Company Quick10K Filing
Sibanye Gold
20-F 2018-12-31 Filed 2019-04-09
20-F 2017-12-31 Filed 2018-04-02
20-F 2016-12-31 Filed 2017-04-07
20-F 2015-12-31 Filed 2016-03-21
20-F 2014-12-31 Filed 2015-03-24
20-F 2013-12-31 Filed 2014-04-29
20-F 2012-12-31 Filed 2013-04-26

SBGL 20F Annual Report

Part I
Item 1: Identity of Directors, Senior Management and Advisers
Item 2: Offer Statistics and Expected Timetable
Item 3: Key Information
Item 4: Information on The Company
Item 4A: Unresolved Staff Comments
Item 5: Operating and Financial Review and Prospects
Item 6: Directors, Senior Management and Employees
Item 7: Major Shareholders and Related Party Transactions
Item 8: Financial Information
Item 9: The Offer and Listing
Item 10: Additional Information
Item 11: Quantitative and Qualitative Disclosures About Market Risk
Item 12: Description of Securities Other Than Equity Securities
Part II
Item 13: Defaults, Dividend Arrearages and Delinquencies
Item 14: Material Modifications To The Rights of Security Holders
Item 15: Controls and Procedures
Item 16A: Audit Committee Financial Expert
Item 16B: Code of Ethics
Item 16C: Principal Accountant Fees and Services
Item 16D: Exemptions From The Listing Standards for Audit Committees
Item 16E: Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F: Change in Registrant's Certifying Accountant
Item 16G: Corporate Governance
Item 16H: Mine Safety Disclosure
Part III
Item 17: Financial Statements
Item 18: Financial Statements
Item 19: Exhibits
EX-8.1 d475028dex81.htm
EX-12.1 d475028dex121.htm
EX-12.2 d475028dex122.htm
EX-13.1 d475028dex131.htm
EX-13.2 d475028dex132.htm

Sibanye Gold Earnings 2012-12-31

Balance SheetIncome StatementCash Flow

20-F 1 d475028d20f.htm FORM 20-F Form 20-F
Table of Contents

As filed with the Securities and Exchange Commission on April 26, 2013

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 20-F

 

 

(Mark One)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

or

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from                      to                     

Commission file number: 001-35785

 

 

Sibanye Gold Limited

(Exact name of registrant as specified in its charter)

 

 

Republic of South Africa

(Jurisdiction of incorporation or organization)

Libanon Business Park

1 Hospital Street (off Cedar Avenue)

Libanon, Westonaria, 1780

South Africa

011-27-11-278-9600

(Address of principal executive offices)

With a copy to:

Charl Keyter

Chief Financial Officer

Sibanye Gold Limited

Tel: 011-27-11-278-9700

Fax: 011-27-11-278-9863

Libanon Business Park

1 Hospital Street (off Cedar Avenue)

Libanon, Westonaria, 1780

South Africa

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Ordinary shares of no par value each

American Depositary Shares, each representing four ordinary shares

 

New York Stock Exchange*

New York Stock Exchange

 

* Not for trading, but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report

1,000 ordinary shares of no par value each

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes  ¨    No  x

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

Note—Checking 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 Act 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  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    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  ¨                 Accelerated filer  ¨                 Non-accelerated filer  x

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  x

 

International Financial Reporting Standards as issued

by the International Accounting Standards Board  ¨

   Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:     Item 17  ¨    Item 18  ¨

If this is a 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  ¨

 

 

 


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EXPLANATORY NOTE

On February 18, 2013, the board of directors of Gold Fields Limited, or Gold Fields, completed the separation of its wholly-owned subsidiary, Sibanye Gold Limited, or Sibanye Gold (formerly known as GFI Mining South Africa Proprietary Limited, or GFIMSA), into an independent, publicly traded company, or the Spin-off. The Spin-off was achieved by way of Gold Fields making a distribution on a pro rata basis of one Sibanye Gold ordinary share for every one Gold Fields share (whether held in the form of shares, American depositary receipts, or ADRs, or international depositary receipts) to Gold Fields shareholders, registered as such in Gold Fields’ register at close of business on February 15, 2013, in terms of section 46 of the South African Companies Act No. 71 of 2008, or the Companies Act and section 46 of the South African Income Tax Act, or the Income Tax Act. The board of directors of Gold Fields passed the resolution necessary to implement the Spin-off on December 12, 2012. Sibanye Gold shares listed on the JSE Limited, or JSE, and on the New York Stock Exchange, or NYSE, on February 11, 2013. As of February 18, 2013, or the Spin-off date, Gold Fields and Sibanye Gold were independent, publicly traded companies and with separate public ownership, boards of directors and management.

Notwithstanding the foregoing, one member of the Sibanye Gold board of directors, or the Board, will also sit on the board of directors of Gold Fields. This director is expected to vacate his Sibanye Gold directorship within the 12-month period following his appointment on January 1, 2013. GFIMSA (now Sibanye Gold) was incorporated in South Africa as a wholly-owned subsidiary of Gold Fields on December 12, 2002.

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Historical Consolidated Financial Statements

In 2010, as a result of a change in the fiscal year end of our former parent company, Gold Fields, we changed our fiscal year end from June 30 to December 31 beginning in 2011 to align with our peers in the gold mining industry. This annual report contains audited consolidated financial statements of Sibanye Gold as at and for the fiscal year ended December 31, 2012, December 31, 2011 and the fiscal year ended June 30, 2010, or the Audited Consolidated Financial Statements. This annual report also contains the audited consolidated financial statements of Sibanye Gold as at and for the six-month transition period ended December 31, 2010, or the Audited Transition Period Financial Statements, and, together with the Audited Consolidated Financial Statements, the Historical Consolidated Financial Statements. It may not be possible to directly compare the Audited Consolidated Financial Statements directly with the Audited Transition Period Financial Statements, insofar as the Consolidated Financial Statements refer to a completed financial year. Investors are advised to use caution in drawing comparisons between these periods.

See “Operating and Financial Review and Prospects—Comparability of Historical Financial Information”.

Sibanye Gold is a South African company and all of our operations are located in South Africa. Accordingly, our books of account are maintained in South African Rand and our annual and interim financial statements will be prepared in accordance with International Financial Reporting Standards, or IFRS, as prescribed by law. We also prepare 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 Sibanye Gold’s 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 2012 (Rand 8.57 per $1.00 as of December 31, 2012), except for specific items included within shareholder’s equity and the statements of cash flows that are translated at the rate prevailing on the date the relevant transaction was entered into, and statements of operation item amounts are translated from Rand to U.S. dollars at the weighted average exchange rate for each period (Rand 8.19 per $1.00 for fiscal 2012).

In this annual report, we present 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 non-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, income before tax, net income, operating cash flows or any other measure of financial performance presented in accordance with U.S. GAAP. While the Gold Institute 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 Information—Selected Historical Consolidated Financial Data—Footnote 1”, “Key Information—Selected Historical Consolidated Financial Data—Footnote 2”, “Information on the Company—Glossary of Mining Terms—Total cash cost per ounce” and “Information on the Company—Glossary of Mining Terms—Total production cost per ounce”.

In this annual report, we also present the financial items “operating costs” and “notional cash expenditure”, or NCE. Operating costs and NCE, including operating costs per ounce and NCE per ounce, have been

 

i


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determined by Sibanye Gold on the basis of internally developed definitions and are non-U.S. GAAP measures. We define operating costs as production costs (exclusive of depreciation and amortization) plus corporate expenditure, employment termination costs and accretion expense on provision for environmental rehabilitation. We define NCE margin as revenue minus NCE, divided by revenue, expressed as a percentage. See “Operating and Financial Review and Prospects—Notional Cash Expenditure”. An investor should not consider these items in isolation or as alternatives to production costs, cash flows from operating activities or any other measure of financial performance presented in accordance with U.S. GAAP. Operating costs, NCE and NCE margin as presented in this annual report may not be comparable to other similarly titled measures of performance of other companies.

The Historical Consolidated Financial Statements have been prepared using the historical results of operations, assets and liabilities attributable to Sibanye Gold and all of its subsidiaries, or the Sibanye Gold Group, which have been consolidated by Gold Fields up to the distribution date of Sibanye Gold. In addition, the Historical Consolidated Financial Information includes historical charges from Gold Fields. The Historical Consolidated Financial Information has been prepared on a historical cost basis, except for available-for-sale financial assets and derivative financial instruments, which are measured at fair value, and inventories, which are measured at the lower of cost or market. See “Risk Factors—Risks related to the Spin-off—Sibanye Gold has no history operating as an independent public company”. Sibanye Gold will incur significant expenses to create the corporate infrastructure necessary to operate as an independent public company, and will experience increased ongoing costs in connection with being an independent public company”.

Market Information

This annual report includes industry data about Sibanye Gold’s markets obtained from industry surveys, industry publications, market research and other publicly available third-party information. Industry surveys and industry publications generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed. Sibanye Gold and its advisors have not independently verified this data.

In addition, in many cases statements in this annual report regarding the gold mining industry and Sibanye Gold’s position in that industry have been made based on internal surveys, industry forecasts, market research, as well as Sibanye Gold’s own experiences. While these statements are believed by Sibanye Gold to be reliable, they have not been independently verified.

 

ii


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DEFINED TERMS AND CONVENTIONS

In this annual report, all references to “we”, “us” and “our” refer to Sibanye Gold and the Sibanye Gold Group, as applicable.

In this annual report, all references to “fiscal year ending December 2013” are to the fiscal year ending December 31, 2013, all references to “fiscal year ended December 2012” are to the audited fiscal year ended December 31, 2012, all references to “fiscal year ended December 2011” are to the audited fiscal year ended December 31, 2011, all references to “six-month transition period ended December 2010” are to the audited six-month transition period ended December 31, 2010 and all references to “fiscal year ended June 2010” are to the audited fiscal year ended June 30, 2010.

In this annual report, all references to “South Africa” are to the Republic of South Africa, all references to the “United States” and “U.S.” are to the United States of America, its territories and possessions and any state of the United States and the District of Columbia and all references to the “United Kingdom” and “U.K.” are to the United Kingdom of Great Britain and Northern Ireland.

In this annual report, all references to the “DMR” are references to the South African Department of Mineral Resources, the government body responsible for regulating the mining industry in South Africa, or to its predecessor entity, the Department of Minerals and Energy which was split into the Department of Mineral Resources and the Department of Energy in July 2009, as applicable.

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 Company—Glossary of Mining Terms”.

In this annual report, gold production figures are provided in troy ounces, which are referred to as “ounces” or “oz”, or in kilograms, which are referred as “kg”. Ore grades are provided in grams per metric ton, which are referred to as “grams per ton” or “g/t.” All references to “tons”, “tonnes” or “t” in this annual report are to metric tons. See “Information on the Company—Glossary 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.

This annual report contains references to the “lost time injury frequency rate” at each Sibanye Gold operation. The lost time injury frequency rate at each operation includes any injury occurring in the workplace where, at any subsequent time, the injured employee is unable to attend a full shift due to the injury, or Lost Time Injuries.

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 and “A.$” refers to Australian dollars.

Conversion Rates

Certain information in this annual report has been translated into U.S. dollars from Sibanye Gold’s functional currency, the South African Rand. Unless otherwise stated, the conversion rate for these translations is R8.57 per $1.00 which was the closing rate on December 31, 2012. By including the U.S. dollar equivalents, Sibanye Gold is not representing that the Rand amounts actually represent the U.S. dollar amounts shown or that these amounts could be converted into U.S. dollars at the rates indicated.

 

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FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to our 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.

These forward-looking statements, including, among others, those relating to our future business prospects, revenues and income, wherever they may occur in this annual report and the exhibits to this annual report, are necessarily estimates reflecting the best judgment of our senior management 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:

 

   

overall economic and business conditions in South Africa;

 

   

the ability to achieve anticipated cost savings at existing operations;

 

   

the occurrence of labor disruptions and industrial actions;

 

   

changes in the market price of gold;

 

   

the occurrence of hazards associated with underground and surface gold mining;

 

   

the occurrence of work stoppages related to health and safety incidents;

 

   

changes in relevant government regulations, particularly environmental, tax, health and safety regulations and potential new legislation affecting mining and mineral rights;

 

   

our ability to realize the benefits of the Spin-off;

 

   

unforeseen costs and expenses related to the separation and our operation as an independent entity;

 

   

the ability to manage and maintain access to current and future sources of liquidity, capital and credit, including the terms and conditions of our facilities and overall cost of funding;

 

   

the manner, amount and timing of capital expenditures made by us on existing mines, or other initiatives;

 

   

fluctuations in exchange rates, currency devaluations and other macroeconomic monetary policies;

 

   

political or social instability affecting South Africa;

 

   

the ability to achieve anticipated efficiencies and other cost savings in connection with past and future acquisitions; and

 

   

the success of exploration and development activities.

We undertake 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.

 

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TABLE OF CONTENTS

 

     Page  

PART I

     1   

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     1   

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

     2   

ITEM 3: KEY INFORMATION

     3   

RISK FACTORS

     7   

ITEM 4: INFORMATION ON THE COMPANY

     29   

ITEM 4A: UNRESOLVED STAFF COMMENTS

     76   

ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     77   

ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     126   

ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     145   

ITEM 8: FINANCIAL INFORMATION

     149   

ITEM 9: THE OFFER AND LISTING

     151   

ITEM 10: ADDITIONAL INFORMATION

     154   

ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     176   

ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     179   

PART II

     180   

ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     180   

ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     181   

ITEM 15: CONTROLS AND PROCEDURES

     182   

ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT

     183   

ITEM 16B: CODE OF ETHICS

     184   

ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES

     185   

ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     186   

ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     187   

ITEM 16F: CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

     188   

ITEM 16G: CORPORATE GOVERNANCE

     189   

ITEM 16H: MINE SAFETY DISCLOSURE

     190   

PART III

     191   

ITEM 17: FINANCIAL STATEMENTS

     191   

ITEM 18: FINANCIAL STATEMENTS

     192   

ITEM 19: EXHIBITS

     194   

SIGNATURES

     196   

 

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Table of Contents

PART I

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

1


Table of Contents

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Offer Statistics

Not applicable.

Method and Expected Timetable

Not applicable.

 

2


Table of Contents

ITEM 3: KEY INFORMATION

Selected Historical Consolidated Financial Data

The selected historical consolidated financial data set out below for the fiscal year ended December 2012, the fiscal year ended December 2011, the six-month transition period ended December 2010 and the fiscal year ended June 2010 and as of December 31, 2012 and 2011 have been derived from Sibanye Gold’s audited consolidated financial statements for those periods and as of those dates and the related notes. See “Operating and Financial Review and Prospects” for additional information. The selected historical consolidated financial data as of December 31, 2010 and June 30, 2010 have been derived from Sibanye Gold’s audited consolidated financial statements as of those dates, which are not included in this annual report, and adjusted where applicable as described below. The selected historical consolidated financial data as of and for each of the two fiscal years ended June 30, 2009 and 2008 is unaudited and has been derived from Gold Fields’ consolidated financial statements as of those dates, which are not included in this annual report, and adjusted where applicable as described below. The selected historical consolidated financial data presented below has been derived from financial statements, as well as Sibanye Gold’s accounting records, which have been prepared in accordance with U.S. GAAP. The other operating data presented has been calculated as described in the footnotes to the table below. Amounts below appear in U.S. dollars unless otherwise noted.

 

    Fiscal Year
ended December,
    Six-Month
Transition
Period
Ended
December,
    Fiscal Year Ended June,  
    2012     2011     2010     2010     2009     2008  
                            (unaudited)  

Statement of Operations Data

           

Revenues

    2,021.2        2,301.0        1,073.4        1,808.8        1,627.9        1,777.4   

Production costs

    (1,327.8     (1,361.1     (693.8     (1,231.3     (931.3     (982.3

Depreciation and amortization

    (304.1     (323.9     (168.8     (278.2     (213.7     (226.4

Corporate expenditure (related party)

    (8.4     (6.8     (10.3     (25.3     (18.0     (20.6

Employee termination costs

    (7.7     (32.0     (34.4     (9.2     (6.3     (6.5

Profit on disposal of property, plant and equipment

    0.3        0.6        0.4        0.2        1.4        3.7   

Shaft closure costs

    —          —          —          —          —          (3.3

(Increase)/decrease in provision for post-retirement health care costs

    (0.3     (0.1     0.1        9.2        (3.5     0.8   

Accretion expense on provision for environmental rehabilitation

    (14.3     (13.8     (5.8     (10.5     (7.3     (8.6

Interest income

    12.9        13.6        8.0        32.6        17.0        15.4   

Finance expense

    (14.5     (2.0     (7.9     (27.2     (72.2     (71.5

Gain on financial instruments

    —          —          —          —          11.7        8.7   

South African Equity Empowerment Transactions

    —          —          (171.3     —          —          —     

Royalties

    (34.4     (40.1     (13.2     (7.6     —          —     

Other expenses

    (39.5     (32.0     (11.4     (19.3     (33.0     (14.5

Income/(loss) before tax and share of equity investee’s profits

    283.4        503.4        (35.0     242.2        372.7        472.3   

Income and mining tax benefit/(expense)

    67.5        (167.5     3.1        (84.3     (133.6     (200.8

Income/(loss) before share of equity investee’s profits

    350.9        335.9        (31.9     157.9        239.1        271.5   

Share of equity investees’ profits

    11.4        4.8        3.1        8.4        1.4        4.6   

Net income from continuing operations

    362.3        340.7        (28.8     166.3        240.5        276.1   

Loss from discontinued operation

    —          —          (11.7     (28.7     (37.9     (53.3

Net income/(loss)

    362.3        340.7        (40.5     137.6        202.6        222.8   

Less: Net (loss)/income attributable to non-controlling interests

    (0.1     0.1        0.8        0.8        1.8        1.7   

Net income/(loss) attributable to Sibanye Gold shareholder

    362.2        340.8        (39.7     138.4        204.4        224.5   

Basic earnings per share attributable to Sibanye Gold shareholder (U.S.$’000)

    362        341        (28     167        269        325   

Basic earnings per share from discontinued operation (U.S.$’000)

    —          —          (12     (29     (42     (63

Diluted earnings per share attributable to Sibanye Gold shareholder (U.S.$’000)

    362        341        (28     167        269        325   

Diluted earnings per share from discontinued operation (U.S.$’000)

    —          —          (12     (29     (42     (63

Dividend per share (R’000)

    731        2,423        20,528        917        1,595        425   

Dividend per share (U.S.$’000)

    96        336        2,999        121        177        59   

 

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    Fiscal Year ended
December,
    Six-Month
Transition
Period
Ended
December,
    Fiscal Year Ended June,  
        2012             2011             2010             2010             2009             2008      
                            (unaudited)  

Other Operating Data

           

Total cash costs per equivalent ounce of gold produced (U.S.$)(1)

    1,088        965        868        730        490        442   

Total production costs per equivalent ounce of gold produced (U.S.$)(2)

    1,364        1,212        1,087        913        614        552   

Notional cash expenditure per equivalent ounce of gold
produced ($)
(3)

    1,404        1,243        1,131        985        667        620   

 

Notes:

(1) Sibanye Gold has calculated total cash costs per ounce by dividing total cash costs, as determined using guidance provided by the Gold Institute, by gold ounces sold for all periods presented. The guidance was first adopted in 1996 and revised in November 1999. Total cash costs, as defined in the Gold Institute industry guidance, are production costs as recorded in the statement of operations, less offsite (i.e. central) general and administrative expenses (including head office costs performance, as well as changes in the currency exchange rate between the Rand compared with the U.S. dollar). Total cash costs and total cash costs per ounce are not U.S. GAAP measures. Management, however, believes that total cash costs per ounce provides a measure for comparing Sibanye Gold’s operational performance against that of its peer group, both for Sibanye Gold as a whole, and for its individual operations. An investor should not consider total cash costs and total cash costs per ounce in isolation or as an alternative to total production costs or net income/(loss), income before tax, operating cash flows or any other measure of financial performance presented in accordance with U.S. GAAP. In particular, depreciation and amortization is included in a measure of production costs under U.S. GAAP, but is not included in total cash costs under the guidance provided by the Gold Institute. See “Presentation of Financial and Other Information” and “ Information on the Company—Glossary of Mining Terms—Total cash costs per ounce”. For a reconciliation of Sibanye Gold’s production costs to its total cash costs for the fiscal year ended December 2012, the fiscal year ended December 2011, the audited six-month transition period ended December 2010 and the fiscal year ended June 2010, see “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years Ended December 2012 and 2011—Costs and Expenses”, “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years Ended December 2011 and June 2010—Costs and Expenses” and “Operating and Financial Review and Prospects-Results of Operations—Six-Month Transition Period ended December 2010—Costs and Expenses”.
(2)

Sibanye Gold has calculated total production costs per ounce by dividing total production costs, as determined using the guidance provided by the Gold Institute, by gold ounces sold for all periods presented. Total production costs, as defined by the Gold Institute industry guidance, are total cash costs, as calculated using the Gold Institute guidance, plus amortization, depreciation and rehabilitation costs. Changes in total production costs per ounce are affected by operational performance, as well as changes in the currency exchange rate between the Rand compared with the U.S. dollar. Total production costs per ounce is a non-U.S. GAAP measure. Management, however, believes that total production costs per ounce provides a measure for comparing Sibanye Gold’s operational performance against that of its peer group, both for Sibanye Gold as a whole and for its individual operations. An investor should not consider total production costs per ounce in isolation or as an alternative to total production costs or net income/(loss), income before tax, operating cash flows or any other measure of financial performance presented in accordance with U.S. GAAP. See “Presentation of Financial and Other Information” and “Information on the Company—Glossary of Mining Terms—Total production costs per ounce”. For a reconciliation of Sibanye Gold’s production costs to its total production costs for the fiscal year ended December 2012, the fiscal year ended December 2011, the audited six-month transition period ended December 2010 and the fiscal year ended June 2010, see “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years

 

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  Ended December 2012 and 2011—Costs and Expenses”, “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years Ended December 2011 and June 2010—Costs and Expenses” and “Operating and Financial Review and Prospects—Results of Operations—Six-Month Transition Period Ended December 2010—Costs and Expenses”.
(3) Sibanye Gold defines NCE as operating costs plus additions to property, plant and equipment, and defines operating costs as production costs (exclusive of depreciation and amortization) plus corporate expenditure, employment termination costs and accretion expense on provision for environmental rehabilitation. Sibanye Gold reports NCE on a per equivalent ounce basis. For a description of NCE and a reconciliation of Sibanye Gold’s NCE to its production costs for the fiscal year ended December 2012, the fiscal year ended December 2011, the audited six-month transition period ended December 2010 and the fiscal year ended June 2010, see “Operating and Financial Review and Prospects—Notional Cash Expenditure”.

 

     As at December 31,     As at June 30,  
     2012     2011     2010     2010      2009      2008  
                              (unaudited)  
     (U.S.$ millions, unless otherwise stated)  

Balance Sheet Data

              

Cash and cash equivalents

     34.0        44.6        153.5        116.7         99.5         23.5   

Receivables

     65.2        65.3        95.7        111.8         110.3         82.0   

Related party receivables

     64.0        74.1        85.6        54.6         25.5         3.3   

Inventories—consumables

     40.7        31.0        29.8        29.9         17.7         24.3   

Deferred income and mining tax(1)

     13.2        11.5        15.5        15.7         28.8         41.8   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total current assets

     217.1        226.5        380.1        328.7         281.8         174.9   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Property, plant and equipment, net

     2,067.2        2,090.2        2,426.9        4,235.0         3,733.4         3,560.1   

Goodwill

     —          —          —          1,154.9         1,084.7         1,092.8   

Non-current investments

     178.2        164.8        169.0        145.3         113.0         98.8   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total assets

     2,462.5        2,481.5        2,976.0        5,863.9         5,212.9         4,926.6   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Accounts payable and provisions

     206.4        210.3        247.2        303.3         279.7         239.4   

Related party payables

     2,000.7        2,653.1        3,397.9        3,373.9         2,503.0         2,384.4   

Bank overdraft

     —          —          —          0.6         0.1         2.7   

Interest payable

     —          —          0.4        —           —           27.3   

Royalties, income and mining taxes payable

     11.3        90.3        39.6        7.3         61.7         81.0   

Short-term loans and current portion of long-term loans

     —          —          —          —           136.5         699.9   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total current liabilities

     2,218.4        2,953.7        3,685.1        3,685.1         2,981.0         3,434.7   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Long-term loans

     492.5        —          —          —           272.5         140.8   

Deferred income and mining taxes(1)

     556.1        710.1        776.2        735.9         649.3         610.5   

Provision for environmental rehabilitation

     158.6        140.8        149.2        131.4         116.9         95.9   

Provision for post-retirement health care costs

     2.1        2.1        2.6        2.8         11.4         7.9   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total liabilities

     3,427.7        3,806.7        4,613.8        4,556.0         4,031.7         4,307.0   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Share capital

     —          —          —          —           —           —     

Additional paid-in capital

     138.0        105.8        72.8        479.6         446.4         13.4   

Accumulated (loss)/retained earnings

     (1,443.7     (1,710.4     (1,715.6     704.0         686.6         659.3   

Accumulated other comprehensive income/(loss)

     341.0        281.4        9.1        114.5         36.9         (49.6
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Company shareholder’s (deficit)/equity

     (964.7     (1,323.2     (1,633.7     1,298.1         1,169.9         623.1   

Non-controlling interests

     (0.5     (2.0     (3.4     10.6         11.9         13.7   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total equity

     (965.2     (1,325.2     (1,637.1     1,308.7         1,181.8         636.8   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total liabilities and shareholder’s equity

     2,462.5        2,481.5        2,976.0        5,863.9         5,212.9         4,926.6   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

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     As at December 31,     As at June 30,  
     2012     2011     2010     2010      2009      2008  
                              (unaudited)  

Other Financial Data

  

Net (liabilities)/assets

     (965.2     (1,325.2     (1,637.1     1,308.7         1,181.8         636.8   

 

Notes:

(1) Current deferred income and mining tax assets as of December 31, 2011 and 2010, and June 30, 2010, 2009 and 2008 have been reclassified from non-current deferred income and mining liabilities to conform to the presentation as of December 31, 2012. Management does not believe this reclassification materially impacts the financial statements of those respective periods.

