Management’s discussion and analysis of the financial statements

The Group changed its financial year end from June to December to align the Group reporting with peers in the mining Industry. This resulted in a six month period ended 31 December 2010 which will be followed by a full financial year ended 31 December 2011. The financial statements presented on page 248 to page 298 compare the six month period ended 31 December 2010 to the year ended 30 June 2010, which represents the latest set of audited results.

For comparability purposes, however, the management discussion and analysis that follows, discusses comparable periods, being the six month period ended 31 December 2010 (referred to as financial 2010) and the six month period ended 31 December 2009 (referred to as financial 2009) for the income statement and the statement of cash flows. In terms of the balance sheet, 31 December 2010 has been compared to 30 June 2010.

Consolidated income statement

Figures in millions unless otherwise stated

Consolidated statement of cash flows

Figures in millions unless otherwise stated

The financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) and the Group accounting policies which is consistent with the previous year.

Results for the period

Net loss attributable to ordinary shareholders in financial 2010 was R76 million (or 11 cents per share), compared with earnings of R2,416 million (or 343 cents per share) achieved in financial 2009. The reasons for this decrease are discussed below.

Headline loss excluding the after-tax effect of asset impairments and profits on the sale of investments and property, plant and equipment amounted to R77 million or 11 cents per share in financial 2010, compared with earnings of R1,833 million or 260 cents per share in the comparable period.

These results are analysed as follows:

Revenue

Revenue increased by 18% from R15,483 million in financial 2009 to R18,308 million in financial 2010. The increase in revenue of R2,825 million was due to an increase in the average rand gold price for the period from R252,464 per kilogram to R296,545 per kilogram and a marginal increase in gold sales. The rand gold price increase was due to a 26% increase in the US dollar gold price from an average of US$1,026 per ounce to US$1,292 per ounce, partially offset by a stronger rand, which strengthened 7% from an average of 7.65 to 7.14 to the US dollar.

Gold sales increased by 1% from 1,972,200 ounces in financial 2009 to 1,984,900 ounces in financial 2010. Gold sales at the South African operations decreased by 6% from 1,049,500 ounces to 982,200 ounces, while gold sales at the West African operations increased by 8% from 444,600 ounces to 478,900 ounces. Gold sales at the South American operation (Cerro Corona) increased by 6% from 189,000 equivalent ounces to 201,200 equivalent ounces while at the Australasian operations, gold sales increased by 12% from 289,100 ounces to 322,600 ounces.

Gold sales at KDC decreased by 9% from 695,400 ounces to 634,000 ounces as a result of lower mining volumes at lower grades. At Beatrix, gold output decreased by 7% from 217,200 ounces to 202,000 ounces due to health and safety stoppages by management. At South Deep, gold sales increased by 7% from 136,900 ounces to 146,200 ounces in line with the production build-up.

At the West African operations, gold sales at Tarkwa increased by 4% from 347,900 ounces to 362,000 ounces mainly due to the commissioning of the high pressure grinding roller (HPGR) at the South heap leach and an increase in CIL throughput. Damang’s gold sales increased by 21% from 96,700 ounces to 116,900 ounces due to a plant shutdown for 13 days during financial 2009 and the commissioning of the secondary crusher during financial 2010, which improved throughput and grades.

At Cerro Corona in South America, gold equivalent sales increased by 6% from 189,000 ounces to 201,200 ounces due to higher gold produced as a result of higher gold grades.

At the Australasian operations, production at St Ives increased by 24% from 196,300 ounces to 243,000 ounces due to an increase in underground tonnes processed and higher head grades from underground and surface operations. At Agnew, gold sales decreased by 14% from 92,800 ounces to 79,600 ounces due to restricted underground stope access at Kim South as a result of poor ground conditions.

Cost of sales

Cost of sales, which consists of operating costs, changes in gold inventories and amortisation and depreciation, increased from R11,547 million in financial 2009 to R12,923 million in financial 2010.

The table below presents the analysis of cost of sales:

* Royalties are deducted as they are included as part of total cash cost but are reflected below operating profit in the income statement.

The analysis that follows provides a more detailed comparison of cost of sales together with total cash cost and Notional Cash Expenditure (NCE) per ounce.

Operating costs – cost of sales less gold inventory change, and amortisation and depreciation

Operating costs increased by 10% from R9,309 million in financial 2009 to R10,221 million in financial 2010.

The increase at the South African operations was 8%, from R5,567 million to R6,039 million.

This increase of R472 million was mainly due to the above-inflation all-in annual wage increases of around 12%, a 27% increase in electricity tariffs and an increase in raw material input costs.

This was partially offset by the lower production levels resulting in lower consumable usage and benefits achieved through the business process re-engineering initiatives which offset around 4% of the total increase. For financial 2010, the South African region achieved realised savings of R173 million comprising labour of R151 million and contractors of R22 million.

At the West African operations, operating costs increased by US$43 million due to the associated cost of the increased production and an increase in power costs. At Tarkwa, operating costs increased from US$177 million to US$205 million due to the 4% increase in production, increased fuel consumption, increased milling costs due to a higher throughput and an increase in power costs resulting from a 56% tariff increase from 9.50 US cents per kilowatt hour to 14.82 US cents per kilowatt hour. At Damang, operating costs increased from US$59 million to US$74 million due to the 21% increase in production, a 45% increase in power tariffs from 10.20 US cents per kilowatt hour to 14.82 US cents per kilowatt hour and commissioning costs relating to the secondary crusher.

At the Cerro Corona operation in Peru, operating costs increased by 15% from US$67 million to US$77 million, mainly due to an increase in statutory workers participation in line with the higher profit and higher freight charges due to increased concentrate shipped.

