CEO’s review and strategic outlook

Fellow shareholders and stakeholders,

After another eventful year, it is useful to reflect on how far we have come in the past two years in particular, and how well AngloGold Ashanti has responded to the immense challenges faced by our industry.

I write this year’s letter with optimism for what the coming years have in store for our company’s fortunes, and trust you will share these sentiments after reflecting on an impressive slate of achievements.

Our strategy that was built on five pillars namely – a strong foundation of safety, people and sustainability; financial flexibility; optimising expenditure; improving the quality of the portfolio; and preserving long-term optionality – continues to enable us to improve sustainable free cash flow and returns. We are on course to become a stronger, more cost focused and responsive company that can provide the gold price leverage that investors in the sector are seeking.

Operating in a business fighting a downturn, caused by a sharp fall in the price of its outputs, is always challenging. After the drop in the gold price in 2013 we needed to take quick, decisive action to reduce spending and increase not only the quantity, but also the quality of our production. We did just that, while maintaining our long-term potential and improving our industry-leading safety record. This team’s achievements of the past two years – to name only a few – are significant:

I write this year’s letter with optimism for what the coming years have in store for our company’s fortunes, and trust you will share these sentiments after reflecting on an impressive slate of achievements.

  • In safety and across all sustainability disciplines, we delivered our best ever two years in the company’s history, with strong gains across all metrics. We reduced fatal accidents by two-thirds in 2013 and by a further 25% in 2014, creating new milestones across all mines and regions. Year-on-year we had 20% fewer injuries, which is a remarkable achievement. In addition, we ended 2014 with the fewest number of reportable environmental incidents recorded in the company’s history and we have continued to improve our relationships with host communities and governments.
  • After a decade of shrinking production, our team has delivered the first two consecutive years of production growth of some 12% when compared to our 2012 base and 8% when compared to 2013. We also delivered two significant growth projects on time and on budget. While this growth was encouraging, it bears repeating that our ongoing focus will be to enhance margins of a quality production base.
  • We have delivered a sustainable step reduction in costs, regardless of which metric one views – whether it be operating costs, overheads, capital expenditure or expensed exploration. Our all-in sustaining costs for 2014 at $1,026/oz dropped 13% from $1,174/oz in 2013. All-in costs fell 22% to $1,148/oz over the same period.
  • Turning to portfolio improvement, we commissioned two new projects on time and on budget and sold Navachab (one of our non-core mines). Importantly, we successfully planned for, and implemented the transition of Obuasi to limited operations phase, a much needed and bold decision to stem significant cash outflows and start in earnest the process to reposition that operation as a potential future growth engine of our group.
  • We delivered the maiden Mineral Resource from the 23Moz (gold equivalent) Nuevo Chaquiro deposit in Colombia.
  • For eight consecutive quarters, we have delivered on our production, cost and capital expenditure guidance presented to the market. This is unprecedented.
  • Finally, we have, despite a 10% fall in the gold price, turned around the free cash flow of the business from a significant cash outflow in 2013 to a positive cash flow (before certain onceoff payments) in 2014.
Gold price received$/oz1,2641,401(10%)
Gold production000oz4,4364,1058%
Total cash costs$/oz787830(5%)
Corporate and marketing costs$m92201(54%)
Exploration and evaluation costs$m144255(44%)
Capital expenditure(1)$m1,2091,993(39%)
All-in sustaining costs$/oz1,0261,174(13%)
All-in costs(2)$/oz1,1481,466(22%)
Cash inflow from operating activities$m1,2201,246(2%)
Adjusted EBITDA$m1,6651,6670%
Free cash outflow$m(112)(1,058)89%
Free cash inflow/(outflow)(3)$m142(1,058)113%
  1. (1)Includes equity-accounted investments.
  2. (2)World Gold Council standard, excludes stockpiles written off.
  3. (3)Excluding Obuasi redundancies and Rand Refinery loan.

I would like to thank our Chairman, Board of Directors, my colleagues on the Executive Committee and especially every employee in AngloGold Ashanti for the hard work that resulted in these remarkable achievements and consistency.

These results show rigorous cost management, disciplined capital allocation and, above all, expert operational management by our teams on the ground with good support from other disciplines. In achieving these outcomes we have honoured commitments to our longstanding supporters and investors and defied the sceptics who believed this performance could not be sustained. In this regard, I would like to thank our Chairman, Board of Directors, my colleagues on the Executive Committee and especially every employee in AngloGold Ashanti for the hard work that resulted in these remarkable achievements and consistency.

We bid a fond farewell to Richard Duffy who left us as CFO in 2014 after a long and distinguished career with AngloGold Ashanti and wish him well in all his future endeavours. At the same time, we are pleased to welcome Christine Ramon as CFO. Christine comes with an impressive pedigree in senior professional and executive positions, both in South Africa and abroad.