Exchange Rates

The following tables set forth, for the periods indicated, the average, high and low exchange rates of Rand for U.S. dollars, expressed in Rand per $1.00. For periods prior to December 31, 2008, the following tables express the exchange rates in terms of the noon buying rate in New York City for cable transfers in Rand as certified for customs purposes by the Federal Reserve Bank of New York. As of December 31, 2008, the Federal Reserve Bank ceased publication of the noon buying rate, and, as such, the exchange rates for the fiscal year ended June 2009 are sourced from I-Net Bridge, being the closing rate at period end.

 

Year ended

   Average  

June 30, 2008

     7.27 (1) 

June 30, 2009

     9.01 (2) 

June 30, 2010

     7.58 (2) 

December 31, 2011

     7.22 (2) 

December 31, 2012

     8.19 (2) 

Through April 19, 2013

     8.97 (2) 

 

Notes:

(1) The average of the noon buying rates on the last day of each full month during the relevant period as certified for customs purposes by the Federal Reserve Bank of New York.
(2) The daily average of the closing rate during the relevant period as reported by I-Net Bridge.

 

Month ended

   High      Low  

October 31, 2012

     8.89         8.36   

November 30, 2012

     8.97         8.63   

December 31, 2012

     8.87         8.40   

January 31, 2013

     9.09         8.45   

February 28, 2013

     9.03         8.78   

March 31, 2013

     9.33         9.06   

The closing rate for the Rand on April 19, 2013, as reported by I-Net Bridge, was R9.22 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, which may affect the market price of the ADRs on the NYSE. These fluctuations will also affect the U.S. dollar amounts received by owners of ADRs on the conversion of any dividends paid in Rand on the ordinary shares.

Reasons for the Offer and Use of Proceeds

Not applicable.

 

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RISK FACTORS

In addition to the other information included in this annual report, the considerations listed below could have a material adverse effect on our business, financial condition or results of operations, resulting in a decline in the trading price of Sibanye Gold’s ordinary shares or ADRs. The risks set forth below comprise all material risks currently known to us. These factors should be considered carefully, together with the information and financial data set forth in this document.

Risks related to Sibanye Gold’s business

Changes in the market price for gold, which in the past have fluctuated widely, affect the profitability of Sibanye Gold’s operations and the cash flows generated by those operations.

Virtually all of Sibanye Gold’s revenues are derived from the sale of gold. Sibanye Gold also derives an immaterial amount of revenue from the sale of silver, representing, for example, 0.25% of revenue during the fiscal year ended December 2012. Sibanye Gold 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. Since Sibanye Gold does not generally use commodity or derivative instruments, it will generally be unprotected against declines in the gold price, which could lead to reduced revenue in respect of gold production that is not hedged. See “Quantitative and Qualitative Disclosures about Market Risk”. Historically, the market price for gold has fluctuated widely and has been affected by numerous factors over which Sibanye Gold has no control, including:

 

   

the demand for gold for industrial uses and for use in jewelry;

 

   

demand for gold from relatively new emerging markets, particularly Brazil, Russia, India and China, and the emerging middle class in these markets;

 

   

actual, expected or rumored purchases and sales of gold bullion holdings by central banks or other large gold bullion holders or dealers;

 

   

demand for exchange traded funds, or ETFs, which replicate the exact performance of gold;

 

   

demand for gold for investment purposes;

 

   

investor confidence in gold and the gold business;

 

   

speculative trading activities in gold;

 

   

the overall level of forward sales by other gold producers;

 

   

the overall level and cost of production by other gold producers;

 

   

international or regional political and economic events or trends;

 

   

the strength or weakness of the U.S. dollar (the currency in which gold prices generally are quoted) and of other currencies;

 

   

financial market expectations regarding the rate of inflation; and

 

   

interest rates.

While the aggregate effect of these factors is impossible for Sibanye Gold to predict, if gold prices fall below the amount it costs Sibanye Gold to produce gold and remain at such levels for any sustained period, it may experience losses and may be forced to curtail or suspend some or all of its projects, operations and/or reduce operational capital expenditures. In addition, Sibanye Gold might not be able to recover any losses it may incur during, or after, such periods.

In addition, current demand for, and supply of, gold does not necessarily affect the price of gold in the same manner as current demand and supply affect the prices of other commodities. Since the potential supply of gold

 

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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. Pursuant to a gold sales agreement entered into by 15 European central banks, individual banks may sell up to 400 tons of gold per year, effective through September 2014. However, the effect on the market of these or any other gold sales is unclear.

Due to the credit crisis in the Eurozone countries and other factors, the market price of gold has been at historically high levels recently, and has experienced significant volatility. See “Operating and Financial Review and Prospects—Overview—Revenues”. A sustained period of significant gold price volatility may adversely affect Sibanye Gold’s ability to evaluate the feasibility of undertaking new capital projects or continuing existing operations or to make other long-term strategic decisions.

Sibanye Gold’s mineral reserves are estimates based on a number of assumptions, any changes to which may require Sibanye Gold to lower its estimated mineral reserves.

The mineral reserves stated in this annual report represent the amount of gold that we estimated, as of December 31, 2012, could be mined, processed and sold at prices at least sufficient to recover Sibanye Gold’s estimated future total costs of production, remaining investment and anticipated additional capital expenditures, along with comparative figures for the mineral reserves as of December 31, 2011. Ore reserves are estimates based on assumptions regarding, among other things, Sibanye Gold’s costs, expenditures, prices and exchange rates and metallurgical and mining recovery assumptions, which may prove inaccurate due to a number of factors, many of which are beyond our control.

In the event that we revise any of our assumptions that underlie our mineral reserves reporting in an adverse manner, Sibanye Gold may need to revise its mineral reserves downwards. In particular, if Sibanye Gold’s production costs (especially labor costs and electricity) or capital expenditures increase, if gold prices decrease or if the Rand strengthens against the U.S. dollar, a portion of Sibanye Gold’s mineral reserves may become uneconomical to recover, forcing Sibanye Gold to lower its estimated reserves. See “Information on the Company—Reserves of Sibanye Gold as of December 31, 2012”.

Sibanye Gold’s operations and profits have been and may be negatively affected by strikes, union activity and new and existing labor laws.

There has been an increase in union activity in South Africa and, in recent years, there have been new labor laws introduced or amendments to existing labor laws that impose additional obligations on Sibanye Gold or grant additional rights to workers, thereby increasing compliance and other costs. These developments have had a material adverse impact on our operations, production and financial performance. The occurrence of any such events in the future could have further negative impacts upon Sibanye Gold and its financial performance and condition.

Greater union activity, including the entry of rival unions, has resulted in more frequent industrial disputes, including violent protests and clashes with police authorities, and has impacted labor negotiations in the industry. In particular, during the second half of the fiscal year ended December 2012, a number of unions in the mining industry threatened to or have gone on strike for various reasons, including the renegotiation of wage agreements. These strikes impacted each of Sibanye Gold’s operations and caused work stoppages and significant production losses. As a result, on September 27, 2012, South Africa’s sovereign debt credit rating, along with the credit ratings of a number of the country’s leading mining companies, was downgraded.

For example, during August, September and October 2012, approximately 29,000 of Sibanye Gold’s employees (out of nearly 36,000 employees) engaged in work stoppages. Work stoppages occurred at the KDC West mine from September 9, 2012 to October 18, 2012. At the KDC East mine, work stoppages occurred from

 

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August 29, 2012 to September 5, 2012 and again from October 14, 2012 to October 23, 2012, when 8,100 workers were dismissed for failing to return to work, with 7,600 appealing that dismissal. After an appeal process, a majority of the employees returned to work on November 6, 2012. At the Beatrix mine, work stoppages occurred from September 21, 2012 to October 18, 2012. Workers at Beatrix West went on strike on September 21, 2012 and workers at Beatrix North and South went on strike on September 24, 2012. On October 17, 2012, the strike at Beatrix North and South ended. On October 18, 2012, the strike at Beatrix West ended. In each case, these work stoppages continued despite the Chamber of Mines negotiating a settlement with three labor unions, the National Union of Mineworkers, or NUM, Solidarity and UASA, formerly known as the United Association of South Africa, which the striking employees rejected. Sibanye Gold has continued to engage with the relevant unions and has communicated with its employees in an attempt to resolve the work stoppages.

Sibanye Gold estimated that, as a result of these work stoppages, the losses for the fiscal year ended December 2012 were approximately 145,000 ounces of gold production and R2.1 billion of revenue. These estimated losses, however, were partially offset by approximately R0.3 billion saved in wages, electricity, consumables and other costs not paid.

Negotiations with the South African mining unions in 2011 resulted in above-inflation wage increases between 8.0% to 10.0%, depending upon the category of employee. Such negotiations, historically, have occurred every two years. However, the recent labor unrest has resulted in South African mining industry participants undergoing negotiations with workers and labor unions outside this period. These ad-hoc negotiations resulted in a settlement proposal made by a number of the gold mining companies in South Africa, including Sibanye Gold (through its former parent company, Gold Fields). Through the Chamber of Mines, Sibanye Gold (through Gold Fields), agreed with the trade unions to an earlier implementation of a number of provisions of the wage agreement reached in 2011 that were agreed to by all parties, culminating in an adjustment to wages in the relevant bargaining units of around 2.5%, or R150 million, per annum relating to changes to job grades and entry-level wages. In addition, the gold mining companies, trade unions and government have set up a working group for a wide-ranging review of working practices, productivity improvements and socio-economic conditions in the gold mining industry, which will feed into the next round of wage negotiations scheduled for 2013. Despite the fact that returning employees will receive the benefit of the settlement proposal referred to above, Sibanye Gold’s employees may continue to take industrial action to protest and seek redress in connection with a variety of issues, including pay and working conditions. Negotiations with the South African mining unions generally take place every two years, and, in light of the recent labor unrest, we expect that the negotiations in 2013 may be difficult and may be accompanied by further strikes, work stoppages or other labor actions. Further, Sibanye Gold has entered a consultation process with the labor unions and the Department of Mineral Resources, or the DMR, to consider available options, including retrenchments at Beatrix following a fire at Beatrix No. 4 Shaft during February 2013 that has caused the West Section to be inaccessible, at current estimates, until June 2014 at the earliest.

In the event that Sibanye Gold experiences further strikes or work stoppages, delays, go-slow actions, sabotage, vandalism or other damage to operations, lower productivity levels than envisaged, other industrial relations-related interruptions at any of its operations or increased employment-related costs due to union or employee activity, these may have a material adverse effect on its business, production levels, production targets, results of operations, financial condition, reputation and future prospects. In addition, lower levels of mining activity can have a longer term impact on production levels and operating costs, particularly since mining conditions can deteriorate during extended periods without production and Sibanye Gold will not re-commence mining until health and safety conditions are considered appropriate to do so.

Further, during the second half of the fiscal year ended December 2012, labor actions in several other South African industries have also occurred, including in the transportation industry, the coal industry (which supplies the South African electricity utility) and the platinum industry. Such labor actions have the potential to impact on Sibanye Gold’s business by influencing its own labor negotiations and by curtailing the supply of necessary

 

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inputs. Increased costs related to labor actions in other industries or shortages of production inputs caused by such actions may have a material adverse effect on Sibanye Gold’s production levels, business, results of operations and financial condition.

Sibanye Gold may also be affected by certain labor laws that impose obligations regarding worker rights. 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. Existing labor laws and any new or amended labor laws may increase Sibanye Gold’s labor costs and have a material adverse effect on Sibanye Gold’s business, operating results and financial condition.

An actual or alleged breach or breaches in governance processes, or fraud, bribery and corruption may lead to regulatory penalties, loss of licenses or permits and loss of reputation.

Sibanye Gold’s governance and compliance processes may not prevent potential breaches of law or accounting or other governance practices. Sibanye Gold’s operating codes, among other standards and guidance may not prevent instances of fraudulent behavior and dishonesty, nor guarantee compliance with legal and regulatory requirements. Any actual or alleged breach or breaches of relevant laws, including South African anti-bribery and corruption legislation or the U.S. Foreign Corrupt Practices Act of 1977, may lead to regulatory and civil fines, litigation, public and private censure, and loss of operating licenses or permits and may damage Sibanye Gold’s reputation, any of which could have a material adverse effect on Sibanye Gold’s business, financial condition and results of operations.

Due to the nature of mining and the type of gold mines we operate, we face a material risk of liability, delays, mine stoppages 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 and mining accidents. In particular, hazards associated with our mining operations include:

 

   

rock bursts;

 

   

seismic events;

 

   

extreme ambient operating temperature;

 

   

surface or underground fires and explosions, including those caused by flammable gas or in connection with blasting;

 

   

cave-ins, wall collapse or gravity falls of ground, including collapses of rock dumps or tailings dams;

 

   

discharges of gases and toxic substances;

 

   

releases of radioactivity;

 

   

flooding;

 

   

electrocution;

 

   

falling from height;

 

   

accidents related to the presence of mobile machinery, including locomotives, shaft conveyances, and elevators;

 

   

ground and surface water pollution;

 

   

production disruption due to weather;

 

   

human error;

 

   

sinkhole formation and ground subsidence; and

 

   

other accidents and conditions resulting from drilling, blasting and removing and processing material.

 

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We are at risk of experiencing any and all of these environmental or other industrial hazards and we are more susceptible than other mining operations to certain of these risks due to mining at deep levels. The occurrence of any of these hazards could delay or halt production, increase production costs and result in our liability.

Ageing infrastructure may cause breakdowns and unplanned stoppages, which may result in production delays, increased costs and industrial accidents.

Deep level gold mining shafts and processing plants are usually designed with a lifespan of 25 to 30 years. Vertical shafts consist of large quantities of infrastructure steelwork for guiding conveyances and services such as high voltage electric cables, air, backfill and water pipe columns and communication cables. Maintaining this infrastructure requires skilled human resources, capital allocation, management and planned maintenance. Once a shaft or a processing plant has reached the end of its intended lifespan, more than normal maintenance and care is required to maintain it.

Nearly all of our operating shafts and processing plants are more than 30 years old. Although we have a comprehensive maintenance strategy in place, incidents resulting in production delays, increased costs or industrial accidents may occur. Such incidents may have a material adverse effect on our results of operations and financial position.

Because our operations are concentrated in a few locations, disruptions in these locations could have a material adverse impact on its business operations.

Our headquarters and all of our operations are located in the northern and southern margins of the Witwatersrand Basin in South Africa. The KDC operation is located in the Gauteng Province of South Africa, 60 kilometers southwest of Johannesburg, and the Beatrix operation is located in the Free State Province of South Africa, 240 kilometers southwest of Johannesburg. Our results of operations have been and are expected to continue to depend upon the reserves and production of our KDC and Beatrix operations.

As a result, due to the geographic concentration of these operations, any adverse economic, political or social conditions affecting this region, as well as natural disasters or coordinated strikes or other work stoppages, could have a material adverse effect on Sibanye Gold’s business, financial condition and results of operations. See “Risk Factors—Risks related to South Africa”.

Our business is subject to high fixed costs which may impact its profitability.

The South African gold mining industry is labor intensive and is characterized by high fixed costs and by revenues that can fluctuate more, and more rapidly, than its cost drivers. The majority of operating costs of each mine do not vary significantly with amount of production and, therefore, a relatively small change in productivity could have a disproportionate effect on operating and financial results. Accordingly, a relatively minor shortfall from expected revenue levels could have a material adverse effect on Sibanye Gold’s growth or financial performance.

Labor has historically accounted for approximately half of our total operating expenses on an annual basis. A large proportion of other costs required to run the mines, including power, ventilation and cooling, are extremely difficult to reduce in a short period. Further, many of the costs described above continue to be incurred during strikes and work stoppages. Increases in fixed costs such as labor costs or electricity costs may cause marginal shafts or other areas at our operations to become uneconomical to mine. If this were to occur, it could reduce the amount of reserves declared by us and could have a material adverse effect on our business, operating results and financial condition. See “Operating and Financial Review and Prospects—Costs”.

 

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If we lose senior management or are unable to hire and retain sufficient technically skilled employees, our business may be materially adversely affected.

Our ability to operate or expand effectively depends largely on the experience, skills and performance of our senior management team and technically skilled employees. However, the mining industry in South Africa, including Sibanye Gold, continues to experience a shortage of qualified senior management and technically skilled employees. We cannot be certain that the services of our senior management and a sufficient number of our technically skilled employees will continue to be available to us. Any senior management departures, unavailability (due to death, injury, illness or other reasons) or technically skilled worker shortages could adversely affect our operational efficiency and production levels.

We may be unable to hire or retain appropriate technically skilled employees or other management personnel, or may have to pay higher levels of remuneration than we currently intend in order to do so. For instance, the production of gold in South African deep level mines relies heavily upon rock drill operators and other operators of heavy machinery in underground conditions, and it is difficult to attract new entrants into these occupations. If we are unable to hire and retain appropriate management and technically skilled personnel, or if there are not sufficient succession plans in place, this could have a material adverse effect on our business (including production levels), results of operations and financial position.

Because gold is generally sold in U.S. dollars, while virtually all of Sibanye Gold’s production costs are in Rand, Sibanye Gold’s operating results and financial condition will be materially harmed if there is a material appreciation in the value of the Rand.

Gold is sold throughout the world principally in U.S. dollars, but virtually all of Sibanye Gold’s costs of production are incurred in Rand. As a result, any significant and sustained appreciation of the Rand against the U.S. dollar may materially increase our costs in U.S. dollar terms, which could materially adversely affect our operating results and financial condition. In the fiscal year ended December 2011, movements in the U.S. dollar/Rand exchange rate impacted on Sibanye Gold’s results of operations as the Rand strengthened 1.1% against the U.S. dollar from an average of 7.30 in the fiscal year ended December 2010 to 7.22 in the fiscal year ended December 2011. In the fiscal year ended December 2012, movements in the U.S. dollar/Rand exchange rate had a significant impact on Sibanye Gold’s results of operations as the Rand depreciated 13.4% against the U.S. dollar, from an average of 7.22 in the fiscal year ended December 2011 to 8.19 in the fiscal year ended December 2012.

Conversely, inflation in South Africa could increase the prices Sibanye Gold pays for products and services, including wages for its employees and power costs, which, if not offset by increased gold prices or currency devaluations, could have a material adverse effect on Sibanye Gold’s financial condition and results of operations.

Actual and potential supply chain shortages and increases in the prices of production inputs may have a material adverse effect on Sibanye Gold’s operations and profits.

Sibanye Gold’s results of operations are affected by the availability and pricing of raw materials and other essential production inputs, including fuel, steel, cyanide and other reagents. The price and quality 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 in the supply of any of these materials would require us to find acceptable substitute suppliers and could require us to pay higher prices for such materials. Any significant increase in the prices of these materials will increase Sibanye Gold’s operating costs and affect production considerations.

Power stoppages, fluctuations and usage constraints may force Sibanye Gold to halt or curtail operations.

In 2008, South Africa experienced disruptions in electrical power supply that impacted Sibanye Gold’s operations. The Department of Energy is in the process of developing a power conservation program, including

 

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rules regarding baseline adjustments and load growth. However, there can be no assurance that this conservation program will ensure that there is sufficient electricity available for Sibanye Gold to run its operations at full capacity or at all. In October 2012, the South African state utility Eskom Limited, or Eskom, announced that its forecasted electricity sales for the financial year ended March 31, 2013 would be 2.5% lower than the previous year, but still warned that it may face constraints on the supply of power until the first units of its new power station come online by mid-2014, but still warned that it may face constraints on the supply of power over the next two years. Further, while the labor unrest in the second half of the fiscal year ended December 2012 reduced electricity demand, Eskom announced that it experienced a disruption in the supply of coal used to generate electricity due to other labor unrest in South Africa. Any disruption or decrease in the electrical power supply available to Sibanye Gold’s operations could have a material adverse effect on its business, operating results and financial condition.

Sibanye Gold’s insurance coverage may prove inadequate to satisfy potential claims.

Sibanye Gold has an insurance program, however, it 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. Sibanye Gold’s existing property and liability insurance contains exclusions and limitations on coverage. Should Sibanye Gold 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, Sibanye Gold’s insurance coverage may not cover the extent of claims against it, including, but not limited to, claims for environmental or industrial accidents, occupational illnesses or pollution or any cross-claims made.

Theft of gold and production inputs and illegal mining occur on some of Sibanye Gold’s properties. These activities are difficult to control, can disrupt business and can expose Sibanye Gold to liability.

Sibanye Gold’s properties have experienced illegal and artisanal mining activities and theft of gold bearing materials (which may be by employees or third parties). The activities of the illegal miners could cause pollution or other damage to Sibanye Gold’s properties, including underground fires, or personal injury or death, for which Sibanye Gold could potentially be held responsible. An increase in illegal or artisanal mining activities could result in depletion of mineral deposits, potentially making the future mining of such deposits uneconomic. The presence of illegal miners could lead to project delays and disputes regarding the development or operation of commercial gold deposits. An increase in the theft of gold or any inputs required for the production of gold may reduce the amount of gold that Sibanye Gold is able to recover from its operations. Rising gold prices may increase the likelihood of such thefts occurring. Illegal mining and theft could also result in lost gold reserves and mine stoppages, cause Sibanye Gold to incur fines or other costs and have a material adverse effect on Sibanye Gold’s financial condition or results of operations.

To the extent that Sibanye Gold seeks to expand through acquisitions, it may experience problems in executing acquisitions or managing and integrating the acquisitions with its existing operations.

We may selectively pursue opportunities to leverage processing capacity and infrastructure at our existing mines and processing hubs. Such opportunities may take the form of the acquisition of other companies, development projects or assets, or through joint ventures. Any such acquisition or joint venture may change the scale of Sibanye Gold’s business and operations and may expose it to new geographic, geological, political, social, operating, financial, legal, regulatory and contractual risks. For example:

 

   

there may be a significant change in commodity prices after Sibanye Gold has committed to complete a transaction and established a purchase price or share exchange ratio;

 

   

a material ore body may not meet expectations;

 

   

Sibanye Gold may have difficulty integrating and assimilating the operations and personnel of any acquired companies, realizing anticipated synergies and maximizing the financial and strategic position of the combined enterprise, and maintaining uniform standards, policies and controls;

 

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the integration may disrupt Sibanye Gold’s ongoing business and its relationships with employees (who may be subject to consolidation), suppliers and contractors;

 

   

an acquisition may divert management’s attention from Sibanye Gold’s day-to-day business;

 

   

the acquired business may have undetected liabilities which may be significant; and

 

   

in addition, to the extent Sibanye Gold participates in the development of a project through a joint venture or any other multi-party commercial structure, there could be disagreements, legal or otherwise, or divergent interests or goals amongst the parties, which could jeopardize the success of the project.

There can be no assurance that any acquisition or joint venture will achieve the results intended. Any problems experienced by Sibanye Gold in connection with an acquisition or joint venture as a result of one or more of these or other factors could have a material adverse effect on Sibanye Gold’s business, operating results and financial condition.

To the extent that Sibanye Gold seeks to expand its current mining operations, it may experience problems associated with mineral exploration or developing mining projects.

In order to expand its operations and reserve base, Sibanye Gold may investigate the exploitation of mineralization below the current mining levels at KDC and the incremental expansion of its operations at Beatrix. Such projects involve many risks and are frequently unsuccessful. Any such program entails risks relating to the location of economic ore bodies, the development of appropriate extractive processes, the receipt of necessary governmental permits and regulatory approvals and the extension of mining and processing facilities at the mining site. Sibanye Gold’s efforts may not result in an increase of its reserves. It can take a number of years and substantial expenditures for such expansions to provide a return on investment, during which time the economic feasibility of production may change. Furthermore, significant capital investment is required to achieve commercial production from such efforts. There is no assurance that Sibanye Gold will have, or be able to raise, the required funds to engage in these activities or to meet its obligations with respect to the properties in which it has or may acquire an interest. In addition, to the extent Sibanye Gold participates in the development of a project through a joint venture or any other multi-party commercial structure, there could be disagreements, legal or otherwise, or divergent interests or goals amongst the parties, which could jeopardize the success of the project.

