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Annual report suite 2012

Chief Financial Officer’s report

Srinivasan Venkatakrishnan [photo]

Chief financial officer

Maintained balance sheet flexibility despite operational and industry headwinds


When compared to 2011, the year under review came with a multitude of challenges. These included: increased safety stoppages at our South African operations during the first half of 2012; a protracted strike in the same region during the second half of the year; poor operational performance from the Ghanaian mines in Continental Africa, all of which impacted production, costs, earnings and cash flow significantly. In addition, the group faced a serious threat to its investment grade credit ratings following the strikes in South Africa and the downgrade to the South African sovereign ratings by all three credit rating agencies; and, finally, the need to cash fund acquisitions and key anchor growth projects in South Africa, Continental Africa, Americas and Australia. Unlike the previous three years which saw the gold price rally sharply year on year, 2012 saw the average gold price increase by 6% only, which was insufficient to mitigate inflation and production shortfalls.

Despite the considerable headwinds faced in 2012, the group had a number of successes, notably:

  • The group’s asset portfolio taken as a whole with the exception of South Africa and Ghana (in Continental Africa), performed broadly in line with expectations;
  • Cash generated by the group in 2012, before project capital and despite the strike impact, was $441m. Of this cash generation, AngloGold Ashanti returned some $236m (54%) to its shareholders as dividends and invested the balance in projects. Had there been no strike in South Africa, the cash generation would have been at least $200m better;
  • The group was able to successfully fund two acquisitions (the residual 50% interest in Serra Grande in Brazil, Americas and First Uranium South Africa (FUSA) which owns Mine Waste Solutions) for $555m, both of which have been cash generative since the acquisition date;
  • Pro-active financial planning and timely debt raisings helped the group fund project capital of some $1.1bn, of which its key growth projects accounted for close to 80% of the spend; and
  • AngloGold Ashanti successfully defended and maintained its investment grade credit ratings during 2012.


The core financial objectives for 2012 as outlined in the previous year’s report were:

  1. Ensuring that the investment grade credit ratings are maintained

    This objective was successfully met with Moody’s Investor Service upgrading the investment grade credit rating of AngloGold Ashanti in March 2012 from Baa3 to Baa2, with a stable outlook. In October 2012, following extensive labour unrest in the South African mining industry and downgrades of the South African sovereign ratings and several other state owned companies, banks, municipalities and corporates, AngloGold Ashanti was placed on “credit watch negative” by Standard & Poor’s (S&P). In December 2012, the group successfully defended and maintained its investment grade rating with S&P of BBB-, albeit with a negative outlook.

  2. Maintaining a flexible statement of financial position with sufficient long-term debt headroom

    Unlike 2011, both 2012 and 2013 are capital intensive years as the group is building and developing new projects in Continental Africa (Kibali and Mongbwalu in the DRC), Australia (Tropicana), Americas (CC&V expansion in the United States and other projects in Brazil) and South Africa (notably Mponeng). Net debt was forecast to increase over this period and the group therefore pro-actively managed its financial flexibility. The steps taken in this regard included:

    • In July 2012, the group’s undrawn revolving credit facility of $1bn which was scheduled to mature in 2014 was refinanced as a five-year facility for the same amount, maturing in July 2017;
    • The group also issued a new ten-year rated bond for $750m, maturing in July 2022, to introduce further tenor and diversify its funding sources; and
    • Raised an aggregate of R1bn from the South African debt markets under its Domestic Medium Term Note Programme in October 2012 to cover the funding shortfall resulting from the strikes in South Africa.

    At the end of 2012, the group’s net debt to EBITDA ratio was 0.9 times and the group had sufficient cash balances and liquidity headroom under its banking facilities to meet its 2013 project capital requirements.

  3. Maintaining earnings and cash flow generation to shareholders

    Earnings for the year were negatively impacted as noted earlier by the strikes and safety stoppages in South Africa and operational issues at the Ghanaian mines in Continental Africa. The group therefore only achieved gold production of 3.94Moz as compared to the annual target of 4.3 – 4.4Moz, a shortfall of some 10%. The loss of production had a significant negative impact on the group’s unit cash costs, earnings and cash flow.


The key financial and operational metrics for 2012 when compared to 2011 are provided below and reflect the adverse impact of the strike in South Africa and the operational issues faced at the selected operations referred to above:

Profitability and returns

The lower full year gold production of 3.94Moz and inflation saw unit cash costs increase to $862/oz when compared to $728/oz recorded in 2011. The strike in South Africa accounted for $33/oz of this increase. When compared to 2011, although the gold price increased by $88/oz (6%), this benefit was more than offset by a 9% fall in gold production and increased costs due to inflation.

Key financial metrics
  2012 2011 % change
Profitability and returns
Adjusted headline earnings $bn 0.9 1.3 (31)
  US cents per share 239 336 (29)
Profit attributable to equity shareholders $bn 0.8 1.6 (50)
Return on net capital employed % 14 20 (30)
Return on equity % 18 25 (32)
Dividends declared per ordinary share SA cents per share 300 380 (21)
  US cents per share 36 49 (27)
Liquidity, cash flow and net debt
Net debt at year end $bn 2.1 0.6 250
Free cash (out) inflow $bn (0.7) 0.8 (188)
Earnings before interest, taxes and depreciation and amortisation (EBITDA) $bn 2.4 3.0 (20)
Operational metrics      
Gold produced Moz 3.94 4.33 (9)
Price received $/oz 1,664 1,576 6
Total cash costs $/oz 862 728 18
Total cash cost margin % 48 54 (11)

Adjusted headline earnings of $924m or 239 US cents per share were the second-highest on record but represented a 29% decline when compared to 2011. Profit attributable to equity shareholders fell from $1.55bn in 2011 to $0.83bn in 2012. The 47% drop in profit attributable to equity shareholders when compared to 2011 can be attributed to a 9% fall in gold production, cost inflation, higher exploration and evaluation costs, increased finance costs and impairment charges due to the derecognition and abandonment of certain assets, related largely to the Obuasi mine in Ghana.

The returns on net capital employed and equity for 2012 were 14% and 18% respectively, lower than our estimates of 16% and 20%, due primarily to the impact of the strike.

Total dividends declared for 2012 were 300 SA cents per share (2011: 380 SA cents per share).

Liquidity, cash flow and statement of financial position

For the full year 2012, cash flow metrics were lower as compared to 2011 due to lower production, the impact of the South African strike and additionally in the case of free cash flow, due to significant investment in the key growth projects:

  • EBITDA: $2.4bn
  • Cash inflow from operating activities: $1.8bn
  • Free cash outflow: $666m

Net debt level as at 31 December 2012 closed at $2.06bn, $1.5bn higher than the level of $610m at the start of the year. The principal three factors that accounted for the increase in the net debt level were:

  • Project capital of $1.1bn (of which Tropicana, Kibali and Mongbwalu, CC&V and Mponeng accounted for close to 80% of the spend);
  • Aggregate cash consideration of $555m paid for the Serra Grande and FUSA acquisitions; and
  • Lost cash flow as a consequence of the South Africa strike of approximately $208m.

Turning to the statement of financial position and the financing facilities available to the group – as a result of the protracted strike at our South African mines during the fourth quarter, AngloGold Ashanti raised R1bn under its Domestic Medium Term Note Programme in South Africa. R700m of this debt matures in October 2013 whilst the balance of R300m matures in January 2013 but has since been rolled over in the local bond market.

The group’s principal US dollar and Australian dollar debt facilities include the following:

  • Fully drawn rated bonds aggregating $1.75bn that mature in 2020, 2022 and 2040;
  • A $1bn revolving credit facility that matures in July 2017 that is currently not drawn and is held as a stand-by facility to meet any project capital needs that cannot be serviced from cash on hand and operating cash flows;
  • An A$600m credit facility earmarked for the construction of the Tropicana project that matures in December 2015, of which $261m was drawn as at year-end; and
  • A $733m convertible bond that matures in May 2014.

Although none of the aforementioned facilities mature within a 12-month period from December 2012, AngloGold Ashanti has been pro-active in removing any imminent refinancing risk. With this in mind, in February 2013, it obtained a term facility for 27 months from a syndicate of three banks for $750m for the sole purpose of financing redemption of the $733m convertible bond, when it matures in May 2014, should this be needed. This facility provides the group with cost-effective insurance and full flexibility to refinance the $733m convertible bond on timings, structures and terms that are most suited to the group. The terms of this facility are similar to the revolving credit facility up until draw down date in May 2014, and once the facility is drawn in May 2014, the terms resemble that of a bridging facility. We believe that this facility addresses any refinancing concerns that may arise over the next few months around the 2014 convert falling due for repayment.

In September 2010, the group issued $789m worth of mandatory convertible bonds that fall due for conversion into equity in September 2013. When this conversion occurs in the third quarter of 2013, at current share prices, approximately 18.14m shares will be issued as a consideration for the bonds converting into equity and the 6% interest coupon on this bond will cease to be paid.

FS See a more detailed analysis of the group’s income statement, statement of financial position and cash flow statement for 2012 under Financial review.