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Letter from the chief executive officer

Mark Cutifani, chief executive officer

Mark Cutifani, chief executive officer

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To our shareholders and business and social partners

It has been another milestone year for your company. The recent years of hard work fortifying the balance sheet and building the framework for sustained business improvement has helped propel AngloGold Ashanti’s cash flow from operating activities to $2.66bn, and adjusted headline earnings increasing to $1.3bn, both records. At the same time we have rebuilt our operating foundations positioning the business for physical growth and improving financial performance.

2011: Improved returns and a platform for growth established

As the year progressed, AngloGold Ashanti’s unique value proposition became increasingly clear. The company not only generated peer-group leading returns and cash flow yields, but also advanced projects through the pipeline toward its goal of growing production by 24% to between 5.4 and 5.6Moz by 2015. Our portfolio of growth projects that will take us to this goal are either in the final study phases or are in physical development. Importantly, we continue to improve our competitive position as these projects are priced well below the industry average capital cost, with associated competitive operating costs. The combination of these two factors will help support our industry-leading capital returns.

These are strong differentiating factors in an industry struggling to increase output amid soaring capital expenditure bills. While the target is undoubtedly challenging, it remains eminently achievable given our drive to enhance the organisation’s overall execution capability levels, from both within and outside the mining industry.

The higher gold prices seen last year more than vindicated the decision made in October 2010 to eliminate the legacy, out-of-the-money hedge positions which created a significant drag on earnings and cash flow. With full exposure to the rising gold price for an entire year, free cash flow rose by 59% from 2010, while adjusted headline earnings were 65% higher at $1.3bn – both record figures. AngloGold Ashanti ended the year with a net debt of $610m, reinforcing the health of the underlying business and the continually improving quality of earnings.

Given the surging cash inflows, a decision was taken by the board in November 2011 to switch to quarterly dividends in order to provide a more timely return to shareholders, and to improve the pay-out in absolute terms. The full year dividend of 380 SA cents per share was 235% higher than 2010. This increase continues to deliver on the Board’s determination to ensure shareholders participate in the improved fortunes of the company, while at the same time ensuring that our exciting pipeline of growth projects can be funded from internal sources and our investment-grade rating is maintained.

Improved capability among our operating teams, alongside the continued rollout of AngloGold Ashanti’s Project ONE business improvement initiative, detailed under Our strategy and strategic objectives – Maximise margins, together helped achieve significant operational success during 2011. The stand out in the portfolio was Geita in Tanzania, which returned to its position as a cornerstone asset for the group. From this mine’s nadir in 2008, when it produced 264,000oz and total cash costs of $728/oz, the operating teams have achieved a remarkable turnaround. In 2011, Geita produced 494,000oz at a total cash cost of $536/oz, which represents an improvement of $583m in mine operational cash flow since 2008.

A strong operational performance despite headwinds

Our operating teams made strong progress in their business improvement objectives during 2011, despite a series of strong headwinds during the year. Production for the 12 months was 4.33Moz at a total cash cost of $728/oz, with an average exchange rate of R7.26/$ during the year. That was in line with revised guidance, but fell short of initial guidance of 4.55Moz to 4.75Moz at a total cash cost of $660/oz to $685/oz.

Obuasi was a key area of focus for AngloGold Ashanti and, for me in particular, with a sustained improvement in its overall performance was a key objective set by the board. This operation has a well-documented suite of operating and sustainability-related challenges, but remains one of the world’s great orebodies with a resource base of more than 30Moz. The operating taskforce appointed at the beginning of the year made great strides not only in stabilising its operating processes but also in looking at options to ensure a prosperous future for all stakeholders. By delivering production of 313,000oz at a total cash cost of $862/oz, the mine achieved its targets for the year and delivered cash flow, after all sustaining capital expenditures, of $39m. This compares with $8m the previous year. There remains much to do here, but the progress already made provides a solid platform to begin the march back toward annual production of 500,000oz in coming years.