Sibanye Gold relies on information technology and communications systems, the failure of which could significantly impact its operations and business.

Sibanye Gold relies on its information technology and communications systems, in particular its SAP, payroll and time and attendance applications. Sibanye Gold’s information technology and communications systems could be exposed to, among other things, damage or interruption from telecommunications failure, unauthorized entry and malicious computer code, fire, natural disaster, power loss, industrial action and human error. While it has offsite backup systems in place, the occurrence of any of the above may also disrupt Sibanye Gold’s information technology and communications systems and may lead to important data (including geophysical and geological data) being irretrievably lost or damaged. Such damage or interruption may adversely affect Sibanye Gold’s business, prospects and results of operations.

Sibanye Gold’s results of operations may be adversely impacted if it becomes obligated to make payments under certain guarantees it has provided on notes issued by Gold Fields Orogen Holding (BVI) Limited.

On September 30, 2010, Gold Fields Orogen Holding (BVI) Limited, or Orogen, a subsidiary of Gold Fields, announced the issue of $1,000,000,000 4.875% guaranteed notes due October 7, 2020, or the Notes, issued on October 7, 2010. The payment of all amounts due in respect of the Notes was unconditionally and irrevocably guaranteed by Gold Fields, Sibanye Gold, Gold Fields Operations Limited, or GFO, and Gold Fields

 

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Holdings Company (BVI) Limited, or GHO, or, together, the Guarantors, on a joint and several basis. The Notes and guarantees constitute direct, unsubordinated and (subject to the negative pledge provisions related to further capital market indebtedness) unsecured obligations of Orogen and the Guarantors, respectively, and rank equally with all other existing and future unsubordinated and unsecured obligations from time to time outstanding of Orogen and the Guarantors, respectively. Sibanye Gold will continue to be a Guarantor of the Notes and, if there is any default by Orogen or the other Guarantors related to the Notes, Sibanye Gold may become liable for the full amount of Orogen’s outstanding obligations.

Each of Gold Fields and the other Guarantors have entered into an indemnity agreement, or the Indemnity Agreement, in favor of Sibanye Gold in order to indemnify Sibanye Gold against any loss caused to Sibanye Gold in circumstances where Sibanye Gold is required to make a payment to noteholders or the trustee of the Notes by virtue of its guarantee of the Notes. Despite this indemnification, if Sibanye Gold is not released as a Guarantor of the Notes, it may be difficult for Sibanye Gold to obtain financing on commercially acceptable terms, or at all. Further, if there is an event of default and monies payable under the Notes are accelerated and Gold Fields cannot or does not meet its obligation to indemnify Sibanye Gold for all or part of its guarantee, this will have a material adverse effect on Sibanye Gold’s operations and financial performance. See “Additional Information—Material Contracts—U.S.$1 billion Notes Issue Due 2020”. Among other things, if Sibanye Gold is required to make any payment pursuant to its guarantee under the Notes, this would constitute an event of default or a breach of Sibanye Gold’s other financing facilities. Any such event or breach may have a material adverse effect on Sibanye Gold’s results of operations and financial condition.

Further, market conditions may negatively impact Sibanye Gold’s ability to obtain financing for amounts it becomes required to pay under its obligations as guarantor, as well as the rate of interest required to finance these amounts.

Risks related to South Africa

Sibanye Gold is subject to the imposition of various cost imposts, such as mining taxes or royalties, which may have a material adverse effect on Sibanye Gold’s operations and profits.

In recent years, governments (local and national), communities, non-governmental organizations and trade unions in several jurisdictions have sought and, in some cases, have implemented greater cost imposts on the mining industry, including through the imposition of additional taxes and royalties.

In South Africa, the African National Congress, or the ANC, has adopted a recommendation which, among other things, proposed greater state intervention in the mining industry, including the revision of existing royalties, the imposition of new taxes and increasing the South African government’s holdings in mining companies. In June 2012, the recommendation was discussed at the national policy conference of the ANC. The conference recommended that the South African government take a more active role in the mining sector, including through the strengthening of a state mining company to be involved in new projects either through partnerships or individually. The policy conference’s recommendations were adopted as ANC policy during the national conference of the ANC held in December 2012.

The adopted policy may impose additional restrictions, obligations, operational costs, taxes or royalty payments on gold mining companies, including Sibanye Gold, any of which could have a material adverse effect on Sibanye Gold’s business, operating results and financial condition.

Economic, political or social instability affecting South Africa may have a material adverse effect on Sibanye Gold’s operations and profits.

All of Sibanye Gold’s production is in South Africa. As a result, changes or instability affecting the economic, political or social environment in South Africa could affect an investment in Sibanye Gold.

As noted above, the South African mining industry, including Sibanye Gold, was the target of large-scale labor strikes in the fiscal year ended December 2012. Labor unrest has increased in the South African mining industry and the entry of rival unions has contributed to increased violence and greater frequency of unrest.

 

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Sibanye Gold may be subject to actions by labor groups or other interested parties who object to perceived or actual conditions and policies at its mines or to perceived or actual environmental impact of such mines. Such action may also be influenced by political forces within South Africa. Additionally, the proliferation of social media and other internet technologies may contribute to negative publicity relating to any actual or perceived environmental, labor or other issues at Sibanye Gold’s operations. These actions may delay or halt production, increase production costs, result in liability, lead to greater costs or may create negative publicity related to Sibanye Gold. Additionally, these actions, and especially those related to labor groups and work stoppages, can lead to a loss of investor confidence in the South African gold industry in general, which may restrict Sibanye Gold’s access to international financing and could have a material adverse effect on Sibanye Gold’s business, operating results and financial condition.

For example, in the second half of 2012, South Africa’s sovereign credit rating was lowered by certain rating agencies, resulting in higher interest rates for South Africa’s sovereign debt, which may in turn adversely affect South Africa’s economy. The credit ratings of a number of the country’s leading mining companies were also downgraded. This may adversely affect Sibanye Gold and other South African companies in various ways, including by causing a potential downgrade of such companies’ credit ratings. This could lead to increased borrowing costs for Sibanye Gold and a diminished ability to raise capital from the international debt markets in the future.

In recent years, South Africa has continued to experience 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, Sibanye Gold may have difficulty attracting and retaining qualified local employees. There has also been regional, political and economic instability in certain countries surrounding South Africa. Any similar political or economic instability in South Africa could have a negative impact on Sibanye Gold’s ability to manage and operate its South African operations.

Numerous public statements have also been made about the nationalization of South African mines by labor unions and political groups in South Africa. While the official policy of the South African government and the ANC, which was confirmed at the ANC conference that took place during December 2012, is not to nationalize mines, these comments and any other potential threats of nationalization may negatively affect the perceived value of Sibanye Gold’s property and investors’ perceptions of South Africa. It remains unclear what effect the policies adopted at this conference will have on the South African gold mining industry or on Sibanye Gold specifically. Any threat of, or actual proceeding to, nationalize any of Sibanye Gold’s assets could halt or curtail operations, resulting in a material adverse effect on Sibanye Gold’s business, operating results and financial condition and could cause the value of Sibanye Gold’s securities to decline rapidly and dramatically, possibly causing investors to lose the entirety of their respective investments.

Power cost increases may adversely affect Sibanye Gold’s results of operations.

Sibanye Gold’s mining operations depend upon electrical power generated by the state utility provider, Eskom. See “Operating and Financial Review and Prospects—Overview—Costs”. Eskom holds a monopoly on power supply in the South African market. In calendar year 2009, Eskom applied to the National Energy Regulator of South Africa, or NERSA, for a 35% average tariff increase on each of April 1, 2010, 2011 and 2012, and NERSA granted average increases of 24.8%, 25.8% and 25.9%, respectively. However, in April 2012, Eskom implemented an average tariff increase of 16%. On February 28, 2013, NERSA announced that it had approved an 8% per annum average increase in the electricity tariff over the next five year period but such average increases for the mining and industrial sectors may be greater. Eskom announced its intention to institute an average annual tariff increase of 8.0% and 9.6% for industrial users for the five-year period starting April 1, 2013. Therefore, we expect further significant additional increases during the next several years as Eskom embarks on an electricity generation capacity expansion program. Should Sibanye Gold experience further power tariff increases, its results of operations may be adversely impacted.

 

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Sibanye Gold’s financial flexibility could be materially constrained by South African exchange control regulations.

South Africa’s exchange control regulations, or the 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, or the CMA. Transactions between South African residents (including companies) and non-residents of the CMA are subject to exchange controls enforced by the South African Reserve Bank, or SARB. As a result, Sibanye Gold’s ability to raise and deploy capital outside the CMA is restricted. These restrictions could hinder Sibanye Gold’s financial and strategic flexibility, particularly its ability to raise funds outside South Africa. See “Information on the Company—Environmental and Regulatory Matters—Exchange Controls”.

Regulation of greenhouse gas emissions and climate change issues may materially adversely affect Sibanye Gold’s operations.

Energy is a significant input to Sibanye Gold’s mining and processing operations, with its principal energy sources being electricity, purchased petroleum products, natural gas and coal. There is a substantial weight of scientific evidence concluding that carbon emissions from fossil fuel-based energy consumption contribute to global warming, greenhouse effects and climate change.

A number of governments, including the United Nations Framework Convention on Climate Change and the Kyoto Protocol, have introduced or are contemplating regulatory changes in response to the potential impact of climate change that may restrict emissions of greenhouse gases.

The South African government is considering the introduction of a carbon tax with effect from January 1, 2015 to reduce greenhouse gas emissions. The South African 2012 Budget review indicated that the proposed carbon tax will be R120 per ton of carbon dioxide equivalent, or CO2 emitted above certain thresholds. The tax rate will increase by 10% a year, reaching R210 per ton of CO2 by 2020. However, 60% of emissions would initially be tax exempt. The 60% discount will continue to apply until 2020 along with certain “offsets” of 5% or 10% of tax liability, a carbon intensity correction based on industry benchmarks and a correction for international trade exposure of 5% or 10% of tax liability, which together may allow for a cumulative reprieve from tax liability of up to 90%. The 60% discount and the associated tax reprieves will be scaled back gradually from 2020 until 2050 and may be replaced by absolute emissions thresholds thereafter. If the proposed carbon tax had been in effect in the fiscal year ended December 2012 (as proposed), management estimates this would have introduced an additional cost of R37.5 million. The 2013 Budget Review indicated that an updated policy paper would be published by March 31, 2013 for further comment and consultation; however, as of the date of this annual report, the policy paper had not been published. See “Information on the Company—Environmental and Regulatory Matters—Environmental.”

From a medium and long-term perspective, Sibanye Gold is likely to see an increase in costs relating to its energy-intensive assets and assets that emit significant amounts of greenhouse gases as a result of regulatory initiatives in South Africa. These regulatory initiatives will be either voluntary or mandatory and are likely to impact Sibanye Gold’s operations directly or the cost of doing business, for example by increasing the costs of its suppliers or customers. These costs may include, among others, emission measurement and reduction, audit processes and human resource costs. Non-compliance with statutory initiatives may result in monetary liabilities. Insurance premiums may increase and Sibanye Gold’s position relative to industry competitors may change. Assessments of the potential impact of future climate change regulation are uncertain, given the wide scope of potential regulatory change in South Africa.

Furthermore, the potential physical impacts of climate change on Sibanye Gold’s operations are highly uncertain. They may include changes in rainfall patterns and intensities, water shortages, extreme weather conditions and changing temperatures. Flooding could disrupt mining, processing and transportation, and result in increased health and safety risks. Extreme weather conditions may negatively impact Sibanye Gold’s workforce. These effects may adversely impact the cost, production and financial performance of Sibanye Gold’s operations.

 

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HIV/AIDS, tuberculosis and other contagious diseases pose risks to Sibanye Gold in terms of lost productivity and increased costs.

The prevalence of HIV/AIDS in South Africa poses risks to Sibanye Gold in terms of potentially reduced productivity and increased medical and other costs. Management has recently estimated that approximately 18% of Sibanye Gold’s workforce is infected with HIV. Increasingly, we are seeing an adverse impact of HIV/AIDS on our affected employees similar to that experienced by other companies in the South African mining sector, evidenced by increased absenteeism and reduced productivity. Compounding this are the concomitant infections, such as tuberculosis, that can accompany HIV illness, particularly at the end stages, and cause additional healthcare-related costs. In South Africa, the incidence of tuberculosis in mine workers is aggravated by exposure to crystalline silica dust and by compromised immunity due to HIV infection. HIV/AIDS remains an important focus for Sibanye Gold, and it will continue its extensive intervention campaigns. However, the potential impact of HIV/AIDS on Sibanye Gold’s operations and financial condition is significant. Factors influencing the impact of HIV/AIDS include the incidence of HIV infection among Sibanye Gold’s employees and the surrounding community, the impact on employees’ productivity, treatment costs and other costs. Most of these factors are beyond Sibanye Gold’s control. See “Directors, Senior Management and Employees—Employees—Health and Safety—HIV/AIDS Program”.

Additionally, the spread of contagious diseases such as respiratory diseases, including seasonal flu and latent epidemics like avian, swine flu and severe acute respiratory syndrom (SARS), are exacerbated by communal housing and close quarters. Although Sibanye Gold is in the process of improving housing facilities at its mines, the spread of such diseases could impact employees’ productivity, treatment costs and therefore operational costs.

Sibanye Gold’s operations are subject to South African environmental and health and safety regulations, which could impose significant costs and burdens, and Sibanye Gold may face claims and liability for breaches, or alleged breaches, of such regulations and other applicable laws.

Sibanye Gold’s operations are subject to various environmental laws and regulations, including, for example, those relating to waste treatment and disposal, emissions and water management. Further, Sibanye Gold must comply with permits or standards governing, among other things, land rehabilitation, tailings and waste disposal areas, water consumption, air emissions, water discharges, naturally occurring radioactive material, transportation of ore or hazardous substances, power use and generation, use and storage of explosives, housing and other facilities for workers, reclamation, labor standards and mine safety and occupational health. For example, in South Africa, Sibanye Gold is required to secure estimated environmental rehabilitation costs for rehabilitation of a mine during and particularly after the mine has been closed in terms of the Mineral and Petroleum Resources Development Act No. 28 of 2002, or the MPRDA. Sibanye Gold may in the future incur significant costs to comply with 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. Sibanye Gold may also be subject to litigation and other costs as a result of environmental rights granted to individuals under South Africa’s Constitution or other sources of environmental rights. These costs could have a material adverse effect on Sibanye Gold’s business, operating results and financial condition. See “Information on the Company—Environmental and Regulatory Matters—Environmental”.

Sibanye Gold’s operations are also subject to various South African health and safety laws and regulations that impose various duties on Sibanye Gold’s mines while granting the authorities broad powers to, among other things, close or suspend operations at unsafe mines and order corrective action relating to health and safety matters. Under these health and safety laws and regulations, Sibanye Gold may also be subject to prosecution for industrial accidents as well as significant penalties and fines for non-compliance. Any changes to the health and safety laws which increase the burden of compliance or the penalties for non-compliance may cause Sibanye Gold to incur further significant costs.

 

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Further, certain targets were set by the Mine Health and Safety Council, or the MHSC, a body consisting of representatives from the government, mining companies and unions, for the reduction of accidents, noise and silicosis to be achieved by 2013. If a mine fails to achieve these targets, or it is found to be in excess of noise or silicosis limits generally, the Mine Health and Safety Inspectorate, or the MHSI, could potentially order that operations be halted at any time due to overexposure of employees to unsafe or unhealthy working conditions. We expect that the MHSC targets related to the reduction of accidents, noise and silicosis will be revised to tighten these standards over the next several years.

The principal health risks associated with Sibanye Gold’s mining operations arise from occupational exposure and community environmental exposure to silica dust, noise and certain hazardous substances, including toxic gases and radioactive particulates. The most significant occupational diseases affecting Sibanye Gold’s workforce include lung diseases (such as silicosis, tuberculosis, a combination of the two and chronic obstructive airways disease, or COAD) as well as noise-induced hearing loss, or NIHL. The Occupational Diseases in Mines and Works Act, No. 78 of 1973, or ODMWA, governs the payment of compensation and medical costs for certain illnesses, such as silicosis, contracted by those employed in mines or at sites where activities ancillary to mining are conducted. Recently, the South African Constitutional Court ruled that a claim for compensation under the ODMWA does not prevent the employee from seeking to recover compensation from the employer concerned in a civil action under common law (either as individuals or as a class). While issues, such as negligence and causation, need to be proved on a case-by-case basis, it is nevertheless possible that such a ruling could expose Sibanye Gold to claims related to occupational hazards and diseases (including silicosis or other ailments alleged to arise due to exposure to hazardous materials and substances), which may be in the form of a class action or similar group action. Although community exposure tends to be lower than occupational exposure, such actions may also arise in connection with the incidence of such diseases in communities proximate to Sibanye Gold’s mines.

In the second half of 2012, two suits were filed against several South African mining companies, including Gold Fields and Sibanye Gold, on behalf of current and former gold mine workers and the dependants of gold mine workers who have contracted or died from silicosis or other occupational lung diseases.

If a significant number of such claims were suitably established against Sibanye Gold, the payment of compensation for the claims could have a material adverse effect on our business, reputation, results of operations and financial condition. In addition, we may incur significant additional costs arising out of these issues, including costs relating to the payment of fees, increased levies or other contributions in respect of compensatory or other funds established (if any) and expenditures arising out of our efforts to remediate these matters or resolve any outstanding claims or other potential action. Further, we expect that the levels of statutory compensation payable to individuals may be increased over the next several years.

Sibanye Gold monitors health and safety issues in several jurisdictions. One issue that has arisen in the context of the United States is diesel particulate matter, or DPM. While regulations and litigation regarding DPM have not occurred in South Africa, we expect that these issues may arise in the future. Therefore, we are currently unable to estimate any costs relating to new regulations or potential litigation around this issue; however, any such regulations or litigation could have a material adverse effect on Sibanye Gold’s business, operating results and financial condition.

A number of accidents, many of which resulted in fatalities, have recently occurred at various mining operations in South Africa, including at Sibanye Gold’s operations. For example, on February 20, 2013, Shaft No. 4 at Beatrix was closed following a fire. The fire did not result in any fatalities, and the shaft partially reopened on February 26, 2013. However, management expects that the area directly affected by the fire may not be fully accessible until June 2014 at the earliest. As a result of the fire, Sibanye Gold has entered into a consultation process with the labor unions and the DMR to consider available options, including retrenchments, at Beatrix. On June 30, 2012, the KDC mine was closed after a fire at its No. 4 (west), or Ya Rona shaft, resulted in five fatalities. KDC East reopened on July 3, 2012 and KDC West reopened on July 9, 2012. The fire in the

 

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affected shaft was extinguished on August 14, 2012; however, this shaft remained closed subject to a Section 54 order issued by the DMR and reopened on October 17, 2012, although production did not recommence at that time due to the labor actions described above. See “Sibanye Gold’s operations and profits have been or may be adversely affected by strikes and union activity and new and existing labor law”. Prior to the Spin-off, Sibanye Gold launched an internal investigation into the fire at KDC in order to better understand the cause of this accident. South Africa’s deputy Mineral Resources Minister has stated that the ministry may increase sanctions, including closures, for mines in which fatalities occur because of violations of health and safety rules. As occurred in June, the DMR can and does issue, in the ordinary course of its operations, instructions, including Section 54 orders, following safety incidents or accidents to partially or completely halt operations at affected mines. It is Sibanye Gold’s policy to halt production at its operations when serious accidents occur in order to rectify dangerous situations and, if necessary, retrain workers. In addition, there can be no assurance that the unions will not take industrial action in response to such accidents, which could lead to losses in Sibanye Gold’s production. Any additional stoppages in production, or increased costs associated with such incidents, could have a material adverse effect on Sibanye Gold’s business, operating results and financial condition. Such incidents may also negatively affect Sibanye Gold’s reputation with, among others, employees and unions and South African regulators.

In April 2009, the Mine Health and Safety Amendment Bill became law, resulting in more stringent regulations regarding mine health and safety, to which Sibanye Gold is subject. Additionally, Sibanye Gold may be subject to an increased risk of prosecution for industrial accidents, as well as greater penalties, including mine closure, and fines for non-compliance.

Further, any changes to the health and safety laws which increase the burden of compliance or the penalties for non-compliance may cause Sibanye Gold to incur further significant costs. See “Information on the Company—Environmental and Regulatory Matters—Health and Safety”.

Sibanye Gold’s operations are subject to water use licenses, which could impose significant costs and burdens.

Under South African law, Sibanye Gold’s operations are subject to water use licenses that govern each operation’s water usage and that require, among other things, mining operations to achieve and maintain certain water quality limits regarding all water discharges. The Kloof operation (now part of the jointly managed KDC Operation) was issued a water use license in December 2008 that expired in December 2011. Gold Fields, the former parent company of Sibanye Gold, applied for renewal of, and amendments to, this license. Pending approval of the Kloof water use license, Gold Fields obtained a regulatory directive, or the Kloof Directive, from the Department of Water Affairs, or the DWA, that permits the continuation of water uses at its Kloof operations while its application for renewal of, and amendments to, its water use license was being processed. Prior to February 2011, the Kloof operation had been in compliance with the license granted to it in 2008. However, from February 2011 to September 2011, the water discharged from one of the shafts of the KDC mine covered by the Kloof license exceeded the discharge parameters specified by the license. Gold Fields informed the DWA and other relevant regulators and has investigated the cause of the increased discharge. One of the key findings of the investigation was that the increased discharge was most likely due to external variables beyond the control of the KDC operation. Based on this information, the Kloof Directive included an increase to the discharge limits of that specific discharge point. As of December 9, 2011, the date of issue of the Kloof Directive, the water discharged from the shaft covered by the Kloof water use license has been in compliance with the discharge parameters specified in the directive. Monitoring of the discharge quality is ongoing. However, there can be no assurance that the water discharge from the KDC operation will remain within these discharge parameters, that the renewed Kloof license will be granted or that it will be granted with the increased discharge limit provided by the Kloof Directive. The Driefontein operation (now part of the KDC mine) was also issued a water use license in October 2010. However, due to certain inaccuracies and discrepancies in the information provided for the water use license, Sibanye Gold has remained in discussions with the DWA to revise the license. In addition, once this process is complete, Sibanye Gold intends to apply for an amendment to the Driefontein water use license to add certain water uses not previously required. Sibanye Gold believes that it is discharging water within the parameters of the Driefontein license, but there can be

 

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no assurance that a revised license will be issued or that the DWA will determine that Sibanye Gold is in compliance with its requirements. The DWA has advised Beatrix, which had pre-existing water permits of indefinite length, that its current water usage remains authorized and it need not apply for a new license. However, Beatrix has nevertheless proactively submitted a water use license application, which is currently being processed. Therefore, management believes that its operations now have all required authorizations to undertake regulated water uses for purposes of carrying out its mining operations.

Sibanye Gold has identified a risk of potential long-term acid mine drainage, or AMD, issues which are currently experienced by peer mining groups. AMD relates to the acidification and contamination of naturally occurring water resources by pyrite-bearing ore contained in underground mines and in rock dumps, tailings dams and pits on the surface. Sibanye Gold has commissioned several technical studies to identify the steps required to prevent AMD at its facilities, but none of these studies have allowed Sibanye Gold to generate a reliable estimate of the potential impact of AMD on Sibanye Gold. If Sibanye Gold were to experience any AMD issues, it could cause Sibanye Gold to fail to comply with its water use license requirements and could expose Sibanye Gold to potential liabilities.

While Sibanye Gold is investigating a water treatment strategy in an effort to satisfy the conditions of new water use licenses and prevent potential AMD issues, there can be no assurance that Sibanye Gold will be in compliance with its licensing agreements within the required timeframe due primarily to the associated regulatory approval processes and commercial agreements that are required for the water treatment strategy. Sibanye Gold expects to incur significant expenditure to achieve and maintain compliance with the license requirements at each of its operations. Any failure on Sibanye Gold’s part to achieve or maintain compliance with the requirements of these licenses with respect to any of its operations could result in Sibanye Gold being subject to substantial claims, penalties, fees and expenses; significant delays in operations; or the loss of the relevant water use license, which could curtail or halt production at the affected operation. Any of the above could have a material adverse effect on Sibanye Gold’s business, operating results and financial condition.

Sibanye Gold’s mineral rights are subject to legislation, which could impose significant costs and burdens.

The MPRDA 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. Among other things, the Mining Charter required (i) each mining company to achieve a 15% HDSA ownership of mining assets within five years of the Mining Charter coming into effect and a 26% HDSA ownership of mining assets within 10 years of the Mining Charter coming into effect, (ii) the mining industry as a whole to agree to assist HDSA companies in securing finance to fund participation in an amount of R100 billion over the first five years and (iii) mining companies to spell out plans for achieving employment equity at management level with a view to achieving a baseline of 40% HDSA participation in management and 10% participation by women in the mining industry, in each case within five years. The Mining Charter does not form part of the MPRDA and there is uncertainty relating to its enforceability.