At the Australasian operations, operating costs increased by A$29 million from A$215 million to A$244 million. At St Ives, operating costs increased by 16% from A$164 million to A$190 million due to increased production, an increase in deferred waste charges and an increase in grade control drilling. At Agnew, costs were A$3 million higher at A$54 million, mainly due to additional costs incurred on rehabilitation of poor ground conditions at Kim South.

The following table sets out for each operation and the Group, total gold sales in ounces and total cash cost in US$/oz and R/kg in financial 2010 and financial 2009:

1 For the six months ended 31 December 2010 and 2009, 257,400 ounces and 247,400 ounces respectively were attributable to Gold Fields.
2 For the six months ended 31 December 2010 and 2009, 83,100 ounces and 68,800 ounces respectively were attributable to Gold Fields.
3 For the six months ended 31 December 2010 and 2009, 162,400 equivalent ounces and 152,500 equivalent ounces respectively were attributable to Gold Fields.
4 Total cash cost is calculated in accordance with the Gold Industry standard.

The weighted average total cash cost per kilogram increased by 11% from R147,495 per kilogram (US$600 per ounce) in financial 2009 to R163,416 per kilogram (US$712 per ounce) in financial 2010.

The weighted average total cash cost at the South African operations increased by 19% from R164,124 per kilogram (US$667 per ounce) in financial 2009 to R194,880 per kilogram (US$849 per ounce) in financial 2010. This increase was as a result of the decrease in gold production and the increase in costs described earlier.

At the West African operations, total cash cost increased by 12% from US$519 per ounce to US$580 per ounce. This increase was a result of the increase in operating costs as described earlier and the utilisation of inventory built-up in prior periods. Refer to the Gold inventory change detailed below.

At Cerro Corona in South America, total cash costs increased by 9% from US$364 per ounce to US$395 per ounce. This was due to the increase in operating costs partially offset by the increase in equivalent gold production.

At the Australasian operations, total cash cost increased marginally from A$729 per ounce (US$632 per ounce) to A$733 per ounce (US$688 per ounce).

General and administration (G&A) costs

Net general and administration costs, which are included in operating costs, amounted to R337 million in financial 2010 compared with R345 million in financial 2009.

Costs falling under the definition of general and administration costs include the following:

	Recovered corporate expenditure, including the corporate office in Sandton and the South African regional office at Constantia, in financial 2010 was R148 million compared with R180 million in financial 2009 due to restructuring that took place towards the end of financial 2009;
	Management fee charge in Ghana accounted for R70 million, compared with R46 million in financial 2009, mainly as a result of the higher revenue generated by the two West African operations. Management fees is calculated as a percentage of revenue - therefore the increase in management fees;
	The cost of regional offices in Australasia, West Africa and South America increased by R3 million from R49 million in financial 2009 to R52 million in financial 2010. This was in line with our regionalisation strategy to increase and strengthen the knowledge base at the offshore regional offices;
	World Gold Council fees amounted to R26 million in financial 2010, charged at an average of US$2.00 per ounce of attributable gold production. The financial 2009 charge was R25 million at an average of US$1.85 per ounce of attributable gold production;
	Off-site training amounted to R31 million in financial 2010 compared with R36 million in financial 2009. Certain functions have been relocated to the operations and there is a re-focus on on-mine training; and
	Other costs mainly relating to Chamber of Mines and special technical projects was similar at R10 million.

Gold inventory change

Gold inventory change in financial 2010 was a R74 million credit to costs, compared with a credit to costs of R92 million in financial 2009.

At Tarkwa, there was a charge to costs in financial 2010 of US$3 million compared with a credit of US$12 million in financial 2009. The US$3 million charge was due to an inventory release from the stockpiles. The US$12 million credit in financial 2009 was mainly due to a build-up at the North heap leach and increased stockpiles.

At Damang, there was a credit to costs of US$1 million in financial 2010 compared with a charge of US$1 million in financial 2009, which were both due to the movements in stockpiles.

At Cerro Corona, the credit to costs increased from US$1 million at the end of December 2009 to US$2 million at the end of December 2010. In both years, the level of the unsold stock was driven by sales and shipping schedules.

At St Ives, the credit to costs in financial 2010 amounted to A$11 million compared with a credit of A$2 million in financial 2009. The increase in the credit to costs was mainly as a result of inventory increases in heap leach stock as well as increases in mill stockpiles and gold-in-circuit at Lefroy due to the strategy to build-up low grade stockpiles from the open pits.

At Agnew, the credit to costs in financial 2010 of A$1 million compared with the credit to costs of A$1 million in financial 2009. Both amounts were due to movements of gold-in-circuit inventory at the mill.

Amortisation and depreciation

Amortisation and depreciation increased by R446 million, from R2,330 million in financial 2009 to R2,776 million in financial 2010.

At the South African operations, amortisation increased from R1,219 million in financial 2009 to R1,408 million in financial 2010, an increase of R189 million. KDC increased from R717 million to R875 million due to increased amortisation on ore reserve development and additions to plant and machinery. Beatrix decreased from R287 million to R263 million due to a reduction in short-life ore reserve development and lower production. South Deep increased from R216 million to R270 million mainly due to the increase in production in line with the build-up as well as additions to property, plant and equipment.

At the West African operations, amortisation decreased from US$58 million in financial 2009 to US$56 million in financial 2010. Tarkwa decreased from US$50 million to US$44 million due to an estimate adjustment on the capital waste stripping assets. Damang increased from US$8 million to US$13 million due to an increase in production from the Damang pit which carries a higher amortisation charge and additional charges on the new secondary crusher.

