CAN THE GOLD INDUSTRY AVOID THE SINS OF THE PAST? NICK HOLLAND - - PowerPoint PPT Presentation

AUSTRALIAN INTERNATIONAL MINE MANAGEMENT CONFERENCE 22 AUGUST 2016

CAN THE GOLD INDUSTRY AVOID THE SINS OF THE PAST?

NICK HOLLAND CEO GOLD FIELDS

MESSAGE OF THE PRESENTATION

In 2012 I said that the industry needed to change the way it operated.

The fall in gold price forced a change in focus from growth to Free cash flow Costs have been cut, unprofitable production closed, greenfields exploration slowed and new projects delayed Now, producers have to provide shareholders with a return on investment and leverage to the gold price

BUT, have we as an industry done enough? Are we losing focus with the recent recovery in gold price? WHERE TO FROM HERE?

To come to our conclusions, we have analysed financial and operating trends between 2012 and 2015 of a sample of the largest global gold producers to form an industry proxy. COMPANIES INCLUDE:

1

MESSAGES FROM THE MELBOURNE MINING CLUB IN 2012

2

2012 MESSAGE

WHEN I PRESENTED AT THE MELBOURNE MINING CLUB IN 2012, I SAID THAT THE INDUSTRY WAS FAILING ITS SHAREHOLDERS IN KEY AREAS:

PASS/FAIL METRIC Volume growth Margin expansion Capital optimisation Balance sheet leverage Dividends

UP UNTIL 2012, THE INDUSTRY HAD FAILED TO OPTIMISE CAPITAL:

Capex/oz 10-year CAGR (to 2012) of 32% M&A spend/oz 10- year CAGR (to 2012) of 17% BUT, production had declined slightly

Management teams were in the habit of overpromising and under delivering However, rhetoric among the producers was beginning to change in 2012: Cash is king, not growth THE GOLD INDUSTRY WAS FAILING SHAREHOLDERS

3

PARTING THOUGHTS FROM 2012

CONCLUDING COMMENTS FROM 2012 It’s not about ounces for ounces’ sake. The focus had to shift from

• unces in the ground and level of production to free cash flow

The Industry had to adopt an all encompassing cost measure Mining companies needed to optimise their mining practices and capital allocation Management teams had to deliver on promises (production and cost guidance). No more overpromising and under delivering Believe in the product: stay focused on gold

4

CHANGE WAS NECESSARY

WHAT HAS HAPPENED SINCE 2012?

5

MACROS TURNED… GOLD TANKED

PRODUCERS WERE FORCED TO RESTRUCTURE

The gold price peaked at US$1,900/oz in September 2011 before falling to a low

• f US$1,050/oz in

December 2015 The gold equity indices fell on average 75% from the beginning of 2011 to their lows at the end of 2015

800 1 000 1 200 1 400 1 600 1 800 2 000 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 US$/oz GOLD PRICE Source: Bloomberg 20 40 60 80 100 120 140 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 GOLD EQUITIES LOST SIGNIFICANT VALUE XAU JSE gold index ASX gold index TSX gold index Source: Bloomberg, Indexed at 100 in January 2011

6

INVESTORS FLED

200 400 600 800 1 000 1 200 1 400 1 600 1 800 2 000 10 20 30 40 50 60 70 80 90 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 US$/oz Moz ETF HOLDINGS VS. GOLD PRICE ETF holdings Gold price Source: Bloomberg

ETF holdings peaked at 2,632 tonnes (85Moz) in

• 2013. At end-2015, total

assets under management amounted to 1,467 tonnes (47Moz)

150 100 50 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 ASSETS UNDER MANAGEMENT OF GOLD FUNDS HAVE FALLEN SIGNIFICANTLY

First Eagle Gold Fund Asa Gold & Precious Metals Fidelity Select Gold Portfolio Fidelity Advisor Gold Franklin Gold & Prec Mtl Tocqueville Gold Fund Usgi Gld & Prec Metls Usaa Precious Metals & Miner Van Eck Intl Invest Gold

Source: Bloomberg

Index (Jan 2011 = 100) 7

CONFIDENCE IN THE SECTOR DECLINED

Combined AUM at the 9 biggest global gold funds fell from US$24bn at the beginning of 2011 to US$5bn at end-2015