Following a review and as anticipated, the DMR released the Amended Mining Charter on September 13, 2010. The Amended Mining Charter does not form part of the MPRDA and there is uncertainty relating to its enforceability. The requirement under the Mining Charter for mining entities to achieve a 26% HDSA ownership of mining assets by the year 2014 was retained. Amendments to the Mining Charter in the Amended Mining Charter include, inter alia, the requirement by mining companies to: (a) facilitate local beneficiation of mineral commodities; (b) procure a minimum of 40% of capital goods, 70% of services and 50% of consumer goods from HDSA suppliers (i.e. suppliers in which a minimum of 25% + 1 vote of their share capital must be owned by HDSAs) by 2014 (exclusive of non-discretionary procurement expenditure); (c) ensure that multinational suppliers of capital goods contribute a minimum of 0.5% of their annual income generated from South African mining companies into a social development fund from 2010 towards the socio-economic development of South African communities; (d) achieve a minimum of 40% HDSA demographic representation by 2014 at executive

 

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management (board) level, senior management (executive committee) level, core and critical skills, middle management level and junior management level; (e) invest up to 5% of annual payroll in essential skills development activities; and (f) implement measures to improve the standards of housing and living conditions for mineworkers by converting or upgrading mineworkers’ hostels into family units, attaining an occupancy rate of one person per room and facilitating home ownership options for all mineworkers in consultation with organized labor, all of which must be achieved by 2014. In addition, mining companies are required to monitor and evaluate their compliance to the Amended Mining Charter, and must submit annual compliance reports to the DMR. The Scorecard for the Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry attached to the Amended Mining Charter, or the Scorecard, makes provision for a phased-in approach for compliance with the above targets over the period ending in 2014. For measurement purposes, the Scorecard allocates various weightings to the different elements of the Amended Mining Charter.

In December 2012, a draft Mineral and Petroleum Resources and Development Bill, 2012, or MPRDB, was published for comment, with the stated purpose of, among other things, removing ambiguities and enhancing sanctions. However, the MPRDB has been criticized for introducing new and burdensome regulations relating to, among other things, the upstream beneficiation of minerals, the status of tailings created prior to the commencement of the MPRDA, closure certificates, restricting the transfer of shares in listed and unlisted mining companies and retaining undue regulatory discretion over the conditions for, and issuance of, prospecting, mining and other rights. The MPRDB also seeks to significantly increase the penalties that may be imposed for, among other things, non-compliance with the MPRDA, other relevant law, the terms and conditions of a right or a social and labor plan. While it is anticipated that the MPRDB may undergo various amendments before it becomes law, the passage of the MPRDB may subject companies in the mining industry, like Sibanye Gold, to more stringent regulation in the future.

In accordance with the MPRDA, the DMR on April 29, 2009 published a Code of Good Practice for the Minerals Industry and the Housing and Living Condition Standard for the Mining Industry, or the Code, relating to the socio-economic transformation of the mining industry. However, certain provisions of the Code appeared to be inconsistent with the Mining Charter, or to go beyond the scope envisaged in the MPRDA. Various industry participants have been in discussions with the DMR regarding the scope and applicability of the Code. It is anticipated that the contents of the Code will ultimately be amended to be made consistent with the Amended Mining Charter. Details of when this will happen and the contents of the final Code are currently uncertain. See “Information on the Company—Environmental and Regulatory Matters—Mineral Rights—The MPRDA”.

The acquisition by Mvelaphanda Resources Limited, or Mvela Resources, through its wholly-owned subsidiary Mvelaphanda Gold Limited, or Mvela Gold, of 15% shareholding in Sibanye Gold, the corporate entity which held Gold Fields’ South African mining assets at the time, for a cash consideration of R4,139 million was effected in March 2009 for Gold Fields to comply with the 15% HDSA minimum ownership guideline within five years of the Mining Charter coming into effect. Immediately upon receipt of the Sibanye Gold shares, Mvela Gold exercised its right to exchange the Sibanye Gold shares for 50 million new Gold Fields shares. Pursuant to the above transactions, Mvela Gold owned approximately 7% of the listed shares of Gold Fields and Gold Fields again owned 100% of Sibanye Gold. As at January 31, 2011, Mvela Gold had sold or distributed to its shareholders all of its remaining shares of Gold Fields and ceased to be a shareholder of the Gold Fields and its subsidiaries, or the Gold Fields Group. During the six-month transition period ended December 2010, Gold Fields completed three further empowerment transactions which ensured Gold Fields’ compliance with the 2014 Black Economic Empowerment, or BEE, equity ownership guidelines. These transactions included an Employee Share Option Plan, or ESOP, housed through the Thusano Share Trust for 10.75% of Sibanye Gold (represented by 13.5 million unencumbered Gold Fields shares with full voting rights); a broad-based BEE transaction for 10% of South Deep with a phased in participation over 20 years and a broad-based BEE transaction for a further 1% of Sibanye Gold, excluding South Deep. The three transactions had a combined value of approximately R2.4 billion. See “Additional Information—Material Contracts—Additional Black Economic Empowerment Transactions”. Based on these transactions as implemented by Gold Fields, Sibanye Gold believes that it has met its BEE equity requirements and that the BEE status of Sibanye Gold will not be affected by the listing and the Spin-off.

 

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Failure by Sibanye Gold (by virtue of Gold Fields’ empowerment initiatives) to comply with the current 15% minimum HDSA ownership guideline, the 26% minimum HDSA ownership guideline as of 2014 or any of the other empowerment requirements set out in the MPRDA may amount to breach of the MPRDA, may result in the cancellation or suspension of Sibanye Gold’s existing mining rights and may prevent Sibanye Gold’s operations from obtaining any new mining rights.

The Broad-Based Black Economic Empowerment Act, No. 53, 2003, or the BBBEE Act, established a national policy on broad-based black economic empowerment, or BBBEE, with the objective of increasing the participation of HDSAs in the economy. The BBBEE Act provides for various measures to promote black economic empowerment, including empowering the Minister of Trade and Industry to issue the BBBEE Codes with which organs of state and public entities and parties interacting with them or obtaining rights and licenses from them would be required to comply. There has been some debate as to whether or to what extent the mining industry was subject to the BBBEE Act and the policies and codes provided for thereunder. On November 23, 2012, the Broad-Based Black Economic Empowerment Amendment Bill, or the BBBEE Amendment Bill, was published in the Government Gazette. The BBBEE Amendment Bill has the effect of expanding and strengthening the black economic empowerment provisions of the BBBEE Act. It was expected that the draft bill would have clarified the extent, if any, of the application of the BBBEE Act to the mining industry, but such clarification has not been provided for in the draft bill. While it is anticipated that the draft bill will undergo various amendments before it becomes law, it should be appreciated that a risk exists that the companies in the mining industry may become subject to more stringent black economic empowerment regulation.

There is no guarantee that any steps that Gold Fields has already taken, or that Gold Fields or Sibanye Gold might take in the future, will ensure the successful renewal of Sibanye Gold’s existing mining rights, the retaining of new mining rights, the granting of further new mining rights or that the terms of renewals of its rights would not be significantly less favorable to Sibanye Gold than the terms of its current rights. Any further adjustment to the ownership structure of Sibanye Gold’s mining assets in order to meet the MPRDA’s BEE requirements or the Amended Mining Charter’s requirements could have a material adverse effect on the value of Sibanye Gold’s securities, and any failure to comply with the MPRDA’s BEE requirements or the Amended Mining Charter’s requirements could subject Sibanye Gold to negative consequences, the scope of which have not yet been fully determined, but which may include, among other things, the loss of one or more mining rights. As noted, the ANC adopted a policy conference recommendation which, among other things, proposes greater state intervention in the mining industry.

Sibanye Gold may in the future incur significant costs as a result of changes in the interpretation of existing laws, or the imposition of new laws, which may have a material adverse effect on Sibanye Gold’s business, operating results and financial condition.

Risks related to the Spin-off

Sibanye Gold may not realize the potential benefits from the Spin-off.

Sibanye Gold may not realize the potential benefits that it expects from the Spin-off from Gold Fields. We have described these anticipated benefits elsewhere in this annual report. See “Information on the Company—Strategy.” In addition, Sibanye Gold will incur significant costs which may exceed its estimates. Sibanye Gold will incur some negative effects from its separation from Gold Fields, including loss of access to the financial, managerial and professional resources from which it has benefited in the past.

 

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Sibanye Gold’s Historical Consolidated Financial Statements contained in this document are not necessarily indicative of its future financial condition, future results of operations or future cash flows, nor do they reflect what its financial condition, results of operations or cash flows would have been as an independent public company during the periods presented.

The Historical Consolidated Financial Statements included in this annual report do not reflect what its financial condition, results of operations or cash flows would have been as an independent public company during the periods presented and are not necessarily indicative of its future financial condition, future results of operations or future cash flows. This is primarily a result of the following factors:

 

   

Sibanye Gold’s Historical Consolidated Financial Statements reflect charges for services historically provided by Gold Fields, and those charges may be different to the comparable expenses Sibanye Gold would have incurred as an independent company;

 

   

Sibanye Gold’s working capital requirements historically have been satisfied as part of Gold Fields’ corporate-wide cash management programs, and Sibanye Gold’s cost of debt and other capital may be different from that reflected in its Historical Consolidated Financial Statements;

 

   

the Historical Consolidated Financial Statements may not fully reflect the increased costs associated with being an independent public company, including significant changes that will occur in Sibanye Gold’s cost structure, management, financing arrangements and business operations as a result of its spin-off from Gold Fields, including all the costs related to being an independent public company; and

 

   

the Historical Consolidated Financial Statements may not fully reflect the effects of certain liabilities that will be incurred or assumed by Sibanye Gold and may not fully reflect the effects of certain assets that will be transferred to, and liabilities that will be assumed by, Gold Fields.

Sibanye Gold has no history operating as an independent public company. Sibanye Gold will incur significant expenses to create the corporate infrastructure necessary to operate as an independent public company, and will experience increased ongoing costs in connection with being an independent public company.

Sibanye Gold has historically used Gold Fields’ corporate infrastructure to support many of its business functions. The expenses related to establishing and maintaining this infrastructure have historically been spread among all of the Gold Fields businesses. Following the Spin-off, Sibanye Gold will no longer have access to Gold Fields’ infrastructure, and will need to establish its own. Gold Fields currently provides purchasing, corporate communications, human resources and benefit management, treasury and finance, investor relations, corporate controller, internal audit, legal and tax advice, compliance regarding internal controls and information technology functions to Sibanye Gold. The total cost of these services from Gold Fields was $8.4 million in the fiscal year ended December 2012. As an independent, publicly traded company, and effective as of Sibanye Gold’s separation from Gold Fields, Sibanye Gold will assume responsibility for the costs of these functions. Accordingly, Sibanye Gold’s consolidated results of operations are not necessarily indicative of its future performance and do not reflect what its financial performance would have been had Sibanye Gold been an independent publicly traded company during the periods presented. Management expects, subject to the finalization of Sibanye Gold’s plans, that the total annual costs for the abovementioned functions will be approximately $8.6 million in 2013. However, management also expects that Sibanye Gold will benefit from certain rationalizations, including the renegotiation of contracts, which should offset these incremental expenses. Following the Spin-off, Gold Fields will continue to provide some of these services to Sibanye Gold on a transitional basis for a period expected to be up to one year, pursuant to the transitional services agreement between Sibanye Gold and Gold Fields signed on December 21, 2012, or the Transitional Services Agreement. For more information regarding the Transitional Services Agreement, see “Additional Information—Material Contracts—Transitional Services Agreement”. However, Sibanye Gold cannot be sure that all these functions will be successfully executed by Gold Fields during the transition period or that Sibanye Gold will not have to expend significant efforts or costs materially in excess of those estimated in the Transitional Services Agreement.

 

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Any interruption in these services could have a material adverse effect on Sibanye Gold’s financial condition, results of operations and cash flows. In addition, at the end of this transition period, Sibanye Gold will need to perform these functions itself or hire third parties to perform these functions on its behalf.

The costs associated with performing or outsourcing these functions may exceed the amounts reflected in Sibanye Gold’s historical combined financial statements or that Sibanye Gold has agreed to pay Gold Fields during the transition period. A significant increase in the costs of performing or outsourcing these functions could materially and adversely affect Sibanye Gold’s business, financial condition, results of operations and cash flows.

Sibanye Gold will not be able to rely on Gold Fields to fund its future capital requirements and financing from other sources may not be available on favorable terms.

In the past, Sibanye Gold’s capital needs have been satisfied by Gold Fields. However, following the Spin-off, Gold Fields will no longer provide funds to finance Sibanye Gold’s working capital or other cash requirements. Sibanye Gold’s future capital and funding requirements will depend on many factors, including its revenues, which are primarily driven by Sibanye Gold’s production levels and its realized gold price, its wages, royalties and other fees, its rate of growth, its exploration efforts, its infrastructure investment and its maintenance requirements. Sibanye Gold may need to raise additional funds through public or private equity or debt financing. Management expects that Sibanye Gold’s credit rating will not be investment grade and, as a consequence, it may not be able to obtain financing with interest rates as favorable as those that it could benefit from while a member of the Gold Fields Group. Further, following the Spin-off, Sibanye Gold’s business and operations will be concentrated in South Africa. As noted, certain factors beyond Sibanye Gold’s control may negatively influence investors’ risk perceptions of South Africa or emerging markets generally, and negatively impact Sibanye Gold’s access to international capital markets. See “—Economic, political or social instability affecting South Africa may have a material adverse effect on Sibanye Gold’s operations and profits”. If Sibanye Gold cannot raise funds on acceptable terms if and when needed, it may not be able to further develop its business or invest in new products and services, take advantage of future opportunities, respond to competitive pressures or unanticipated requirements or meet its financing obligations, which could have a material adverse effect on its business, financial condition, results of operations or cash flows.

Sibanye Gold’s accounting and other management systems and resources will have to meet the financial reporting and other requirements to which it will be subject following the Spin-off. Sibanye Gold’s costs of operating as a public company will be significant and will require management to devote substantial time to complying with public company regulations.

Sibanye Gold’s financial results previously were included within the consolidated results of Gold Fields, and management believes that its reporting and control systems were appropriate for those of subsidiaries of a public company. However, Sibanye Gold was not directly subject to the reporting and other requirements of the JSE, the rules of the NYSE or the Exchange Act. As a result of the Spin-off, Sibanye Gold will be directly subject to reporting and other obligations under the requirements of the JSE, the NYSE and the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, beginning with the filing of Sibanye Gold’s Annual Report on Form 20-F for the year ending December 31, 2013. These reporting and other obligations will place significant demands on Sibanye Gold’s management and administrative and operational resources, including accounting resources. To comply with these requirements, management anticipates that Sibanye Gold will need to upgrade its systems, including information technology, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. Management expects to incur additional annual expenses related to these steps, and those expenses may be significant. Management cannot be certain that any necessary upgrade of its financial and management controls, reporting systems, information technology and procedures will occur as expected, or that these management controls, reporting systems, information technology or procedures ensure compliance with financial reporting requirements and other rules that apply to reporting companies under the regulations of the

 

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JSE, the NYSE and the Exchange Act. Any failure to achieve and maintain effective internal controls could have a material adverse effect on Sibanye Gold’s reputation business, financial condition, results of operations and cash flows.

Several members of the Board and management may have actual or potential conflicts of interest because of their ownership of shares of Gold Fields.

One member of the board of directors of Sibanye Gold, or the Directors, sits on the board of directors of Gold Fields, our former parent. This Director is expected to vacate his Sibanye Gold directorship within 12 months of his appointment. Further, several members of the Board and several executive officers of Sibanye Gold, or the Executive Officers, also own shares in Gold Fields and/or options to purchase ordinary shares of Gold Fields because of their current or prior relationships with Gold Fields, which could create, or appear to create, potential conflicts of interest when the Directors and Executive Officers are faced with decisions that could have different implications for Sibanye Gold and Gold Fields. An actual or potential conflict of interest could preclude a member of the Board from taking part in decisions relating to Sibanye Gold’s management and operation. If the Board cannot obtain the necessary quorum due to Directors recusing themselves as a result of such conflicts or potential conflicts, Sibanye Gold may not be able to take certain corporate actions, which could have an adverse effect on Sibanye Gold’s business, financial condition and results of operations. See “Directors, Senior Management and Employees—Directors and Executive Officers—Share Ownership of Directors and Executive Officers”.

Risks related to Sibanye Gold’s shares and ADRs

Shareholders outside South Africa may not be able to participate in future issues of securities (including ordinary shares) carried out by or on behalf of Sibanye Gold.

Securities laws of certain jurisdictions may restrict Sibanye Gold’s ability to allow participation by certain shareholders in future issues of securities (including ordinary shares) carried out by or on behalf of Sibanye Gold. In particular, holders of Sibanye Gold securities who are located in the United States (including those who hold ordinary shares or ADRs) may not be able to participate in securities offerings by or on behalf of Sibanye Gold unless a registration statement under the U.S. Securities Act of 1933, or the Securities Act, is effective with respect to such securities or an exemption from the registration requirements of the Securities Act is available thereunder.

Securities laws of certain other jurisdictions may also restrict Sibanye Gold’s ability to allow the participation of all holders in such jurisdictions in future issues of securities carried out by Sibanye Gold. Holders who have a registered address or are resident in, or who are citizens of, countries other than South Africa should consult their professional advisors as to whether they require any governmental or other consent or approvals or need to observe any other formalities to enable them to participate in any offering of Sibanye Gold securities.

Investors in the United States and other jurisdictions outside South Africa may have difficulty bringing actions, and enforcing judgments, against Sibanye Gold, the Directors and the Executive Officers based on the civil liabilities provisions of the federal securities laws or other laws of the United States or any state thereof or under the laws of other jurisdictions outside South Africa.

Sibanye Gold is incorporated in South Africa. All of the Directors and Executive Officers (as well as Sibanye Gold’s independent registered public accounting firm) reside outside of the United States. Substantially all of the assets of these persons and substantially all of the assets of Sibanye Gold are located outside the United States. As a result, it may not be possible for investors to enforce against these persons or Sibanye Gold 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. In addition, investors in other jurisdictions outside South Africa may face similar difficulties.

 

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Investors should be aware 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, it 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 or the laws of other jurisdictions outside South Africa may be brought before South African courts. Further, 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. In addition, 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 should also be aware that 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:

 

   

the court which pronounced the judgment had jurisdiction to entertain the case according to the principles recognized by South African law with reference to the jurisdiction of foreign courts;

 

   

the judgment is final and conclusive (that is, it cannot be altered by the court which pronounced it);

 

   

the judgment has not lapsed;

 

   

the recognition and enforcement of the judgment by South African courts would not be contrary to public policy, including observance of the rules of natural justice which require that the documents initiating the proceedings outside South Africa were properly served on the defendant and that the defendant was given the right to be heard and represented by counsel in a free and fair trial before an impartial tribunal;

 

   

the judgment was not obtained by fraudulent means;

 

   

the judgment does not involve the enforcement of a penal or revenue law; and

 

   

the enforcement of the judgment is not otherwise precluded by the provisions of the Protection of Businesses Act, No. 99 of 1978, as amended, of South Africa.

Investors may face liquidity risk in trading Sibanye Gold’s ordinary shares on the JSE.

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 Sibanye Gold’s 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 Listing—JSE Limited”.

Sibanye Gold may not pay dividends or make similar payments to its shareholders in the future due to various factors, including restrictions in its financing arrangements, and any dividend payments may be subject to withholding tax.

Sibanye Gold may pay 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 Sibanye Gold’s capital expenditures (on both existing infrastructure as well as on exploration and other projects) and other cash requirements existing at the time. Under South African law, Sibanye Gold 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, and is permitted to do so in terms of Sibanye Gold’s Memorandum of Incorporation, or the Memorandum of Incorporation. On November 28, 2012, Sibanye Gold entered into an agreement regarding a new R2.0 billion

 

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revolving credit facility and a R4.0 billion term loan facility, or the Bridge Loan Facilities. See “Operating and Financial Review and Prospects—Credit Facilities and Other Capital Resources—R6.0 billion Bridge Loan Facilities”. Under the Bridge Loan Facilities, Sibanye Gold is not entitled to distribute any dividends, shares or other assets to its shareholders without the consent of the majority lenders under the Bridge Loan Facilities, except for a final dividend in respect of the fiscal year ending December 2013, which will be limited to 25% of normalized earnings and will be payable only if Sibanye Gold gross debt will not be more than R4 billion after such dividend payment. See “Additional Information—Material Contracts—Bridge Loan Facilities”. Given these factors (including the capital and investment needs of the business) and the Board’s discretion to declare a dividend (including the amount and timing thereof) cash dividends or other similar payments may not be paid in the future. It should be noted that a 15% withholding tax on dividends declared by South African resident companies to non-resident shareholders or non-resident ADR holders was introduced with effect from April 1, 2012. See “Additional Information—Taxation—Certain South African Tax Considerations—Withholding Tax on Dividends” and “Financial Information—Dividend Policy and Dividend Distribution”.

Sibanye Gold’s 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 Sibanye Gold’s ordinary shares have historically been paid in Rand and all dividends have historically been paid directly to Gold Fields. The U.S. dollar or other currency equivalent of future dividends or distributions with respect to Sibanye Gold’s ordinary shares, if any, 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 not be freely transferable outside South Africa to shareholders who are not residents of the CMA. See “Additional Information—South African Exchange Control Limitations Affecting Security Holders”.

Sibanye Gold’s ordinary shares are subject to dilution upon the exercise of Sibanye Gold’s outstanding share options or issues of shares by the Board in compliance with BEE legislation.

As of December 31, 2012, Sibanye Gold had an aggregate of 1,000,000,000 ordinary shares authorized to be issued and, as of that date, an aggregate of 1,000 ordinary shares were issued and outstanding. As of April 19, 2013, Sibanye Gold had an aggregate of 1,000,000,000 ordinary shares authorized to be issued and had an aggregate of 732,085,031 issued ordinary shares. Currently, the aggregate number of issued ordinary share capital reserved for issuance under the Sibanye Gold 2013 Share Plan, or 2013 Share Plan, is limited to 35,309,563 shares, or approximately 5% of the number of current issued shares. See “Directors, Senior Management and Employees—Directors and Executive Officers—The Sibanye Gold 2013 Share Plan”. On March 1, 2013, 29,218,718 shares were issued under the 2013 Share Plan to Sibanye Gold employees entitled to shares under the Gold Fields 2012 Share Plan, of which they were a part until the Spin-off. In order to satisfy future annual allocations of restricted shares and performance shares, Sibanye Gold intends to seek shareholder approval to amend the 2013 Share Plan to increase the aggregate allowed number of issued ordinary share capital reserved for issuance under the 2013 Share Plan to 70,619,126 shares, or approximately 10% of the number of current issued shares. Shareholders’ equity interests in Sibanye Gold will be diluted to the extent of future exercises or settlements of these rights and any additional rights. Sibanye Gold shares are also subject to dilution in the event that the Board is required to issue new shares in compliance with BBBEE legislation.

 

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ITEM 4: INFORMATION ON THE COMPANY

Introduction

We are a producer of gold and major holder of gold reserves in South Africa. We are primarily involved in underground and surface gold mining and related activities, including extraction and processing. All of our operations are located in South Africa. Our principal mining operations are KDC and Beatrix. In the second half of 2012, we, like several other South African gold mining companies, were significantly affected by work stoppages that impacted on much of the South African mining industry. See “Risk Factors—Risks related to Sibanye Gold’s business—Sibanye Gold’s operations and profits have been and may be negatively affected by strikes, union activity and new and existing labor laws”.

On February 18, 2013, Gold Fields completed the Spin-off. The Spin-off was achieved by way of Gold Fields making a distribution on a pro rata basis of one Sibanye Gold ordinary share for every one Gold Fields share (whether held in the form of shares, ADRs or international depositary receipts) to Gold Fields shareholders, registered as such in Gold Fields’ register at close of business on February 15, 2013 in terms of section 46 of the Companies Act and section 46 of the Income Tax Act. The board of directors of Gold Fields passed the resolution necessary to implement the Spin-off on December 12, 2012. Sibanye Gold shares listed on the JSE and the NYSE on February 11, 2013. As of the Spin-off date, Gold Fields and Sibanye Gold were independent, publicly traded companies with separate public ownership, boards of directors and management.

Notwithstanding the foregoing, one member of the Board sits on the board of directors of Gold Fields. This Director is expected to vacate his Sibanye Gold directorship within the 12-month period following his appointment on January 1, 2013. See “Directors, Senior Management and Employees—Directors”.

In the fiscal year ended December 2012, we produced 1.22 million ounces of gold compared with 1.45 million ounces in the fiscal year ended December 2011. Production decreased by 15.4% as a result of the illegal industrial action, which resulted in up to six weeks of lost production, and the fire at Ya Rona shaft. Over these periods, production was 15.0% lower at KDC and 16.8% lower at Beatrix. We reported attributable gold reserves of 13.5 million ounces as of December 31, 2012.

