Letter from the chairman
Tito Mboweni, Chairman
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STRIKING A BALANCE - FAIR FISCAL RETURNS AND MUTUALLY BENEFICIAL RELATIONSHIPS
In my first chairman’s statement to you this time last year, I indicated that the two key issues for me on taking up this position were employee safety and the elimination of the hedge book.
Our safety performance still leaves much room for improvement. I extend my personal, and the company’s, condolences to the families, friends and colleagues of our 15 employees who lost their lives in accidents during 2011. Even though we are sustaining the approximately 70% stepchange improvement in the incidence of fatal accidents first seen in 2008, we still need to work hard towards further improvements, and ultimately, an end to mine-related deaths. We hope the continuing steady improvement in injury rates is a sign that these efforts are having an impact.
A significant issue that has arisen in South Africa relates to the question of enforced safety stoppages by the state regulator. As a company, we recognise and support the safety inspectorate’s accountability in respect of mine safety. We recognise that stoppages enforced where fatalities and/or serious breaches of safety regulations have occurred have served an effective purpose in focusing industry attention further on safety issues and reducing the incidence of accidents.
However, during 2011 the inspectorate began decreeing the shutdown of entire mines in cases of relatively minor or local infractions, which had a significant impact on production. A working group comprising the Department of Mineral Resources, the industry and organised labour has now been established to look into this matter. It is to be hoped that, in the spirit of partnership, this matter will reach an appropriate conclusion.
Hedge book and gold market
The intensive pursuit of the elimination of the hedge book by management enabled the company to finally achieve that goal early in my tenure in 2010. The wisdom of that course of action, which came at no little cost, continues to be vindicated by the continuing upward trend in the admittedly volatile gold price.
The gold price did not respond as favourably as some might have expected to the Eurozone crisis in the closing months of 2011 and into early 2012. That is arguably because many holders of gold were forced to sell parts of their holdings as their losses in other holdings intensified. Yet the fundamentals supporting a strong gold price remain in place, and could strengthen as the European crisis plays out, with the European Central Bank and other central banks forced to take action.
Interestingly, particularly for a company like ours with close to 75% of our production in Africa, Europe’s travails are coming into stark contrast with the prospects of the continent that represents our main base. The Economist, as recently as 2005, was warning that “the current wave of Afro-pessimism in Western capitals may fast run to cynicism”. By 2011, in an article titled “The Lion Kings” (in positive comparison with the Asian Tigers), The Economist noted that sub-Saharan Africa’s average growth rate had more than doubled to 5.7% in the past decade compared with the previous one and that, according to the International Monetary Fund, seven of the world’s 10 fastest growing economies in the next five years are forecast to be African.
Much of that growth has been triggered by the contributions of the resources sector. However, just as mining has been good for Africa over the past decade and more, Africa has been good for mining. In Africa, as in much of the rest of the world (notably Australia among the other jurisdictions in which we operate) the resources sector faces pressures from states that believe that the relative share of benefits between host societies and shareholders has swung too far in favour of the latter.
This is a most delicate balance that has to be struck between the two sets of interests; interests that are often perceived to be at odds but, more often, are common. Nonetheless, how governments and the leaders of the industry manage this discourse is critical to all our futures. Governments and their citizens are entitled to expect not only a fair fiscal return but also a mutually respectful and beneficial relationship between them and the companies. Being a good corporate citizen, as we seek to be, is a prerequisite for being a successful miner. Pushed too far, though, raised taxes and royalty rates will begin to discourage investment and reduce the overall value of the industry to both societies and shareholders. The regulatory environment is becoming increasingly complex and onerous.
Your company is committed to playing its part constructively and wisely in this regard, both through its own offices and through its participation in industry and other business associations.
This is perhaps best illustrated in our country of domicile, South Africa, where the vocal support by the ruling party’s youth league for a policy of nationalisation of the mining sector has been a difficult challenge for us. We do not fear that government would be pushed into pursuing such an unwise course. The country’s leadership has repeatedly stated as much. Indeed, government’s New Growth Path policy document recognises the centrality of the mining sector, arguing that “government must encourage stronger investment by the private and public sectors to grow employment-creating activities rapidly while maintaining and incrementally improving South Africa’s core strengths in sectors such as capital equipment for construction and mining... These industries build on our strong resource base and our advanced skills and capacity”.
However, the nature of the discourse has been unsettling for investors and others, and focused discussion away from the real challenges the industry and the country face. We hope the work done through the Chamber of Mines, the debates promoted by ourselves and other partners and the prominent and well-received interventions by our CEO have helped to turn the tide.
On the operational side, the critical Project ONE has moved from the realms of pilot project to a point where it is being rolled out increasingly broadly through the organisation. The implementation of the improved efficiencies and performance in such areas as production, safety and environmental management promised by Project ONE rarely happens without occasional stumbles and setbacks. However, the overall gains clearly illustrate the wisdom and vision of the project.
Our extensive greenfield and brownfield exploration projects, promise to replace exploited ounces and more, at extremely competitive costs bases.
During the year, the board has, and will continue to improve long-term value for shareholders.
Finally, in my chairman’s statement last year I undertook to ensure that the board acted to replace lost expertise and work towards building an even better balance of knowledge, experience and skill. In this regard, I am pleased to welcome two new board members to our ranks. Nozipho January- Bardill, with her combination of international diplomatic experience and executive experience in the private sector has, in the first few months of her tenure, brought to the board fresh ideas and new perspectives in our deliberations. And Rodney Ruston, whose term began at the beginning of 2012, brings decades of executive and technical resources sector experience. The rest of the board and I look forward to our deliberations with them.
I would like to thank all my fellow board members, management and staff at AngloGold Ashanti for all their support in 2011.
16 March 2012