In Australia, a major flood occurred in February, which exceeded the one-in-one-hundred year record. Surface infrastructure at Sunrise Dam was damaged and the underground mine was inundated with water, which disrupted underground operations for approximately four months. In a related event, the main access ramp to the active open pit was lost when a section of the pit wall failed. Open pit mining was suspended for over six months while a new access ramp was established. This caused a 62% drop in output to 246,000oz and a concomitant rise in costs to $1,367/oz. Graham Ehm’s team in Australia worked hard to steady the operation while including in its long-term development the exciting new discovery of the Vogue orebody lying beneath the current workings. The new deposit appears to be conducive to lower cost bulk mining and has the potential to yield a resource of between 2Moz and 5Moz. More detail on the long-term potential and future of this operation will be provided during 2012.

In Continental Africa, Richard Duffy’s team made solid progress towards stabilising a regional portfolio that has provided its share of challenges in the past. In 2011, the work done to substantially improve the performance across the continent gained traction, evidenced by the $921m increase in EBITDA since 2008, when our new strategy was launched. However, there remains urgent operating challenges for us to address, particularly at Siguiri in Guinea, where a shortfall in grade curtailed production in 2011. The remedy here lies in the aggressive drilling campaign already under way to improve knowledge of the orebody. An ancillary benefit of this work was the discovery of a seemingly rich patch of ore close to the operating plant, which will further improve the long-term growth prospects for this tier-one gold resource. Both Sunrise Dam and Siguiri present the key operating challenges for us in the year ahead and plans are in place to ensure their fortunes improve.

Our South African region continued to hold its title as chief cash contributor to the group, with the highest quality and best-run suite of assets in the country, and margins among the best in the world. A decision taken early in the year to halt the extraction of the shaft pillar at TauTona, in the interests of safety, cost 37,000oz, whilst Section 54 production stoppages cost another 73,000oz. A short strike during the year, which cut production by some 45,000oz, presaged a mutually beneficial two-year settlement with major unions which increased local payroll costs by around 8.3%. Our engagement with our partners in labour, while undeniably robust, remains constructive and respectful. An important outcome of the mining talks is the undertaking in principle of all parties to investigate methods that will better utilise our fixed assets, which benefit from shift-work on only 270 of 365 days in any year, given sporadic weekend work and extended vacation breaks. In other jurisdictions, mines are typically operated for 330 days or more, per year. This represents a fortuitous opportunity to not only improve production and returns from enormous sunk infrastructure in South Africa, with no significant capital commitment, but to arrest the declining employment profile of the gold mining industry. We hope to report on progress in this regard during 2012.

The gold market

While the operational ‘engine room’ of the business has never been in better shape, prevailing trends in the gold market continue to give us cause for optimism. Demand and supply fundamentals, as well as the reigning uncertainty in global markets, all underpin a bull market now in its 10th year. Bullion touched a record closing price of $1,900/oz in September 2011 before settling lower at $1,563/oz at year-end. This represented an 11% gain for 2011, significantly outperforming all benchmark equity indices across the globe.

Demand for gold from central banks the world over continued to grow. After decades of selling, consumers adapted quickly to higher prices and gold exchange traded funds continued to grow in popularity among investors of all kinds. Still, the supply response from the industry in these times of plenty remained somewhat muted as constraints to new production, including remoteness, lack of infrastructure, permitting delays and a dearth of new discoveries, intensified. Meanwhile, the price was driven higher by a range of factors in different markets, such as concerns over inflation in India and China, wrangling over lifting the debt ceiling in the US, and the intensification of the debt crisis threatening the Eurozone. We believe that a quick and clean resolution to any one of these challenges remains elusive in the short to medium term, ensuring on-going support of gold as a safe harbour investment for the foreseeable future.

It is important to note that once the overall macroeconomic picture improves, the radically expanded balance sheets of the world’s largest economies are likely to present a serious inflationary threat, potentially limiting downside for some time to come.