You will recall our announcement on 10 September 2014 of our intention to engage shareholders in a plan to split the company into separate South African and international components (the latter to be listed in London). The plan was to have been facilitated by a $2bn rights offer which would have left the South African vehicle debt free and the international vehicle with a level of borrowings it could sensibly service, albeit with residual debt guarantees from the South African company. (Details of the plan and its rationale are available on our group website). This was one of a range of strategic options that were open to us, and was one we believed would liberate significant value over the long term by creating two investment vehicles, each with distinct qualities and asset portfolios. Following consultations with our investors we withdrew the proposal given that the equity injection required to facilitate the split was deemed too onerous. We remain a unified entity with a diverse portfolio of gold-producing assets and exploration prospects, and have in place a strategy to reduce debt, principally from internal sources.

As we now look to 2015 and beyond, I am optimistic of what we can deliver as a company to our colleagues, shareholders and the broader stakeholder group. Despite our defensive approach in the last two years, let us not forget that we have not only grown production for the first time, but also increased margins. We now need to position the group on this strong foundation to show visibility both in terms of further quality long-term growth and value creation – and we will do that. As we start 2015, our priorities over the next few years will include:

Clearly, there remains much for us still to do, but the team here is well placed to demonstrate again that it can deliver excellence.

  • Safety and health: Improving safety and health at every level in order to achieve our ultimate goal of zero harm and, in so doing, eliminating the disruptions that poor safety records bring to affected operations. We remember our colleagues who passed away during the year and remain committed to employing all effort and technology as we strive to achieve zero harm.
  • Environment and communities: Continuing to forge closer partnerships with our host communities and improving our environmental performance and compliance to ensure we maintain our licence to operate for our mutual benefit.
  • People: Developing our team of top talent across all disciplines, so that we have the right people, and in some cases new entrants to inject fresh thinking into certain roles, to help deliver the value creation needed. I remain acutely aware of the retrenchments undertaken over the past two years, a necessary action in the market environment in which we found ourselves, and I realise how difficult these were for all concerned. For those that remain, we are focused on fostering cohesion and developing our teams across the business.
  • Production and costs: Realising our planned production and cost targets for 2015 and beyond, which will require everyone in this business to remain vigilant in keeping productivity and efficiency at the forefront of everything we do. Achieving our cost and production budgets, every month and every quarter, remains critical.
  • Balance sheet flexibility: As we have mentioned since the latter part of 2014, we will work actively to reduce our net debt levels over the next two to three years to provide the company with greater financial flexibility. But in doing so, we will not act in haste nor compromise long-term value. As one of a number of options in this regard, we have initiated a plan to identify a joint venture partner or purchaser in respect of our interests in the CC&V mine in the United States.
  • Providing clearer visibility to longer-term growth and value creation: We will build on the production and margin growth that we have delivered, and continue to focus on key differentiating characteristics of our portfolio, including:
    • South Africa: Our South African assets need to deliver to their full potential. We will need to show that our sustainable cash generation ability from these assets will continue to outpace our peers, given the superior quality and unique long-life nature of our asset base. Our South African reef-boring technology also provides us with a strong positive differentiator which we aim to ramp up to show value creation from our asset base.
    • CC&V expansion: With the high-grade mill spinning for the first time in early 2015, the mine life extension for this mine is firmly on the horizon, consolidating a much sought after tier-one asset in a prized geography.
    • Obuasi: Despite its disappointing history, we should not underestimate what this asset has to offer as a growth engine for the group. Having moved the asset to limited operating phase and having begun to shed legacy cost structures that crippled the mine, our focus now has moved into delivering a feasibility study that will position the underground mine to being a more focused, efficient, mechanised, high-grade operation with an attractive cost structure and returns. The coming years will represent a critical inflection point for this mine as it attempts to transition into a tier-one asset.
    • Other life-extension opportunities in our international portfolio: The 2014 planning process showed us what levers we could pull to generate value regarding investment in value-creating mine-life extensions at our other operations, particularly those in Australia, Tanzania, the DRC, Ghana, Guinea and Brazil. We will continue to explore these options and view them through the prism of capital discipline.
    • Optionality from Colombia: 2015 remains a critical year for us and further opportunities will be explored in developing the Colombian portfolio.
    • Exploration: Over the last two years we have had to cut our spending and land holding significantly, focusing on the most prospective geology and jurisdictions in the portfolio.

      It is a necessary trade-off in prevailing market conditions. Against the back drop of our improved operating portfolio, we will continue to refine our exploration programme with a sharper focus and strict return requirements in our key operating countries.

Clearly, there remains much for us still to do. The team here is well placed to deliver on our vision of creating a focused portfolio of lower-cost, long-life, high-quality assets that will enable us to achieve sustainable cash flow improvements and returns. We will continue to keep you apprised of important developments throughout the course of the year.

Best regards

Srinivasan Venkatakrishnan
Chief Executive Officer
19 March 2015

Chairman's letter CFO's report