydropower equipment, conversion of current accommodation for employees and ore reserve development. Gold Fields expects to spend approximately $77 million on capital expenditure at Beatrix in fiscal 2008, primarily on off-reef development, improvements to rail infrastructure from high volume stoping areas and the continuing infrastructure development at Shaft No. 3.
South Deep Operation
Gold Fields acquired control of South Deep on December 1, 2006. South Deep is situated adjacent to Kloof, in the Gauteng Province of South Africa. South Deep operates under a mining license with a total area of approximately 3,566 hectares. It is engaged in underground mining and surface rock dump processing and is comprised of two operating shaft systems, the South Shaft Complex and the South Deep Twin Shaft Complex, and one metallurgical plant. The South Shaft Complex includes a main shaft and three sub-vertical (SV) shafts; SV 2 is used to hoist rock with SV 3 being used to move personnel and materials. The South Deep Twin Shaft Complex consists of a single barrel main shaft and adjoining ventilation shaft. Both shaft complexes operate at depths between 1,510 meters and 3,220 meters below surface. The South Deep operation has access to the national electricity grid, water, road and rail infrastructure and is located near regional urban centers where it can routinely obtain needed supplies. In the seven months ended June 30, 2007, South Deep produced 0.163 million ounces of gold. As of June 30, 2007, South Deep had approximately 6,458 employees, including approximately 1,819 employed by outside contractors.
The current South Deep operations derive from the Barrick GoldWestern Areas Joint Venture, which Gold Fields acquired in a series of transactions in second and third quarter of fiscal 2007. The Barrick GoldWestern Areas Joint Venture is now named the South Deep Joint Venture.
Gold mineralization at South Deep is hosted by conglomerates of the Upper Elsburg reefs and the VCR. The Upper Elsburg reefs sub-crop against the VCR in a north-easterly trend, which defines the western limits of the Upper Elsburg reefs. To the east of the sub-crop, the Upper Elsburg reefs are preserved in an easterly diverging sedimentary wedge attaining a total thickness of approximately 120 meters, which is subdivided into the lower Individuals and the overlying Massives. To the west of the sub-crop, only the VCR is preserved.
The stratigraphic units at South Deep generally dip southward at around twelve to fifteen degrees and the gold-bearing reefs occur at depths of 1,500 meters to 3,500 meters below surface. The gold grade generally decreases within a reef unit, gradually toward the east away from the Upper Elsburg Reef sub-crop, as sedimentary parameters influence the overall tenor of the reefs in the distal environment.
The northsouth trending normal West Rand and Panvlakte faults, which converge on the western side of the lease, are the most important large-scale faults in the area and form the western limit to gold mineralization for the mine.
Production at South Deep currently is from the VCR, as well as the Upper Elsburgs (the Massives and the Individuals). The VCR occurs in the western extremity of the mining authorization. The Upper Elsburgs occur to the east of a north-northeast striking subcrop with the overlaying VCR and form part of an easterly divergent clastic wedge. In general terms, the Upper Elsburg succession represents an easterly prograding sedimentary sequence, with the Massives containing higher gold grades and showing more proximal sedimentological attributes in the eastern sector of the mining authorization than the underlying Individuals.
The VCR is mined by conventional longwall mining methods, whereas the Upper Elsburgs are mined by a variety of methods including conventional narrow reef stoping, long hole open stoping and mechanized mining (drift-and-fill and drift-and-benching). South Deeps workings are at depth, and therefore require significant cooling infrastructure.
Following a shaft accident in the South Deep Twin Shaft Complex Main Shaft in May 2006 which required the shaft to be closed, the main shaft of the South Deep Twin Shaft Complex was re-commissioned in January 2007, ahead of schedule and without a single lost time injury. In addition, a fire that started in August 2006 and took until late December to bring under control caused several portions of the mine to be temporarily closed. The impact of the fire has adversely affected the production build-up.
South Deep remains, at present, a developing mine with large sections of its infrastructure, especially at lower levels, incomplete. The ramping up of production was affected by high staff turnover in the mechanised mining section of the mine which contributes 70% of the ore mined. These staff skills are highly sought after by other trackless miners and the construction sector. Remuneration adjustments were made by year-end to attract and retain such staff. The trackless section has returned to the full three-shift cycle. Discussions are underway with the Gold Fields Business and Leadership Academy, or GFBLA, to invest in trackless training simulators to reduce the future risk of skills attrition.
The integration of the South Deep administrative, management and IT systems into the Gold Fields systems was scheduled to be completed by December 2007 and some synergies have been achieved. The South Deep Twin Shaft Complex ventilation deepening project and installation of infrastructure were also delayed due to the logistical reorganization associated with the recommissioning of the South Deep Twin Shaft Complex. A shortage of civil engineering staff experienced by contractors also exacerbated the situation.
In the second half of fiscal 2007, a 95-level workshop was commissioned, which allows the commencement of long hole open stoping. At full production, this should provide an additional 150,000 tons of marginal Elsburg ore per quarter to supplement current ore production. Moving forward, the focus will be on developing the pumping and rock-handling infrastructure below 95-level and the completion of the 94-level refrigeration project, which should allow the expansion of mining at the lower levels. Mechanized de-stress and backfill programs are being put in place to counter the risk of increased seismicity at these lower levels.
Gold Fields technical expertise is being employed to revisit mine planning and orebody optimization over the mine life. Gold Fields believes that portions of the South Deep orebody could be accessed using the Kloof infrastructure. This could have the potential of increasing the rate at which the South Deep orebody is mined, as well as reducing the unit cost of mining at both Kloof and South Deep. In addition Gold Fields intends to seek to identify other operational synergies between the two operations, which could include the provision of technical and financial services, the utilization of surface infrastructure such as workshops and offices, the procurement of consumables and supply chain management.
Detailed below are the operating and production results at South Deep for the seven-month period from December 1, 2006 to June 30, 2007 (the period of Gold Fields ownership of the mine in fiscal 2007).
South Deep is engaged in underground mining and is thus subject to all of the underground mining risks discussed in Risk Factors. The primary safety issues facing South Deep underground operations include seismic induced falls of ground, seismicity and rock temperatures. A fall of ground prevention campaign, which was started by Gold Fields during the second half of fiscal 2007, has reduced such incidents but has highlighted the need to focus on slip and fall risks.
In the seven months ended June 30, 2007, the serious injury frequency rate was 4.03 injuries for every million hours worked and the fatal injury frequency rate was 0.13 fatalities for every million hours worked. There was one fatality at the South Deep operation in the seven months ended June 30, 2007 and, in fiscal 2008, there has been one fatality.
Production was not affected by any local or national strikes or labor slowdowns in fiscal 2007. There were no interruptions to production in fiscal 2007 or to date in fiscal 2008 due to operational causes. On December 4, 2007 there was a one-day, industry-wide work stoppage in South Africa that affected the South Deep operation. See Directors, Senior Management and EmployeesEmployersLabor RelationsSouth Africa.
The ISO 14001:2004 Environmental Management System implementation is on track and certification is anticipated during calendar 2008. There was a return water dam overflow during August 2007 as a result of insufficient dam capacity during the cleanup of one of the compartments of the dam. The solution was neutralized as a precautionary measure through the addition of ferrous sulphate.
The total shaft hoisting capacities of South Deep are detailed below.
Gold production for the seven months to June, 2007 amounted to 0.163 million ounces, which included both underground and surface sources. The underground grade recovered was 6.2 grams per ton for the same period. Assuming that Gold Fields does not increase or decrease reserves estimates at South Deep and that there are no changes to the current mine plan at South Deep, South Deeps June 30, 2007 proven and probable reserves of 30.4 million ounces will be sufficient to maintain production through approximately fiscal 2049. However, as discussed earlier in Risk Factors and Mine Planning and Management, there are numerous factors which can affect reserve estimates and the mine plan, which could thus materially change the life of mine. Moreover, Gold Fields is still evaluating the reserve position at South Deep following its acquisition of the mine during fiscal 2007, and these reserves are included in the Independent Review Panel report dated December 31, 2005, but updated by Gold Fields to June 30, 2007 for mining depletions.