In the fiscal year ended June 2010, we produced 1.67 million ounces. Production decreased by 13.2% in the fiscal year ended December 2011 mainly due to wage-related industrial action, safety-related stoppages and grade declines. At KDC, production was 13.8% lower due to the reasons above, resulting in lower underground mining volumes at lower grades. Beatrix’s production was 11.5% lower due to overall lower mining grade at the North Section, lower volumes mined and a lower mine call factor.

History and Development of the Company

Sibanye Gold was incorporated and registered as a private company in South Africa under the registration number 2002/031431/07 on December 12, 2002, and acquired its current operations as part of the Gold Fields Group. Prior to GFIMSA’s incorporation, the operations which now constitute Sibanye Gold were owned by Gold Fields. Gold Fields was originally incorporated as East Driefontein Gold Mining Company Limited on May 3, 1968, and subsequently changed its name to Driefontein Consolidated Limited. The operations that comprise Sibanye Gold were acquired by Gold Fields through a series of transactions, principally in 1998 and 1999.

With effect from January 1, 1998, a company formed on November 21, 1997, and referred to in this discussion as Original Gold Fields, acquired substantially all of the gold mining assets and interests previously held by Gencor Limited, Gold Fields of South Africa Limited, New Wits Limited and certain other shareholders in the companies owning the assets and interests, including:

 

   

a 100% interest in Beatrix Mines Limited, which in turn owned a 100% interest in Beatrix Mining Company Limited, which owned the Beatrix mine;

 

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a 37.3% interest in Driefontein Consolidated Limited, which owned the Driefontein operation; and

 

   

a 100% interest in Kloof Gold Mining Company Limited, which owned the Kloof operation.

The Driefontein and Kloof interests were acquired from Gold Fields of South Africa Limited, while the Beatrix interest was originally acquired from Gencor Limited. New Wits Limited provided various mineral rights.

With legal effect from January 1, 1999, Driefontein Consolidated Limited acquired Original Gold Fields (which was subsequently renamed GFL Mining Services Limited, or GFLMS) in a merger. Driefontein Consolidated Limited was renamed Gold Fields Limited on May 10, 1999, following the merger.

In order to achieve greater operational and administrative efficiency within the Gold Fields Group following the merger, the Gold Fields Group structure was reorganized with effect from July 1, 1999 as follows:

 

   

GFLMS transferred its interests in Beatrix, St. Helena, Oryx and Kloof to Gold Fields; and

 

   

Gold Fields transferred the Driefontein mine as a going concern to a shelf company named Driefontein Consolidated Proprietary Limited, a wholly-owned subsidiary of Gold Fields.

With effect from July 1, 1999, Gold Fields also acquired the remaining 45.8% interest in St. Helena from St. Helena’s minority shareholders. Subsequent to this acquisition, St. Helena acquired the Beatrix mine from the Beatrix Mining Company Limited.

On October 30, 2002, Gold Fields sold the St. Helena gold mining operation to ArmGold/Harmony FreeGold Joint Venture (Proprietary) Limited for a gross consideration of R120.0 million and a monthly 1% royalty payment to Gold Fields on the net revenues from gold sales from the St. Helena mine for a period of four years after closing. Subsequent to the sale, St. Helena was renamed Beatrix Mining Ventures Limited and the Free State Operation was renamed the Beatrix Operation.

With effect from February 23, 2004, as part of an internal reorganization of the Gold Fields Group in connection with the transaction with Mvela Resources, described below, Gold Fields transferred its South African gold mining assets, including the Beatrix operation, the Driefontein operation and the Kloof operation as going concerns to Sibanye Gold.

On March 8, 2004, the shareholders of Gold Fields approved a series of transactions involving the acquisition by Mvela Resources, through a wholly-owned subsidiary Mvela Gold, of a 15% beneficial interest in the South African gold mining assets of Gold Fields (with an option to exchange this interest for shares of Gold Fields), for cash consideration of R4,139 million.

On March 17, 2008, Gold Fields, GFLMS, Mvela Resources, Sibanye Gold and Mvela Gold entered into an agreement under which the parties agreed that the number of ordinary shares of Gold Fields which Mvela Gold would receive if either Gold Fields or Mvela Gold exercised the right to require the exchange of Mvela Gold’s GFIMSA shares for ordinary shares of Gold Fields would be 50 million Gold Fields shares.

Gold Fields announced on March 17, 2009 that Mvela Gold subscribed for a 15% shareholding in Sibanye Gold. Immediately upon receipt of the Sibanye Gold shares, Mvela Gold exercised its right to exchange the Sibanye Gold shares for 50 million new Gold Fields shares. Pursuant to the above transactions, Mvela Gold owned approximately 7% of the listed shares of Gold Fields and Gold Fields again owned 100% of Sibanye Gold. As at January 31, 2011, Mvela Gold had sold or distributed to its shareholders all its remaining shares of Gold Fields and ceased to be a shareholder of the Gold Fields Group.

During the six-month transition period ended December 2010, Gold Fields completed three empowerment transactions which enabled it to meet the 2014 BEE equity ownership targets. These transactions included an

 

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Employee Share Option Plan for 10.75% of Sibanye Gold, a BBBEE transaction for 10% of South Deep with a phased in participation over 20 years and a BBBE transaction for a further 1% of Sibanye Gold. The three transactions had a combined value of approximately R2.4 billion.

In 2010, as a result of a change in the fiscal year end of its parent company, Gold Fields, GFIMSA changed its fiscal year end from June 30 to December 31 beginning in 2011.

In anticipation of the Spin-off, by resolution of the shareholder of GFIMSA passed on November 21, 2012 (which resolution was registered by the South African Companies and Intellectual Property Commission on November 27, 2012), GFIMSA’s name was changed to “Sibanye Gold” and Sibanye Gold was converted from a private company into a public company by adoption of its new Memorandum of Incorporation.

On February 18, 2013, Sibanye Gold became an independent company in the Spin-off.

Sibanye Gold has a registered office located at Libanon Business Park, 1 Hospital Street (off Cedar Avenue), Libanon, Westonaria, 1780, South Africa, telephone number 011-27-11-278-9600.

Competitive Position

We are a producer of gold and major holder of gold reserves in South Africa. Gold is a commodity product generally sold in U.S. dollars, with London being the world’s primary gold trading market. Gold is also actively traded using futures and forward contracts. The price of gold has historically been significantly affected by macroeconomic factors, such as inflation, exchange rates, reserves policy and by global political and economic events, rather than simple supply and demand dynamics. As a general rule, Sibanye Gold sells the gold it produces at market prices to obtain the maximum benefit from prevailing gold prices.

There are 35 large-scale gold mines currently operating in South Africa, the majority of which are underground mines. Most of the gold deposits currently being mined in South Africa are narrow-vein, deep underground deposits that lend themselves to labor intensive, manual forms of extraction. The key gold producers in South Africa have historically been Gold Fields, AngloGold Ashanti Ltd., or AngloGold, and Harmony Gold Mining Company Ltd., or Harmony, which produced 1.7, 1.6 and 1.1 million ounces, respectively, in South Africa in 2011 and together accounted for approximately 68% of the total gold production in South Africa for the year, according to the information provided by the companies and the United States Geological Survey, or USGS. Following the Spin-off, we expect to be the second largest producer of gold in South Africa based on an annual production in 2012 of 1.22 million ounces of gold.

Based on 2011 production (the latest available data), AngloGold was the third largest gold producer in the world with 20 operations in 10 countries and Gold Fields was the fourth largest gold producer in the world. Following the Spin-off, based on 2011 production, we expect to be the tenth largest producer of gold worldwide.

We attempt to attract and retain motivated high caliber employees through a mix of guaranteed and performance-based remuneration, as well as short-term and long-term incentives, and non-financial rewards relating to work experience. However, the mining industry in South Africa, including Sibanye Gold, continues to experience a shortage of qualified senior management and technically skilled employees. For instance, the production of gold in South African deep level mines relies heavily upon rock drill operators and other operators of heavy machinery in underground conditions, and it is difficult to attract new entrants into these occupations. In order to maintain competitiveness in the South African labor market, regular industry market surveys are conducted to benchmark remuneration practices and to keep abreast of industry movements regarding employee benefits and non-financial employee reward and recognition programs.

 

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Developments since December 31, 2011

Since the end of fiscal 2011, the following significant events have occurred:

On January 24, 2012, Gold Fields entered into a Memorandum of Understanding in relation to assets of Sibanye Gold with Gold One International Limited, or Gold One, to investigate the viability of concurrently retreating their combined surface tailings deposits. The deposits are located in the West Rand region of the Witwatersrand Basin in South Africa. Gold Fields, Sibanye Gold and Gold One currently operate mines in the West Rand region and will consider creating a joint venture consisting of surface assets for retreatment. The included assets are expected to exceed 700 million tons, representing over 60% of the region’s total tailings material. The parties completed a detailed scoping study in July 2012 and, in early 2013, a decision was taken to proceed with a pre-feasibility study for the project. MDM Engineering Group was awarded the tender to conduct the study. The results of the study will be used to determine whether to progress to a full feasibility study. If the joint venture proceeds, the parties plan to concurrently reprocess their combined tailings to recover residual gold, uranium and sulphur while addressing mine closure in an environmentally sustainable manner and depositing the residues according to acceptable modern deposition practices.

During August, September and October 2012, approximately 29,000 of Sibanye Gold’s employees (out of nearly 36,000 employees) engaged in work stoppages. See “Sibanye Gold’s operations and profits have been and may be negatively affected by strikes, union activity and new and existing labor laws”.

On February 20, 2013, Shaft No. 4 at Beatrix was closed following a fire. The fire did not result in any fatalities, and the shaft partially reopened on February 26, 2013. However, management expects that the area directly affected by the fire may not be fully accessible until June 2014 at the earliest. As a result of the fire, Sibanye Gold has entered into a consultation process with the labor unions and the DMR to consider available options, including retrenchments, at Beatrix.

On the Spin-off date, Gold Fields completed the spin-off. See “Explanatory Note”.

Sibanye Gold is a limited public company incorporated in South Africa, with a registered office located at 1 Hospital Street, Libanon, Westonaria, 1780, South Africa.

 

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Organizational Structure

Sibanye Gold is a holding company with its significant ownership interests organized as set forth below.

 

LOGO

 

Notes:

(1) As of April 19, 2013, unless otherwise stated, all subsidiaries are, directly or indirectly, wholly owned by Sibanye Gold.
(2) KDC West, KDC East and Beatrix are operational mines. The other subsidiaries in the Sibanye Gold Group either provide ancillary services or are dormant.
(3) Ovals are not incorporated entities but operating divisions or trusts.

Background to the Spin-off

Gold Fields considered the Spin-off as part of its ongoing review of its strategy and operational portfolio against its strategic objectives over the last few years. It is expected that the separation of Gold Fields and Sibanye Gold will enable the component parts of the businesses to operate in a more efficient and commercially effective manner, thereby enabling each of the businesses to achieve their respective strategic goals. As at December 31, 2012, Gold Fields reported attributable reserves of 68.4 million ounces, of which the Sibanye Gold operations accounted for 13.5 million ounces. At the same date, Gold Fields also reported reserves of 1,024 million pounds of copper. Total production from the Sibanye Gold assets during the fiscal years ended December 31, 2012, 2011 and June 30, 2010, was 1.22 million, 1.45 million and 1.67 million ounces, respectively.

Gold Fields believed that its existing mining operations (prior to the Spin-off) could be divided into two categories: (i) deep level, narrow vein, underground operations housed in Sibanye Gold; and (ii) open-pit or shallow underground operations and, in the case of South Deep, deep-level, bulk underground mechanized operations which, together with the international exploration and development projects, are housed elsewhere in the Gold Fields structure.

 

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These two categories of assets, which have divergent strategic focuses and require different management skills, were contained within one umbrella entity.

Gold Fields has indicated that it is committed to enhancing returns to shareholders through, inter alia, ongoing repositioning to improve leverage to the rising price of gold, and ensuring that dividends have a first call on cash flows. To this end, over the last few years Gold Fields has been engaged in an ongoing review of its strategy and operational portfolio against strategic objectives such as:

 

   

generating cash;

 

   

maximizing returns on funds invested;

 

   

containing the cost of gold production as measured on an all-in-cost basis (operating cost plus capital expenditure) or, as Gold Fields reports it, on a NCE basis;

 

   

deploying scarce capital only on projects that provide the best risk-weighted returns;

 

   

prioritizing lower risk, higher return brownfields projects, and judiciously advancing only the strongest brownfields and greenfields projects;

 

   

leveraging the balance sheet to grow Gold Fields’ value on a per share basis;

 

   

pursuing only opportunistic M&A of producing assets where the path to value is clear;

 

   

maintaining a focus on gold and global competitiveness; and

 

   

supporting the overall long-term sustainability of the business.

The review process assessed the sustainability of Sibanye Gold and its ability to deliver value against these key strategic objectives. While some parts of these assets have been in production for around 70 years, Gold Fields believes that the Sibanye Gold assets overall still have significant inherent quality and extensive resource and reserve potential.

The review process also concluded that the two categories of assets in the portfolio, namely the KDC and Beatrix mines on the one hand, and the other assets in the portfolio on the other, are at different stages of their life cycles; have different styles of mineralization that require different mining methods, mining skills and mining technology; and have competing capital requirements to sustain and improve production. The decision to review the portfolio of its existing operations and assets predates the recent unrest experienced in the South African mining industry.

It was also determined that, with the competing management and funding demands of a geographically, geologically and technically diversified organization, Sibanye Gold would benefit from more focused and fully dedicated executive management that was directly accountable to a similarly focused and dedicated board of directors.

Consequently, it was decided to separate Sibanye Gold from Gold Fields into a fit-for-purpose company not burdened by the usual costs associated with a global company, which, in the case of Gold Fields, included a world-wide exploration program and the associated project development costs, and managed by a focused team that can better sustain these operations.

Both Sibanye Gold and Gold Fields remain South African domiciled companies with their primary listings of shares on the JSE and secondary listings of ADRs on the NYSE. The other existing secondary listings on the Dubai, Brussels and Swiss stock exchanges for Gold Fields remain unchanged.

Sibanye Gold’s key focus is to maintain profitable operations and maintain production levels for a longer period of time than had previously been envisaged through increased focus on productivity and costs. Emphasis is also placed on containing capital costs. Furthermore, Sibanye Gold focuses on realizing the potential that still exists in the mines’ mineral reserves.

 

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As a separately listed entity, the market can afford the assets of Sibanye Gold a fair and objective valuation, providing it with the currency to selectively pursue synergistic and consolidation opportunities in the South African gold industry. Sibanye Gold could well be a catalyst in this regard. We believe that this consolidation has become essential in view of the fragmented state of the industry, which has contributed to the declining production and employment profile of the sector.

As an independent company, Sibanye Gold will be able to ring-fence its cash flows for its own objectives. Sibanye Gold will be liberated from the capital requirements of developing Gold Fields’ South Deep gold mine and can, in future, utilize its free cash flows for the benefit of its shareholders, including through a strong dividend policy. Sibanye Gold retains Gold Fields’ South African net debt of U.S.$459 million at December 31, 2012, while the U.S.$1.4 billion at December 31, 2012 of off-shore net debt is retained by Gold Fields.

Sibanye Gold is now able to participate more fully in research and development work in pursuit of technological innovations which could unlock the mineral reserve and resource potential of the South African mines in high grade remnants and pillars as well as at depth. Gold Fields commenced research and development on such technological innovations four years ago and this important research and development is being continued by Sibanye Gold.

In summary, the Spin-off liberated Sibanye Gold into a fit-for-purpose, more sustainable gold mining company, better positioned to maximize long-term value for all stakeholders.

Based on the results for the fiscal year ended December 2012, Sibanye Gold’s gold production was 1.22 million ounces making it one of the largest domestic gold producers in South Africa.

The investment case for Sibanye Gold includes a more optimal management of its assets to secure sustainable long-term returns, ring-fenced cash flows to fund internal growth requirements, as well as a strong dividend policy, thus rewarding shareholders for investing by offering them leverage to the Rand gold price.

Sibanye Gold’s environmental obligations and commitments are funded through contributions to statutory and regulated environmental trust funds and associated guarantees for each operation. Sibanye Gold, like Gold Fields, intends to take its environmental responsibilities very seriously, including the observance of and adherence to all legal and regulatory requirements.

There were no job losses directly as a result of the creation and unbundling of Sibanye Gold. In addition, all conditions of employment remain unchanged.

Sibanye Gold will continue to invest significantly in the transformation of accommodation arrangements for its employees. More than R700 million has been committed to upgrading accommodation arrangement at the KDC and Beatrix mines between 2006 and 2014, of which approximately R554 million has been spent to date on building 594 new homes and reducing hostel room density from an average of eight persons per room in 2006 to an average of 1.4 per room in 2012.

As part of the strategy to align its people fully with the objectives of the new company, Sibanye Gold has implemented a new profit share scheme for all of its employees. This is in addition to the fact that most employees are already shareholders of Gold Fields through the Thusano Share Trust, which is the Gold Fields Employee Share Option Plan. In addition to retaining their Gold Fields shares held by the Thusano Share Trust, Sibanye Gold employees will also benefit from the unbundling of the Sibanye Gold shares by the Thusano Share Trust receiving a pro rata number of new Sibanye Gold shares.

 

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Strategy

As with any responsible mining company, the safety of employees is of the highest priority. A core operational objective of Sibanye Gold is to achieve an environment of zero harm by mitigating the risks associated with deep underground mining. In addition to mining safely, Sibanye Gold’s principal strategic objective is to mine its assets at KDC and Beatrix efficiently and profitably, while seeking synergistic, value-accretive opportunities for the long-term benefit of its shareholders and other stakeholders.

Therefore, the Board will focus on:

Operational optimization of existing assets

For the most effective and efficient operation of its assets, it is important for Sibanye Gold to maintain a broadly stable production level at the mines. This has been an increasing challenge given the operating environment faced in South Africa, and the fact that these are deep-level mines which have been in production for over 30 years. While Sibanye Gold does not intend to target any specific level of production, it is committed to maintaining predictability in production while achieving acceptable margins in order to consistently generate free cash flows that provide leverage to the gold price. This will be achieved through a focus on improving production from the more profitable areas of the mining operations while scaling production back at less profitable areas. Emphasis will be placed on containing capital and operating costs, in particular reviewing all overhead and service support structures to ensure that they are properly staffed and completely focused on supporting production.

Management has initiated a detailed six month review of the entire group, with a view to rightsizing the organization to current and longer-term, sustainable production levels. Particular attention is being paid to unnecessary corporate overhead structures and costs, with shared and commercial services functions being streamlined, operational management levels being reduced and regional and corporate functions being combined, all of which should result in improved operational focus and efficiencies.

Sibanye Gold has a knowledgeable and experienced operational team and executive management with a long history of operating mines in a safe and cost-effective manner. With their focus directed at the specific opportunities and challenges at KDC and Beatrix, this team will be better able to deliver on Sibanye Gold’s core objectives. Furthermore, under the leadership of the new Executive Officers, Sibanye Gold will be strategically positioned to differentiate itself in the sector.

The successful achievement of Sibanye Gold’s strategic objectives should also position the operational management team to investigate the potential exploitation of mineralization below the current infrastructure at KDC and incremental expansion at Beatrix thereby potentially prolonging the life of the Sibanye Gold mines and helping to sustain the generation of value to Sibanye Gold’s shareholders and other stakeholders.

Selective pursuit of synergistic opportunities

Sibanye Gold intends to selectively pursue synergistic opportunities which it believes to be value accretive, with a view to leveraging infrastructure and processing capacity at Sibanye Gold’s existing mines and processing hubs. The combination of Sibanye Gold’s operational expertise, management experience and significant reserve base is expected to position Sibanye Gold well to participate in the potential consolidation of the South African gold industry. Sibanye Gold will seek to build on its established presence in the South African gold industry and leverage management’s expertise and understanding of the regional geology and operations to identify potential opportunities. These opportunities may be sought through the acquisition of suitable companies, development projects or assets or the creation of joint ventures.

In particular, in recent years, there has been an emergence of a number of mid-tier gold companies within the South African mining industry. A period of consolidation in South Africa may occur in the near term as

 

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companies seek to combine contiguous ore bodies in order to improve productivity through mining and processing synergies. A number of the assets of these companies may give rise to opportunities for Sibanye Gold to benefit from operational and cost synergies by utilizing excess capacity or geological proximity. Sibanye Gold will exercise financial discipline in the valuation of potential targets and structuring of any transaction. Acquisitions will only be considered where there is a clear and compelling case for increased long term shareholder and stakeholder value.

Consistent with this belief of extracting value through synergy, Sibanye Gold and Gold One have commenced an investigation into the feasibility of a possible joint venture that will seek to reprocess the combined tailings of the two companies for their gold, uranium and sulfur content. These discussions are in a preliminary stage, no agreements have been reached and there can be no assurance that the discussions will conclude in a transaction.

Attractive shareholder value

The Board is committed to delivering value to its shareholders. The Sibanye Gold assets have historically generated significant cash flows which have been used throughout the Gold Fields Group, particularly in the capital program at South Deep. As a separately listed entity, Sibanye Gold will no longer be called upon to support assets of a wider group and can fully utilize its free cash flows for the benefit of its shareholders, including through its dividend policy.

Strategic Drivers

In order to achieve the strategic objectives note above, Sibanye Gold has identified the following key strategic drivers for the business in 2013:

 

   

leverage to the gold price by remaining unhedged and including operating strategies which ensure that gold price increases flow through to the bottom line;

 

   

optimizing free cash flow (after all costs, capital expenditure and taxes) and using this as the key performance measure;

 

   

maintaining capital expedience and discipline—ensuring that capital spent generates the appropriate returns and that the balance sheet is optimally geared;

 

   

not pursuing growth for the sake of size, but only if that growth enhances cash flow and returns measured as earnings per share; and

 

   

rewarding shareholders by means of regular and meaningful dividends and where appropriate returning excess cash to shareholders through the declaration of special dividends.

Sibanye Gold management believes it is well positioned to deliver on its strategy by virtue of the quality, cash generative assets it owns and through the implementation of focused cost saving and productivity initiatives at its mines.

Reserves of Sibanye Gold as of December 31, 2012

Methodology

While there are some differences between the definition of the South African Code for Reporting of Exploration Results, Mineral Resources and Mineral Reserves, or SAMREC Code, and that of the Securities and Exchange Commission’s, or SEC’s, industry guide number 7, only the reserves at each of our operations and exploration projects as of December 31, 2012, which qualify as reserves for purposes of the SEC’s industry guide number 7, are presented in the table below. See “—Glossary of Mining Terms”. In accordance with the requirements imposed by the JSE, we report our reserves using the terms and definitions of the SAMREC Code (2007 edition). Mineral or ore reserves, as defined under the SAMREC Code, are divided into categories of proved and probable reserves and are expressed in terms of tons to be processed at mill feed head grades, allowing for estimated mining dilution, mining recovery and other factors.

 

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We report reserves using pay limits, due to the nature of the deep level underground operations, to ensure the reserves realistically reflect both the cost structures and required margins relevant to each mining operation. The pay limit is the grade at which an ore body can be mined without profit or loss, calculated using an appropriate metal 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 under “—Description of Mining Business—Productivity and Cost Initiatives”. Tonnage and grade may include some mineralization below the selected pay limit 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 underground operations is based on surface drilling, underground drilling, surface three-dimensional reflection seismics, ore body facies modeling, structural modeling, underground mapping, 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 to 90-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 our mines.

KDC

 

Reserve Classification

   Sample
Spacing
Range

Min/Max
     Maximum
Distance
Data is
Projected
 
     (meters)  

Proved

     3 to 250         125   

Probable (AI)(1)

     3 to 1,140         570   

Probable (BI)(1)

     3 to 2,840         1,420   

 

Note:

(1) AI is above infrastructure; BI is below infrastructure.

For proved reserves, the ore body 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 proved are therefore generally adjacent to closely 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 50-meter block sizes.

For above infrastructure probable reserves, the estimates are founded on 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 boreholes and seismic surveys. Blocks classified as probable (AI) are generally adjacent to blocks classified as proved. 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 50 meters to 420 meters, or through declustered averaging or Sichel “t” techniques. For planning purposes, these blocks are further evaluated to facilitate the selection of blocks above the pay limit.

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,

 

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underground borehole spacings ranging from tens to hundreds of meters are used together with surface boreholes and seismic surveys. Blocks classified as probable (BI) are generally downdip of blocks classified as proved 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 50 meters to 420 meters, or through declustered averaging or Sichel “t” techniques. For planning purposes, these blocks are further evaluated to facilitate the selection of blocks above the pay limit.

Beatrix

 

Reserve Classification

   Sample
Spacing
Range

Min/Max
     Maximum
Distance
Data is
Projected
 
     (meters)  

Proved

     3 to 120         120   

Probable (AI)(1)

     3 to 820         700   

Probable (BI)(1)

     3 to 1,500         750   

 

Note:

(1) AI is above infrastructure; BI is below infrastructure.

Estimations for proved reserves are made on the same basis as at KDC, but with kriging blocks ranging from 10 meters to 40 meters.