PRODUCTION GROWTH SLOWED

Marginal increase in production from our sample of producers in the last 4 years (2011 to 2015) Lower production from the blue chips has been replaced by growth from the mid tier producers

20 000 22 000 24 000 26 000 28 000 30 000 32 000 34 000 2011 2012 2013 2014 2015 koz PRODUCTION FROM THE TOP 11 PRODUCERS Source: Company Reports

8

NO REAL GROWTH IN PRODUCTION

• 10%
• 5%

0% 5% 10% 15% 20% 25% Barrick AngloGold Newcrest Newmont Kinross Gold Fields Polyus Sibanye Goldcorp Randgold Agnico 5-YEAR PRODUCTION CAGR Source: Company Reports Note: Gold Fields has been adjusted to account for spin off of Sibanye assets

BUT THE PRODUCERS REACTED

VAST IMPROVEMENT IN REPORTED COSTS

• AISC 22% lower in 2015 than in
• 2012. Three year CAGR of – 8%
• AIC 36% lower in 2015 than in
• 2012. Three year CAGR of –14%

SIGNIFICANT REDUCTION IN CAPEX

• Both stay-in-business (SIB) and

project capex EXPLORATION SPEND HAS MORE THAN HALVED IN 2015 COMPARED TO 2012

• US$36/oz in 2015 vs. US$78/oz

in 2012 BALANCE SHEET DELEVERAGING IS FIRMLY UNDERWAY

• Industry proxy of net

debt/EBITDA of 1.45x in 2015, down from peak of 1.89x in 2014

9

CAPITAL DISCIPLINE HAS IMPROVED

REPORTED AISC AND AIC HAVE COME DOWN

In 2013, the World Gold Council introduced the All-in Sustaining Cost (AISC) measure to show all costs associated with producing an

• unce of gold

On the face of it, the industry has done a great job in bringing costs under control Question: Is the lower cost base sustainable or has the industry gone too far?

THE INDUSTRY HAS DONE WELL IN CONTAINING COSTS, ON THE FACE OF IT

1 115 1 067 949 873 1 490 1 395 1 087 959 200 400 600 800 1 000 1 200 1 400 1 600 2012 2013 2014 2015 US$/oz INDUSTRY AISC AND AIC TRENDS AISC AIC Source: Company Reports

10

CURRENCIES AND OIL WILL NORMALISE AT SOME POINT

CURRENCIES AND OIL HAVE BEEN MAJOR TAILWINDS

50% - 60% OF PRODUCTION IS IN LOCAL CURRENCIES Since mid-2012, ZAR has depreciated by 47%, AUD by 26%, and CAD by 21% relative to the USD ON AVERAGE, DIESEL ACCOUNTS FOR 10%

• 15% OF THE TOP PRODUCERS’

OPERATING COSTS Since mid-2012, the oil price has fallen by 55%

20 40 60 80 100 120 140 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 US$/barrel OIL HAS FALLEN SIGNIFICANTLY Source: Bloomberg 0,40 0,50 0,60 0,70 0,80 0,90 1,00 1,10 1,20 0,00 0,02 0,04 0,06 0,08 0,10 0,12 0,14 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 A$/US$ ; C$/US$ US$/ZAR CURRENCIES ARE VOLATILE USD/ZAR AUD/USD (rhs) CAD/USD (rhs) Source: Bloomberg (lhs)

11

CURRENCIES DO NOT ONLY MOVE IN ONE DIRECTION

HISTORY SHOWS THAT CURRENCIES REVERT

History shows that currencies are volatile and do not only move in one direction

12

4 6 8 10 12 14 16 18 Jan-00 Aug-00 Mar-01 Oct-01 May-02 Dec-02 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 Nov-12 Jun-13 Jan-14 Aug-14 Mar-15 Oct-15 May-16 ZAR/USD Source: Bloomberg 0,5 0,6 0,7 0,8 0,9 1,0 1,1 Jan-00 Aug-00 Mar-01 Oct-01 May-02 Dec-02 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 Nov-12 Jun-13 Jan-14 Aug-14 Mar-15 Oct-15 May-16 CAD/USD Source: Bloomberg 0,4 0,5 0,6 0,7 0,8 0,9 1,0 1,1 1,2 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 AUD/USD Source: Bloomberg

