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Letter from the chief financial officer

Srinivasan Venkatakrishnan, Chief financial officer

Srinivasan Venkatakrishnan,
Chief financial officer

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Taking out the hedge book has freed up the cash flow to create balance sheet fire power to fund growth projects.

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KEY FINANCIAL OBJECTIVES MET

In a year of record gold prices, better operating performance from some of the group’s key assets and the first year of full exposure to spot prices, AngloGold Ashanti successfully met all three of its key 2011 financial objectives, that were contained in the 2010 chief financial officer’s report. Taking each of these objectives in turn:

  1. 1. Ensuring that the benefits of the hedge book elimination are captured in improved earnings and cash generation

    The 2011 earnings and cash flow metrics were well ahead of the levels seen in 2010, capturing the benefits of the hedge book elimination. Net profit attributable to shareholders for 2011 increased 20-fold, to $1.55bn. Adjusted headline earnings of $1.3bn represented a 65% increase on the levels seen in 2010 of $787m*. Cash inflow from operating activities rose by 59% in 2011 to $2.66bn from $1.67bn* recorded in 2010. Free cash flow in 2011 also rose by 59% from $525m* in 2010 to $833m in 2011. These increases demonstrated the leverage AngloGold Ashanti offers to the average spot gold price, which rose year-on-year by only 28%.

  2. 2. Maintaining our international investment grade credit ratings

    During 2011, AngloGold Ashanti successfully maintained its international investment grade credit ratings from both Standard and Poor’s and Moody’s financial services. The liquidity and solvency metrics improved year-on-year, on the back of stronger earnings and improved cash generation.

    On 15 March 2012, Moody’s Investors Service announced that it has upgraded AngloGold Ashanti Limited’s credit rating from Baa3 to Baa2 with a stable outlook.

  3. 3. Maintaining a prudent statement of financial position, whilst at the same time not compromising the project pipeline and returns to shareholders

    The group’s net debt** position at $610m on 31 December 2011 represents a 53% debt reduction, when compared to 31 December 2010 ($1.29bn). The strong cash generation helped the group meet its increased 2011 capital expenditure payments of $1.53bn and at the same time improve dividends declared to shareholders with respect to the year by 162% as compared to 2010, from 145 SA cps (20 US cps) to 380 SA cps (49 US cps). Return on net capital employed rose from 15% to 20% and return on equity rose from 20% to 25%.

    During the fourth quarter of 2011, AngloGold Ashanti obtained a A$600m four-year unsecured revolving credit facility on competitive terms from a syndicate of 11 banks to fund working capital and development costs at the group’s Australian operations. None of the group’s principal financing facilities** (which include the two rated bonds, 3.5% convertible bonds, $1bn syndicated revolving credit facility and A$600m syndicated revolving credit facility) mature for repayment until the second quarter of 2014. The improved cash generation under current market circumstances, headroom under its debt facilities and longer debt tenor has placed the group in a position to meet its 2012 and 2013 project capital requirements.

Turning to the 2011 performance, some of the key financial metrics include:

Dividends declared per ordinary share (SA cps)
  • Gold production: 4.33Moz (4% below 4.52Moz recorded in 2010 due to unprecedented floods in Australia; higher safety stoppages and industrial action in South Africa);
  • Average US dollar spot price: $1,572/oz (28% higher than the average spot price of $1,227/oz seen in 2010);
  • Total cash costs: $728/oz (14% higher than $638/oz recorded in 2010 due to higher inflation, stronger fuel prices, increased royalty charges and lower units of production);
  • Adjusted headline earnings: $1.3bn (65% higher than the $787m recorded in 2010 which excluded the impact of accelerated hedge buy-backs. Adjusted headline loss in 2010 after factoring in the cost of the accelerated hedge buy-backs was $1.76bn);
  • Adjusted headline earnings per share: 336 US cps (58% higher than 212 US cps recorded in 2010)*;
  • Profit attributable to equity shareholders: $1.55bn (20-fold increase as compared to the $76m recorded in 2010);
  • Earnings before interest, taxes and depreciation: $3.0bn (58% increase on the $1.9bn seen in 2010);
  • Free cash flow: $833m (an increase of 59% on the 2010 level of $525m). This excludes proceeds from the sale of non-core assets of $35m (pre-tax) in 2011 and $134m in 2010;
  • Net debt at year-end**: $610m (53% reduction when compared to the 2010 level of $1.29bn);
  • Return on net capital employed: 20% (2010: 15%);
  • Return on equity: 25% (2010: 20%); and
  • Dividends declared per ordinary share: 380 SA cps or 49 US cps (162% increase on the 145 SA cps or 20 US cps declared in 2010).

Srinivasan Venkatakrishnan
Chief financial officer

16 March 2012