Understanding and mitigating our risks, identifying and harnessing opportunities

AngloGold Ashanti recognises that risk is present in all business and operational activities, that threat and opportunity are the two sides of risk, and that successful risk management is critical.

Risk assessment and management are fundamental components of AngloGold Ashanti’s business – in planning for the future and executing its strategy. The company identifies, evaluates and manages significant threats and opportunities as it seeks to deliver against its business objectives, within the framework set for group risk.

Group risk management structure

Risk management is a central part of group strategic management and is the process whereby the risks associated with group activities are methodically addressed with the goal of achieving sustained benefit. Risk management increases the probability of success, and reduces both the failure potential and the uncertainty associated with achieving the group’s overall objectives.

The group risk management system was formally initiated when the revised and invigorated focus on risk management was approved by the Board of Directors in 2009 when commitment, in terms of the implementation of the group risk management process, was obtained. This involved the development, building and roll-out of the group risk management process, improvement of the quality of risk knowledge and risk response tasking.

Specific objectives of group risk management

Specific objectives of the group risk management focus are to:

  • avoid or reduce threats to business objectives and exploit opportunities to add sustained value to all group activities in line with group risk tolerance and threshold;
  • provide timely risk information and appropriate responses to assist with meeting business objectives;
  • reduce future operational performance uncertainty by minimising surprises and associated costs and losses;
  • develop and implement a best practice group risk management system that is owned and championed at all levels of the organisation;
  • monitor and report on group and industry risk trends and outcomes and ensure appropriate board and executive reporting and briefing;
  • improve deployment of capital by using robust risk information to effectively assess overall capital needs and allocation; and
  • ensure that risk management forms an integral part of normal business practice and engenders a culture of ‘risk awareness’.

Risk management framework

The group risk management framework has the following core elements:

  • policy, that provides the context for risk management and prescribes the scope, objectives and required outcomes of this process;
  • plan, prepared by management and which is reviewed and approved annually by the Risk and Information Integrity Committee of the board;
  • standard, that defines the approach adopted and methodologies that are based upon the principles of the International Standards Organisation ISO 31000, and prescribes the minimum requirements; and
  • guidelines, enabling operations to access detailed information concerning risk management principles and practice in order to define risk management strategies.

Our risk management structure, depicted generically below, and accountabilities are defined in the framework and ensure that risk identification, assessment and management are considered at every step in the business planning process.

A core outcome of the risk management system is to promote risk awareness throughout the group. This is undertaken primarily via:

  • Regional and site-based risk training workshops annually and as appropriate;
  • An intranet-based, group risk management community of practice maintained and updated regularly;
  • Regional, site- and discipline-based training initiatives;
  • Preparation of a risk knowledge database; and
  • Regular risk owner and risk champion interaction and support.

The board, as required by King III, receives assurance regarding the effectiveness of the risk management process.

The Group Internal Audit (GIA) charter approved by the Audit and Corporate Governance Committee (Audit Committee) requires the Senior Vice President: GIA to provide a written assessment of the system of internal controls and risk management to the Audit Committee. In satisfying this requirement, GIA conducts reviews to assess the design adequacy of the following processes within the risk management process: adherence to the Group Risk Management policy, standard and guidelines; risk management system and technologies against best practice information available; risk management performance measurement, monitoring and reporting processes; compliance with King III; and current approaches to risk management.

In so doing GIA forms an opinion on the adequacy of the design of the risk management framework driving the risk management process to ensure that the framework addresses the requirements of King III. It also confirms that the roll-out and implementation of the framework is in line with the approved implementation plan. To meet these obligations GIA, working with the Planning and Technical group and others, conducts combined assurance reviews that are risk-based and draws upon appropriate functional expertise.

group risk management structure [graph]

The specific risks and opportunities that affect the company’s ability to create value over the short, medium and long term and how these are dealt with

Risk assessment and management are fundamental components of our business.

The diagram below provides an overview of key risks as at the first quarter of 2014, plotted in terms of the potential severity of consequence and likelihood. The risks are:

  • external (risks to AngloGold Ashanti from uncertain, uncontrollable events – indicated by black circles);
  • operational (preventable risks from employees’ undesirable and unauthorised actions as a result of breakdowns in routine operational processes and human error – indicated by orange circles); and
  • strategic (risks undertaken voluntarily after consideration of risk-versus-reward to achieve our strategic objectives – indicated by grey circles).

There may be additional risks unknown to AngloGold Ashanti and other risks, currently believed to be immaterial, that could become material. Additional risks, either individually or in the aggregate, could significantly affect AngloGold Ashanti’s business, financial results and the price of its securities. The company advises investors to carefully read the document on risk factors in the prospectus supplement to AngloGold Ashanti’s prospectus, dated 17 July 2012, that was filed with the United States’ SEC on 26 July 2013.

The following tables rank these risks in two time frames (imminent horizon of six to nine months, and a medium- to long-term horizon of one to three years) and provide details of the mitigation strategy for each risk.

The cumulative impact of a number of these and other risks, should they materialise simultaneously or in succession, as well as the possible magnitude and velocity of the risks, is of major concern since they will create significant headwinds that could adversely impact the implementation of AngloGold Ashanti’s strategy, despite successes to date, potentially threatening AngloGold Ashanti’s liquidity and viability.

Top group risks [graph]
Imminent horizon
Top group risks    
Type Risk Mitigation strategy
External Sharp continued gold price dislocation (Gold price)
  • Aggressive cost reduction and organisational restructuring for greater efficiencies
  • Portfolio rationalisation and optimisation
  • Initiate refinancing options
  Protracted labour-related stoppages in South Africa (Strike)
  • Two-year agreement signed in September 2013 with above-inflation wage increases extended to all employees irrespective of union affiliation
  • Union and workforce engagement and communication
  • Legal challenges and facilitation with court interdict of the Association of Mineworkers and Construction Union (AMCU) strike
  • Restructuring of operations
  • Continuous monitoring and security measures
  • Insurance
  Long-term de-rating of gold equity valuation multiples (De-rating)
  • Credible track record of cost control and solid delivery on business plans
  • Portfolio optimisation and rationalisation
  • Focused exploration spend
  • Investment in innovation towards safer, automated mining methods
  • Investor relations focus
  • Risk management
  Portfolio rationalisation impediments (Portfolio)
  • Execute the ‘fix/optimise and sell/ joint venture/close’ strategy
  Legacy occupational health compensation claims and litigation (Health)
  • Defend all claims on their merits
  • Chamber of Mines of South Africa, together with the NUM and the national and regional Department of Health, have embarked upon a project to assist in delivering compensation and relief by mining companies under the Occupational Diseases in Mines and Works Act
  • Further work towards harmonisation of legislation
  Unfavourable regulatory environment changes (Regulatory)
  • Diversification with asset mix by location
  • Active engagement with governments and authorities
  • Representations through mining organisations, such as the Chamber of Mines
  Socio-economic, artisanal small scale and illegal mining (Socio-economic)
  • Strategies for artisanal mining affecting AngloGold Ashanti operations
  • Community investment programmes
  • Community policing forums and engagement of community, civil society, public security and justice
  • Increased surveillance with security and rapid response programmes
  • Physical demarcation of secure areas
  Foreign exchange volatility and local currency strengthening (Currencies)
  • Aggressive cost reduction and organisational restructuring for greater efficiencies
  • Portfolio rationalisation and optimisation
Operational Delayed ramp-up of capital projects (Ramp-up)
  • Management of the transition from soft oxide ore to hard rock using high- pressure grinding roller (HPGR) at Tropicana, post the successfully completed commissioning
  • Focus on hard-rock mining and sulphide circuit completion at Kibali
  • CC&V Mine Life Extension II commissioning management
  • Mponeng Below 120 project and the deferral of the Zaaiplaats project
  Critical skills and talent retention (Skills)
  • Human resource strategies and talent management
  • Accelerated skills development and retention
  • Industry branding and employee value proposition
  • Supporting the education process and addressing teaching capacity constraints
  • Programme to address capacity and ensure the retention of scarce skills within the context of improved transformation outcomes
Medium- to long-term horizon
Top group risks    
Type Risk Mitigation strategy
External Elevated country risk profile in core production areas (Country)
  • Asset mix by location
  • Active engagement with governments, authorities, local communities, and non-governmental organisations
  • Use of joint venture alliances with local companies
  • Portfolio review
  Inability to mitigate legacy environmental contamination (Environment)
  • Operational controls, water treatment, waste management, clean-up and concurrent rehabilitation/ remediation
  • Geo-hydrological and other impact studies
  • Interception programmes
  • Closure estimates assuming appropriate remediation methodologies and techniques
Operational and financing Failure to achieve Obuasi rationalisation and turnaround (Obuasi)
  • Significant changes to Obuasi mine that could include job cuts
  • Proposal to key stakeholders, including government, on planned cost improvement initiatives
  • New decline shaft and mechanisation
  Material underperformance negatively impacting recent improving track record (Production)
  • Aggressive cost reduction and organisational restructuring for greater efficiencies
  • Focus on lifting productivity and cost discipline to deliver best portfolio value
  • Portfolio rationalisation and optimisation via the ‘fix/optimise and sell/joint venture/close’ strategy
  Reversal of improving safety performance (Safety)
  • Safety compliance focus and co-operation with safety regulators
  • Bowtie control effectiveness methodology introduced for major hazards
  • Increased focus on leading indicators
  • Hazard and risk management training
  • Enhanced incident investigation and reporting system
  • Monitoring or regulatory developments
  Asset integrity failures and compromised reliability (Reliability)
  • Asset integrity processes with formal technical reviews
  • Adoption of reliability engineering principles
  • Application of Asset Management Framework to ensure that productive equipment and supporting facilities are examined and assessed for reliability to deliver the required performance over the intended life
  Input cost inflation exceeding costs containment and productivity strategies (Inflation)
  • Aggressive cost reduction and organisational restructuring for greater efficiencies via Project 500 and other initiatives
  • Focus on lifting productivity and cost discipline
  • Portfolio rationalisation and optimisation via the ‘fix/optimise and sell/joint venture/ close’ strategy
  Refinancing of existing facilities as a result of negative external factors (Gold price)
  • Proactive and timely approach to refinancing of facilities
  • Diversified sources and tenor of facilities
  • Cost management focus to preserve cash and support strong credit metrics
Strategic Inability to develop strategic growth and development projects to bring reserves to account as per plan (Growth)
  • Revised tenements strategy with focused exploration funding for critical operations to extract maximum value
  • Work to ensure that ‘social license to operate’ is realised in Colombia
  • Partnering options under investigation
  Failure to successfully implement the start of a technology step change in South Africa (Technology)
  • AngloGold Ashanti Technology and Innovation Consortium (ATIC)
  • Proof of concept work relating to: geological drilling; reef boring; ultra-high strength backfill; and haulage boring machines
  • Stakeholder identification and engagement
  Impediments to Mongbwalu divestment (Divestment)
  • Sustainability and honouring social commitments
  • Stakeholder engagement and communication

Risk correlation

Risk correlation refers to the likelihood of an event having a direct impact on another and is a measure of how risks could move in relation to each other. The figure below shows the top risks and their correlations.

The top group risks are arranged around the circumference of the diagram and are classified into external, operational and strategic risk. The risks that have the potential to impact other top risks are linked by orange, dark grey and light grey ribbons, coloured according to their classification. The purpose of this diagram is to highlight the interconnectedness of the top group risks.

The most highly correlated top risks are:

  • portfolio rationalisation impediments (portfolio);
  • socio-economic, artisanal, small scale, illegal mining (socioeconomic); and
  • failure to achieve rationalisation and turnaround (Obuasi).
Outgoing correlations [graph]
Potential risk impact [graph]

POTENTIAL RISK IMPACT on strategic building blocks

The top risks are likely to most strongly affect the group strategic building blocks of ‘optimise overhead, direct costs and capital expenditure’ and ‘focus on people, safety and sustainability’.

The purpose of this diagram is to highlight the potential for the top group risks to impact the strategic building blocks that comprise AngloGold Ashanti’s strategic goal of “sustainable cash flow improvements and returns”.

Potential risk impact legend [graph]

Top group opportunities

We recognise that identifying and managing opportunities is an important component of risk management. The company identifies suitable opportunities, endeavouring to exploit, harness, or maximise them with the aim of creating value from mitigating our risks. The following table lists our key opportunities along with the strategy for each.

Top group opportunities
Type Opportunity Strategy
Operational Cost reduction to benefit from increase in gold price
  • Aggressive cost reduction and organisational restructuring for greater efficiencies via Project 500 and other initiatives
  • Focus on lifting productivity and cost discipline to deliver best portfolio value
  • Portfolio rationalisation and optimisation via the ‘fix/optimise and sell/joint venture/close’ strategy
  Technology step-change in South Africa
  • AngloGold Ashanti Technology and Innovation Consortium (ATIC)
  • Proof of concept work relating to: geological drilling; reef boring; ultra-high strength backfill; and haulage boring machines
  • Stakeholder identification and engagement
Strategic Colombia
  • Revised tenements strategy with focused exploration funding
  • Work to ensure that ‘social licence to operate’ is realised
  • Partnering options