SIB CAPEX DECREASED FROM 46% OF OPEX IN 2012 TO 26% IN 2015

CAPEX HAS FALLEN DRAMATICALLY

Capital expenditure has been

• ne of the ‘low hanging fruits’

targeted by gold miners in their cost cutting drives Was the industry really that poor at allocating capital or have miners been cutting too much sustaining capex to lower AIC and preserve margins? Of concern is the notable decrease in Stay In Business (SIB) capex from US$305/oz in 2012 to US$160/oz in 2015 In the charts below, we illustrate the extremity of these cuts

5 000 10 000 15 000 20 000 25 000 2012 2013 2014 2015 US$m ABSOLUTE CAPEX OF INDUSTRY PROXY Project capex SIB capex 305 235 180 160 359 311 121 75 100 200 300 400 500 600 700 800 50 100 150 200 250 300 350 400 2012 2013 2014 2015 US$/oz US$/oz INDUSTRY CAPEX PER OUNCE PRODUCED SIB capex Project capex Opex (rhs) Source: Company Reports Source: Company Reports (lhs) (lhs)

13

PRODUCTION GROWTH WAS PUT ON THE BACK BURNER

PROJECTS DELAYED/CANCELLED OVER THE PAST 5 YEARS

• New projects have been deferred or cancelled due to an uptick in opposition from host

communities and environmental authorities as well as financial constraints and failing to meet internal hurdle rates

• Possible outcome: JVs on new projects to spread the risk and lower the capital outlay

PROJECT COUNTRY REASON FOR STOPPAGE/DELAY RESERVES (MOZ) PLANNED PEAK PRODUCTION (KOZ PA)

Conga Peru Stopped due to community opposition 6.1 300 - 350 Pascua Lama Chile/Argentina Stopped by environmental authorities 18.0 750 - 800 Cerro Casale Chile Delayed due to unfavourable economics 23.0 1000 - 1100 Obuasi Ghana Delayed due to restructuring and illegal mining 5.7 400 Rosia Montana Romania Stopped by environmental authorities 10.1 500 Pebble USA Delayed due to community opposition 37.0 (Resources) na La Colosa Colombia Delayed due to environmental issues 12.4 800 - 1000 Skouries Greece Delayed due to community opposition and environmental authorities 2.2 140

14

HAVE COSTS REALLY DECLINED SUSTAINABLY?

SO, WHAT IF WE NORMALISE FOR CURRENCY, OIL AND SIB CAPEX?

We have normalised for currency,

• il and SIB capex by using the

previous three-year average for currencies (CAD, AUD and ZAR) and oil, and assuming SIB capex

• f US$250/oz

Some capital has potentially been misallocated between sustaining capital and project capital. If taken into account, this could make the impact on AISC more pronounced Combined impact of these three variables on AISC: 2013: US$28/oz 2014: US$104/oz 2015: US$188/oz

Source: Company Reports 1 115 1 115 1 067 1 094 949 1 053 873 1 061 200 400 600 800 1 000 1 200 ADJUSTING AISC FOR CURRENCY, OIL AND SIB Base Currency Oil SIB 23 31 42 2 7 60 2 65 85 10 20 30 40 50 60 70 80 90 2013 2014 2015 US$/oz IMPACT OF VARIABLES ON INDUSTRY AISC Currency Oil SIB Source: Company Reports US$/oz Reported Adjusted 2012 Reported Adjusted 2013 Reported Adjusted 2014 Reported Adjusted 2015

15

CURRENCY BENEFIT IS NOT FOR FREE

WHAT DOES HISTORY TELL US ABOUT PERIODS OF CURRENCY WEAKNESS?