In South America, amortisation at Cerro Corona increased from US$27 million in financial 2009 to US$29 million in financial 2010 as a result of an increase in volumes mined and processed.

At the Australasian operations, amortisation increased from A$58 million in financial 2009 to A$102 million in financial 2010. This increase was mainly at St Ives, due to an increase in underground production which comes at a higher charge and an increase in underground amortisation rates due to limited reserve increases at June 2010, as well as amortisation on the Apollo open pit which came into production during the six months ended December 2010. The Morgan Stanley royalty was amortised for the full six month period, at higher ounces in 2010 compared to only four months in 2009. At Agnew, amortisation was flat period-on-period.

Notional cash expenditure (NCE)

Notional cash expenditure is defined as operating costs (including general and administration costs) plus capital expenditure, which includes near-mine exploration, and is reported on a per kilogram and per ounce basis. The objective is to provide the all-in cost for the Group, and for each operation. NCE per ounce influences how much free cash flow is available in order to pay taxation, interest, greenfields exploration and dividends. NCE margin is defined as the difference between revenue per ounce and NCE per ounce expressed as a percentage. NCE margin was 19% and 16% for financial 2010 and financial 2009 respectively.

The above calculation is based on the average rand to the US dollar exchange rate for the period of 7.14 and 7.65 in financial 2010 and financial 2009 respectively.

The NCE in financial 2010 of US$1,049 per ounce was higher than the US$864 per ounce achieved in financial 2009 because of the higher operating costs and capital expenditure (as discussed under additions to property, plant and equipment) together with the stronger rand, partially offset by the higher production.

Net operating profit

Net operating profit increased by 37% from R3,935 million in financial 2009 to R5,385 million in financial 2010.

This is due to the increased revenue as a result of the increased gold sales and a higher average gold price received, partially offset by the higher cost of sales.

Investment income

Income from investments decreased 37% from R147 million in financial 2009 to R92 million in financial 2010. The decrease was mainly due to lower interest rates in financial 2010 compared with financial 2009.

The interest received in financial 2010 of R92 million comprises R30 million on monies invested in the South African environmental rehabilitation trust funds and R62 million on other cash and cash equivalent balances.

The interest received in financial 2009 of R147 million comprised R1 million in dividend income, R35 million on monies invested in the South African environmental rehabilitation trust funds and R111 million on other cash and cash equivalent balances.

Interest received on the funds invested in rehabilitation trust funds decreased from R35 million in financial 2009 to R30 million in financial 2010 due to lower interest rates in financial 2010 compared with financial 2009.

Interest on other cash balances decreased from R111 million in financial 2009 to R62 million in financial 2010 mainly due to lower interest rates.

Finance expense

Finance expense increased from R238 million in financial 2009 to R250 million in financial 2010.

The finance expense of R250 million in financial 2010 comprised R22 million interest payable on the preference shares, R23 million relating to the accretion of the environmental rehabilitation liability and R239 million on various Group borrowings, partially offset by interest capitalised of R34 million.

The finance expense of R238 million in financial 2009 comprised R22 million interest charges on the preference shares, R19 million relating to the accretion of the environmental rehabilitation liability and R237 million in respect of other interest charges, partially offset by interest capitalised of R40 million.

Below is an analysis of the components making up other interest, stated on a comparative basis:

During financial 2010, R34 million (financial 2009: R40 million) of interest was capitalised in terms of IAS 21 Borrowing Cost. IAS 21 requires capitalisation of borrowing costs whenever general borrowings are used to finance qualifying projects. The qualifying project during financial 2009 and 2010 was South Deep.

Interest payable on the preference shares and environmental rehabilitation interest were flat year-on-year at R22 million and R23 million respectively.

Realised gain on financial instruments

Currency forward contracts

During financial 2010, the Group had two different currency forward contracts, being a South African rand/US dollar forward cover contract with an initial value of US$4 million, of which US$2 million was outstanding at the end of the financial period.

The second instrument was a South African rand/Australian dollar forward cover contract with an initial value of A$9.3 million which was delivered into during the period.

During financial 2009, the Group had three different currency forward contracts. They were:

Western Areas US dollar/rand forward purchases – As a result of the draw-down under the bridge loan facility to settle the close-out of the gold derivative structure, US dollar/rand forward cover was purchased during the March 2007 quarter for the amount of US$551 million for settlement on 6 August 2007, at an average forward rate of R7.3279/US$. Subsequent to this date, the cover was extended for periods of between one and three months throughout financial years ended 30 June 2008, 2009 and 2010. The forward cover was also reduced with the partial repayments of US$61 million, US$172 million and US$44 million against the loan on 6 December 2007, 31 December 2007 and 15 June 2009 respectively.

The balance of US$274 million forward cover was extended to 15 July 2009, 17 August 2009 and 17 September 2009 at average forward rates of R8.0893/US$, R8.3839/US$ and R8.0387/US$ respectively.

On 17 September 2009 the forward cover of US$274 million was settled. The realised foreign exchange loss on the settlement was exactly offset by R34 million cumulative positive gains on the forward cover purchased at an original rate of R7.3279.

For accounting purposes, this forward cover was designated as a hedging instrument, resulting in the gains and losses on the forward cover being accounted for under gain/(loss) on foreign exchange along with gains and losses on the underlying loan that was hedged. The forward cover points were accounted for as part of interest.

South Africa – During financial 2009, forward cover contracts were taken out to cover commitments of the operations in various currencies:

	A South African rand/US dollar forward contract with a value of US$11 million at the beginning of the period was delivered into during financial 2009; and
	A US dollar/South African rand forward contract with a value of US$2 million at the beginning of the period was delivered into during financial 2009.

International Petroleum Exchange gasoil call option

The Ghanaian operations purchased four monthly Asian-style Intercontinental Exchange (“ICE”) gasoil call options with strike prices ranging from US$0.90 per litre to US$1.11 per litre, which equated to a Brent crude price of between US$92 and US$142 per barrel, with final expiry on 28 February 2010. The call options resulted in an upfront premium of US$10.4 million.

The Australasian operations purchased two monthly Asian-style Singapore 0.5 gasoil call options with strike prices ranging from US$0.9128 per litre to US$1.0950 per litre with a final expiry on 28 February 2010. The call options resulted in an upfront premium of A$4.4 million.

Copper financial instruments

During June 2009, 8,705 tonnes of Cerro Corona’s expected copper production in financial year ended 30 June 2010 was sold forward for monthly deliveries, from 24 June 2009 to 23 June 2010. The average forward price for the monthly deliveries was US$5,001 per tonne. An additional 8,705 tonnes of Cerro Corona’s expected copper production in financial year ended 30 June 2010 was hedged by means of a zero cost collar, guaranteeing a minimum price of US$4,600 per tonne with full participation up to a maximum price of US$5,400 per tonne.

During financial 2009, 4,415 forward tonnes and 4,415 tonnes under the zero cost collar were delivered into on the respective required dates. As at 31 December 2009, 4,290 tonnes sold forward and 4,290 tonnes under the zero cost collar were outstanding. The remaining contracts were delivered into before June 2010.

The R191 million loss in financial 2009 relates to losses made on the forward and zero cost collar financial instruments at Cerro Corona.

The financial instruments discussed below decreased from a gain of R216 million in financial 2009 to a gain of R7 million in financial 2010. The breakdown of these numbers is given below:

The R10 million in financial 2010 relates to a positive marked to market valuation of warrants in Atacama Pacific Gold Corporation, an exploration junior with a portfolio of exploration projects in Chile.

The R402 million in financial 2009 arose as a result of Gold Fields receiving an additional 4,057,762 Eldorado shares valued at R402 million as a result of the Group exercising its top-up right in Eldorado Gold Corporation due to the completion of an agreement between Eldorado and Sino Gold, whereby Eldorado acquired all of the outstanding issued shares of Sino Gold.

Loss on foreign exchange

The loss on foreign exchange in financial 2010 was R10 million compared with a R55 million in financial 2009:

The R49 million loss in financial 2009 relates to losses made on the repayment of an intercompany Australian dollardenominated loan between Gold Fields Orogen Holdings and St Ives.

Other costs

Other operating costs of R12 million in financial 2009 compared with R104 million in financial 2010.

The charge in financial 2010 is mainly made up of:

	Social contributions and sponsorships;
	New loan facility charges;
	Research and development costs;
	Legal fees paid as a result of a dispute with a mining contractor in Ghana; and
	Write-off of costs incurred on the Abosso Deeps feasibility study at Damang.

The charge in financial 2009 is mainly made up of:

	Social contributions and sponsorships;
	New loan facility charges; and
	Research and development costs into mechanised mining.

Share-based payments

Gold Fields recognises the cost of share options granted (share-based payments) in terms of International Financial Reporting Standard (IFRS) 2.

Gold Fields has adopted appropriate valuation models (Black-Scholes and Monte Carlo simulation) to fair value share-based payments. The value of the share options is determined at the grant date of the options and expensed on a straight-line basis over the three-year vesting period, adjusted for forfeitures as appropriate.

Based on these models, R193 million was accounted for in financial 2010 compared with R241 million in financial 2009. The corresponding entry for the above adjustments was share-based payment reserve within shareholders’ equity.

The reason for the decrease in share-based payments was mainly a forfeiture adjustment done in financial 2010 following the restructuring across the Group. No forfeiture adjustment was done in financial 2009 as the adjustment is only made at year end which was 30 June 2010.

Greenfields exploration expense

Gold Fields spent R347 million (US$49 million) on exploration in financial 2010 compared with R301 million (US$39 million) in financial 2009. The bulk of the expenditure was incurred on a diversified pipeline of projects in Asia, Africa, Australia, China and North, South and Central America.

The increase in financial 2010 was due to increased spending on advanced stage exploration projects. During financial 2010, the following amounts were spent on advanced stage exploration projects: FSE in Philippines (US$6 million), Chucapaca in Peru (US$9 million) and Yanfolila in Mali (US$7 million).

Subject to continued exploration success, greenfields expenditure is expected to be US$100 million in financial 2011.

Feasibility and evaluation costs

Feasibility and evaluation costs of R66 million (US$9 million) were incurred during financial 2010 compared to Rnil million in financial 2009.

The charge in financial 2010 is made up of R43 million (US$6 million) incurred at the Chucupaca project in Peru and R23 million (US$3 million) at the Far South East project in the Philippines.

No feasibility and evaluation costs were incurred at these two projects in financial 2009 due to work programmes only beginning in financial 2010.

Share of results of associates after taxation

Gold Fields equity accounts for two associates: Rand Refinery Limited and Rusoro Mining Limited.

The Group’s 34.9% share of after-tax profits in Rand Refinery Limited was R42 million in financial 2009 compared with R22 million in financial 2010. The decrease in financial 2010 was due to higher Kruger Rand sales and an arc furnace cleanup in financial 2009 which resulted in higher profits.

The Group’s 26.4% share of after-tax losses in Rusoro Mining Limited was R14 million in financial 2009 compared with R229 million in financial 2010. The share of Rusoro’s financial 2010 loss takes into account R274 million translation loss as a result of applying hyperinflationary accounting to its investments in Venezuela, as well as an adjustment of R45 million to bring the investment to nil following a loss realised for the period which was higher than the investment carrying value. The Group does not have a legal or constructive obligation to participate in additional losses once the investment has been reduced to nil.

Share-based payments on BEE transaction

The South African Mining Charter requires mining entities to achieve a 26% HDSA ownership of mining assets by the year 2014.

In fiscal year ended 30 June 2004, Gold Fields implemented a 15% Black Economic Empowerment, or BEE, transaction for GFIMSA with Mvelaphanda, a BEE partner.

During the six months ended 31 December 2010, Gold Fields developed three further empowerment transactions which ensured that Gold Fields meets its 2014 BEE equity ownership targets. These transactions included an Employee Share Option Plan, or ESOP, for 10.75% of GFIMSA; a broad-based BEE transaction for 10.0% of South Deep; and a broad-based BEE transaction for a further 1% of GFIMSA, excluding South Deep. For accounting purposes, the three transactions qualify as share-based payments amounting to R2,125 million.

Under the ESOP transaction, 13.5 million shares were issued to approximately 47,000 Gold Fields employees. These shares were valued on the grant date using the Gold Fields closing share price of R122.79 on 22 December 2010, adjusted by a marketability discount of 26% to reflect the value of the restrictions placed on these shares. The employees may not dispose of the shares until after 15 years from grant date. The cost of the once-off share-based compensation was R1,227 million.

Under the GFIMSA transaction, 0.6 million shares were issued to broad-based BEE partners on 23 December 2010. The non-recurring share-based compensation, based on the closing price of R118.51, was R73 million. These shares were not adjusted by a marketability discount as they had no trading restrictions.

The South Deep transaction share-based payment amounted to R825 million and is made up of a preferred BEE dividend (R151 million) and an equity component (R674 million). Under the South Deep transaction, a wholly-owned subsidiary company of Gold Fields was created to acquire 100% of the South Deep net assets from GFIMSA. GFIMSA is a whollyowned subsidiary of Gold Fields. The new company then issued 10 million Class B ordinary shares representing 10.0% of South Deep’s net worth to a consortium of BEE partners. Class B ordinary shareholders are entitled to a dividend of R2 per share and can convert the Class B to Class A ordinary shares over a twenty year period from the effective date of the transaction, 6 December 2010. The Class B ordinary shares will convert one-third after ten years and a third thereafter on each fifth year anniversary. For accounting purposes, the preferred BEE dividend represents a liability of Gold Fields to the Class B ordinary shareholders and qualifies as a share-based payment. It has been valued at R151 million. The Rand based effective interest rate used to discount the future dividend payments is 9.55%.

The calculation of the disposal of 10% of South Deep was based on the cash flows over the life of the mine and was subject to valuation adjustments relating to minority discount (22%), liquidity discount (36%) and B share restriction discount (63%) which resulted in an overall once-off share-based payment expense of R674 million.

All but the dividend share-based compensation have been included within additional paid-in capital within shareholders’ equity. The dividend liability component of the share-based compensation has been shown as other long-term provisions.

Restructuring costs

Restructuring costs increased from R3 million in financial 2009 to R321 million in financial 2010. The costs in financial 2010 include R214 million on voluntary separation packages, R88 million on business process re-engineering costs and other restructuring costs of R19 million.

The costs in financial 2009 relate to voluntary separation packages at the South African operations.

Impairment of investments

Impairment of investments was R60 million in financial 2009 compared to Rnil million in financial 2010.

The impairment charge in financial 2009 of R60 million related to a write-down of R60 million of sundry offshore listed exploration equity investments.

The Group assesses, at each reporting date, whether there are indicators of impairment for any of its assets.

If there are any indicators of impairment, the assets’ recoverable amount needs to be estimated. The carrying value is compared with the higher of “value-in-use” or “fair value less costs to sell” as defined later in the accounting policies.

Various internal and external sources of information were considered and management has concluded that no indicators of impairment of assets existed at 30 December 2010.

Unlike assets, goodwill needs to be tested for impairment annually.

The following estimates and assumptions were used by management in reviewing the long-term assets and associated goodwill for impairment:

	A gold price of R290,000 per kilogram;
	Discount rate of 4.1% – 6.8%;
	The extraction of proved and probable reserves as per the most recent life-of-mine plan; and
	Operating costs and capital expenditure estimates as per the most recent life-of-mine plan.

At 31 December 2010, the application of the above estimates and assumptions did not result in an impairment charge to the Group’s mining assets. No impairment testing was performed at 31 December 2009 as there were no impairment indicators at the time and the impairment tests were performed in June 2010, being practice of the Group to perform impairment testing at the end of the financial year unless impairment indicators are present. Following on the change in year end, the Group now performs the impairment tests at 31 December.

(Loss)/Profit on Disposal of Investments

The loss on the sale of investments in financial 2010 amounted to R3 million compared with a profit of R759 million in financial 2009.

The loss on disposal of investments in financial 2010 comprises:

The profit on disposal of investments in financial 2009 comprises:

The gain of R447 million relates to a profit made on the exchange of 57,968,029 Sino Gold shares for 27,824,654 Eldorado Gold Corporation shares.

The R282 million profit relates to a gain realised on the sale of 27,824,654 Eldorado Gold Corporation shares following the abovementioned exchange.

Profit on disposal of property, plant and equipment

Profit on disposal of property, plant and equipment increased from R1 million in financial 2009 to R5 million in financial 2010.

