Risk management

Continuous improvement of the EWRM

During C2010, we adopted a number of instruments aimed at further formalising our already well-embedded EWRM process. They are also aimed at ensuring full compliance with the risk management requirements of South Africa’s King III Code – and to support the full integration of ‘holistic’ risk management into our day-to-day business.

These instruments included:

• A Risk Management Policy that has been in place since C2008 and which requires Gold Fields, amongst other things, to identify, assess and manage risks in an effective and efficient manner
• A Risk Management Charter that defines, amongst other things, risk management governance, frameworks and assurance, as well as risk tolerance levels, risk appetite and key risk indicators
• A 12-month Risk Management Plan that sets out the strategy to bring Gold Fields risk management processes to full maturity
• An Enterprise Risk Management Guideline that describes, amongst other things, the risk management process, framework and methodology, as well as procedures for strategic risk registers

In future, we hope to examine the potential for the application of a similar system for the formal and objective identification and management of operational, sustainability and financial opportunities. If practicable, this will further enhance our ability to achieve true business sustainability and achieve our Vision.

“The informed investor assesses the quality of the company’s risk management and whether it considered the sustainability issues pertinent to its business”

King Code of Governance Principles for South Africa

The multi-stage EWRM process starts with quarterly strategic risk management assessments at each of our mines and service divisions. Key risks are identified and analysed, and mitigating actions are put in place (or reviewed if already in place). The regions’ top risks are forwarded to the regional executive committees, which review the risk register and decide on appropriate mitigating actions. The Group’s top strategic risks are then reviewed by the Gold Fields Executive Committee on a biannual basis. Mitigation strategies are developed on the basis of this review, which are presented at the Audit Committee’s dedicated risk meeting.

The Board and company management are responsible for risk governance and management. Nonetheless, the integral involvement of all line managers in the process is essential to ensure the effectiveness of the system.

US$1bn bond addresses forex risk

Gold Fields addressed one of its key risks when it announced a 10-year, US$1 billion bond offer to US investors in October 2010. The final order book for the bond was over-subscribed by more than 200% as a result of demand from high quality accounts. The final coupon of 4.875% a year was the lowest US dollar rate achieved by a South African company in the international bond market in C2010. This demonstrated the value that Gold Fields offers as a long-term and sustainable investment, as well as its position of strength in the US market.

The successful completion of the bond issue has enabled Gold Fields to address risks around the availability of foreign exchange, given the many regulatory restrictions that exist on exchange rate trading in the company’s areas of operation. Until recently this issue ranked as one of Gold Fields top 10 risks, but has since been downgraded as a result of the bond’s completion.

Paul Schmidt, Chief Financial Officer, said: “The 10 year tenure of this bond will fit in nicely with our long-term quality assets without increasing the Group’s debt position. Gold Fields will have more than US$1.3 billion of committed bank facilities available after the net proceeds of the bond have been used to refinance some bank facilities and commercial paper notes in issue. The bond significantly strengthens our liquidity and debt maturity profile.”

Shows the relationship between operational and strategic risk. The baseline risk assessment conducted at each mine produces a risk profile indicating the top hazards at the mine. These top hazards are reflected in the strategic risk register as risks. Mitigating strategies are put in place to deal with these and other risks.

South Africa’s King III Code promotes the integration of strategy, risk and performance. In order to reflect this, the ‘top-10’ corporate, regional and operational mitigation actions and strategies identified during the EWRM process are aligned with operational business plans and integrated into the Individual Balanced Scorecards (BSC) of all employees from C-Band through to ExCo. This is in recognition of the fact that accountability – in the form of real impacts on salaries and bonuses – is essential for effective risk mitigation.

The heat map below sets out the Top 10 Group risks as identified through our Enterprise-Wide Risk Management (EWRM) process (p40). This represents the Group’s ‘top’ operational, sustainability and financial risks, as extracted from regional and operational risk registers. ‘Severity’ is based on a pre-determined scale that uses defined measures depending upon the risk area being assessed. These include health and safety, business interruption, corporate image, environment and earnings/capital at risk. ‘Probability’ is based on both percentage probability (10% to 100%) and frequency (once every 50 years to once a week).

Gold Fields risk review process

• The Executive Committee of each operation and region conducts a risk review of the top risks and mitigating strategies on a quarterly basis
• The Mine Manager presents the top 10 risks and mitigation action performance to members of the ExCo during quarterly business reviews. The impacts of relevant mitigating actions are noted
• Next, the Group Risk Manager extracts all of the top risks from the regional and operational risk registers, and compiles the Group risk register
• The risks are then assessed and moderated in a Group context by the relevant risk owners and ExCo members
• A top risk register review is conducted and Group-wide mitigating strategies are set and monitored during the ExCo Risk Meeting
• A review of the top risks is conducted by the Audit Committee twice a year Note: All mitigation actions are evaluated in order to assess their effectiveness