Estimations for above infrastructure probable reserves are made on the same basis as at KDC, but with medium-sized kriged blocks of 40 meters, and macro geological zone estimates being made through declustered averaging or Sichel “t” techniques or macro-scale-sized kriged grids of up to 300 meters. For planning purposes, these blocks are further evaluated to facilitate the selection of blocks above the pay limit.

Estimations for below infrastructure probable reserves are made on the same basis as at KDC, but with medium-sized kriged blocks being 40 meters, to macro geological zone estimates through declustered averaging or Sichel “t” techniques or macro-scale-sized kriged grids of up to 300 meters. The distinction between estimation techniques for above infrastructure and below infrastructure probable reserves is the same as at KDC. For planning purposes, these blocks are further evaluated to facilitate the selection of blocks above the pay limit.

 

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Reserve Statement

As of December 31, 2012, we had aggregate proved and probable gold reserves of approximately 13.5 million ounces as set forth in the following table.

Gold ore reserve statement as of December 31, 2012(1)

 

    Tons     Proved
reserves Head
Grade
    Gold     Tons     Probable
reserves Head
Grade
    Gold     Tons     Total reserves
Head Grade
    Gold     Gold
production in
the 12 months
ended
December 31,
2012(2)
 
    (million)     (g/t)     (M oz)     (million)     (g/t)     (M oz)     (million)     (g/t)     (M oz)     (M oz)  

Underground (“UG”)

                   

KDC East (UG) (total)

    10.8        9.8        3.421        9.6        6.6        2.041        20.5        8.3        5.462        0.446   

Above infrastructure(3)

    10.8        9.8        3.421        9.6        6.6        2.041        20.5        8.3        5.462        0.446   

Below infrastructure(3)

    —          —          —          —          —          —          —          —          —          —     

KDC West (UG) (total)

    7.1        7.9        1.802        10.5        7.2        2.424        17.5        7.5        4.226        0.359   

Above infrastructure(3)

    7.1        7.9        1.802        10.5        7.2        2.424        17.5        7.5        4.226        0.359   

Below infrastructure(3)

    —          —          —          —          —          —          —          —          —          —     

Beatrix (UG) (total)

    9.6        4.7        1.462        14.4        4.0        1.859        24.0        4.3        3.321        0.278   

Above infrastructure(3)

    9.6        4.7        1.462        14.4        4.0        1.859        24.0        4.3        3.321        0.278   

Below infrastructure(3)

    —          —          —          —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Underground

    27.5        7.5        6.685        34.5        5.7        6.324        62.0        6.5        13.009        1.084   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Surface (SRD)

                   

KDC East

    —          —          —          17.3        0.6        0.342        17.3        0.6        0.342        0.048   

KDC West

    —          —          —          5.9        0.7        0.142        5.9        0.7        0.142        0.082   

Beatrix

    —          —          —          4.0        0.3        0.037        4.0        0.3        0.037        0.011   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Surface (SRD)

    —          —          —          27.2        0.6        0.521        27.2        0.6        0.521        0.140   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Grand Total

    27.5        7.5        6.685        61.7        3.5        6.845        89.3        4.7        13.530        1.224   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals by Mine

                   

KDC East

    10.8        9.8        3.421        26.9        2.8        2.383        37.8        4.8        5.804        0.494   

KDC West

    7.1        7.9        1.802        16.4        4.9        2.566        23.5        5.8        4.369        0.441   

Beatrix

    9.6        4.7        1.462        18.4        3.2        1.896        28.0        3.7        3.357        0.289   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Grand Total

    27.5        7.5        6.685        61.7        3.5        6.845        89.3        4.7        13.530        1.224   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes:

(1) (a)

Quoted as mill delivered metric tons and Run of Mine, or RoM, grades, inclusive of all mining dilutions and gold losses except mill recovery. Metallurgical recovery factors have not been applied to the reserve figures. The approximate metallurgical factors are as follows: (i) KDC East KP 1 overall 80%, KDC East KP 2 97% and KDC East Python 1 68% KDC West DP 1 97%, KDC West DP 2 and DP 3 90%, and (ii) Beatrix overall 95.5%. The metallurgical recovery is the ratio, expressed as a percentage, of the mass of the specific mineral product actually recovered from ore treated at the plant to its total specific mineral content before treatment. The KDC and Beatrix operations have a fairly consistent metallurgical recovery.

  (b) For KDC and Beatrix, a gold price of R380,000 per kilogram ($1,500 per ounce at an exchange rate of R7.88 per $1.00) was applied in valuing the ore reserve. The gold price used for reserves is the approximate three-year trailing average, calculated on a monthly basis, of the London afternoon fixing price of gold. These prices are approximately 22% higher in South African Rand terms than the prices used for the December 31, 2011 declaration.
  (c) For the South African operations, mine dilution relates to the difference between the mill tonnage and the stope face tonnage and includes other sources stoping (which is waste that is broken on the mining horizon, other than on the stope face), development to mill and tonnage discrepancy (which is the difference between the tonnage expected on the basis of the mine’s measuring methods and the tonnage accounted for by the plant). The mine dilution factors are as follows: (i) KDC East 28%; (ii) KDC West 30% and (iii) Beatrix 19%.
  (d) The mining recovery factor relates to the proportion or percentage of ore mined from the defined ore body at the gold price used for the declaration of reserves. This percentage will vary from mining area to mining area and reflects planned and scheduled reserves against total potentially available reserves (at the gold price used for the declaration of reserves), with all modifying factors, mining constraints and pillar discounts applied. The mining recovery factors are as follows: (i) KDC East 77%; (ii) KDC West 93% and (iii) Beatrix 58%.
  (e) The pay limit varies per shaft or underground mine, depending on the respective costs, depletion schedule, ore type and dilution. The following are the average or range of values applied in the planning process: (i) KDC East 1,500 cm.g/t, (ii) KDC West 1,360 cm.g/t and (iii) Beatrix 950 cm.g/t.

 

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  (f) Totals may not sum due to rounding. Where this occurs, it is not deemed significant.
  (g) A mine call factor based on historic performance and planned improvements is applied to the mineral reserves. The following mine call factors have been applied: KDC East 81%, KDC West 80% and Beatrix 77%.
(2) Actual gold produced after metallurgical recovery.
(3) Above infrastructure reserves relate to mineralization which is located at a level at which an operation currently has infrastructure sufficient to allow mining operations to occur. Below infrastructure reserves relate to mineralization which is located at a level at which an operation currently does not have infrastructure sufficient to allow mining operations to occur, but where the operation has made plans to install additional infrastructure in the future which will allow mining to occur at that level.

Gold Price Sensitivity

The amount of gold mineralization that we can economically extract, and therefore can classify as reserves, is sensitive to fluctuations in the price of gold. The following table indicates our reserves at different gold prices that are 10% above and below the $1,500 per ounce gold price used to estimate our attributable reserves; however, the reserve sensitivities are not based on detailed depletion schedules and should be considered on a relative and indicative basis only.

 

     $1,350/oz      $1,500/oz      $1,650/oz  
     (‘000 oz)(1)  

KDC East

     4,648         5,804         6,464   

KDC West

     4,134         4,369         4,699   

Beatrix

     3,232         3,357         3,683   

 

Note:

(1) KDC and Beatrix operations’ reserves include run-of-mine ore stockpiles and low grade strategic stockpiles.

The London afternoon fixing price for gold on April 19, 2013 was U.S.$1,406 per ounce. Our attributable gold reserves decreased from 21.5 million ounces at December 31, 2011 to 13.5 million ounces at December 31, 2012, primarily due to mining depletion as well as exclusion of gold from the surface tailings storage facilities. Additional reasons for this decrease include changes in the economic viability of specific areas, optimized production tail end management, adjustments to certain technical modifying factors and changes in geological models derived from new information.

Geology

Our operations consist of deep level underground gold mines located along the northern and western margins of the Witwatersrand Basin in South Africa. These properties include the KDC operation and the Beatrix operation. These mines are typical of the many Witwatersrand Basin operations, which have been the primary contributors to South Africa’s production of a significant portion of the world’s recorded gold output since 1886.

The Witwatersrand Basin comprises a 6,000-meter vertical thickness of sedimentary rocks, extending laterally for some 350 kilometers northeast to southwest by some 1,200 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 Archaean in age, meaning the sedimentary rocks are of the order of 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 processes, 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 dolerite composition are developed within the Witwatersrand Basin and are associated with several intrusive and extrusive events.

 

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Gold generally occurs in native form, often associated with pyrite, carbon and uranium. 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 within 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 KDC and Beatrix, see “—Sibanye Gold’s Mining Operations—KDC Operation” and “—Sibanye Gold’s Mining Operations—Beatrix Operation”.

Description of Mining Business

The discussion below provides a general overview of the mining business as it applies to Sibanye Gold.

Exploration

Exploration activities are focused on the extension of existing ore bodies and identification of new ore bodies at existing sites. Once a potential ore body has been discovered, exploration is extended and intensified in order to enable clearer definition of the ore body and the potential portions to be mined. Geological and geophysical techniques are constantly refined to improve the economic viability of prospecting and mining activities.

Mining

Sibanye Gold currently mines only gold, with silver as a by-product. The mining process can be divided into two principal activities: (i) developing access to the ore body; and (ii) extracting the ore body once accessed. These two processes apply to both surface and underground mines.

Underground Mining

Developing Access to the Ore body

For Sibanye Gold’s underground mines, primary access to ore bodies is provided through vertical and inclined shaft systems. If access beyond the reach of a shaft or shaft system is required to fully exploit the ore body, sub-vertical or sub-inclined shafts (secondary or tertiary) may be sunk where it is economically feasible. Horizontal development at various intervals off a shaft, known as levels, extends laterally and provides access to the reef horizon. On-reef development opens up the ore body for mining.

Extracting the Ore body

Once an ore body has been accessed and opened up for mining, production activities consisting of drilling, blasting, supporting and cleaning activities are carried out on a daily basis. The broken ore is scraped into and along gullies to in-stope ore passes, which channel the broken ore to the crosscut below. The ore is then trammed by rail to the shaft system where it is tipped into transfer systems and then hoisted to the surface in skips. Mining methods employed at these operations include closely spaced dip pillar mining, mini-longwall mining and scattered mining.

Rock Dump and Production Stockpile Mining

Sibanye Gold mines surface rock dumps and production stockpiles using mechanized earth-moving equipment.

 

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Mine Planning and Management

Operational and planning management on the mines currently 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’ corporate office. This is based on the premise that the people on the ground have the best understanding of what is realistically achievable.

Each operation compiles a detailed two-year operational plan that rolls into a life of mine, or LoM, plan prior to the commencement of each fiscal year. The plans are based on financial parameters determined by the Gold Fields’ executive committee. The operational plan is presented to Gold Fields’ executive committee, which takes it to the Gold Fields’ board of directors, for approval before the commencement of each fiscal year. The 2013 Operational Plan was approved by the Gold Fields’ board of directors on November 21, 2012. The planning process is sequential and is based upon geological models, evaluation models, resource 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 R250 million are submitted to the Gold Fields’ board of directors for approval. Material changes to the plans have to be referred back to the Gold Fields’ executive committee and the Gold Fields’ board of directors. Sibanye Gold intends to continue these policies for the near term and will evaluate the appropriateness of these policies based on the needs of Sibanye Gold as a company independent from Gold Fields.

Sibanye Gold’s operations have implemented an integrated electronic reserve and resource information system, or 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 Executive Committee and relevant survey and evaluation factors are determined in accordance with Sibanye Gold’s 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, input costs and metal prices.

Capital Expenditure

Sibanye Gold spent approximately U.S.$379.4, U.S.$404.8 million and U.S.$384.0 million on capital expenditures during the fiscal years ended December 2012, December 2011 and June 2010, respectively. The major expenditure items were ore reserve development of U.S.$259.8, U.S.$295.0 million and U.S.$235.0 million in the fiscal years ended December 2012, December 2011 and in the fiscal year ended June 2010, respectively. In the fiscal year ended December 2012, the remaining costs were incurred primarily on metallurgical growth plant at KDC, residential upgrades at KDC, technical projects as KDC, infrastructure upgrades and infrastructure development at Beatrix. In the fiscal year ended December 2011, the remaining costs were incurred primarily on KDC Shaft No. 4 (West) pillar extraction, Beatrix Shaft No. 3 development, high and low density housing, the methane project at Beatrix, the python plant and KDC Shaft No. 4 (East) sub-vertical. In the fiscal year ended June 2010, the remaining costs were incurred primarily on KDC Shaft No. 4 (West) pillar extraction, tailings dam, Main Shaft pump column at KDC East, a water pipeline, high and low density housing, the methane project at Beatrix and the KDC East Python 1.

For more information regarding Sibanye Gold’s capital expenditure, see “Information on the Company—Sibanye Gold’s Mining Operations—KDC Operation—Capital Expenditure”, “Information on the Company—Sibanye Gold’s Mining Operations—Beatrix Operation—Capital Expenditure”, “Operating and Financial Review and Prospects—Capital Expenditures” and “Operating and Financial Review and Prospects—Liquidity and Capital Resources”.

 

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Processing

Sibanye Gold currently has eight gold processing facilities in South Africa which treat ore to extract gold. A typical processing plant circuit includes two phases: comminution and treatment.

Comminution

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 Sibanye Gold’s 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 pre-determined size before proceeding to the treatment phase.

Treatment

In Sibanye Gold’s 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 carbon in leach, or CIL, or carbon in pulp, or CIP, process. The activated carbon is then eluted with the gold recovered by electrowinning.

As a final recovery step, gold recovered from the carbon using the above processes is smelted to produce gold dore bars. These bars are then transported to the refinery which is responsible for further refining.

Productivity and Cost Initiatives

As part of a Gold Fields initiative we undertook a number of productivity and cost projects in order to ensure that focus was only on those projects with substantial value beyond the next five years. The result of the review was the identification of a suite of projects as noted below:

The Business Process Re-engineering Program, or BPR

The BPR Program, which commenced in the second half of 2010, focuses on operating costs, the rationalization of on-mine and regional overhead and a review of the mine-to-mill process. The BPR program, was implemented across the Gold Fields Group, including Sibanye Gold. The BPR program has focused on reviewing the business processes at Gold Fields’ mines, including operational production processes, costs and capital structures. The goals of the plan were to achieve a sustainable gold output at an NCE margin of 20% in the short term, and 25% in the long-term. The second phase of the project, which was incorporated into Sibanye Gold’s 2013 operational plans, seeks to achieve cost reductions through revising organizational structures and optimizing business processes, including enhanced supply chain management, reducing employee and non-specialized contractor headcount and power consumption reduction. During the fiscal year ended December 2012, the BPR program continued to implement new business blueprints and appropriate organizational structures to support sustainable gold output at the target NCE margins.

Portfolio Review

The Portfolio Review implemented by Gold Fields was a review of the portfolio of operations and projects, including the Sibanye Gold operations, which is intended to enable Sibanye Gold to increase its focus on providing shareholders with increased returns against the price of gold. The goal of the Portfolio Review was to focus on cash flow growth (not just production growth) and rigorous prioritization of capital expenditure and exploration spend based on the expected risk-adjusted return on investment.

 

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Stoping Full Potential Program

Is a productivity initiative that aims to improve quality mining volumes by increasing the face advance by between 5% and 10% per annum, based on the fiscal year ended June 2010 actuals. This should translate to similar improvements in tons broken over the same period. This should be achieved at Sibanye Gold through the following key improvement initiatives:

 

   

drilling and blasting practices to improve advance per blast;

 

   

focus on quality blasts to improve blasting frequency (i.e. full panel blasting, full face advance) and a product size which is optimal in achieving a good milling result;

 

   

support, cleaning and sweeping practices to improve blasting frequency;

 

   

mining cycle, labor availability and training; and

 

   

improved pay face availability.

Developing Full Potential Program

Which is development on the horizontal plane, is a technology sub-group initiative aimed at mechanizing all flat-end development at the long-life shafts of KDC and Beatrix. The aim of the project is to improve safety and productivity, reduce development costs and increase ore reserve flexibility. The project achieved a mechanized rate of 89% of flat-end development at the long-life shafts by December 31, 2012, and is largely completed.

NCE Full Potential Program

Is an initiative that aims to reduce costs at the mines by around R500 million (U.S.$60 million) over the next two years and to improve Sibanye Gold’s ability to absorb rising input costs. This program includes projects such as those discussed below:

The Energy and Utilities Project

Focuses on reducing, by the end of the fiscal year ending December 2013, power consumption associated with the use of utilities, such as water and compressed air, by a further 3%. In the fiscal year ended December 2012, savings of 6% in power consumption were achieved. This project is driven primarily at reducing the safety risk to employees of interruptible power supply, maintaining the integrity of equipment and machinery in the face of power supply risks and minimizing the erosion of operating margins due to higher power tariffs and oil prices.

Some of the key initiatives include on-line monitoring of power consumption, main fan inlet-vane control, energy-efficient lighting, energy-efficient machinery and equipment, reducing compressed air and water usage through stope shut-off valves, installing heat pumps and methane power generation. In the case of diesel, strict controls are being enforced, supported by the replacement of diesel with battery locomotives at long life shafts.

The Workplace Absenteeism Project (Unavailables Project)

Focuses on reducing workplace absenteeism by 2% in order to minimize the impact of lost shifts on production. Some of the key initiatives under this project include reducing unnecessary time spent by employees in training, work orientation and recruitment and healthcare assessment processes by creating a one-stop engagement and health assessment center, particularly for KDC. Stricter controls have been implemented to manage sick leave and its abuse, while maintaining focus on continual improvement of wellness programs and employee and union relations.

 

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Noise and Dust Management System (Formerly Project 4M—Achievement of the MHSC Milestones, as agreed to on June 15 2003).

This initiative focuses on the MHSC milestones agreed to on June 15, 2003 at a tripartite health and safety summit comprising representatives from the government, organized labor unions and associations, and mining companies. The focus is on achieving occupational health and safety targets and milestones over a 10 year period. In order to meet the MHSC’s Milestone noise-induced hearing loss, or NIHL, target of reducing the total noise level to not more than 110 BA, including individual pieces of equipment a number of action plans, based on the highest potential exposure sources, were implemented and are ongoing. These include, inter alia: the silencing of all auxiliary fans, pneumatic loaders and diamond drills. South Africa also has a legislated Occupational Exposure Level, or OEL, of 85 dBA. Both the DMR and the Chamber of Mines accept the use of hearing protection devices while methods of reducing noise are explored. As of December 31, 2012, across all operations for the “NIHL” exposure above 85 dBA was 45.8%, this measurement excludes protection from hearing protection devices. Studies indicate that with the proper use of currently available ear protection devices no employee will be subject to a sound pressure level in excess of 85 dBA when exposed to less than 105 dBA. A project to measure exposure while using hearing protective devices to provide further verification was started in September 2012 and is ongoing, and 1.1% of all equipment noise measurements taken were above 110 dBA, with one reading measured at a rock drill machine in a small confined space and five readings being measurements of fans where silencers must be replaced due to corrosion. Silencing of equipment is ongoing, with continued focus on replacing blocked and/or damaged silencers on machines.

Silicosis remains one of the biggest health risks associated with the gold mining industry. In order to meet the silicosis target of reducing all silica dust measurement to below 0.1 mg/m3 a number of action plans, based on the highest potential exposure sources, were implemented. These include, inter alia: building health rooms at the training centers to coach employees on potential exposures and wearing of respiratory personal protection equipment, the installation of tip foggers, tip doors and foot wall treatment, all designed to reduce the liberation of dust into the ventilating air, installing dual stage tip filter units to improve dust filtration, managing the opening and closing of ore transfer chutes to reduce airborne dust, treating footwalls with chemicals to prevent dust in intake airways and analyzing individual filters to assist in determining exposure levels. As of December 31, 2012, only 3.5% of silica dust measurements taken were above the target of 0.1 mg/m3. Progress against all interventions is monitored monthly and reviewed quarterly. See “Directors, Senior Management and Employees—Employees—Health and Safety—Safety”. The sampling strategies have been updated to ensure compliance to the new Mandatory Airborne Pollutant Code of Practise requirements. Under this new strategy, the number of samples taken at the respective operations are expected to increase significantly to ensure that workplaces are represented separately.

Refining and Marketing

Sibanye Gold has appointed Rand Refinery Limited, or Rand Refinery, to refine all of Sibanye Gold’s South African-produced gold. Rand Refinery is a private company in which Sibanye Gold holds a 33.1% interest, with the remaining interests held by other South African gold producers.

Since October 1, 2004, Gold Fields’ treasury department has arranged the sale of all the gold production from Sibanye Gold’s operations. Rand Refinery advises Gold Fields’ treasury department on a daily basis of the amount of gold available for sale. Gold Fields’ treasury department sells the gold at a price benchmarked against the London afternoon fixing price. Two business days after the sale of gold, Sibanye Gold deposits an amount in U.S. dollars equal to the value of the gold at the London afternoon fixing price into Rand Refinery’s nominated U.S. dollar account. Rand Refinery deducts refining charges payable by Sibanye Gold relating to such amount of gold and deposits the balance of the proceeds into the nominated U.S. dollar account of Sibanye Gold. Gold Fields’ treasury department continues with this function in accordance with the Transitional Services Agreement.

 

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World Gold Council

Sibanye Gold, as part of the Gold Fields Group, contributed to the World Gold Council, or WGC, in support of its activities at a rate of $1 per ounce. Sibanye Gold has not decided on whether it will be a member of WGC post the Spin-off.

Services

Mining activities require extensive services, located both on the surface and underground at the mines. Services include:

 

   

mining-related services such as engineering, rock mechanics, ventilation and refrigeration, materials handling, operational performance evaluation and capital planning;

 

   

safety and training;

 

   

housing and health-related services, including hostel and hospital operations;

 

   

reserves management, including sampling and estimation, geological services, including mine planning and design, and mine survey;

 

   

metallurgy;

 

   

equipment maintenance; and

 

   

assay services.

Most of these services are and will, post-Spin-off, be provided directly by Sibanye Gold, either at the operational level or through the regional structures, although some are provided by third-party contractors.

Sibanye Gold’s Mining Operations

Sibanye Gold conducts underground and rock dump mining operations at each site. As part of Gold Fields’ broad-based BEE transaction, during December 2010, Sibanye Gold transferred its ownership of the two entities, GFO and GFI Joint Venture Holdings (Pty) Limited, or GFIJVH, holding interest in the South Deep mine to a newly formed, 90% owned subsidiary of Gold Fields, Newshelf (Pty) Limited, or Newshelf. The South Deep production numbers are therefore excluded from the tables below as it is accounted for as a discontinued operation.

 

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Total Operations

The following table details the operating and production results for the fiscal year ended December 2012, the fiscal year ended December 2011, the six-month transition period ended December 2010 and the fiscal year ended June 2010 for all operations owned by Sibanye Gold during each respective period.

 

     Fiscal Year Ended
December,
     Six-Month
Transition
Period
Ended
December,(1)
     Fiscal  Year
Ended
June,(1)
 
     2012      2011      2010      2010  
     (unaudited)  

Production

           

Tons milled (‘000)

     12,185         14,648         7,117         13,434   

Yield (g/t)

     3.1         3.1         3.7         3.9   

Gold produced (‘000 oz)

     1,224         1,447         836         1,668   

Results of operations ($ million)

           

Revenues

     2,021.2         2,301.0         1,073.4         1,808.8   

Total production cost(2)

     1,669.0         1,753.4         909.1         1,523.8   

Total cash cost(3)

     1,331.5         1,395.8         725.9         1,217.4   

Cash profit(4)

     689.7         905.2         352.8         591.9   

Cost per ounce of gold ($)

           

Total production cost

     1,364         1,212         1,087         913   

Total cash cost

     1,088         965         868         730   

Notional cash expenditure per ounce of gold produced ($)(5)

     1,404         1,243         1,131         985   

 

Notes:

(1) The information relating to the six-month transition period ended December 2010 and fiscal year ended June 30, 2010 relates to Sibanye Gold continued operations and excludes the South Deep discontinued operation.
(2) For a reconciliation of our total production cost to production costs, see “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years Ended December 2012 and 2011—Costs and Expenses”, “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years Ended December 2011 and June 2010—Costs and Expenses” and “Operating and Financial Review and Prospects—Results of Operations—Six-Month Transition Period ended December 2010—Costs and Expenses”.
(3) For a reconciliation of our total cash cost to production costs, see “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years Ended December 2012 and 2011—Costs and Expenses”, “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years Ended December 2011 and June 2010—Costs and Expenses” and “Operating and Financial Review and Prospects—Results of Operations—Six-Month Transition Period Ended December 2010—Costs and Expenses”.
(4) Cash profit represents revenues less total cash cost.
(5) For a reconciliation of our NCE to our production cost for the, the fiscal years ended December 2012, 2011, the audited six-month transition period ended December 2010 and the fiscal year ended June 2010, see “Operating and Financial Review and Prospects—Notional Cash Expenditure”.

 

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Underground Operations

The following table details the operating and production results for Sibanye Gold’s underground operations for the fiscal year ended December 2012, the fiscal year ended December 2011, the six-month transition period ended December 2010 and the fiscal year ended June 2010.