The equity market

While gold prices fared well, much of the investment community remained perplexed at the relative poor performance of gold equities which lagged the metal during the year. In our view, general weakness in global equities, alongside increased resource nationalism across the world, the constant threat of higher taxes and royalties in several prominent operating jurisdictions, difficulties in achieving growth and operating targets, poorly judged acquisitions by some peers, unchecked costs, and runaway capital expenditure across the sector, were among the factors that together conspired to dull investor appetite for gold stocks. The impact on South African-domiciled gold stocks was compounded by a proposal from the African National Congress Youth League and others concerning nationalisation of the country’s mining assets. While the government at all levels has made clear that nationalisation will not form part of its policy – a view AngloGold Ashanti’s management fully endorses – the increased rhetoric continued to receive intensive coverage at home and abroad, which unsurprisingly depressed gold equity valuations.

To counter these headwinds and improve the performance of the equity, we initiated a concerted shareholder marketing effort in the second half of the year to clearly communicate AngloGold Ashanti’s relative value proposition and defuse fears over expropriation, which we believe to be largely unfounded. We also worked to expound on the strategies in place to further diversify the portfolio, to manage costs through the ONE model, to increase output with an unmatched suite of projects, to place continued focus on capital discipline and to further improve returns to shareholders.

Leadership in technology

We are pursuing an exciting opportunity in South Africa to capture the benefits of technology to safely unlock a resource of more than 70Moz at the deeper reaches of our resource base. Work is now into its second year with a multi-disciplinary, open consortium convened by AngloGold Ashanti, which counts among its members international luminaries like General Electric, Schlumberger, 3M, Atlas Copco, ABB, Sandvik, SNC Lavalin and a range of other specialists and universities. We have formed teams to tackle a spectrum of challenges ranging from data management and organisational change, to environmental management, mine design, rock breaking and underground logistics, among others. This puts us at the forefront of the drive to extract minerals at depth, both safely and profitably. Far from being an academic exercise, we plan to begin testing machinery and mining methods developed by the consortium early next year at our Vaal River operations.

Rather than look at alternatives, like replacing manual labour with mechanised, larger-scale mining methods, the thrust of our prototype work will be in re-purposing existing tunnel boring and ore-transport methods already in use elsewhere in the mining universe, and to remove the traditional, but inherently inefficient and unsafe stop-start ‘drill-and-blast’ mining method. In addition to the obvious safety benefit, shared research and development investment among several parties makes this a cost-effective exercise. This, in turn, will open a wealth of opportunities for AngloGold Ashanti.

Robbie Lazare was an early champion of technology in his role as Executive Vice President: South Africa. During the year he was succeeded by Mike O’Hare, his long-time lieutenant with a wealth of operating experience across the continent. Robbie continued work on the executive committee with a wider brief that encompassed long-term strategic planning, sustainability and job creation. He leaves AngloGold Ashanti in 2012 after 30 years of distinguished service, most recently in effecting the turnaround of the South African operations in 2009/2010. We wish him well in his retirement.


A primary benefit of this technology’s application is the creation of a safer workplace. There is no more eloquent reminder of the urgency in creating a step-change improvement in safety than the 15 colleagues who lost their lives in accidents during the year. Nine of these fatalities were recorded in South Africa, three in Ghana, one in Brazil, one in Colombia and one in Eritrea. These tragedies blight what remains important progress made in lowering benchmark incidence rates. Since 2006, injury frequency rates have more than halved, and fatality rates are more than 60% better, placing us well ahead of our South African peers. There is no end to the effort and resources we will expend to eliminate injuries from our sites and 2012 will see this push continue as we accelerate the rollout of Project ONE. This operating model carries with it a host of ancillary safety benefits born of better planning and scheduling, as well as heightened awareness of risk at all levels in the business. It is of vital importance that, as the fortunes of this business improve, everyone enjoys the benefits, together.

Integrating sustainability into the business

Through this Annual Integrated Report, we have tried to ‘paint a picture’ for stakeholders of all aspects of our business – the risks and opportunities we face, our objectives and targets, the strategies we have developed in response and indeed the persona of the business. We recognise that ‘people are the business’ – those within the company, those who interact with the company, and those around the company – and that we have a duty and responsibility to engage and interact with them, and to understand and to meet their expectations of being a responsible citizen. A report such as this can only provide a snapshot, however, and we have made more detailed, specific and localised reporting on our website.