The major disposals in financial 2010 related to the sale of assets at South Deep, Kloof, Agnew and Cerro Corona, whereas in financial 2009, they related to the sale of assets at Driefontein, Beatrix and Cerro Corona.

Royalties

Royalties increased from R205 million in financial 2009 to R309 million in financial 2010 in line with the increase in revenues and are made-up as follows:

The royalty in South Africa in financial 2010 of R100 million compares with Rnil million in financial 2009. The Mineral and Petroleum Resource Royalty Act, 2008 came into operation on 1 March 2010. Therefore, there was no charge in financial 2009.

The royalty in Ghana decreased from R105 million in financial 2009 to R85 million in financial 2010 due to a once-off credit adjustment.

The royalties in Peru and Australia increased in line with the increase in production.

Mining and income tax

The table below indicates Gold Fields’ effective tax expense rate in financial 2010 and financial 2009:

In financial 2010, the effective tax expense rate of 77% was higher than the maximum South African mining statutory tax rate of 43% mainly due to the tax effect of the following:

	R531 million adjustment to reflect the actual realised company tax rates in South Africa and offshore;
	R75 million reduction relating to the South African mining tax formula rate adjustment; and
	R377 million deferred tax release on reduction of the long-term expected tax rate at the South African mining operations.

The above were offset by the following tax-effected charges:

	R1,174 million non-deductible charges comprising share-based payments (R996 million) and exploration expense (R178 million);
	R94 million of net non-deductible expenditure and non-taxable income;
	R89 million non-deductible results of associates after taxation; and
	R90 million National Stabilisation Levy in Ghana.

In financial 2009, the effective tax expense rate of 32% was lower than the maximum South African mining statutory tax rate of 43% mainly due to the tax effect of the following:

	R475 million adjustment to reflect the actual realised company tax rates in South Africa and offshore;
	R117 million reduction relating to the South African mining tax formula adjustment; and
	R210 million non-taxable profit on sale of investments.

The above were offset by the following tax-effected charges:

	R233 million non-deductable charges comprising share-based payments (R104 million) and exploration expense (R129 million);
	R89 million of net non-deductable expenditure and non-taxable income; and
	R30 million of capital gains tax.

(Loss)/profit attributable to ordinary shareholders of the company

As a result of the factors discussed above, Gold Fields posted a loss attributable to ordinary shareholders of the company of R76 million in financial 2010 compared with a profit of R2,416 million in financial 2009.

Profit attributable to non-controlling interest

Profits attributable to non-controlling interest were R439 million in financial 2010 compared with R291 million in financial 2009. Profits attributable to non-controlling interest increased as a result of the increase in profits at Tarkwa, Damang and Cerro Corona. The non-controlling interest consists of Gold Fields Ghana (Tarkwa) and Abosso Goldfields (Damang) at 28.9%, Gold Fields La Cima (Cerro Corona) at 19.3%, Living Gold (Pty) Limited at 35.0% and Canteras del Hallazgo (entity that houses the Chucupaca project in Peru) at 49.0%.

The amount making up the non-controlling interest is shown below:

Liquidity and capital resources

Cash resources

Cash flows from operating activities

Cash inflows from operating activities increased from R3,368 million in financial 2009 to R6,140 million in financial 2010. The increase of R2,772 million was due to:

Dividends paid

Dividends paid increased from R564 million in financial 2009 to R643 million in financial 2010.

The dividends paid in financial 2010 comprised dividends paid to ordinary shareholders of R494 million and non-controlling interest holders in Ghana and Peru of R149 million.

The dividends paid in financial 2009 comprised R564 million paid to ordinary shareholders.

Cash flows from investing activities

Cash outflows from investing activities increased from R3,790 million in financial 2009 to R5,149 million in financial 2010. The items comprising these numbers are discussed below.

Additions to property, plant and equipment

Capital expenditure increased from R3,714 million in financial 2009 to R4,640 million in financial 2010.

Capital expenditure at the South African operations increased from R2,187 million in financial 2009 to R2,574 million in financial 2010. The increase in capital expenditure of R387 million was due to:

	KDC increasing from R1,070 million to R1,266 million mainly due to increased expenditure on ORD and accelerated expenditure on an additional processing facility, partly offset by reduced spending on the uranium project;
	Beatrix was similar at R305 million; and
	South Deep increasing from R811 million to R1,003 million. This increase was due to expenditure on development, the ventilation shaft deepening, the new tailings facility and infrastructure as per the project plan build-up.

Capital expenditure at the West African operations increased from US$79 million in financial 2009 to US$173 million in financial 2010:

	Tarkwa increased from US$69 million to US$117 million mainly due to increased expenditure on pre-stripping and the new primary and ancillary fleet. The six months to December in 2010 also included expenditure on a tailings storage facility; and
	Damang increased from US$10 million to US$56 million. This included expenditure on the owner mining project of US$42 million and additional on-mine exploration.

Capital expenditure at Cerro Corona in Peru decreased from US$47 million in financial 2009 to US$31 million in financial 2010:

This was mainly due to the construction of the second phase of the tailings management facility during financial 2009 which was completed in the June 2010 quarter.

Capital expenditure at the Australasian operations increased from A$82 million in financial 2009 to A$86 million in financial 2010:

	St Ives increased from A$55 million to A$59 million due to accelerated capital development at Athena underground mine; and
	Agnew was similar at A$27 million, with the majority of this expenditure on exploration and development.

Proceeds on the disposal of property, plant and equipment

Proceeds on the disposal of property, plant and equipment increased from R6 million in financial 2009 to R38 million in financial 2010. In both periods, this related to the disposal of various redundant assets at the South African and international mining operations.