 

     Fiscal Year Ended
December,
     Six-Month
Transition
Period Ended
December,
     Fiscal Year
Ended June,
 
         2012              2011              2010              2010      
     (unaudited)  

Production

           

Tons milled (‘000)

     5,756         7,155         4,072         8,159   

Yield (g/t)

     5.9         5.6         5.9         5.9   

Gold produced (‘000 oz)

     1,084         1,299         769         1,535   

Results of operations ($ million)

           

Revenues

     1,789.8         2,066.5         988.0         1,664.6   

Total production cost

     1,521.9         1,627.0         857.3         1,462.8   

Total cash cost

     1,224.9         1,296.8         683.5         1,170.0   

Cash profit(1)

     564.9         769.7         304.5         494.6   

Cost per ounce of gold ($)

           

Total production cost

     1,405         1,252         1,114         953   

Total cash cost

     1,130         896         818         701   

 

Note:

(1) Cash profit represents revenues less total cash cost.

The amount of gold produced from underground operations decreased from 1.30 million ounces in the fiscal year ended December 2011 to 1.08 million ounces in the fiscal year ended December 2012. This decrease was due to approximately six weeks of strike action from September through to November and a fire at KDC’s Ya Rona Shaft No. 4.

Surface Operations

The following table details the operating and production results for Sibanye Gold’s surface operations for the fiscal year ended December 2012, the fiscal year ended December 2011, the six-month transition period ended December 2010 and the fiscal year ended June 2010. Surface operations include the surface rock dump material at the KDC and Beatrix mines.

 

     Fiscal Year Ended
December,
     Six-Month
Transition
Period Ended
December,
     Fiscal Year
Ended June,
 
         2012              2011              2010              2010      
     (unaudited)  

Production

           

Tons milled (‘000)

     6,429         7,493         3,045         5,275   

Yield (g/t)

     0.7         0.6         0.7         0.8   

Gold produced (‘000 oz)

     140         147         66         133   

Results of operations ($ million)

           

Revenues

     231.4         234.5         85.4         144.2   

Total production cost

     147.1         124.2         46.5         58.6   

Total cash cost

     106.6         99.0         37.1         46.9   

Cash profit(1)

     124.8         135.5         48.3         97.3   

Cost per ounce of gold ($)

           

Total production cost

     1,050         842         699         441   

Total cash cost

     761         671         557         353   

 

Note:

(1) Cash profit represents revenues less total cash cost.

 

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Tons milled from the surface operations decreased from 7.5 million tons in fiscal 2011 to 6.4 million tons in the fiscal year ended December 2012, mainly due to illegal strikes and lower throughput at surface rock dump material.

KDC Operation

Introduction

The KDC mine is located in the Gauteng Province of South Africa in the Far West Rand mining district, some 60 kilometers southwest of Johannesburg. It is South Africa’s largest mine by gold production, with KDC West having produced more than 100 million ounces of gold during its 75 year history. KDC is comprised of the Driefontein and Kloof mines, which were consolidated during the fiscal year ended June 30, 2010 under a single management team as part of the BPR program.

In the fiscal year ended December 2012, KDC produced 0.935 million ounces of gold. As of December 31, 2012, KDC had approximately 26,200 employees and approximately 4,100 outside contractors.

History

The Driefontein operation was formed from the consolidation in 1981 of the East Driefontein and West Driefontein mines. Gold mining began at Driefontein in 1952. The Kloof operation was 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.

Geology

Geologically, the KDC mine is located on the northwestern and western rims of the Witwatersrand Basin. Three primary reefs are exploited: the Ventersdorp Contact Reef, or VCR, located at the top of the Central Rand Group; the Carbon Leader Reef, or Carbon Leader, near the base; and the Middelvlei Reef, or MVR, which stratigraphically occurs some 50 to 75 meters above the Carbon Leader.

The Driefontein operation is located in the West Wits Line that forms part of the Far West Rand of the Witwatersrand Basin. The operation is geologically divided into an eastern section and a western section, separated by a bank anticline and associated faulting. Gold mineralization at the Driefontein operation is contained within three reef horizons. The Carbon Leader, the VCR and the 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 the 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.

The Kloof operation 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 1.5-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.

Mining

KDC is comprised of 13 producing shaft systems that mine different contributions from pillars and open ground and six gold plants of which two process mainly underground ore and four process mainly surface

 

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material. The current preferred mining method at KDC is breast stoping with closely spaced dip pillar mining, with limited application of scattered and remnant pillar mining in the mature areas. Shafts No. 1 (East), 3 (East), 4 (East) and 7 (East) provide the main centers of current production at the KDC East operation. At older portions of KDC West, including Shafts No. 2 (West), 6 (West) and 8 (West), 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 Shafts No. 1 (West), 4 (West) and 5 (West), the focus is on scattered or closely spaced dip pillar mining. In the far western portion of the mine, at Shafts No. 10 (West) and 6 Tertiary (West), reclamation and cleaning operations are being conducted. The shafts at the deepest levels of the mine, consisting of Shaft No. 1 Tertiary (West) and Shaft No. 5 Sub-Vertical (West), employ the closely spaced dip pillar mining method.

Over the last several years, the planned extraction schedule for the Shaft No. 1 (East) pillar, or the Main Shaft Pillar, in the VCR was reduced in order to decrease seismicity. Alternative scenarios that are being reviewed include not mining the inner section of the pillar in order to protect the Main Shaft infrastructure. Moreover, the profile for Shaft No. 7 (East) has also been significantly reduced and simulations of building up Shaft No. 4 (East) production to replace the declining Shaft No. 7 (East) profile are underway. Shaft No. 8 (East) is predominantly mining the lower-grade MVR with reduced remnant mining on the VCR horizon.

As a result of the electricity stoppages experienced in 2008, and capital allocation decisions, sinking operations at Shaft No. 9 (West) were suspended indefinitely. In the interim, KDC will continue with the drilling program in the area below the lowest area currently being mined, targeting the area expected to be accessed by Shaft No. 9 (West). Sibanye Gold is also conducting an optimization study on mining below current infrastructure. This study is currently investigating a viable alternative to the Shaft No. 9 (West) project, such as a phased mini-decline system.

KDC continued to process low-grade surface material in the fiscal year ended December 2012, for which the biggest risk was a decrease in grade of the remaining dumps. Grade management is undertaken through the screening of material to separate out the smaller fraction sizes of ore, which tend to be of higher grade. This process reduced the tonnage that was available for processing.

Detailed below are the operating and production results at KDC for the fiscal year ended December 2012, the fiscal year ended December 2011, the six-month transition period ended December 2010 for the fiscal year ended June 2010.

 

     Fiscal Year Ended
December,
     Six-Month
Transition
Period
Ended
December,
     Fiscal
Year
Ended
June,
 
     2012      2011      2010      2010  
     (unaudited)  

Production

           

Tons milled (‘000 oz)

     8,817         10,831         5,152         10,383   

Yield (g/t)

     3.3         3.2         3.8         3.8   

Gold produced (‘000 oz)

     935         1,100         634         1,276   

Results of operations ($ million)

           

Revenues

     1,543.4         1,745.5         814.4         1,384.2   

Total production cost(1)

     1,258.4         1,336.2         681.6         1,152.8   

Total cash cost(2)

     1,007.8         1,059.7         545.4         926.1   

Cash profit(3)

     535.6         685.8         269.0         458.0   

Cost per ounce of gold ($)

           

Total production cost

     1,346         1,215         1,075         903   

Total cash cost

     1,078         963         860         726   

Notional cash expenditure per ounce of gold produced ($)(4)

     1,402         1,248         1,149         1,149   

 

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Notes:

(1) For a reconciliation of our total production cost to production costs for the fiscal year ended December 2012, the fiscal year ended December 2011, the audited six-month transition period ended December 2010 and the fiscal year ended June 2010, see “Operating and Financial Review and Prospects—Results of Operations—Years Ended December 2012 and 2011—Costs and Expenses”, “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years Ended December 2011 and June 2010—Costs and Expenses” and “Operating and Financial Review and Prospects—Results of Operations—Six-Month Transition Period ended December 2010—Costs and Expenses”.
(2) For a reconciliation of our total cash cost to production costs for the fiscal year ended December 2012, the fiscal year ended December 2011, the audited six-month transition period ended December 2010 and the fiscal year ended June 2010, see “Operating and Financial Review and Prospects—Results of Operations—Years Ended December 2012 and 2011—Costs and Expenses”, “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years Ended December 2011 and June 2010—Costs and Expenses” and “Operating and Financial Review and Prospects—Results of Operations—Six-Month Transition Period Ended December 2010—Costs and Expenses”.
(3) Cash profit represents revenues less total cash cost.
(4) For a reconciliation of our NCE to our production cost for the fiscal year ended December 2012, the fiscal year ended December 2011, the audited six-month transition period ended December 2010 and the fiscal year ended June 2010, see “Operating and Financial Review and Prospects—Notional Cash Expenditure”.

Total tons milled decreased from 10.8 million tons in fiscal 2011 to 8.8 million tons in the fiscal year ended December 2012 primarily due to a decrease in underground mining volumes, caused by unplanned stoppages, which included industrial action and an underground fire at the Ya Rona Shaft. Gold production was 1.1 million ounces in the fiscal year ended December 2011 compared with 0.9 million ounces in the fiscal year ended December 2012. The overall yield in the fiscal year ended December 2012 increased to 3.3 grams per ton compared to 3.2 grams per ton in the fiscal year ended December 2011 due to an 8% higher underground yield partly offset by a lower proportion of underground ore mined and processed.

The KDC operation is engaged in both underground and rock dump mining, and is thus subject to all of the mining risks discussed in “Risk Factors”. The primary safety challenges facing the KDC underground operation include falls of ground, seismicity, flammable gas, water intrusion and 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, KDC requires an extensive cooling infrastructure. Sibanye Gold seeks to reduce the impact of seismicity at KDC 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. Additionally, KDC has instituted a number of initiatives to reduce the risks posed by seismicity, including a detailed analysis of previous seismic events, precondition blasting and backfilling, the use of a support system to reduce the impact of seismic ground motion and to monitor seismic risk parameters to allow quicker reactions to changes. Centralized blasting systems have also been installed to allow better control of blasting so that most of the mine seismicity is triggered during off-shift periods. Continued reviews of remnant and pillar mining areas were also conducted during the year leading to the stoppage of extraction at numerous higher risk areas across the mine. These stoppages reduced the falls of ground incidents, improving mine safety. As part of the Fall of Ground, or FOG, Strategy, in-stope roof bolting and netting were introduced and the roll-out started in November 2011. By April 2012, all panels on KDC were on in-stope bolts and netting. The surface operation safety risks include problems with ground stability, moving machinery and dust generation. KDC has a risk management system in place that guides the mining of the rock dumps to minimize these risks.

In total, during the fiscal year ended December 2012, there were 10 fatalities at KDC. Of these, one was due to an electrocution, one was due to a fall of ground, two due to tramming related accidents and one due to an accident while cleaning a tank. A further accident, in which five employees were fatally injured, resulted from a fire at one of the KDC shafts on June 30, 2012. KDC East reopened on July 3, 2012 and KDC West reopened on

 

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July 9, 2012. The fire in the affected shaft was extinguished on August 14, 2012; however, this shaft remained closed subject to a Section 54 order issued by the DMR, and reopened on October 17, 2012, although production did not recommence at that time due to the labor actions described below, please see “Risk Factors—Risks related to South Africa—Sibanye Gold’s operations are subject to South African environmental and health and safety regulations, which could impose significant costs and burdens, and Sibanye Gold may face claims and liability for breaches, or alleged breaches, of such regulations and other applicable laws” for more information. On a calendar year basis, the lost time injury frequency rate (see “Defined Terms and Conventions”) for the fiscal year ended December 2012 was 8.10 lost time injuries for every million hours worked, as compared to a lost time injury frequency rate of 7.95 for calendar 2011 and 6.31 for calendar 2010. The fatal injury frequency rates for the fiscal year ended December 2012, 2011 and 2010 were 0.15, 0.17 and 0.13 fatalities for every million hours worked, respectively. Since December 31, 2012, no fatalities were recorded. A major source of accidents in the mine remains falls of ground, which make up approximately 34% of all accidents. A 33% improvement has been made in terms of the number of falls of ground related accidents since 2011. During the fiscal year ended December 31, 2012, after each major mine incident or accident, KDC received, and complied with, various instructions to halt operations from the Principal Inspector of the Gauteng area of the DMR. See “Directors, Senior Management and Employees—Employees—Health and Safety—Safety”. There were 27 formal work stoppages issued at the mine by the DMR during the fiscal year ended December 2012. These were issued as a result of either fatal or serious accidents, or as a result of deemed inadequate controls implemented for site specific hazards identified during inspections. Further, KDC, like several other South African gold mining operations, was affected by work stoppages that impacted much of the South African mining industry. Workers at KDC West went on strike from September 9, 2012 until October 18, 2012 and workers at KDC East went on strike from August 29, 2012 to September 5, 2012 and again from October 14, 2012 until October 23, 2012, when 8,100 workers were dismissed for failing to return to work, with 7,600 appealing that dismissal. After an appeal process, the majority of these employees returned to work on November 6, 2012. See “Risk Factors—Risks related to Sibanye Gold’s business—Sibanye Gold’s operations and profits have been and may be adversely affected by strikes, union activity and new and existing labor laws.”

The total shaft hoisting capacity of KDC is detailed below.

 

Shaft System

   Hoisting
capacity
 
     (tons/month)  

No. 1 (West)

     105,000   

No. 2 (West)

     165,000   

No. 4 (West)(1)

     57,000   

No. 5 (West)

     70,000   

No. 6 (West)(2)

     66,000   

No. 7 (West)(3)

     —     

No. 8 (West)

     66,000   

No. 10 (West)(2)

     —     

No. 1 (East)

     95,000   

No. 3 (East)(1)

     76,000   

No. 4 (East)

     82,000   

No. 7 (East)

     137,000   

No. 8 (East)

     73,000   

 

Notes:

(1) These shafts do not hoist material to the surface. The hoisting capacity refers to sub-surface hoisting.
(2) Shafts No. 6 Tertiary (West) and 10 (West) are currently only operated on a limited scale, with the focus on reclamation and cleaning.
(3) Shaft No. 7 (West) is currently only operated on a limited scale, and is being used for transporting employees and materials.

 

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Assuming no increase or decrease in the reserve estimates at KDC and no changes to the mine plan, the KDC December 31, 2012 proven and probable reserves of 10.2 million ounces (9.7 million ounces if excluding surface sources) of gold should 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 thus could materially change the life of mine.

KDC achieved full compliance certification under the International Cyanide Management Code in October 2009.

Processing

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 December 2012, for each of the plants at KDC as of December 31, 2012:

Processing Techniques

 

Plant

  Year
commissioned(1)
    Comminution
phase
   

Treatment phase

  Capacity(2)     Average
milled for
the fiscal
year ended
December
2012
    Approximate
recovery
factor for the
fiscal year
ended
December
2012(5)
 
                    (tons/month)     (tons/month)        

KDC West DP 1

    1972        SAG milling      CIP treatment and electrowinning     255,000        157,000        97

KDC West DP 2

    1964        SAG/ball milling      CIP treatment(3)     200,000        148,000        91

KDC West DP 3

    1998        SAG milling      CIP treatment(3)     115,000        90,000        91

KDC East KP 1

    1968        Pebble milling      CIP treatment(4)     170,000        138,000        84

KDC East KP 2

    1989        SAG milling      CIP treatment and electrowinning     162,000        150,000        98

KDC East Python 1(4)

    2011        Crushing      Flotation     71,000        53,000        82

 

Notes:

(1) KDC West DP 1 was substantially upgraded in the fiscal year ended June 30, 2004, and KDC West DP 2 was substantially upgraded in the fiscal year ended June 30, 2003. KDC West DP 3 was originally commissioned as a uranium plant and was upgraded to a gold plant in 1998. Therefore, KDC West DP 3 lists the year commissioned as a gold plant.
(2) Nameplate capacity. Plant/Mill nameplate capacities are based on a number of operating assumptions, including assumptions regarding the blend of soft and hard ores processed, that can change and which may result in an increased level of throughput over and above the designed nameplate capacity.
(3) After CIP treatment, electrowinning occurs at KDC West DP 1 or KDC East KP 2.
(4) KDC East Python 1 commissioned during 2011.
(5) Percentages are rounded to the nearest whole per cent.

In the fiscal year ended December 2012, the KDC plants collectively extracted approximately 96% of the gold contained in ore delivered for processing.

Capital Expenditure

Sibanye Gold spent approximately U.S.$296 million on capital expenditures at the KDC operation in the fiscal year ended December 2012 primarily on metallurgical growth plant, residential upgrades, technical projects, self rescue packs and ore reserve development. Sibanye Gold has budgeted approximately U.S.$264 million of capital expenditures at KDC for the fiscal year ended December 2013, principally for the Shaft No. 4 (East) expansion, Python growth plant, employee accommodation and ore reserve development.

Beatrix Operation

Introduction

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. Beatrix operates under mining

 

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rights covering a total area of approximately 16,800 hectares. Beatrix has four shaft systems, with five ventilation shafts to provide additional up-cast and down-cast ventilation capacity and is 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. Beatrix requires cooling infrastructure to maintain an underground working environment conducive to health and safety for workers at depth. The mine therefore has a refrigeration and cooling infrastructure in both its North and West Sections. 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 December 2012, Beatrix produced 0.289 million ounces of gold. As of December 31, 2012, Beatrix had approximately 9,200 employees and approximately 1,100 outside contractors.

History

Beatrix’s 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.

Geology

The Beatrix mine exploits the Beatrix Reef, or BXR, at Shafts No. 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 northeast 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 and underground development has confirmed the reserves to the south of Beatrix’s 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.

Mining

Beatrix is managed as three operational sections: the North Section (comprising Shaft No. 3), the South Section (comprising Shaft No. 2 and Shaft No. 1) and the West Section (comprising Shaft No. 4). No shafts were closed or opened in the fiscal year ended December 2011 or the fiscal year ended December 2012. On February 20, 2013, Shaft No. 4 at Beatrix was closed following a fire. The fire did not result in any fatalities, and the Shaft partially reopened on February 26, 2013. However, management expects that the area directly affected by the fire may not be fully accessible until June 2014 at the earliest. As a result of the fire, Sibanye Gold has entered into a consultation process with the labor unions and the DMR to consider available options, including retrenchments, at Beatrix. At the North Section, a variety of activities, including drilling, are primarily powered by 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 and machine efficiency, lower noise levels and reduced electrical power usage.

Mining at Beatrix is based upon a scattered mining method with the North Section being the primary source of production. Management is focused on increasing development volumes at Shafts No. 3 and No. 4 to provide future mining flexibility and ore body definition. However, cessation of activities on some levels, as well as delays associated with water intersections and secondary support upgrading, resulted in a 14% decrease in main development volumes at Beatrix in the fiscal year ended December 2012, as compared to the fiscal year ended December 2011. The emphasis on development volumes is planned to continue in the fiscal year ending December 2013. Overall stoping volumes per month at Beatrix decreased by 15% between the fiscal year ended

 

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December 2011 and the fiscal year ended December 2012. During the fiscal year ended December 2012, development stoping volumes decreased year on year due to the illegal strike, safety-related stoppages, crew moves to manage the mining mix and a lack of mining flexibility. Beatrix continues to investigate options to improve the mine call factor.

The overall mining grade at the North Section rose between the fiscal year ended December 31, 2011 and the fiscal year ended December 31, 2012, although gold output was affected by lower volumes.

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, in the fiscal year ended December 2012, ongoing improvements were made to rail tracks and ventilation, to increase the logistics capacity and support future mining volumes. Beatrix participates in the BPR program to, among other things, reduce energy and utility consumption. Beatrix also participates in a carbon credit program, whereby it will earn carbon emission reduction credits by extracting underground methane. Such methane can also be used to generate electricity. See “Key Information—Risk Factors—Risks related to Sibanye Gold’s business—Power stoppages, fluctuations and usage constraints may force Sibanye Gold to halt or curtail operations”.

Detailed below are the operating and production results at Beatrix for the fiscal year ended December 2012, the fiscal year ended December 2011, the six-month transition period ended December 2010 and the fiscal year ended June 2010.

 

     Fiscal Year Ended
December,
     Six-Month
Transition
Period
Ended
December,
     Fiscal Year
Ended
June,
 
         2012              2011              2010              2010      

Production

           

Tons milled (‘000)

     3,368         3,817         1,965         3,051   

Yield (g/t)

     2.7         2.8         3.2         4.0   

Gold produced (‘000 oz)

     289         347         202         392   

Results of operations ($ million)

           

Revenues

     477.8         555.4         259.1         424.6   

Total production cost(1)

     408.4         415.0         215.3         368.1   

Total cash cost(2)

     323.7         336.1         175.3         290.8   

Cash profit(3)

     154.1         219.5         83.8         134.3   

Cost per ounce of gold ($)

           

Total production cost

     1,414         1,197         1,066         940   

Total cash cost

     1,121         969         868         742   

Notional cash expenditure per ounce of gold produced ($)(4)

     1,400         1,221         1,098         985   

 

Notes:

(1) For a reconciliation of our total production cost to production costs for the fiscal year ended December 2012, the fiscal year ended December 2011, the audited six-month transition period ended December 2010 and the fiscal year ended June 2010, see “Operating and Financial Review and Prospects—Results of Operations—Years Ended December 2012 and 2011—Costs and Expenses”, “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years Ended December 2011 and June 2010—Costs and Expenses” and “Operating and Financial Review and Prospects—Results of Operations—Six-Month Transition Period Ended December 2010—Costs and Expenses”.
(2)

For a reconciliation of our total cash cost to production costs for the fiscal year ended December 2012, the fiscal year ended December 2011, the audited six-month transition period ended December 2010 and the fiscal year ended June 2010, see “Operating and Financial Review and Prospects—Results of Operations—Fiscal Years Ended December 2012 and 2011—Costs and Expenses”, “Operating and Financial Review and

 

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  Prospects—Results of Operations—Fiscal Years Ended December 2011 and June 2010—Costs and Expenses” and “Operating and Financial Review and Prospects—Results of Operations—Six-Month Transition Period Ended December 2010—Costs and Expenses”.
(3) Cash profit represents revenues less total cash costs.
(4) For a reconciliation of our NCE to our production costs for the fiscal year ended December 2012, the fiscal year ended December 2011, the audited six-month transition period ended December 2010 and the fiscal year ended June 2010, see “Operating and Financial Review and Prospects—Notional Cash Expenditure”.

Total tons milled decreased from 3.82 million tons in the fiscal year ended December 2011 to 3.37 million tons in the fiscal year ended December 2012. The decrease was primarily due to the illegal strike, flexibility constraints at the underground operations and limited availability to mill surface material due to a faulty gear box at one plant. Gold production was lower in the fiscal year ended December 31, 2012 and the overall recovered grade in the fiscal year ended December 2012 decreased marginally compared with fiscal year ended December 2011 due to a lower proportion of higher underground ore.

Beatrix processed 1.30 million tons of low grade material during the fiscal year ended December 2012. The increase in the total cash cost per ounce of gold and the total production cost per ounce of gold between the fiscal years ended December 2011 and December 2012 resulted primarily from the increase in operating costs and amortization costs and the lower production.

The Beatrix mine is engaged in underground and surface mining, and thus is subject to all of the underground and surface mining risks discussed in “Risk Factors”. The primary safety risks at Beatrix are falls of ground, tramming accidents, winches, ventilation control and flammable gas explosions. Beatrix does experience seismic events and, while the seismic risk is much lower at Beatrix than it is at KDC, the operation manages these events with a seismic network consisting of several geophones.

During the fiscal year ended December 2012, the focus of training at Beatrix remained on addressing the predominant causes of incidents, namely falls of ground, tramming and winches/rigging, which were part of a formal remedial action tracking system. Methane hazard awareness training also remains an area of focus.

The mine has an ongoing methane management system which includes the declaration by competent ventilation staff of certain locations as hazardous, methane emission rate monitoring and ongoing awareness campaigns, as well as the deployment of gas, velocity and fan sensors connected to an electronic telemetry system to act as early warning. These safety systems are monitored on a 24-hour basis from a central control room from which action could be taken in the event of alarm.

Beatrix achieved one million fatality free shifts during the fiscal year ended December 2012. Although there were six fatalities at Beatrix in the fiscal year ended December 2012, Beatrix experienced no shaft closures for any material length of time due to accidents. Three of these fatalities were tramming related, one fatality was due to a gravity related fall of ground, one fatality was the result of a shaft conveyance incident and one fatality was due to a drilling accident. On a calendar year basis, the lost time injury frequency rate (see “Defined Terms and Conventions”) for the fiscal year ended December 2012 was 3.54 lost time injuries for every million hours worked, as compared with 2.92 lost time injuries for every million hours worked in calendar 2011 and 3.31 in calendar 2010. In the fiscal year ended December 2012, the fatal injury frequency rate was 0.25 fatalities for every million hours worked, while the rate was 0.19 and 0.18 in the fiscal years ended December 2011 and 2010, respectively. Since December 31, 2012, there has been one fatality of an employee due to an accident involving stoping activities.