A weaker trade-weighted ZAR leads to higher SA

• inflation. AUD weakness

leads to and increase in Australian CPI There is a lag of roughly 2 quarters for the impact to be felt

PERIODS OF CURRENCY WEAKNESS HAVE HISTORICALLY LED TO INFLATION IN THE LOCAL ECONOMY

16

0% 4% 8% 12% 16% 20%

• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 CHANGE IN ZAR VS. CPI Trade-weighted ZAR YoY%

• S. Africa CPI YoY % (rhs, inverted)

Source: I-Net Bridge

• 1%

1% 3% 5% 7% 9%

• 30%
• 20%
• 10%

0% 10% 20% 30% 87 89 91 93 95 97 99 01 03 05 07 09 11 13 CHANGE IN AUD VS. CPI AUD/USD YoY% Aus CPI YoY % (rhs, inverted) Source: I-Net Bridge

COMPANIES HAVE BEEN SPENDING LESS ON EXPLORATION

Exploration budgets have been slashed The bulk of exploration is focused on brownfields projects and near-mine development Greenfields exploration has all but dried up If this continues, what does this mean for the industry in five years’ time?

10 20 30 40 50 60 70 80 90 2012 2013 2014 2015 US$/oz TOTAL EXPLORATION / OZ Source: Company Reports 500 1 000 1 500 2 000 2 500 2012 2013 2014 2015 US$m TOTAL EXPLORATION Source: Company Reports

17

EXPLORATION SPEND WAS THE LOW HANGING FRUIT

AND NOT FOCUSING ON RESERVE REPLACEMENT

Gold companies have not been spending enough to replace reserves, never mind grow them As a result of underspending and lower gold price, reserve life has fallen from 24 years in 2012 to 17 years in 2015 Acquisitions of in-production

• unces is in vogue: to fill the

impending production gap

THE INDUSTRY NEEDS TO SPEND TO REPLACE RESERVES

5 10 15 20 25 100 200 300 400 500 600 700 800 2011 2012 2013 2014 2015 Years Moz RESERVES AND RESERVE LIFE Reserves Reserve life (lhs) Source: Company Reports (lhs)

18

APPARENT HIGH-GRADING HAS HELPED COSTS

WE HAVE CONSISTENTLY MINED ABOVE RESERVE GRADE OVER THE PAST FIVE YEARS

The difference between head grade and reserve grade increased in 2014 when the industry was mining almost 1g/t above reserve grade

THIS GRADE INCREASE HAS FAVOURABLY IMPACTED AISC WHEN MEASURED IN US$/OZ

Unit cost decreases are significantly lower when looked at in US$/tonne terms, particularly in 2014 and 2015

200 400 600 800 1000 1200 1400 1600 1800 0,00 0,50 1,00 1,50 2,00 2,50 2011 2012 2013 2014 2015 US$/oz g/t HEAD GRADE VS. RESERVE GRADE Difference Reserve grade Head grade Gold price Source: Company Reports

• 7,9%
• 5,4%
• 12%
• 10%
• 8%
• 6%
• 4%
• 2%

0% 2013 2014 2015 3-year CAGR YOY CHANGE IN AISC - US$/OZ VS. US$/T US$/oz US$/t Source: Company Reports

19

COST SAVINGS AMPLIFIED BY HIGH-GRADING

FINANCIAL METRICS HAVE STARTED TO IMPROVE

As a result of cost saving initiatives and currency and oil tailwinds, there has been a reversal in Net cash flow and margins over the past two years How much of these cost savings are due to exogenous factors? However, without a continued pick up in the gold price, we question the sustainability of this trend as gold companies now need to reinvest

Note: Net cash flow = Cash generated from operating activities – Total capex

• 6 000
• 4 000
• 2 000

2 000 4 000 6 000 8 000 2012 2013 2014 2015 US$m NET CASH FLOW

• 10%
• 5%

0% 5% 10% 15% 2012 2013 2014 2015 NET CASH FLOW MARGIN Source: Company Reports Source: Company Reports

20

COMPANIES HAVE FOCUSED ON CASH FLOW AND TRENDS HAVE IMPROVED

BALANCE SHEETS HAVE STRENGTHENED…

…BUT INTEREST RATES WILL EVENTUALLY RISE

Balance sheets have strengthened but producers have been shielded by low interest rates The gold industry has been hindered by high levels of debt, with many producers turning to asset sales or equity raises as a means of addressing their indebtedness