Payment for FSE

During financial 2010, Gold Fields paid R69 million (US$10 million) in option fees to Lepanto Consolidated Mining Company and R302 million (US$44 million) as a non-refundable down payment to Liberty Express Assets in accordance with the agreement concluded in financial 2010 whereby the Group has the option to acquire 60% of FSE, resulting in a total cost of R371 million (US$54 million).

Royalty termination

On 27 August 2009, Gold Fields reached an agreement with Morgan Stanley Bank to terminate, for A$308 million (R1,999 million), the royalty agreement between St Ives Gold Mining Company (Pty) Limited and Morgan Stanley Bank’s subsidiaries.

The terminated royalty agreement required St Ives to pay a 4% net smelter volume royalty on all of its revenues once total gold produced from 30 November 2001 exceeded 3.3 million ounces which was triggered early in financial 2009, and provided that if the gold price exceeded A$600 per ounce, to pay an additional 10% of the revenue difference between the spot gold price, in Australian dollars per ounce, and the price of A$600 per ounce.

Purchase of Glencar asset

During financial 2009, Gold Fields acquired, for cash, 100% of Glencar Mining Plc., a company whose principal asset, and only defined resource, is its Komana project in Southern Mali, West Africa. The cash consideration paid was R340 million (US$43 million).

Purchase of investments

Investment purchases increased from R46 million in financial 2009 to R66 million in financial 2010.

The purchase of investments in financial 2010 comprised:

The purchase of investments in financial 2009 comprised:

Proceeds on the disposal of investments

Proceeds on the disposal of investments decreased from R2,319 million in financial 2009 to R3 million in financial 2010.

The proceeds on disposal of investments in financial 2010 comprised:

The proceeds on the disposal of investment in financial 2009 comprised:

The proceeds of R2,266 million relate to the disposal of 27,824,654 shares in Eldorado Gold Corporation.

Environmental trust funds and rehabilitation payments and post-retirement health care payments

The environmental and post-retirement health care payments increased from R16 million in financial 2009 to R114 million in financial 2010.

During financial 2010, Gold Fields paid R95 million into its South African environmental trust funds and spent R15 million on ongoing rehabilitation, as well as paid post-retirement health care payments of R4 million, resulting in a total cash outflow of R114 million for the period.

During financial 2009, Gold Fields spent R14 million on ongoing rehabilitation and paid R2 million in post-retirement health care payments, resulting in a total cash outflow of R16 million for the year. 31 December 2009 did not constitute a financial year end, therefore no payments were made into the South African environmental trust funds.

Cash flows from financing activities

Net cash generated by financing activities increased from R13 million in financial 2009 to R1,547 million in financial 2010. The items comprising these amounts are discussed below.

Loans raised

Loans raised increased from R7,169 million in financial 2009 to R10,789 million in financial 2010.

The R10,789 loans raised in financial 2010 comprised:

The R7,169 million loans raised in financial 2009 comprised:

Loans repaid

Loans repaid increased from R7,195 million in financial 2009 to R9,323 million in financial 2010.

The R9,323 loans repaid in financial 2010 comprised:

The R7,195 loans repaid in financial 2009 comprised:

Loans received from non-controlling interest holders

Non-controlling interest holders’ loans received were R63 million in financial 2010 compared with Rnil million in financial 2009. The R63 million received in financial 2010 related to cash advanced by Buenaventura in accordance with their obligations of US$9 million under the Chucapaca agreement.

Loans repaid to non-controlling interest holders

Non-controlling interest holders’ loans repaid were R21 million in financial 2010 compared with Rnil million in financial 2009. The R21 million repaid in financial 2010 related to loan repayments of US$3 million by Tarkwa to IAMGold.

Shares issued

Shares issued remained flat at R38 million in financial 2009 and financial 2010.

The R38 million in financial 2010 related to R31 million proceeds received from shares issued in terms of the Group’s employee share scheme and R7 million received from the shares issued under the BEE transactions.

The R38 million in financial 2009 related to proceeds received from shares issued in terms of the Group’s employee share scheme.

Net cash generated/(utilised)

As a result of the above, net cash generated in financial 2010 amounted to R1,895 million compared with net cash utilised of R973 million in financial 2009, a net movement of R2,868 million.

Total Group cash and cash equivalents amounted to R5,464 million at 31 December 2010, as compared with R1,828 million at the end of financial 2009.

Statement of financial position

Borrowings

Total debt (short- and long-term) increased from R8,487 million at 30 June 2010 to R9,438 million at 31 December 2010. Net debt (total debt less cash and cash equivalents) decreased from R4,697 million at 30 June 2010 to R3,974 million at 31 December 2010. This decrease is in line with management’s intention of decreasing the net debt position in both the short- and long-term. During financial 2010, the debt maturity profile was further extended by the conclusion of the ten year US$1 billion Notes issue.

Long-term provisions

Long-term provisions at the end of 31 December 2010 were R2,422 million as compared with R2,318 million at 30 June 2010 and included a provision for post-retirement health care costs of R18 million (June 2010: R22 million), a provision for environmental rehabilitation costs of R2,271 million (June 2010: R2,296 million) and other long-term provisions of R133 million (June 2010: Rnil million).

Provision for post-retirement health care costs

The Group medical scheme, Medisense, provides benefits to employees and certain of its former employees. The Group remains liable for 50% of these retired employees’ medical contributions to the medical scheme after retirement. This is applicable to employees of the Free State operations who retired on or before 31 August 1997 and members of the West Wits operations who retired on or before 1 January 1999. The provision decreased from R22 million to R18 million as a result of a buy-out of 22 members.