In the fiscal year ended December, 2012, Beatrix, like several other South African gold mining operations, was affected by work stoppages that had an impact on much of the South African mining industry. Workers at Beatrix West went on strike on September 21, 2012 and workers at Beatrix North and South went on strike on September 24, 2012. On October 16, 2012, the strike at Beatrix North and South ended. On October 18, 2012, the

 

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strike at Beatrix West ended. See “Risk Factors—Risks related to Sibanye Gold’s business—Sibanye Gold’s operations and profits have been and may be adversely affected by strikes, union activity and new and existing labor laws” and “Directors, Senior Management and Employees—Employees—Labor Relations”.

The total shaft hoisting capacities of Beatrix as of December 31, 2012 are detailed below.

 

Shaft System    Hoisting
capacity
 
     (tons/month)  

No. 1

     138,000   

No. 2

     138,000   

No. 3

     170,000   

No. 4

     120,000   

Assuming no increase or decrease in the reserves estimates at Beatrix and no changes to the current LoM plan, Beatrix’s December 31, 2012 proven and probable reserves of 3.4 million ounces of gold will be sufficient to maintain production through to approximately the 2025 financial year. 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 LoM.

Beatrix achieved full compliance certification under the International Cyanide Management Code in July 2009 and retained its OHSAS 18001 certification during the fiscal year ended December 2012.

Processing

The following table sets forth the year of commissioning, processing techniques and processing capacity per month, as well as average tons milled per month and metallurgical recovery factor during the fiscal year ended December 2012, for each of the plants at Beatrix.

Processing Techniques

 

Plant

   Year
commissioned
     Comminution
phase
     Treatment
phase
     Capacity(1)      Average
milled for
the year
ended
December
2012
     Approximate
recovery
factor for the
year ended
December
2012(2)
 
                          (tons/month)      (tons/month)         

No. 1 Plant

     1983         SAG milling         CIL treatment         246,000         174,000         95

No. 2 Plant

     1992         SAG milling         CIP treatment         130,000         106,000         88

 

Notes:

(1) Nameplate capacity. Plant/Mill nameplate capacities are based on a number of operating assumptions, including assumptions regarding the blend of soft and hard ores processed, that can change and which may result in an increased level of throughput over and above the designed nameplate capacity.
(2) Percentages are rounded to the nearest whole per cent.

In the fiscal year ended December 2012, the Beatrix plants collectively extracted approximately 95% of gold contained in ore delivered for processing.

Capital Expenditure

Sibanye Gold spent approximately U.S.$80 million on capital expenditures at the Beatrix operation in the fiscal year ended December 2012, primarily on infrastructure upgrade and infrastructure redevelopment and ore reserve development. Sibanye Gold budgeted approximately U.S.$90 million on capital expenditures at Beatrix for the fiscal year ending December 2013, primarily on ore reserve development and continuing hostel accommodation changes.

 

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Insurance

Our insurance policies provide coverage for general liability, accidental loss or damage to its property, business interruption in the form of fixed operating costs or standing charges, material damage and other losses. While management believes that the scope and amount of insurance coverage is adequate, taking into account the probability and potential severity of identified risks, not all potential losses are covered. We do not insure all potential losses associated with our operations as some insurance premiums are considered to be too high, some risks are considered too remote to insure and some types of insurance cover are not available. Should an event occur for which there is no or limited insurance cover, this could affect our cash flows and profitability.

Our insurance coverage is consistent with customary practice for a gold mining company of our size with similar operations. See “Key Information—Risk Factors—Risks related to Sibanye Gold’s business—Sibanye Gold’s insurance coverage may prove inadequate to satisfy potential claims”.

The South African Gold Mining Industry

Background

Gold is a dense, relatively soft and rare precious metal which occurs in natural form as nuggets or grains in ore, underground veins and alluvial deposits. Gold mining operations include both underground and open pit operations with gold currently able to be commercially extracted from ore grades in amounts as low as 0.5 grams/metric ton (open pit). The majority of gold production is used for jewelry production and for investment purposes, in the latter case because some investors view it as a store of value against inflation. In addition, certain physical properties of gold including its malleability, ductility, electric conductivity, resistance to corrosion and reflectivity make it the metal of choice in a number of industrial applications.

Global Markets

Demand

The two main categories of demand for gold are fabrication (primarily jewelry) and investment (private and governmental). The demand for gold in 2012 was 4,406 tons or U.S.$236 billion in value terms (not reflecting over-the-counter, or OTC, investments and stock flows), comprised of jeweler fabrication (43%); investments (35%); and technological applications (10%), according to the WGC. Gold demand over the last few years has been mainly driven by China and India, which accounted for 28% and 24% of the total global demand for 2012 and 2011, respectively. Significant private investment demand for gold is generated by gold ETFs and similar products, which accounted for 6% of the total global demand for 2012. This was almost one and a half times the amount experienced in 2011, where ETFs and similar products accounted for 4%. Demand for official gold purchases is driven by central banks, government bodies, supranational organizations and other investors. Gold is typically used as a “natural hedge” against inflation, a fact that could impact the demand for gold given the recently announced commitment for asset purchases by the U.S. Federal Reserve, currently the largest holder of gold reserves. Technological applications demand is mainly generated by automotive electronics, industrial electronics and wireless equipment.

Supply

Supply of gold consists of new production from mining, the recycling of gold scrap and releases from existing stocks of bullion. Mine production represents the most important source of supply but has been steadily falling since 2001 as lower grades and lack of investment during periods of low gold prices more than offset production from new mines. Gold supply in 2012 totaled 4.453 tons (out of which mine production was 64%), according to the WGC. However, with the strength in gold prices, a number of new operations are expected to commence production in the coming years which could increase the outlook for mine production.

 

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Price

The market for gold is relatively liquid compared to other commodity markets, with London being the world’s largest gold trading market. Gold is also actively traded via futures and forward contracts. The price of gold has historically been significantly affected by macroeconomic factors, such as inflation, exchange rates, reserves policy and by global political and economic events, rather than simple supply/demand dynamics. Gold is often purchased as a store of value in periods of price inflation and weakening currency. The price of gold has historically been less volatile than that of most other commodities, however there has been a steady increase in the gold price due to rising investment demand against a backdrop of relatively flat supply as declining mine production and official sector sales offset rising scrap volumes. The closing gold price on April 19, 2013 was U.S.$1,406 per ounce. In 2012, the spot gold price was as high as U.S.$1,792 and as low as U.S.$1,540.

South African Market

Overview

South Africa is the 2nd largest holder of gold reserves in the world with approximately 6,000 tons, as estimated by the USGS. South Africa was the world’s largest gold producing country until 2007 when China overtook South Africa. In 2012, it is estimated that South Africa will be the 5th largest gold producing country globally with 6.3% share of the gold mine supply, as well as approximately 170 and 181 tons of mine production in 2012 and 2011, respectively, according to the USGS. As many of the South African mines have deep underground deposits, gold mining costs in South Africa are typically higher compared to other geographies.

Top Producers

Based on fiscal 2011 production (the latest available data), the key gold producers in South Africa were Gold Fields, AngloGold and Harmony, which produced 1.7, 1.6 and 1.1 million ounces, respectively, in South Africa in 2011 and together accounted for approximately 68 % of the total gold production in South Africa for the year, according to the information provided by the companies and the USGS. Based on 2011 production, AngloGold was the third largest gold producer in the world with 20 operations in 10 countries and the second largest producer in South Africa. Gold Fields was the fourth largest gold producer in the world and the largest gold producer in South Africa with eight operating mines in four countries. Harmony was the third largest gold producer in South Africa with operations in South Africa and Papua New Guinea.

Mines

There are 35 large-scale gold mines currently operating in South Africa, the majority of which are underground mines. Most of the gold deposits currently being mined in South Africa are narrow-vein, deep underground deposits that lend themselves to labor intensive, manual forms of extraction. However, new technologies have been developed that facilitate the mechanization of new mines allowing these deposits to be mined in a more economic manner.

Industry labor

Many of South Africa’s operating gold mines are labor intensive. Strikes over remuneration and working conditions have been a persistent feature of the mining industry in South Africa. Worker pay has been rising in the gold mining industry in South Africa at a strong pace with average wage inflation being consistently higher than the benchmark inflation. According to the DMR, as at the end of 2009, the gold mining sector in South Africa comprised 159,925 employees.

Environmental and Regulatory Matters

Environmental

Sibanye Gold’s operations are subject to various laws relating to the protection of the environment. South Africa’s Constitution Act No. 106 of 1996 grants the people of South Africa the right to an environment that is

 

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not harmful to human health or well-being and to protection of that environment for the benefit of present and future generations through reasonable legislative and other measures. The Constitution and the National Environmental Management Act, No. 107 of 1998, or NEMA, as well as various other related pieces of legislation grant legal standing to a wide range of people and interest groups to bring legal proceedings to enforce their environmental rights, which are enforceable against private entities as well as the South African government.

South African environmental legislation commonly requires businesses whose operations may have an impact on the environment to obtain permits and authorizations for those operations. The applicable environmental legislation also imposes general compliance requirements and incorporates the “polluter pays” principle. Under the terms of the MPRDA, all prospecting and mining operations are to be conducted according to an environmental management plan/program which must be approved by the DMR. Directors will be held liable under provisions of the MPRDA and NEMA for any environmental degradation. See “—Mineral Rights”.

South African mining companies are required by law to undertake rehabilitation works as part of their ongoing operations in accordance with an approved environmental management plan/program, which supports a mine closure plan. Sibanye Gold funds these environmental rehabilitation costs by making contributions into an environmental trust fund. The current estimated cost for rehabilitation associated with premature closure is fully funded in the form of cash in DMR-controlled trust funds and insurance guarantees. The trust fund system enables annual revisions and associated payments to be made in a tax-efficient way, while providing comfort to the regulators that the operator has the means to rehabilitate any mine after operations have ceased.

Under the National Water Act 36 of 1998, or the National Water Act, all water in the hydrological cycle is under the custodianship of the South African government held in trust for the people of South Africa and water users have been required to re-register their water uses under this Act. In addition, the National Water Act governs waste water and waste water discharge into water resources. Sibanye Gold continues to use all reasonable and practical measures to remove underground water to permit the routine safe functioning of its South African mines. The Kloof operation was issued a water use license in December 2008 that expired in December 2011. Gold Fields applied for renewal of, and amendments to, this license. Pending approval of the Kloof water use license, Gold Fields obtained a regulatory directive, or the Kloof Directive, from the DWA, that permits the continuation of water uses at its Kloof operations while its application for renewal of, and amendments to, its water use license was being processed. Prior to February 2011, the Kloof operation had been in compliance with the license granted to it in 2008. However, from February 2011 to September 2011, the water discharged from one of the shafts of the KDC operation covered by the Kloof license exceeded the discharge parameters specified by the license. Gold Fields informed the DWA and other relevant regulators and has investigated the cause of the increased discharge. One of the key findings of the investigation was that the increased discharge was most likely due to external variables beyond the control of the KDC operation. Based on this information, the Kloof Directive described above included an increase to the discharge limits of that specific discharge point. As of December 9, 2011, the date of issue of the Kloof Directive, the water discharged from the shaft covered by the Kloof water use license has been in compliance with the discharge parameters specified in the Kloof Directive. The Driefontein operation was also issued a water use license in October 2010. However, due to certain inaccuracies and discrepancies in the information provided for the water use license, Sibanye Gold is in discussions with the DWA to revise the license. In addition, once this process is complete, Sibanye Gold intends to apply for an amendment to the Driefontein water use license to add certain water uses not previously required. Sibanye Gold believes that it is discharging water within the parameters of the Driefontein license but there can be no assurance that a revised license will be issued or that the DWA will not determine that Sibanye Gold is in non-compliance with its requirements.

The DWA has advised Beatrix, which had pre-existing water permits of indefinite length, that its current water usage remains authorized and it need not apply for a new license. However, Beatrix has nevertheless proactively submitted a water use license application, which is currently being processed. Therefore, management believes that all of its operations now have all required authorizations to undertake regulated water uses for purposes of carrying out its mining operations.

 

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Under the National Environmental Management Air Quality Act, 2004, or Air Quality Act, the South African government has established minimum emission standards for certain activities. Sibanye Gold is drafting a plan to ensure it is in compliance with the Air Quality Act.

The National Environmental Management Amendment Act, No. 62 of 2008, or NEMAA, was promulgated on January 9, 2009 and came into effect on May 1, 2009. The Minerals and Petroleum Resources Development Amendment Act, No. 49 of 2008, or MPRDAA, was promulgated on April 21, 2009, although a commencement date has not been proclaimed by the President. The 2010 Environmental Impact Assessment Regulations, or EIA Regulations, as contained in Government Notices 543-546 of June 18, 2010, commenced on August 2, 2010. These replace the 2006 EIA Regulations. The effect of the amendments as contained in the NEMAA and the MPRDAA will ultimately mean that NEMA will be responsible for all environmental authorizations for and relating to mining and the Minister of Water and Environmental Affairs will be the relevant authority. Until the MPRDAA comes into effect, as well as during the first 18-month period after such effect, the MPRDA is the applicable legislation and the Minister of Mineral Resources is the responsible authority for all environmentally related mining activities. The Minerals and Petroleum Resources Development Amendment Bill was published on December 27, 2012 for public comment. This bill contains further environmental provisions relating to the requirement to obtain environmental authorizations in relation to prospecting, mining, production and exploration operations, where necessary.

The South African government is considering the introduction of a carbon tax with effect from January 1, 2015 to reduce greenhouse gas emissions. The South African 2012 Budget Review indicated that the proposed carbon tax will be Rand 120 per ton of CO2-e emitted above certain thresholds. The tax rate will increase by 10% a year, reaching R210 per ton CO2-e by 2020. However, 60% of emissions would initially be tax exempt. The 60% discount will continue to apply until 2020, along with certain “offsets” set at 5% or 10% of tax liability, a carbon intensity correction based on industry benchmarks and a correction for international trade exposure of 5% to 10% of tax liability, which together may allow for a cumulative reprieve from tax liability of up to 90%. The 60% discount and the associated tax reprieves will be scaled back gradually from 2020 until 2050 and may be replaced by absolute emissions thresholds thereafter. The 2013 Budget Review indicated that an updated policy paper would be published by March 31, 2013 for further comment and consultation; however, as of the date of this annual report, the policy paper has not been published.

The National Environmental Management Waste Act, 2008, or the Waste Act, commenced on July 1, 2009 with the exception of certain sections relating to contaminated land. Responsible waste management has become a priority for the Department of Environmental Affairs, or the DEA. Sibanye Gold is currently working with the DEA in order to ensure it is in compliance with the Waste Act.

Although South Africa has a comprehensive environmental regulatory framework, enforcement of environmental law has traditionally been poor. The DEA has indicated that enforcement will improve and Environmental Management Inspectors have been appointed under NEMA. The Environmental Management Inspectors have commenced and are finishing environmental inspections and investigations at some of the major industrial facilities. The focus to date has been on those industries that impact heavily on air quality, such as platinum mines and the steel industry.

Sibanye Gold undertakes activities which are regulated by the National Nuclear Regulator Act, No. 47 of 1999, or the NNR Act. The NNR Act requires Sibanye Gold to obtain authorization from the National Nuclear Regulator, or NNR, and undertake activities in accordance with the conditions of such authorizations. The NNR has alleged certain non-compliance issues relating to radiation levels in water running adjacent to certain of Sibanye Gold’s properties. Sibanye Gold does not concede the accuracy of the NNR samples and has taken its own samples, which have proven to be acceptable. Despite this and Sibanye Gold’s belief that it has not breached compliance with the NNR Act, it is in regular ongoing discussions with the NNR regarding the possible remediation of these areas as part of an industry initiative. All of Sibanye Gold’s mining operations possess and maintain Certificates of Registration issued by the NNR.

 

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Health and Safety

The principal objective of the South African Mine Health and Safety Act No. 29 of 1996, or the Mine Health and Safety Act, is to protect the health and safety of persons at mines. The Mine Health and Safety Act requires that employers and others ensure their operating and non-operating mines provide a safe and healthy working environment, determines penalties and a system of administrative fines for non-compliance and gives the Minister of Mineral Resources the right to restrict or stop work at any mine and require an employer to take steps to minimize health and safety risks at any mine. The Mine Health and Safety Act further provides for employee participation through the establishment of health and safety committees and by requiring the appointment of health and safety representatives. It also gives employees the right to refuse dangerous work. Finally, it describes the powers and functions of the MHSI (which inspectorate is part of the DMR and the process of enforcement). Under the Mine Health and Safety Act, an employer is obligated, among other things, to ensure, as far as reasonably practicable, that its mines are designed, constructed and equipped to provide conditions for safe operation and a healthy working environment and the mines are commissioned, operated, maintained and decommissioned in such a way that employees can perform their work without endangering their health and safety or that of any other person. Every employer must ensure, as far as reasonably practicable, that persons who are not employees, but who may be directly affected by the activities at a mine, are not exposed to any hazards to their health and safety.

The Mine Health and Safety Amendment Act No. 74 of 2008, or the Mine Health and Safety Amendment Act, came into operation on May 30, 2009. It criminalizes violations of the Mine Health and Safety Act and increases the maximum fines. Any owner convicted in terms of the above offenses may have its mining licenses withdrawn or suspended, be fined up to R3 million and/or be imprisoned for a period not exceeding five years, while the maximum fine for other offenses and administrative fines are increased, with the highest fine being Rl million per occurrence. Two sections of the Mine Health and Safety Amendment Act, which create new offenses of contravening or failing to implement provisions of the Mine Health and Safety Act resulting in a person’s death and vicarious liability for an employer where certain persons commit an offense and the employer permitted or did not take all reasonable steps to prevent the person’s actions, have not yet come into effect. Several mining companies objected to them on constitutional grounds and the government agreed that they would not come into effect pending further discussion with the industry. In the fiscal year ended December 2011, the DMR increased enforcement of certain provisions of the Mine Health and Safety Act with respect to compliance with, and adoption of, leading practice at all mines. The principal health risks associated with Sibanye Gold’s mining operations in South Africa arise from occupational exposure and community environmental exposure to silica dust, noise, heat and certain hazardous substances, including toxic gases and radioactive particulates. The most significant occupational diseases affecting Sibanye Gold’s workforce include lung diseases (such as silicosis, tuberculosis, a combination of the two and COAD) as well as NIHL. The ODMWA governs the payment of compensation and medical costs related to certain illnesses, such as silicosis, contracted by persons employed in mines or at sites where activities ancillary to mining are conducted. Occupational healthcare services are made available by Sibanye Gold to employees from its existing facilities. Pursuant to proposed changes in the ODMWA, Sibanye Gold may experience an increase in the cost of these services. See “Key Information—Risk Factors—Risks related to South Africa—Sibanye Gold’s operations are subject to South African environmental and health and safety regulations, which could impose significant costs and burdens, and Sibanye Gold may face claims and liability for breaches, or alleged breaches, of such regulations and other applicable laws”. This increased cost, should it transpire, is currently indeterminate.

Until recently, the mining industry believed, as previous cases had indicated, that a provision in the Compensation for Occupational Injuries and Diseases Act No. 130 of 1993, or the COIDA, precluded an employee from recovering any damages from the employer for an occupational injury or disease resulting in his disablement or death, if compensation had been paid to the employee either under COIDA or under the ODMWA. The ODMWA governs the payment of compensation and medical costs for certain illnesses, such as silicosis, contracted by those employed in mines or at sites where activities ancillary to mining are conducted. Recently, the South African Constitutional Court ruled that a claim for compensation under ODMWA does not prevent the employee from seeking to recover compensation from the employer concerned in a civil action under

 

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common law (either as individuals or as a class). While issues, such as negligence and causation, need to be proved on a case-by-case basis, it is nevertheless possible that such a ruling could expose Sibanye Gold to claims related to occupational hazards and diseases (including silicosis or other ailments alleged to arise due to exposure to hazardous materials and substances), which may be in the form of a class action or similar group claim. Such actions may also arise in connection with incidences of such diseases in communities proximate to Sibanye Gold’s mines. In the second half of 2012, two suits were filed against several South African mining companies, including Gold Fields and Sibanye Gold, on behalf of current and former gold mine workers and the dependants of gold mine workers who have contracted or died from silicosis or other occupational lung diseases. See “—Legal Proceedings”.

If a significant number of such claims were suitably established against Sibanye Gold, the payment of compensation for the claims could have a material adverse effect on Sibanye Gold’s business, reputation, results of operations and financial condition. In addition, Sibanye Gold may incur significant additional costs arising out of these issues, including costs relating to the payment of fees, increased levies or other contributions in respect of compensatory or other funds established (if any) and expenditures arising out of its efforts to remediate these matters or resolve any outstanding claims or other potential action.

Mineral Rights

The MPRDA

The MPRDA came into effect on May 1, 2004. The MPRDA transferred ownership of mineral resources (which includes the rights to grant prospecting and mining rights on behalf of the nation) to the South African people with the South African government acting as custodian in order to, among other things, promote equitable access to the nation’s mineral resources by South Africans, expand opportunities for historically disadvantaged persons who wish to participate in the South African mining industry, advance social and economic development, and create an internationally competitive and efficient administrative and regulatory regime, based on the universally accepted principle, and consistent with common international practice, that mineral resources are part of a nation’s patrimony. Mining companies are required to apply for the right to mine and/or prospect. In accordance with the MPRDA, the DMR on April 29, 2009 published the Code relating to the socio-economic transformation of the mining industry. However, certain provisions of the Code appeared to be inconsistent with the Mining Charter, or to go beyond the scope envisaged by the MPRDA. Various industry participants have been in discussions with the DMR regarding the scope and applicability of the Code, the operation of which appears to be in abeyance.

Under the MPRDA, prospecting rights are initially granted for a maximum period of five years and can be renewed once upon application for a further period not exceeding three years. Mining rights are valid for a maximum period of 30 years, and can be renewed upon application for further periods, each of which may not exceed 30 years. A wide range of factors and principles, including proposals relating to black economic empowerment and social responsibility, will be considered by the Minister of Minerals Resources when exercising her discretion whether to grant these applications. A mining right can be canceled if the mineral to which such mining right relates is not mined at an “optimal” rate. In November 2006, the DMR approved the conversion of Sibanye Gold’s mining licenses under the old regulatory regime at Kloof, Driefontein and Beatrix into rights under the new regime. All of Sibanye Gold’s mines have received their new-order mining rights. Pursuant to the terms of the MPRDA, a Mining Charter for effecting entry of HDSAs into the mining industry was developed to guide the DMR in the conversion of old order mineral rights, the granting of new order mineral rights and the granting of consent relating to the transferability and encumbrance of mineral rights. The Mining Charter became effective on May 1, 2004. The Mining Charter’s stated objectives are to:

 

   

promote equitable access to South Africa’s mineral resources for all the people of South Africa;

 

   

substantially and meaningfully expand opportunities for HDSAs, including women, to enter the mining and minerals industry and to benefit from the exploitation of South Africa’s mineral resources;

 

   

utilize the existing skills base for the empowerment of HDSAs;

 

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expand the skills base of HDSAs in order to serve the community;

 

   

promote employment and advance the social and economic welfare of mining communities and areas supplying mining labor; and

 

   

promote beneficiation of South Africa’s mineral commodities beyond mining and processing, including the production of consumer products.

To achieve these objectives, the Mining Charter requires that, within five years of its May 1, 2004 effective date, each mining company achieves a 15% HDSA ownership of mining assets and, within 10 years of that date, a 26% HDSA ownership of mining assets. Ownership can comprise active involvement, through HDSA-controlled companies (where HDSAs own at least 50% plus one share of the company and have management control), strategic joint ventures or partnerships (where HDSAs own at least 25% plus one vote of the joint venture or partnership interest and there is joint management and control) or collective investment vehicles, the majority ownership of which is HDSA based, or passive involvement, particularly through broad-based vehicles such as employee stock option plans. The Mining Charter envisages measuring progress on transformation of ownership by:

 

   

taking into account, among other things, attributable units of production controlled by HDSAs;

 

   

allowing flexibility by credits or offsets, so that, for example, where HDSA participation exceeds any set target in a particular operation, the excess may be offset against shortfalls in another operation;

 

   

taking into account previous empowerment deals in determining credits and offsets; and

 

   

considering special incentives to encourage the retention by HDSAs of newly acquired equity for a reasonable period.

It is envisaged that transactions will take place in a transparent manner and for fair market value, with stakeholders meeting after five years to review progress in achieving the 26% target. This review occurred in 2010 and particulars of the outcome and revisions to the Mining Charter are addressed below. Under the Mining Charter, the mining industry as a whole agreed to assist HDSA companies in securing finance to fund participation in an amount of R100 billion over the first five years. Beyond the R100 billion commitment, HDSA participation will be increased on a willing seller-willing buyer basis, at fair market value, where the mining companies are not at risk.

In addition, the Mining Charter requires, among other things, that mining companies: