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Our strategy and strategic objectives –
Maximise margins

WE NEED TO MANAGE REVENUES AND COSTS TO ENSURE THE DELIVERY AND PROTECTION OF RETURNS IN A VOLATILE PRICE ENVIRONMENT. MARGINS GENERATE CASH FLOW TO SUSTAIN AND GROW OPERATIONS, SO WE ARE CONSTANTLY STRIVING TO MAINTAIN AND IMPROVE ON OUR COSTS RELATIVE TO OUR INDUSTRY PEERS.

How we are implementing this strategy

AngloGold Ashanti maximises margins by actively managing both revenues and costs.

On revenues, we seek to realise full value from our products. We do this by:

  • Offering exposure to spot prices. Since October 2010, we have been a fully unhedged gold producer. The elimination of our hedge book was value-accretive, taking into account gold price gains since the investment was made.
  • We take our product to an optimum final point to ensure that we have extracted full value across the value chain.
  • Finding and developing new sources of gold production.
  • Delivering products of a consistent quality, on time.
EBIDTDA [graph]

* Refer to the Annual Financial Statements 2011Non-GAAP section for a definition of
EBITDA.

Costs are closely managed across the business. We benchmark ourselves on a total cost basis against the broader industry and strive to maintain these costs below the industry’s mean in order to protect returns in a potentially volatile price environment.

Costs are regularly reviewed, focusing on critical processes, and as part of the annual business planning process. Our revised objective, after taking account of cost improvements already effected, taking us to 2015, is to effect a 20% improvement in real IFRS total cash costs per ounce (adjusted for mining inflation), from a 2010 baseline.

Strategy in practice: Improving cost performance – major initiatives and outcomes

Project ONE has been implemented to standardise operating procedures and achieve key five-year goals, including cost targets. The technical and people systems that form part of Project ONE are in various stages of implementation at the company’s operations, and have to date contributed to savings of some $697m.

Project ONE principles were applied at Geita in Tanzania, which recorded exceptional improvements in cost and operating performance in 2011, reducing cash costs from $777/oz to $536/oz and increasing production by 38% to 494,000oz since 2008.

In the South Africa region, a major project is under way to develop a technology-oriented operating model, which has the potential to achieve significant cost savings, as well as enable safer operations which minimise environmental impacts. As a result of ongoing focus on energy saving initiatives, the South African region has reduced energy consumption by some 5.65% since 2010. Although absolute energy costs have risen due to power tariff increases, energy saving initiatives which are in place have significantly mitigated the impact of higher electricity prices.

A major area of focus remains the operational turnaround at Obuasi in Ghana. A multi-disciplinary task team was put in place in 2010 to focus efforts on improving operational and sustainability performance. Operational stability has been achieved. Production targets for 2011 were met and the operation made a cash contribution to the business. Although there is still work to be done, the foundation for a turnaround has been laid.

Geita EBITDA ($m) and EBITDA margin (%) [graph] Obuasi free cash flow and EBITDA [graph]