Recent equity raises: Gold Fields US$150m, Kinross US$300m, Franco Nevada US$920m, Silver Wheaton US$550m, Pretium US$150m, Independence Group US$188m, Centerra US$152m, IAM Gold US$200m Recent asset sales: Bald Mountain & Round Mountain US$610m, Cripple Creek & Victor US$820m, Cowal gold mine US$550m, Porgera US$250m Only in the last 12 months have some of the producers applied free cash flow to reduce debt levels, albeit in small amounts

0% 10% 20% 30% 40% 50% 5 10 15 20 25 30 35 2012 2013 2014 2015 US$bn STARTING TO ADDRESS THE DEBT POSITION Net debt Net debt/Equity Net debt/Mkt cap Source: Company Reports (rhs) (rhs) (lhs) 0.90 1.76 1.89 1.45 0,0 0,2 0,4 0,6 0,8 1,0 1,2 1,4 1,6 1,8 2,0 2012 2013 2014 2015 NET DEBT/EBITDA Source: Company Reports Ratio

21

HAVE SHAREHOLDERS BENEFITED FROM IMPROVED CAPITAL DISCIPLINE?

Gold companies have historically used script to fund acquisitions or growth projects

• Production/share three year CAGR: -1,3%
• EBITDA/share three year CAGR: -15,4%

Gold companies need to start focusing on per share metrics to measure performance

EQUITY IS NOT FOR FREE

0,103 0,104 0,105 0,106 0,107 0,108 0,109 7 500 7 750 8 000 8 250 8 500 8 750 9 000 2012 2013 2014 2015 grams/share Shares (m) SHARES IN ISSUE VS. PRODUCTION Shares Production (g/share) 200 400 600 800 1000 1200 1400 1600 1800

• 1,00
• 0,50

0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 2012 2013 2014 2015 US$/oz US$/share EBITDA AND NET CASH FLOW PER SHARE EBITDA/share Net CF/share Gold (rhs) Source: Company Reports Source: Company Reports

22

THE GOLD SECTOR HAS BEEN A POOR DIVIDEND PAYER

Gold producers have been notoriously poor dividend payers Dividends have generally been linked to earnings and as such have been insignificant. Do gold companies have to start rethinking dividend policies to make dividends more meaningful? Gold companies that have paid higher dividend yields have been rewarded through equity performance

0,00% 0,25% 0,50% 0,75% 1,00% 1,25% 1,50% 1,75% 2,00% 500 1 000 1 500 2 000 2 500 3 000 3 500 2011 2012 2013 2014 2015 US$m DIVIDEND YIELDS HAVE BEEN UNATTRACTIVE Dividend amount Dividend Yield Source: Company Reports

23

DIVIDEND PAYOUTS NEED TO BE REVIEWED

REVISITING THE PARTING THOUGHTS

PASS/FAIL CONCLUDING COMMENTS FROM 2012 It’s not about ounces for ounces’ sake. The focus had to shift from ounces in the ground and level of production to free cash flow The Industry had to adopt an all encompassing cost measure Mining companies needed to optimise their mining practices and capital allocation Management teams had to deliver on promises (production and cost guidance). No more overpromising and under delivering Believe in the product: stay focussed on gold

THE INDUSTRY HAS REACTED

24

WHERE TO FROM HERE?

25

GOLD HAS HAD ITS STRONGEST YEAR IN DECADES, UP 25% YEAR TO DATE GOLD EQUITY INDICES HAVE RISEN BY OVER 100% ON AVERAGE SINCE THE BEGINNING OF 2016

50 100 150 200 250 300 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 GOLD EQUITIES HAVE RECOUPED SOME LOSSES XAU JSE gold index ASX gold index TSX gold index 800 900 1 000 1 100 1 200 1 300 1 400 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 US$/oz THE GOLD PRICE RECOVERY HAS BEEN UNEXPECTED Source: Bloomberg Source: Bloomberg

2016 YEAR TO DATE

26

A PERIOD OF RECOVERY

SINCE THE BEGINNING OF 2016, ETF HOLDINGS HAVE INCREASED BY 545 TONNES (17.5MOZ) TO 2005 TONNES (64.5MOZ) COMBINED AUM AT THE 9 BIGGEST GLOBAL GOLD FUNDS HAVE INCREASED BY US$8.2BN YEAR TO DATE