Provision for environmental rehabilitation costs

The amount provided for environmental rehabilitation costs decreased from R2,296 million at 30 June 2010 to R2,271 million at 31 December 2010. This provision represents the present value of closure, rehabilitation and other environmental obligations incurred up to 31 December 2010. This provision is updated annually to take account of inflation, the time value of money and any new environmental obligations incurred.

The inflation and range of discount rates applied in financial 2010 and year ended 30 June 2010 for each region are shown in the table below:

The inflation adjustment in financial 2010 was R57 million compared with R122 million in financial year ended 30 June 2010 and the interest adjustment in financial 2010 was R23 million compared with R38 million for the financial year ended 30 June 2010. A detailed reconciliation is provided in note 25.2 of the annual financial statements.

Adjustments for new disturbances and changes in environmental legislation during financial 2010 and financial year ended 30 June 2010, after applying the above inflation and discount rates were:

The South African operations contribute to dedicated environmental trust funds to provide financing for final closure and rehabilitation costs. The amount invested in the fund is shown as a non-current asset in the financial statements and increased from R1,013 million at 30 June 2010 to R1,138 million in financial 2010. The increase consists of contributions of R95 million and interest income of R30 million. The South African operations are required to contribute annually to the trust fund over the remaining lives of the mines, to ensure that sufficient funds are available to discharge commitments for future rehabilitation costs.

Other long-term provisions

Other long-term provisions were R133 million at 31 December 2010 compared to Rnil million at 30 June 2010. Under the South Deep transaction, a wholly owned subsidiary company of Gold Fields was created to acquire 100% of the South Deep net assets from GFIMSA. GFIMSA is a wholly-owned subsidiary of Gold Fields. The new company then issued 10 million Class B ordinary shares representing 10.0% of South Deep’s net worth to a consortium of BEE partners. Class B ordinary shareholders are entitled to a dividend of R2 per share and can convert the Class B to Class A ordinary shares over a twenty year period from the effective date of the transaction, 6 December 2010. The Class B ordinary shares will convert one-third after ten years and a third thereafter on each fifth year anniversary. For accounting purposes, the dividend represents a liability of Gold Fields to the Class B ordinary shareholders and qualifies as a share-based compensation. It has been valued at R151 million, of which R18 million has been classified as a short-term portion under accounts payable and R133 million as long-term under long-term provisions. The Rand based effective interest rate used to discount the future dividend payments is 9.55%.

Information communication and technology (ICT)

ICT at Gold Fields has made great strides in supporting the Gold Fields Group in achieving its business strategy. The purpose of ICT at Gold Fields is to ensure the effective and efficient management of ICT resources to facilitate the achievement of Gold Fields objectives.

During the course of the year, the goals of ICT at Gold Fields were clearly articulated in the ICT Charter as follows:

	Ensure high availability and recoverability of all critical systems and information;
	Ensure continuous alignment of the ICT strategy to the Gold Fields business strategy;
	Ensure compliance with internal policies, selected industry standards, external laws and regulations;
	Maintain high performance of all business systems through service level adherence;
	Ensure that ICT resources are adequately secured;
	Monitor and evaluate ICT investment and expenditure;
	Manage ICT risks; and
	Innovate.

ICT service delivery is being standardised and over the course of the period, numerous strategic initiatives have been concluded. These include the transition of infrastructure services into a more robust and suitable contract, the standardisation of the Mineral Resource Management Processes at South Deep Gold Mine to improve the way data will be stored to ensure integrity, enable sufficient retrieval to support the business and comply with South African legislation requirements.

The reliance of many companies on successful ICT delivery has caused the King III Code of Corporate Governance to re-evaluate the role and governance of ICT. This has ensured that ICT governance is an important component of the overall management of ICT at Gold Fields. The governance structure adopted is based on the King III Code of Corporate Governance and is responsible for ICT delivering on its goals. This structure sees the regional ICT leaders reporting into the ICT management committee (Manco) monthly. The ICT Manco reports to the Chief Financial Officer quarterly and to the Executive Committee and Audit Committee annually.

The key programmes within ICT remain focused on the following themes:

	Safety;
	Information management and communications;
	Productivity;
	Cost management; and
	ICT operational and excellence delivery.

In order to deliver the key ICT strategic focus areas, the ICT operating model is being continuously reviewed for improvement. At this stage the ICT operating model is being reorganised to better align with the Gold Fields business. This model will see ICT at Gold Fields being organised according to the following areas:

	Commercial;
	Mining and MRM;
	Engineering and metallurgy;
	Environmental, health, safety, risk and medical;
	ICT infrastructure;
	Projects and vendor office; and
	Enterprise reporting.

The Gold Fields ICT operating model enables ICT to focus on business imperatives and business support, while the noncore services are outsourced i.e. infrastructure and applications support. This model allows the ICT team to engage with the business, service providers and vendors to implement new projects through the projects office and transition these projects into business as usual (BAU) through a core ICT team.

The oversight by this core team has been key to ensuring that projects are delivered to Gold Fields’ standards and transitioned to BAU with the proper contracts and service level agreements in place that best support the business.

Sarbanes-Oxley

Gold Fields, being a foreign private issuer under US SEC rules, needs to comply with the requirements of the Sarbanes- Oxley Act, 2002. Management’s compliance programme consists of self-assessments, focused walk-throughs and operating effectiveness testing executed throughout the year, on a quarterly basis.

At the time of reporting, management has completed control design and operating effectiveness testing for the Group across all significant locations, with the exception of the processes relating to preparation of US GAAP reporting (20F).

The results to date of said compliance programme indicate a very high level of compliance and no indication of a material breakdown in controls is noted.

PA Schmidt
Financial Director
23 March 2011