Although we have produced a separate Sustainability Report, it is important to understand that sustainability as we understand it is that which underlines the long-term viability of our business. An important development during the year has been the development of a sustainable development framework for the group which, like our values, will ensure a consistency of interaction and approach across the group, but that will address the needs embedded within specific operations and locations.


In September 2011, we bade farewell to Thero Setiloane, our executive vice president for sustainability. Thero has joined Business Leadership South Africa, an organisation representing the 84 largest businesses in South Africa, of which AngloGold Ashanti is a member. In 2011, also welcomed to the executive were Ria Sanz as Group General Counsel, and Italia Boninelli as Executive Vice President – people and organisational development.

Ria joined AngloGold Ashanti in June 2011 and is responsible for the legal function for the group, compliance and company secretarial. Italia joined AngloGold Ashanti in October 2010 and is responsible for the company’s people strategy, transformation and change management initiatives.

Looking ahead

We must redouble our efforts in 2012 to further press our advantage and make clear to current and potential shareholders the competitive advantages in operational diversification, cash flow, returns and growth that set this business apart. With superior cash flows, we aim to fund all expansions from internal sources, as we improve the overall balance of the portfolio. With additional contributions expected from Australia, Continental Africa and our Americas regions, as well as a steady contribution from our prized West Wits and Vaal River assets, South Africa will account for roughly 30% of production by 2014, from current levels of 37%.

The first of our greenfield projects that will take us to our medium-term production goal of between 5.4Moz and 5.6Moz, continued to progress well. Tropicana, in Western Australia, concluded its first year in development and is on budget and on schedule to pour first gold in 2013, no mean feat in the current operating environment. All the while, the resource base continued to grow as predicted, improving the prospects that the elevated production planned for the initial three years of operation can be sustained for a longer period. Similarly, the Kibali joint venture and the Mongbwalu project in the DRC continued to grow their endowments with increased drilling, while still keeping to their timetables. Funding of critical path items for both projects continued in the first quarter of 2012, ahead of board approval anticipated in the first half of the year.

Of the raft of brownfield projects that will contribute to the medium-term growth target, the first, at Córrego do Sítio in Brazil, began producing on schedule in November 2011, while the work towards adding incremental production from heap leach and underground sources at Cerro Vanguardia, Argentina, continued apace. Our project teams also continued work to complete final feasibility studies for the Deep Sulphide project at Sadiola, Mali, and the further expansion at CC&V in the US. The Continental Africa group, with support from the technical development and sustainability groups, made progress on the blueprint for long-term growth at Obuasi, in Ghana. The fact that each of these projects are already permitted lends rigour and certainty to our growth plan and further sets us apart from peers.

Filling that project pipeline through exploration remains a priority for us, as it has done for more than a decade. We have a proud record of adding new ounces to our endowment from greenfield and brownfield drilling, at less than $30/oz over time. Strong reserve and resource additions were made in the US, Colombia and Australia, which helped grow reserves by 6% to 75.6Moz and resources by 5% to 230.9Moz. Rather than focus on large acquisitions to fuel growth, as several of our peers are forced to do owing to a lack of exploration success, our primary goal is to continue to grow resources through the drill-bit. This provides the best return on investment available.

The exploration budget of $465m for 2012 includes spending on feasibility studies, with a focus on advancing projects and adding ounces at properties including those in Australia, the DRC, Egypt, the Solomon Islands, Guinea, Colombia, Brazil and the US. Our world-class exploration team has four greenfield discoveries under its belt and continues to dominate some of the best real estate in the gold sector. We believe more significant discoveries will follow.

In closing, I would again like to thank our shareholders for their loyalty as well as our host communities and governments for continuing to work with us in responsibly developing their mineral patrimony. And to every one of my colleagues at AngloGold Ashanti, thank you again for another year of focus and hard work in a year that presented its fair share of challenges, as we moved toward our long-term goal of building the world’s leading mining company.

Mark Cutifani
Chief executive officer
16 March 2012