50 100 150 200 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 ASSETS UNDER MANAGEMENT OF GOLD FUNDS ARE RISING First Eagle Gold Fund Asa Gold & Precious Metals Fidelity Select Gold Portfolio Fidelity Advisor Gold Franklin Gold & Prec Mtl Tocqueville Gold Fund Usgi Gld & Prec Metls Usaa Precious Metals & Miner Van Eck Intl Invest Gold 400 600 800 1 000 1 200 1 400 1 600 30 35 40 45 50 55 60 65 70 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 US$/oz Moz STEADY INFLOWS INTO ETFS ETF holdings Gold price Source: Bloomberg Source: Bloomberg

ETFs AND ASSETS UNDER MANAGEMENT HAVE FOLLOWED

27

INVESTMENT HAS RETURNED

THE EUPHORIA IS BACK

The rise in gold price in 2016 has resulted in a step up in capital raisings and M&A activity:

• US$2.9bn in Equity Capital Market (ECM) deals year to date
• Some of the bigger ECM deals in 2016 include: Gold Fields

US$150m, Kinross US$288m, Franco Nevada US$920m, Silver Wheaton US$550m, IAM Gold US$200m, Independence Group US$188m

• US$2.5bn of M&A activity year to date
• Asset/company purchases in 2016: Bald Mountain & Round

Mountain US$610m, True Gold mining US$180m, Amara Mining US$116m, Lake Shore Gold Corp US$547m, Claude Resources US$240m, Kaminak US$405m, Goldrock US$102m, Porgera US$250m

• Barrick has noted its intention to sell its 50% stake in KGHM

28

OLD HABITS DIE HARD

IT’S BACK TO GROWTH!

• “New approach needed to prevent gold miners’ sins of

the past” Miningweekly.com, 10 June 2016

• “Australia halfway down the mining investment cliff –

National Australia Bank” Miningweekly.com, 13 June 2016

• “Australia exploration spend falls for eighth straight

quarter” Miningweekly.com, 3 June 2016

• “Australian gold output slips 2% as miners dig lower

grade ore” Reuters.com, 29 May 2016

• “Risks mount for gold producers over deep capex cuts”

Mining.com, 19 May 2016

• “Miners cut distressed debt pool by $60bn as rebound

firms” Miningweekly.com, 13 June 2016

• “Gold firms gear up for growth as cost of mining the

metal falls” Mining.com 8 June, 2016

• “Gold miners talk about expanding after years of cost

cutting monologues” BDlive.co.za, 8 June 2016

• “Gold miners set to relax death grip on spending as

caution eases” Miningweekly.com, 19 July 2016

29

FUNDAMENTALS ARE SUPPORTIVE

Gold remains an important asset class

• US$1.5tn in value in

2015; peaked at US$2.0tn in 2012 Growth in primary supply is constrained

• The rate of growth in global

supply has slowed to 1.5% in 2015 from 7.5% in 2009

0,0% 0,1% 0,2% 0,3% 0,4% 0,5% 0,6% 0,7% 0,8% 0,9% 200 400 600 800 1000 1200 1400 1600 1800 2000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 US$bn GOLD STILL AN IMPORTANT ASSET CLASS Total value % of total assets Source: The CPM Gold Yearbook 2016 20 40 60 80 100 120 2 4 6 8 10 12 14 16 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Moz Moz MINE SUPPLY

Total (rhs) South Africa USA Australia Canada Ghana Peru Mexico Indonesia Rusia China

Source: The CPM Gold Yearbook 2016

• 4,0%
• 2,0%

0,0% 2,0% 4,0% 6,0% 8,0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 YOY PRODUCTION GROWTH Source: The CPM Gold Yearbook 2016

30

FUNDAMENTALS ARE SUPPORTIVE

Demand

• ETFs: Outflows have started to reverse since

significant drop that began mid-2013

• Central bank buying: EM banks have been

increasing reserves

• Physical buying: China and India continue to

drive demand Gold price expectations

• Consensus estimate:

US$1,306/oz

• Futures prices on

Bloomberg: US$1,343/oz

IN THE LONG RUN, SUPPLY/DEMAND MUST PLAY A KEY INFLUENCE IN DETERMINING THE GOLD PRICE

0% 20% 40% 60% 80% 100% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 JEWELLERY, BARS & COINS DEMAND India China Rest of World Source: World Gold Council 920 940 960 980 1 000 1 020 1 040 1 060 10 20 30 40 50 60 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Tonnes Tonnes CENTRAL BANK HOLDINGS World (rhs) China Russia Source: The CPM Gold Yearbook 2016 (Ihs) (Ihs)

31

Source: World Gold Council

• 200
• 100

100 200 300 400 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 Tonnes QUARTERLY ETF FLOWS

What are key attributes for you to invest in a gold company?

• Focus on per share metrics. Companies need to grow value without

diluting shareholders

• Risk management, capital allocation and operational delivery are

important Is growth in production important?

• Yes, if it results in increased value, otherwise no point
• Secondary to profitability

What is the optimal capital structure for a gold company?

• There isn’t necessarily an ideal capital structure
• BUT the less debt the better

Are dividends important?

• Views are split
• Some investors feel dividends are essential while others say they

should only be paid if there aren’t better uses of the capital

WHAT DO INVESTORS WANT?

32

WHAT DO INVESTORS WANT? (CONTINUED)

Have gold companies been underspending capex?

• Gold companies have been poor at allocating capital
• There is a suspicion that companies might have been spending too

little sustaining capex in recent years What is the optimal size of a gold company?

• There is not necessarily an optimal size but gold companies can get

too big

• Consensus view on a good size: 2.0Moz – 2.5Moz with 6 – 10 mines

spread across a manageable number of jurisdictions in low to medium risk geographies Are non-financial/ESG issues important when investing in a gold company?

• Yes! And they are getting more so

Should gold companies have assets in different stages of the production chain (greenfields, in development, in production)?

• Definitely! Companies have to regenerate and replace maturing mines
• Business should be diversified to operate in different point of the cycle

33

• Gold producers need to embrace innovation and technology

̵ Grades are decreasing, mining depths are increasing and mineralogy is becoming more complex ̵ Gold miners will need to get good at mining lower grade, more complex orebodies profitably

• Collaboration and the use of Joint Ventures will increase

̵ Big bang acquisitions will be less common. Producers will look to spread risk and cost (hedge bets)

• Exploration will increase, there is no choice

̵ Greenfields will return. Is the junior exploration industry the best hunting ground for the majors to get greenfields back into their portfolios?

PARTING THOUGHTS

34

• Assuming long-term estimates hold true, the gold industry will contract

̵ We have made changes in response to the fall in price but have been helped by currency weakness and a falling oil price

• Has the gold price recovery come too soon? Does there still need to

be some cleansing?

• Key Question: What happens if the gold price continues to recover?

̵ Has the industry learnt from past mistakes (chasing ounces, reducing cut-off grades) or will it go back to its old ways of spending all cash flow to grow production

• Why do investors want to invest in gold companies:

̵ Margin expansion with a rising gold price ̵ Growth in free cash flow ̵ Optionality for investors looking for beta on top of cash flow

PARTING THOUGHTS

(CONTINUED)

35

AUSTRALIAN INTERNATIONAL MINE MANAGEMENT CONFERENCE 22AUGUST 2016

CAN THE GOLD INDUSTRY AVOID THE SINS OF THE PAST?

NICK HOLLAND CEO GOLD FIELDS

INVESTOR RELATIONS CONTACTS

Avishkar Nagaser Tel: +27 11 562 9775 Mobile: +27 82 312 8692 E-mail: Avishkar.Nagaser@goldfields.co.za Sven Lunsche Tel: +27 11 562 9763 Mobile: +27 83 260 9279 E-mail: Sven.Lunsche@goldfields.co.za Thomas Mengel Tel: +27 11 562 9849 Mobile: +27 82 315 2832 E-mail: Thomas.Mengel@goldfields.co.za

MEDIA RELATIONS CONTACT