All processing at South Deep is provided by a single plant. The following table sets forth year commissioned, processing techniques and processing capacity per month, as well as average tons milled per month and metallurgical recovery factors during the seven months ended June 30, 2007 for the plant:
During fiscal 2007, between 12% and 33% by mass of the annual tons milled reported underground as backfill. The current backfill plant has the capacity to recover 48% by mass of the tons milled as backfill product. Deposition rates on the current residue disposal facilities is limited to 170,000 tons per month. The design for a new residue disposal facility for South Deep has been completed and construction is due to start in early 2008. Gold Fields expects it will take four years to complete the construction program and two years before residue can be diverted to the new dam, at a reduced rate initially.
The previous owners of South Deep completed a feasibility study which aims to increase mine throughput from the current design of 200,000 tons per month to 330,000 tons per month. This includes increasing hoisting
capacity at the South Deep Twin Shaft Complex, increasing ventilation and refrigeration capacity, increasing backfill capacity and modifying the metallurgical plant and tailings disposal sites. Included in the feasibility study is the completion of all ancillary infrastructure below 95 level at the South Deep Twin Shaft Complex and the development to ore positions on 100,105 and 110 levels. Gold Fields is advancing the activities as laid out in the feasibility study.
Post-acquisition, through the end of fiscal 2007 Gold Fields spent approximately $23 million, primarily on the Twin Shaft ventilation deepening project, the 94-level refrigeration plant and the design of the new slimes dam.
Gold Fields expects to spend approximately $136 million on capital expenditure at South Deep in fiscal 2008, primarily on development and equipping below level 95, increasing ventilation and refrigeration capacity and surface exploration drilling.
The Ghana operations are comprised of the Tarkwa and Damang mines.
Gold Fields Ghana, which holds the interest in the Tarkwa mine, is owned 71.1% by Gold Fields, 18.9% by IAMGold and 10.0% by the government of Ghana.
The Tarkwa mine is located in south-western Ghana, about 300 kilometers by road west of Accra. The Tarkwa mine consists of several open pit operations on the original Tarkwa property and the adjacent southern portion of the property, which was formerly referred to as the Teberebie property and was acquired by Gold Fields in August 2000, together with two heap leach facilities, referred to as the North Plant and the South Plant. A new SAG mill and CIL plant commenced continuous operations at the Tarkwa property in November 2004. The Tarkwa mine operates under mining leases with a total area of approximately 20,800 hectares. It currently conducts only surface operations, although it previously had a small underground mining operation which it operated through July 1999 under Gold Fields agreement with the government of Ghana. The Tarkwa mine has access to the national electricity grid, water, road and railroad infrastructure. Most supplies are trucked in from either the nearest seaport, which is approximately 140 kilometers away by road in Takoradi, or from Tema near Accra, which is approximately 300 kilometers away by road. In the fiscal year ended June 30, 2007, Tarkwa produced 0.697 million ounces of gold, of which 0.496 million ounces were attributable to Gold Fields, with the remainder attributable to minority shareholders in Gold Fields Ghana. As of June 30, 2007, Tarkwa had approximately 3,800 employees, including approximately 2,200 employed by outside contractors.
Investment in large-scale mining in the Tarkwa area commenced in the last quarter of the nineteenth century. In 1993, Gold Fields of South Africa, or GFSA, took over an area previously operated by the State Gold Mining Corporation, or SGMC. SGMC had in turn acquired the property from private companies owned by European investors. Following initial drilling, feasibility studies and project development (which included the removal of overburden and the resettlement of approximately 22,000 people), mining operations commenced in 1997.
Gold mineralization at Tarkwa is hosted by Proterozoic Tarkwaian metasediments, which overlie but do not conform to a Birimian greenstone belt sequence. Gold mineralization is concentrated in conglomerate reefs and
has some similarities to deposits in the Witwatersrand Basin in South Africa. The deposit comprises a succession of stacked, tabular paleoplacer units consisting of quartz pebble conglomerates. Approximately 10 such separate economic units occur in the concession area within a sedimentary package ranging from 40 meters to 110 meters in thickness. Low grade to barren quartzite units are interlayered between the separate reef units.
The existing surface operation currently exploits narrow auriferous conglomerates from four pits, namely Pepe, Akontansi, Teberebie and Kottraverchy. A fifth pit, West Hill, was fully depleted in February 2007. Two additional pits, Atuabo and Mantraim, which have previously been mined by Gold Fields, are temporarily inactive, but both are planned to be reactivated within the next few years pending the relocation of an electrical sub-station which lies on the edge of the current allowed blast radius and as adjacent active pits are expanded to join them.
Tarkwa uses the typical open pit mining methods of drilling, blasting, loading and hauling. The progression of blasting in the open pit occurs in steps of six meters (or in some cases three meters) with the ore loaded into 144-ton dump trucks.
Tarkwa currently presents no unusual challenges beyond those faced at most open pit and heap leaching mining operations, including variations in amenability of ores to leaching. However, harder ores are expected at Tarkwa which could reduce throughput at the two heap leach facilities. As yet, throughput has not been affected, but heap leach recoveries have declined from fiscal 2006. The primary operational challenges include managing effective grade control, lowering operating costs, optimizing throughput in the plant operations and managing gold-in-process on heap leach pads (that is, gold in the processing circuit that is expected to be recovered during or after operations).
Gold Fields took over the mining activities previously performed on a contract basis by African Mining Services (Ghana) Pty Ltd, or AMS, in the first quarter of fiscal 2005, having purchased its own mining fleet of equipment during the latter half of fiscal 2004. The transition from contractor mining to owner mining went smoothly, with Gold Fields re-engaging the majority of the AMS operators. Additionally, Gold Fields continued to operate at Tarkwa under maintenance and repair contracts with its major equipment suppliers, which were agreed upon in 2004 and have a five-year term. Engineering & Projects Company Limited, a South African company, has been contracted through an alliance agreement to expand the existing CIL Plant to handle one million tons per month. Engineers & Planners Company Limited, a Ghanaian company, was contracted in fiscal 2007 to construct a heap leach pad expansion and to assist in soft topsoil waste mining. Another contractor, P.W. Ghana Limited, was hired to commence work on July 1, 2006 to accelerate stripping in the Teberebie pit in order to guarantee adequate hard ore for the SAG mill. This contractor completed this phase of the work in January 2007 and, in early 2007, after purchasing new mining equipment, Gold Fields took over the stripping operation from the contractors.
Detailed below are the operating and production results at Tarkwa for the past three fiscal years.
In fiscal 2007, overall ore tonnage increased compared to fiscal 2006 levels as CIL production increased as a result of continuous improvement initiatives. Total ore and waste mined increased as additional equipment was added to provide the amount of life of mine waste strip mining required to open sufficient ore reserves for mining. Compared to fiscal 2006 levels, ounces of gold produced at Tarkwa decreased slightly in fiscal 2007 because of expected lower recoverable head grade. Total cash costs per ounce of gold increased approximately 10% during fiscal 2007, primarily due to the decreased recoverable grade and rising fuel (including diesel to run the generators), cyanide, cement and steel prices, higher fleet maintenance costs and an increase in the level of waste stripping and increased power costs.
Of significance in fiscal 2007 were the changes made to the electricity supply arrangements as a result of the energy crisis in the country following poor rainfall and the depletion of the Akosombo dam to below the minimum operating level required to operate the hydro generation facility. As a result, in August 2007 a load shedding regime was put in place by the government of Ghana, which called for commercial and domestic consumers to reduce their offtake by a specified percentage of their average consumption. This percentage varied between 25% and 50% from August to December 2006 and then remained constant at 25% for the period from January to June 2007. In order to maintain production levels at both the Tarkwa and Damang operations while adhering to the load shed requirements, Gold Fields decided to run the on-site diesel generation facilities at both mines. Because the larger generating capacity of Gold Fields on-site generating facilities is located at Damang, Tarkwa, with the agreement of the Volta River Authority (the government-owned utility), or the VRA, made a smaller reduction in demand while Damang made a larger reduction, relying more heavily on the on-site generation facilities. As a result, Damang used 82% of the total self-generated electricity. The cost of generation over this period amounted to $11.4 million, which was allocated proportionally between Tarkwa and Damang. Through discussions at the Ghana Chamber of Mines, it was agreed that on-site generation was not a sustainable solution. As a result, the four largest mining companies in Ghana formed a consortium and agreed to jointly fund the construction of an 80MW power plant, known as the Mining Reserve Plant, or MRP, to guarantee electricity
supply into the future. The basis of the arrangement was that 25% of the funding would be provided by each consortium member, that the consortium would in addition pay an operations and maintenance contractor to maintain and run the plant for one year, that the MRP would be handed over to the VRA for it to ultimately manage and operate and, in exchange, the consortium would be protected from any future load shedding requirements up to the installed capacity of the MRP.
In October 2007 the load shedding requirement for the consortium members was reduced from 25% to 10%, with an indication that it would be removed entirely as from January 1, 2008. To achieve the new 10% target, Gold Fields has decided to find ways of improving energy efficiency rather than continuing with costly on-site generation or using power generated from the MRP. A 35% increase in the electricity tariff became effective on November 1, 2007. This increase is primarily attributable to the need for re-investment in the energy sector through new projects and upgrades.
In fiscal 2006, overall ore tonnage increased compared to fiscal 2005 levels as CIL production increased and minor bottlenecks on screens and pumps were eliminated. Total ore and waste mined increased as additional equipment was added and two contractors were hired to help the plants meet processing capacity. Furthermore, compared to fiscal 2005 levels the ounces of gold produced at Tarkwa increased by 32,000 ounces in fiscal 2006 because the CIL plant produced for the full year, as compared to seven months in fiscal 2005, and all processing facilities exceeded planned production rates. Total cash costs per ounce of gold increased significantly during fiscal 2006, primarily due to rising fuel, cyanide, cement and steel prices, higher fleet maintenance costs and an increase in the level of waste stripping.
Assuming that Gold Fields does not increase or decrease reserves estimates at Tarkwa and that there are no changes to the current mine plan at Tarkwa, Tarkwas June 30, 2007 proven and probable reserves of 12.2 million ounces (8.7 million of which were attributable to Gold Fields, with the remainder attributable to minority shareholders in the Ghana operations) will be sufficient to maintain production through approximately fiscal 2022. However, as discussed earlier in Risk Factors and Mine Planning and Management, there are numerous factors which can affect reserve estimates and the mine plan, which could thus materially change the life of mine.
The Tarkwa mine is engaged in open pit mining and is thus subject to all of the risks associated with open pit mining discussed in Risk Factors. Although surface mining generally is less dangerous than underground mining, serious and even fatal accidents do still occur. Tarkwa had no fatalities in fiscal 2007 and had one fatality in fiscal 2006. To date in fiscal 2008, there have been three fatalities at Tarkwa. The overall safety record at Tarkwa has improved during the last three years due to the introduction of the Occupational Health and Safety Assessment Series 18001, which is an international occupational health and safety management system standard. The serious injury frequency rate for fiscal 2007, 2006 and 2005 was 0.0, 0.1 and 0.2 serious injuries for every million hours worked, respectively. The fatal injury frequency rate for fiscal 2007 was 0.0 fatal injuries for every million hours worked and for each of 2006 and 2005 it was 0.1 fatal injuries for every million hours worked. There were no material work stoppages during fiscal 2007 or to date in fiscal 2008. The mine is also certified to the ISO 14001 standard in terms of its environmental management system.
Tarkwas ore can be processed either using conventional heap leach techniques with acceptable recoveries or SAG milling with a CIL plant. The current operation incorporates two separate heap leach circuits, the North Plant and the South Plant, and a new SAG mill plant which was commissioned in 2004. The following table sets forth year commissioned, processing techniques and processing capacity per month, as well as average tons milled per month and metallurgical recovery factors during the fiscal year ended June 30, 2007, for each of the plants at Tarkwa:
The SAG mill and CIL plant were commissioned in early fiscal 2005 and consistently exceeded nameplate capacity during fiscal 2006 and 2007. The amount of tonnage treated at the heap leach facilities rose slightly in fiscal 2007 as a result of continuing improvements to both the North and South Plants. Expansion of the North Plant heap leach pads commenced during the third quarter of fiscal 2007. The CIL plant processed 5.6 million tons in fiscal 2007, as compared to 4.7 million tons in fiscal 2006. An expansion project commenced in the fourth quarter of fiscal 2007 which is expected to increase the capacity of the CIL Plant to one million tons per month. This expansion project is expected to be completed during September 2008.
Gold Fields spent approximately $83 million on capital expenditure at the Tarkwa operation in fiscal 2007, primarily on construction of the North Plant heap leach pad, CIL Plant expansion, replacement and expansion of mining equipment and the MRP. Gold Fields has budgeted approximately $147 million for capital expenditure at Tarkwa for fiscal 2008, principally for the CIL Plant expansion, further expansion of the North Plant heap leach pad, and additional mining equipment.
Abosso, which owns the interest in the Damang mine, is owned 71.1% by Gold Fields, 18.9% by IAMGold and 10% by the Ghanaian government, mirroring the shareholding structure of Gold Fields Ghana.
The Damang deposits are located in the Wassa West District in south-western Ghana approximately 360 kilometers by road west of Accra and approximately 30 kilometers by road northeast of the Tarkwa mine. The Damang mine consists of an open pit operation with a SAG mill and CIL processing plant.
Damang operates under a mining lease with a total area of approximately 8,100 hectares. The Damang mine has access to the national electricity grid and water and road infrastructure. Most supplies are trucked in from either the nearest seaport, which is approximately 200 kilometers away by road in Takoradi, or from Accra, which is approximately 360 kilometers away by road. In the fiscal year ended June 30, 2007, the Damang mine produced 0.188 million ounces of gold, of which 0.134 million ounces were attributable to Gold Fields, with the remainder attributable to minority shareholders in Abosso. As of June 30, 2007, Damang had approximately 1,000 employees, including approximately 700 employed by outside contractors.
Mining on the Abosso concession began with underground mining in the early twentieth century. Surface mining at Damang commenced in August 1997 and Gold Fields assumed control of operations on January 23, 2002.
Damang is located on the Damang Anticline, which is marked by Tarkwaian metasediments on the east and west limbs, around a core of Birimian metasediments and volcanics. Gold in the Tarkwaian metasediment and volcanics is predominantly found in the conglomerates of the Banket Formation and is similar to the Witwatersrand in South Africa; however, at Damang, hydrothermal processes have enriched much of this paleoplacer mineralization. Within the region, the contact between the Birimian and Tarkwaian metasediment and volcanics is commonly marked by zones of intense shearing and is host to a number of significant shear hosted gold deposits including Prestea, Bogoso, and Obuasi.
Paleoplacer mineralization occurs on the west limb of the anticline at Abosso, Chida, and Tomento, and on the east limb of the anticline at the Kwesie, Lima, Lima South, Bonsa North and Bonsa locations. Hydrothermal enrichment of the Tarkwaian paleoplacer occurs at the Rex, Amoanda, and Nyame areas on the west limb and the Damang and Bonsa areas on the east limb.
Damang uses the typical open pit mining methods of drilling, blasting, loading and hauling. The progression of blasting in the open pit occurs in six-meter benches, which are then combined to form steps of three meters with the ore and waste loaded into 100-ton dump trucks. The primary operational challenges include managing
effective grade control, lowering operating costs, managing groundwater and geotechnical issues at the Damang Pit Cut Back, or DPCB, and maintaining adequate and timely supply of appropriate plant feed blend. There were no material stoppages to the mining operations during fiscal 2007. However, there were interruptions to the crushing operation due to mechanical and electrical problems on the primary crusher.
During fiscal 2007, the Amoanda, DPCB and J2SW pits were the high-grade fresh ore feed sources to the plant. The Amoanda pit was fully depleted by the end of the first quarter of fiscal 2007. The J2SW pit was the south extension of the DPCB and was fully depleted during the fouth quarter of fiscal 2007. Mining continued at Tomento during fiscal 2007. Of the five Tomento pits, two were fully depleted in fiscal 2007 and two are currently the main oxide ore feed source to the plant. A greater proportion (95%) of the Tomento pit 4 material has changed from soft (oxide) to hard (fresh) material and mining activities continued at this pit to supplement the high-grade fresh ore from the DPCB and the oxide ore from Tomento pits 1 and 2. The Kwesie North pit, which was a back-up pit for oxide supply to the plant, was fully depleted by the end of the fourth quarter of fiscal 2007.
The DPCB waste stripping continued in fiscal 2007. Approval was sought for additional expenditure over the life of the pit. The expenditure, which is projected to increase compared to the original forecast due to the increase in mining volumes and increasing AMS contract rates, is required for the continued development of the DPCB. In addition, a scoping study to evaluate the underground mining potential at Abosso Deeps, an area at the southern end of the Damang lease area near the old Abosso underground mine, has been drafted. Further study into the feasibility of utilizing manual mining method is currently underway.
The development of Damangs several satellite pits has increased the size of the mine extensively, requiring compensation payments and in some cases the resettlement of affected landowners. During fiscal 2004 and 2005, the Kwesi-Lima, Amoanda and Tomento North resettlement projects were implemented, affecting 192 households in the area. In fiscal 2006, development at Lima South and Tomento involved the resettlement of a further 55 households. A total of approximately 60 households were resettled in fiscal 2007. The impending commencement of the Tomento East pit is expected to require resettlement of approximately 36 households in that area.
Following Gold Fields acquisition of this mine in January 2002, an exploration program was started to seek alternative sources of ore to replace the Damang pit, by testing both hydrothermal and conglomerate styles of mineralization across the Damang lease area. The Rex pit may commence mining during fiscal 2010.
AMS performs a substantial proportion of the operations at Damang. In January 2006, AMS was awarded a six-year contract beginning June 25, 2005 to reflect the increased scope of works from mining the DPCB and the Damang satellite pits. AMS provides employees, supplies and equipment for mining at Damang, including drilling, blasting and waste stripping, as well as the haulage of the material produced from the mining activities, including both ore and waste. AMS receives fees under the contract which depend on the type of service being performed and the equipment being used. Under the terms of the contract, AMS is liable for any damage or loss it causes, including that caused by any subcontractor it hires. AMS is not liable for damage that is the result of work performed in accordance with the terms of the contract that is unavoidable or that is caused by any negligent act or omission of employees of Abosso or third parties over whom AMS has no control. AMS is required to take out insurance to cover potential damage and liability. Abosso can terminate its contract at any time; however, there are significant penalties associated with doing this particularly early on in the life of the contract. In the event of termination, Abosso is under no obligation to purchase any of the AMS equipment, although should AMS agree, it would have an option to purchase such equipment.
A different contractor, Engineers & Planners Company Limited, performs the ore haulage contract work at Damang, using 30-ton trucks to haul the material from the various satellite pits to the Run of Mine, or RoM, pad, which is the ore stockpile dump close to the crushing plant.
Detailed below are the operating and production results at Damang for the past three fiscal years.
While various satellite pits were brought to production to offset the Damang pit depletion, the grade and gold production in fiscal 2007 decreased primarily due to depletion of the relatively high-grade fresh material from the Amoanda and J2SW pits. Total production and cash costs increased in fiscal 2007 due to increases in mining, haulage, fuel and consumable costs, together with expenditure incurred on the DPCB, which amounted to $23.4 million. Mill tonnage decreased due to 19 days of unplanned mechanical downtime on the primary crusher. The unplanned mechanical downtime was mainly due to the failure of a crusher bearing. The crusher is not a common make, and so time was required to find a matching bearing, deliver it to site and install it. Subsequently, the mine has ordered another bearing and other special one-off components so that if failure of these components occurs, similar downtime events can be avoided or minimized.
Damang has a back-up power generation facility that is owned and controlled by Damang. Similar to Tarkwa, Damang was required to reduce its power requirements from the main grid and in doing so replaced such power with self-generation, which it will continue to do until the MRP is fully operational. Where they are required to reduce demand from the national grid, Tarkwa and Damang will rely on the MRP for power first and then on their onsite generators.
The grade and gold production in fiscal 2006 decreased primarily due to completion of the relatively high-grade fresh material from the J2SE pit, which was adjacent to the Damang pit, and high-grade oxide from the Amoanda pit. Total production costs and cash costs increased in fiscal 2006 due to increases in mining, haulage, fuel and consumable costs, together with expenditure incurred on the DPCB, which amounted to $23 million. Optimization of the mill feed blend and plant set up allowed the Damang mine to treat more tonnage in fiscal 2006 than fiscal 2005. Mill tonnage increased due to a 1.7% increase in mill utilization and a slight increase in the hourly throughput rate. The Damang pit contains higher grade ore than the new pits and this higher grade pit was the primary contributor to production in fiscal 2006, before the cutback.
Assuming that Gold Fields does not increase or decrease reserves estimates at Damang and that there are no changes to the current mine plan at Damang, Damangs June 30, 2007 proven and probable reserves of 1.5 million ounces (1.03 million of which were attributable to Gold Fields, with the remainder attributable to minority shareholders in the Ghana operations) will be sufficient to maintain production through approximately fiscal 2014. However, as discussed earlier in Risk Factors and Mine Planning and Management, there are numerous factors that can affect reserve estimates and the mine plan, which could thus materially change the life of mine.
The Damang mine comprises open pit mining, and is thus subject to all of the risks associated with open pit mining discussed in Risk Factors. Although surface mining generally is less dangerous than underground mining, serious and even fatal accidents do still occasionally occur. The Damang mine has not had a fatal injury since its acquisition by Gold Fields in 2002, including to date in fiscal 2008. The serious injury frequency rate at Damang for fiscal 2007, 2006 and 2005 was 0.0, 0.0 and 0.2 serious injuries for every million hours worked, respectively, reflecting improvement over the period. The Damang mine has introduced a management system in accordance with the Occupational Health and Safety Assessment Series, or OHSAS, 18001. The environmental management system at the mine is certified to the ISO 14001 standard. There were no strikes or material work stoppages at Damang in fiscal 2007 or to date in fiscal 2008.
All processing at Damang is provided by a single plant. The following table sets forth the year commissioned, processing techniques and processing capacity per month, as well as average tons milled per month and metallurgical recovery factor during the fiscal year ended June 30, 2007 for the plant.
Optimization of the Damang mill involves careful blending of hard and soft ores to maximize use of the milling circuit, which remains the constraint in this plant. Mining operations continue to focus on maintaining an appropriate plant feed blend.
Feasibility for the design and installation of a seventh CIL tank was completed in November 2005 and tenders were submitted in April 2006 for final costing. This project is near completion and is expected to be fully commissioned by the end of the second quarter of fiscal 2008.
Gold Fields spent approximately $9 million on capital expenditures at the Damang mine in fiscal 2007, primarily on increasing capacity at a tailings storage facility, construction on the seventh CIL tank and
development of the Tomento pits. Gold Fields has budgeted approximately $13 million of capital expenditure at Damang for fiscal 2008, primarily for continued work on increasing capacity at the tailings storage facility, completion of construction on the additional CIL tank and continued development of the new pits.
When Gold Fields acquired the St. Ives and Agnew gold mining operations from WMC Resources Limited, or WMC, on November 30, 2001, part of the purchase consideration included Gold Fields agreeing to pay a royalty to WMC. Separate, but similar, royalties were payable for gold produced from the St. Ives and Agnew operations, calculated as follows:
On June 26, 2002, WMC agreed to give up its right to receive royalties from the Agnew operation in exchange for a payment of A$3.6 million. In July 2002, WMC sold its right to royalties from the St. Ives operation to Morgan Stanley. That royalty obligation remains in place.
During fiscal 2007, the increase in the gold price triggered the price participation royalty and for fiscal 2007 royalties of A$10,223,326 (approximately U.S.$8 million) were paid. It is expected that during fiscal 2008, total gold produced from St. Ives since November 30, 2001 will exceed 3.3 million ounces, potentially creating liability to pay the 4% net smelter return royalty.
St. Ives is located 80 kilometers south of Kalgoorlie and 20 kilometers south of Kambalda, straddling Lake Lefroy in Western Australia. It holds mining leases covering a total area of approximately 87,400 hectares. St. Ives is both a surface and underground operation, with a number of open pits, three operating underground mines, one underground mine under development, a metallurgical plant and a heap leach facility. The St. Ives operation has access to the local electricity supplier and water, rail and road infrastructure, and needed supplies are trucked in locally from both Kambalda and Kalgoorlie. In fiscal 2007, St. Ives produced 0.487 million ounces of gold. St. Ives had a workforce of approximately 800 employees as of June 30, 2007, approximately 500 of whom were employed by outside contractors.
Gold production takes place over an extensive area at St. Ives, although it is mainly concentrated in a 30 kilometer corridor extending south-southeast from Kambalda across Lake Lefroy.
Gold mining began in the St. Ives area in 1897, with WMC commencing gold mining operations at St. Ives in 1980. Gold Fields acquired the St. Ives gold mining operation from WMC in November 2001.
The gold deposits of St. Ives are located at the southern end of the Norseman-Wiluna greenstone belt of the West Australian Goldfields Province. In the St. Ives area the belt consists of Kalgoorlie Group volcanic rocks,
Black Flag group felsic volcanic rocks and sediments and a variety of intrusive and overlying post-tectonic sediments. The area is structurally complex, with host rocks highly metamorphosed to upper greenschist and lower amphibolite facies. Gold mineralization discovered to date is best developed in the mafic dominated parts of the sequence, hosted in minor structures including vein arrays, breccia zones and central, quartz rich and mylonitic parts of shear zones. Deposit styles and ore controls are varied, but deposits are commonly associated with subsidiary structures which splay off the regionally extensive Boulder-Lefroy Fault.
St. Ives sources production from a variety of underground and surface operations, and has a heap leach facility which treats low and marginal grade ore and a mill that treats primary ore. The principal production sources in fiscal 2007 included the Leviathan and Argo underground mines together with the Mars, Thunderer and Delta North open pits. Gold Fields management expects the principal underground production sources in fiscal 2008 to be different from fiscal 2007, with the Leviathan underground mine ceasing production and the Belleisle underground mine commencing production together with the Cave Rocks underground mine. The primary open pit production sources are expected to shift in fiscal 2008, with the full depletion of the Thunderer and Delta North pits, which will be replaced by new open pits at Leviathan, North Revenge and Bahama. As many of the operations at St. Ives involve mining deposits on or under Lake Lefroy (which is a shallow salt pan that has water in it only intermittently), extracting ore requires construction of bunds and other earthworks to prevent water intrusion. Open pit operations use 180- to 250-ton excavators loading 150-ton trucks. Waste dumps are formed adjacent to the pits or, if practicable, waste is dumped in previously exhausted pits.
Argo Complex. Stoping activities at the Argo mine commenced in November 2003. The Argo underground mine operated below capacity during fiscal 2007, with the actual geometry of the ore bodies preventing the planned extractions sequences and some sections of the ore bodies failed to meet modeled grade expectations. However, the mined grade improved in the second half of the year, reflecting changes in mine design, sequencing and mining method, combined with revised ore body modeling. Margins were below expectations during fiscal 2007. Performance at Argo in fiscal 2008 is expected to result in significant improvements.
Greater Revenge Complex. Mining at the Greater Revenge Area commenced in 1989. The mines apply typical open pit and lake sediment mining methods. Further exploration and mine design updates resulted in extensions to the Agamemnon open pit during fiscal 2007. The North Revenge pit was fully depleted in the first half of fiscal 2008, with production from Agamemnon expected to continue into fiscal 2009.
Belleisle Underground Mine. The Belleisle deposit lies in the Greater Revenge area adjacent to the Mars open pit. Development of a decline tunnel commenced in the second half of fiscal 2007 to access the Belleisle ore body. Development is scheduled to continue throughout fiscal 2008 with commencement of ore production scheduled from the fourth quarter of fiscal 2008.
Leviathan Underground Complex. The Leviathan complex consists of three distinct underground areas: Sirius (fully depleted in fiscal 2005), East Repulse, and Conqueror. East Repulse commenced stoping operations in fiscal 2004 and mining continued throughout fiscal 2006 with delineation of additional production areas, enabling the mine life to be extended to the end of fiscal 2006. Some limited production is expected from the East Repulse area during fiscal 2008. Development of the Conqueror area began in late fiscal 2004 with water drainage and rehabilitation of old access areas. Development was further accelerated in fiscal 2005 and the area achieved targeted production levels during the course of fiscal 2006. Production from Conqueror remained strong throughout fiscal 2007. While production at Conqueror was scheduled to cease at the end of fiscal 2007, it has continued at a reduced rate into fiscal 2008 and is expected to be completed during fiscal 2008. Gold Fields is continuing to explore opportunities for further extensions of mining operations within the Leviathan complex. However, the mining of the Leviathan open pit will restrict access to some parts of the Leviathan underground mine.
Thunderer Open Pit. Waste removal at the Thunderer open pit commenced in fiscal 2006 and continued through the first half of fiscal 2007. Ore production commenced in the first half of fiscal 2007, following the
cessation of mining at the Mars open pit. The mine applies typical open pit and lake sediment mining methods. The deposit is located straddling the southern shore of Lake Lefroy to the east of the new Lefroy processing plant. The deposit is hosted underneath moderate depths of lake sediment and dunal sand cover. The Thunderer open pit is expected to be fully depleted in the second quarter of fiscal 2008.
Bahama Open Pit. Mining commenced at the Bahama open pit in the first quarter of fiscal 2007 with waste removal. This deposit is located in the middle of Lake Lefroy and to the immediate north east of the Santa Ana open pit, mined by WMC in the mid-1990s. The mine also applies typical open pit and lake sediment mining methods. The deposit mine was inundated twice during the waste removal phase of mining, delaying mining and resulting in a re-scheduling of the mining sequence to defer mining of ore until fiscal 2008.
Delta North Open Pit. Mining, in the form of waste removal, commenced at the Delta North open pit in the first quarter of fiscal 2007. This deposit is located near the shoreline of Lake Lefroy, at Delta Island. Mining of the deposit was completed during fiscal 2007, with both tonnage and grade exceeding expectations.
Cave Rocks. Cave Rocks is located approximately six kilometers to the west of the Kambalda West township and was previously an open pit mine in the mid-1980s. A feasibility study was completed during fiscal 2007, and mining of a series of three open pits commenced, producing a small quantity of ore in the last quarter of fiscal 2007. Mining of the open pits is scheduled to be completed during fiscal 2008. Development of an underground mine via a decline tunnel from the southern pit commenced in August 2007, with a second decline to be developed from the northern pit, which is expected to commence in November 2007. The underground mine will utilize open stoping methods to extract ore over an approximately four year period, with the first significant production expected to occur in the fourth quarter of fiscal 2008.
Leviathan Open Pit. The Leviathan open pit is based on the expansion of a pre-existing open pit located approximately two kilometers southeast of the Lefroy processing plant. Mining of the cut back commenced in the third quarter of fiscal 2007, with first ore production in the fourth quarter. The mine utilizes conventional shovel and truck mining practices; however, it has bulk mining zones, requiring less grade control drilling and enabling higher productivities to be achieved.
St. Ives whole of lease geological study incorporating shallow aircore drilling through to deep stratigraphic diamond drilling continued during fiscal 2007. This program incorporates follow-up exploration of identified targets. In addition, during fiscal 2007 exploration was advanced on a number of near mine extensions and new mine opportunities.
The complexity of the orebodies at St. Ives continued to present particular challenges to production levels and recovered grades in fiscal 2007. Refinement of the open pit and underground geological models was ongoing during fiscal 2007 as a result of additional drilling and reinterpretation of data and geology. The disruption caused to the mining sequence and schedule as a consequence of the delays experienced after the re-design of the Argo underground decline in fiscal 2006 further delayed St. Ives in its plans to reach some of the higher grade portions of the orebody, which were not accessed until the latter part of fiscal 2007. A significant reduction in mining dilution was achieved during fiscal 2007 in both the open pits and the underground mines.
The St. Ives production schedule requires that new open pit and underground mining sources are progressively accessed. The Bahama open pit began waste stripping during fiscal 2007 and it is expected that an extension to the Agamemnon and Pluton open pits, as well as Cave Rocks and Belleisle underground mines, will commence production during fiscal 2008. In addition, feasibility work for a new open pit and/or underground mine at Athena is expected to be undertaken. Based on the outcome of this feasibility study, mining of the deposit at Athena could commence in fiscal 2009.
All underground mining activities are completed under a contract with Carlowen Proprietary Ltd, which trades as GBF Underground Mining, or GBF. A five-year agreement with GBF commenced in April 2004, and it
operates under a cost reimbursable model. GBF provides all the employees, equipment and consumables necessary to complete the underground development and stoping. Under the terms of the contract, Gold Fields approves all expenditures incurred and guarantees to reimburse 95% of these costs, with the remaining 5% plus any profit earned contingent on GBF achieving certain key performance indicators. Under the terms of the contract, GBF is liable for claims arising from its performance or non-performance, and any loss, damage, injury or death related to the presence of its employees onsite. GBF is not liable for liabilities or losses that are the result of negligence or a breach of a statutory duty of the mine owner. GBF is required to ensure that it and any subcontractors have adequate insurance.
Leighton Contractors Proprietary Limited, or Leighton, performs the surface mining at St. Ives under an alliance contract which was extended in January 2004 for a five year period. Leighton provides employees, consumables and equipment for mining ore and waste disposal. The contract is structured so that Leighton carries all the risk on plant and personnel performance with Gold Fields carrying the risk on costs through reimbursement. Leighton is reimbursed 100% of its direct costs and is given an additional amount for overhead costs. Payments above costs are contingent upon Leighton achieving certain key performance indicators. Under the terms of the contract, Leighton is liable for claims arising from any loss and/or damage related to the negligence, injury or death of its employees on the sites. Leighton is not liable for claims or loss resulting from the mine owners negligence. Leighton is required to ensure that it and any subcontractors have adequate insurance.
Detailed below are the operating and production results at St. Ives for the past three fiscal years.
From fiscal 2006 to fiscal 2007 there was a slight increase in tonnage at St. Ives with a slightly higher tonnage treated at the Lefroy Plant more than offsetting a small decrease in tonnage treated through the heap leach circuit. The reduced tonnage treated through the heap leach was a consequence of ongoing refurbishment of the crushing circuit and operational delays in stacking to infill small gaps in the heaps. Gold production declined
from fiscal 2006 to fiscal 2007 primarily due to the lower grade of ores treated. In particular, the under-performance of the Argo underground mine in terms of tonnage mined and ore grade was a significant factor. Total cash costs in fiscal 2007 increased slightly as compared to fiscal 2006 due to the reduced gold production and rising input costs.
From fiscal 2005 to fiscal 2006 there was an increase in tonnage at St. Ives as a result of a full year of production from the new Lefroy Plant which achieved slightly better than nameplate capacity. Tonnage treated through the heap leach circuit declined slightly in fiscal 2006 due to work undertaken to upgrade the plant after St. Ives acquired the crushing circuit from the previous contractor in fiscal 2005. Gold production declined from fiscal 2005 to fiscal 2006 primarily due to the depletion of the large and higher grade Junction underground mine during fiscal 2005, which was effectively replaced by lower grade open pit ore during fiscal 2006. In addition, the East Repulse area within the Leviathan underground complex moved into the lower grade areas of its reserves as mining neared completion. Total cash costs in fiscal 2006 increased slightly as compared to fiscal 2005 due to reduced gold production and rising input costs.
Assuming that Gold Fields does not increase or decrease reserves estimates at St. Ives and that there are no changes to the current mine plan at St. Ives, St. Ives June 30, 2007 proven and probable reserves of 2.5 million ounces will be sufficient to maintain production through approximately fiscal 2013. However, as discussed earlier in Risk Factors and Mine Planning and Management, there are numerous factors which can affect reserve estimates and the mine plan, which could thus materially change the life of mine.
St. Ives is engaged in underground mining and in both open pit and production stockpile surface mining, and is thus subject to all of the underground and surface mining risks discussed in Risk Factors. Seismicity is the primary safety risk with mining increasingly occurring at depths below 500 meters. The risk is addressed through the use of backfilling and by mining different parts of the orebody in controlled steps to improve stability, which is called stope sequencing. No fatalities were recorded in fiscal 2005, 2006, 2007 or to date in fiscal 2008. The serious injury frequency rate for fiscal 2007, 2006 and 2005 was 0.0, 0.0 and 0.4 serious injuries per million hours worked, respectively. St. Ives has a health and safety system that conforms to the requirements of OHSAS 18001 and is integrated with its ISO 14001 environmental management system. There were no strikes or material work stoppages at St. Ives in fiscal 2007 or to date in fiscal 2008.
The Heap Leach Facility treats low and marginal grade ore from St. Ives. The crushing and stacking for this plant was previously conducted by a contractor, Henry Walker Eltin Proprietary Ltd, or Henry Walker Eltin. Gold Fields bought Henry Walter Eltins crushing equipment, which forms part of the Heap Leach Facility, in fiscal 2005 and now does its own crushing and stacking. The table below sets forth year commissioned, processing techniques and processing capacity per month, as well as average tons milled per month and metallurgical recovery factors during fiscal 2007, for each of the plants at St. Ives:
The Lefroy Plant was fully commissioned in February 2005 and is located on the south shore of Lake Lefroy, approximately 12 kilometers south of the township of Kambalda. The plant consistently achieved in excess of nameplate capacity throughout fiscal 2007 and optimization continued throughout the year to realize incremental improvements in throughput, costs and recovery.
During fiscal 2007, a number of improvements were made on the heap leach circuit after it was purchased from Henry Walker Eltin in fiscal 2005. In addition, an agglomeration drum, which should improve leaching performance of low grade oxide ores, was installed and began operation in the fourth quarter of fiscal 2007.
Gold Fields spent approximately U.S.$76 million on capital expenditures at St. Ives in fiscal 2007, primarily on on-going development of underground operations at Argo and Belleisle and pre-strip waste removal at the Bahama and North Revenge open pits. Gold Fields has budgeted approximately U.S.$70 million for capital expenditure at St. Ives for fiscal 2008, which is principally earmarked for mine development. Development expenditures are expected to focus on the ongoing development of the Argo and Belleisle underground mines and commencement of development of the Cave Rocks underground mine.
Agnew is located 23 kilometers southwest of Leinster, approximately 375 kilometers north of Kalgoorlie in Western Australia. It holds mining leases covering a total area of approximately 61,602 hectares. Agnew is a surface and underground operation, with one open pit, one underground mine (exploiting numerous ore zones), and one metallurgical plant. Agnew has access to the local electricity supplier and road infrastructure. Less than 10% of the water requirement comes from local bores. The bulk of the water is supplied from the mining operations and recovered from the in-pit tailings facility. Supplies are generally trucked in from Perth or Kalgoorlie. In fiscal 2007, the operation produced 0.212 million ounces of gold. As of June 30, 2007, Agnew had approximately 300 employees, including approximately 200 who were employed by outside contractors.
Gold was discovered at Agnew in 1895 and has since been produced there intermittently. WMC acquired the operation in the early 1980s and commenced open pit mining operations in 1987.
The Agnew deposits are located within the northwest portion of the Norseman-Wiluna greenstone belt of the West Australian Goldfields. In the Agnew area the greenstone belt consists of an older sequence of ultramafic
flows, gabbros, basalts, felsic volcanics and related sedimentary rocks. The rocks are folded about the large, moderately north plunging Lawlers Anticline. The Agnew deposits are located on the western limb of this anticline, and major deposits discovered to date lie on sheared contacts between stratigraphic units. The anticline is cut by north-northeast trending faults such as the Waroonga and East Murchison Unit shear zones.
The principal production sources in fiscal 2007 at Agnew were the Waroonga underground mining complex that comprises the Kim South and Main Lodes together with the Songvang open pit. Gold Fields expects the principal production sources in fiscal 2008 to be predominantly from the Waroonga underground mining complex. Mining of the Songvang open pit was completed in the first quarter of fiscal 2008. There is potential for production to be supplemented by ore from a trial mining project, which will be extracted from the Claudius orebody to confirm the feasibility study parameters.
Waroonga Complex. The Waroonga Complex currently includes underground mining of the Kim South and Main Lode deposits. Underground mining currently involves open stoping methods with cemented paste fill placed in mined out voids to improve ground stability, minimize waste dilution and maximize extraction of the reserve. Access to the orebody is through a decline tunnel which accommodates workers, materials and equipment. Ore production from the high grade Kim South deposit was less than anticipated due to the late commissioning of the paste fill plant, stope failures, ground rehabilitation works due to the deterioration of ground conditions in ore drives developed ahead of stoping and other operational delays resulting in lower tonnages mined. Production from the Main Lode was significantly below expectations due to the same causes. In fiscal 2007, exploration extended the life of Kim South by proving the continuation of the ore body with depth. In fiscal 2008, Gold Fields has scheduled the Kim South deposit to produce at consistent levels, but at a slightly lower rate and grade than fiscal 2007. It is anticipated that Main Lode production will increase significantly in tonnage and grade to give a balanced production profile to the complex for fiscal 2008.
Songvang Open Pit. The Songvang open pit, located 16 kilometers south of the Agnew metallurgical plant, commenced production during fiscal 2005. Mining during fiscal 2006 fell behind planned expectations due to the continuation of industry-wide shortages in labor with the requisite skills during the current resources boom and harder than expected ground conditions, which impacted equipment productivity. Additional drilling rigs were employed during fiscal 2007 together with technical input and improvements from site personnel and from the explosives supplier to improve blasting effectiveness. Mining equipment productivities increased as a consequence and the total volume mined exceeded expectations. The pit was completed early in fiscal 2008.
Claudius Underground Prospect. The Claudius underground prospect consists of a parallel extension to Agnews former Crusader and Deliverer underground mines. The infrastructure associated with the previous mining enabled the establishment, in fiscal 2005, of an exploration decline to the Claudius Prospect. Gold Fields deferred making a development decision on the project until fiscal 2007, due to the performance of the Kim underground deposit within the Waroonga complex, which exceeded expectations in fiscal 2005 and fiscal 2006. Assessment of the Claudius Prospect continued during fiscal 2007. A decision to mine a trial parcel of ore from Claudius to confirm the feasibility study assumptions was taken late in fiscal 2007. Development at that trial parcel commenced in early in fiscal 2008 and mining is expected to begin during fiscal 2008.
In fiscal 2006, Gold Fields executed an agreement with BMV Properties Pty Ltd, a subsidiary of Breakaway Resources Limited, or Breakaway. The previous joint venture agreements between the parties encompassing the Vivien deposit and the Miranda tenement package were replaced by an agreement in which Gold Fields is to be the registered tenement holder of all of the Vivien ground and the majority of the Miranda ground with all gold rights going to Gold Fields and all base metals rights going to Breakaway. Breakaways base metal rights are subject to Gold Fields right to a 2% royalty on future base metal production on the Miranda tenement. Although the agreement was executed in fiscal 2006, final settlement was dependent on the satisfaction of several outstanding conditions precedent, the principal one being the release of a third-party mortgage held over the tenements for gold and base metal royalties. By the end of fiscal 2006, the agreement of the third-party mortgage
holder had been confirmed, but other third-party consents (principally pertaining to access rights) were yet to be obtained. Final settlement took place in the third quarter of fiscal 2007.
Fiscal 2008 exploration at Agnew is planned to focus on early stage prospects within the regional tenements, including the Miranda tenement package, while continuing to look at reserve extensions at existing mine operations and feasibility projects, in particular at the Kim South deposit and other targets within the Waroonga complex.
Leighton performs the surface mining at Agnew, under an alliance-style contract which commenced in August 2004. Please see St. IvesMining for further information. Underground mining is performed by Byrnecut Mining Limited, or Byrnencut. Byrnecut provides employees, consumables and equipment for underground mining activities including drilling, blasting and haulage of the material produced from the mining activities, including both ore and waste. Byrnecut receives fees under the contracts which depend on the type of service being performed and the equipment being used, with adjustments for performance. Under the terms of the agreement, Byrnecut is liable for claims arising from its performance or non-performance and any loss, damage or injury related to the presence of its employees on the sites. Byrnecut is not liable for claims or loss due to the mine owners negligence. Byrnecut is required to ensure that it and any subcontractors have adequate insurance. The current agreement was extended to May 23, 2007 during fiscal 2006 and negotiations regarding a further extension and scope increase were conducted at that time. In fiscal 2007, the terms of a three -year extension were agreed and formal ratification occurred in the first quarter of fiscal 2008.
Detailed below are the operating and production results at Agnew for the past three fiscal years.
In fiscal 2007, 1.3 million tons of ore were processed and 0.2 million ounces of gold were produced. Tons processed were the same as in fiscal 2006 and gold production was slightly lower than in fiscal 2006 due to the treatment of lower grade ores. Total cash costs increased during fiscal 2007, as the contribution from the higher
cost Songvang open pit increased and open pit mining costs increased as the mine progressed into deeper and harder portions of the deposit.
In fiscal 2006, 1.3 million tons of ore were processed and 0.2 million ounces of gold were produced, compared to 1.2 million tons of ore in fiscal 2005. Tons processed and gold production were higher than fiscal 2005 due to improved productivity through the processing plant from systematic de-bottlenecking studies and actions, while maintaining ore grades at previous levels. The cessation of mining from the Crusader underground mine during fiscal 2005 was offset in fiscal 2006 by increased production from the Waroonga underground complex and improved grades from the Songvang open pit. Total cash costs increased during fiscal 2006, as the contribution from the higher cost Songvang open pit increased and open pit mining costs increased as the mine progressed into deeper and harder portions of the deposit.
Assuming that Gold Fields does not increase or decrease reserves estimates at Agnew and that there are no changes to the current mine plan at Agnew, Agnews June 30, 2007 proven and probable reserves of 0.6 million ounces will be sufficient to maintain production through approximately fiscal 2010. However, as discussed earlier in Risk Factors and Mine Planning and Management, there are numerous factors which can affect reserve estimates and the mine plan, which could thus materially change the life of mine.
Agnew is engaged in underground mining, open pit mining and surface stockpile reclamation and is thus subject to all of the underground and surface mining risks discussed in Risk Factors. The primary safety risk at Agnew is falls of ground at the underground operations, which is addressed through the use of ground support, backfilling of open voids and sequencing of mine operations to improve overall stability of the ground. There were no fatalities at Agnew in fiscal 2005, 2006, 2007 or to date in fiscal 2008. The serious injury frequency rate for fiscal 2007, 2006 and 2005 was 0.0, 0.0 and 2.2 serious injuries per million hours worked, respectively. Agnew deploys a health and safety management system that conforms to the requirements of OHSAS 18001. The mine also has an environmental management system that is certified to the ISO 14001 standard. There were no strikes or material work stoppages at Agnew in fiscal 2007 or to date in fiscal 2008.
All processing at Agnew is provided by a single plant. The following table sets forth year commissioned, processing techniques and processing capacity per month, as well as average tons milled per month and the metallurgical recovery factor during the fiscal year ended June 30, 2007 for the plant:
In fiscal 2007, a new elution circuit heater was installed and commissioned to improve the efficiency of the elution circuit to cater for the high silver content in the open pit ore.
Gold Fields spent approximately U.S.$28 million on capital expenditures at Agnew in fiscal 2007, primarily on ongoing development of the Kim South and Main Lode underground mines and expansion of accommodation facilities at Leinster township. Gold Fields has budgeted approximately U.S.$24 million for capital expenditure at Agnew for fiscal 2008, primarily for exploration and further development of the Kim South and Main Lode underground mines.
On November 30, 2007, Gold Fields disposed of its assets in Venezuela. See Recent Developments. Gold Fields owned its 95% interest in the Choco 10 mine through its shareholding in Promotora Minera de Guayana (PMG) S.A., or PMG. PMG was originally a joint venture company formed between Promotora Minera de Venezuela, S.A., or Promiven (now a wholly-owned subsidiary of Gold Fields), and CGFerrominera Orinoco, C.A., or FMO, a subsidiary of Corporación Venezolana de Guayana, or CVG, a governmental development entity for the Guayana region.
Gold Fields 95% interest in PMG resulted from an agreement between Promiven and FMO with the mediation of the Ministry of Basic Industries and Mines on July 15, 2005, in connection with a shareholding dispute regarding the share capital of PMG that arose prior to Gold Fields acquisition of PMG. Pursuant to this agreement, the remaining 5% interest in PMG is not subject to dilution. CVG expressed its intent to assign FMOs participation either to CVG or a different subsidiary thereof. As part of the settlement, Promiven agreed to make payments totaling U.S.$6 million (of which U.S.$5 million has been paid) to FMO. Notwithstanding the above, due to changes at the Ministry of Basic Industries and Mines and CVG, the agreement had not been formally implemented prior to Gold Fields sale of its Venezuelan assets. Gold Fields assumed operation of PMG on March 1, 2006.
The properties held through PMG include Choco 10, Choco 4, Bochinche B1 and B2 and Bochinche Zero, which were 95% owned by Gold Fields. Other exploration properties, which include Choco 1, 2, 6, 9, 12 and 13 and Increible 16, were wholly-owned by Gold Fields and held through various other Venezuelan subsidiaries.
Pursuant to the Choco 4 and Choco 10 lease agreements between CVG and PMG, PMG must pay a monthly production royalty to CVG and CVG Técnica Minera C.A. (a CVG subsidiary). The royalty is paid monthly in arrears in Bolivars, at the official exchange rate in place (or in gold at the request of CVG, although to date CVG had not made this request prior to Gold Fields sale of its Venezuelan assets), within the first 10 days of each calendar month, based on the production of the immediately preceding calendar month. It is calculated monthly, is based on the number of ounces of gold produced and ranges between 1.0% and 3.5%, depending on the average price of gold in the New York market for the relevant month, as determined by CVG. This royalty amount is subject to value added tax at a rate of 9%.
The Choco 10 mine is located in the south-eastern part of Venezuela in the Bolivar state, approximately 15 kilometers west of the town of El Callao. The mine is located on an exploitation project which amalgamates the Choco 10 and Choco 4 concessions. Choco 10 operates under a mining lease which is approximately 2,100 hectares. The major industrial city of Puerto Ordaz is located 190 kilometers northwest of El Callao and is linked to the mine by paved road. Venezuela has a good road infrastructure, although close to the mine area road conditions have been deteriorating during the last 15 years. Under the terms of its exploitation certificate Gold Fields was obligated to maintain a portion of the access road for the Choco 10 mine.
The Choco 10 mine commenced production in August 2005. Current operations consist of open pit mining and a processing plant comprising conventional comminution and carbon-in-pulp processing. The Choco 10 mine
uses typical open pit mining methods of drilling, blasting, loading and hauling. Gold Fields operated two pits within the Choco 10 concession, Pisolita and Rosika-Coacia. The pits are located two to three kilometers from the main plant.
The Choco 10 mine is connected to the main electricity grid that transmits energy from Venezuela to Brazil. A rain-dependent reservoir supplies water for use at the mine, which is supplemented through a well field that is being developed and commissioned. For the year ended June 30, 2007, the Choco 10 mine produced approximately 0.055 million ounces of gold. As of June 30, 2007, Choco 10 had approximately 1,000 employees, including 400 employed by outside contractors.
Mining in the area of the Choco 10 concession dates back to 1897, when a British company operated the historic Concordia mine located two kilometers from the current Choco 10 operation. Modern exploration commenced with Promivens 1992 concession for Choco 10. The mine was commissioned in April 2005 and operations started in August of the same year.
Gold mineralization is typical of Archaean-Proterozoic orogenic gold deposits. The deposit is hosted in the Early Proterozoic sequence of the Pastora Greenstone Belt of the Guiana Shield. The stratigraphy comprises a tholeiitic to calc-alkaline volcanic package, overlain by volcaniclastic and epiclastic rocks intruded by gabbroic sills. The rock package has been subjected to intense tropical weathering. Mineralization is hosted in a series of structurally controlled quartz-vein shear lodes which dominantly strike north-south and northeast-southwest. High-grade gold mineralization occurs with pyrite, carbonate, strong silicification and quartz-veining in low-strain zones of deformation typically associated with folding and chaotic foliations.
Choco 10 presented no unusual operational challenges beyond those faced at most open pit mining operations. The principal operational challenges were improving the processing plant availability and throughput, although substantial improvements were made. Alternative water sources for processing plant usage were developed and improvements were made in process water recovery implemented.
Gold Fields owned its own fleet of mining equipment which it acquired as part of the Bolivar transaction. The fleet experienced low mechanical availability due mainly to the lack of critical spares parts and the long lead time associated with procurement. A mining contractor was brought in to assist in meeting the required tonnage movement.
Detailed below are the operating and production results at Choco 10 for the four-month period from March 1, 2006 to June 30, 2006 (the period of Gold Fields ownership of the mine in fiscal 2006) and for fiscal 2007.
Choco 10 engages in open pit and production stockpile surface mining and is thus subject to all of the surface mining risks discussed in Risk Factors. Although surface mining generally is less dangerous than underground mining, serious and even fatal accidents do still occasionally occur. Choco 10 did not have any fatal injuries in fiscal 2006, fiscal 2007 or in fiscal 2008 while it was owned by Gold Fields. Because Gold Fields took over operation of the mine late in fiscal 2006, the Company was not able to generate fiscal year accident frequency rates on a basis comparable to those provided for Gold Fields other operations for fiscal 2006 or 2005. The serious injury frequency rate for fiscal 2007 was 4.3 serious injuries per million hours worked.
All processing at Choco 10 is provided by a single plant. The following table sets forth year commissioned, processing techniques and processing capacity per month, as well as average tons milled per month and metallurgical recovery factor during the fiscal year ended June 30, 2007 for the plant:
Choco 10 ore is processed using a conventional SAG-ball milling system and CIP circuit plant. The plant was commissioned in 2005. During the period of ownership by Gold Fields it became apparent that modifications and improvements were required to raise the throughput to the nameplate throughput consistently and safely, which Gold Fields undertook. At the time of sale, production at Choco 10 was at nameplate capacity of 160,000 tons per month on a consistent basis.
Gold Fields spent approximately $18 million on capital expenditure at the Choco 10 operation in fiscal 2007, primarily on water related projects, mining equipment and management implementation systems, or SAPS. Prior to the sale of Choco 10 on November 30, 2007, Gold Fields spent approximat