Managing and mitigating risks

Risk and its identification, assessment, management and mitigation are fundamental to our business. All aspects of the risk management process underpin the execution of our strategy and planning for the future.

Hand-in-hand with this risk assessment process is the identifying of opportunities so as to harness and capitalise on these for the benefit of all stakeholders. Once they have been evaluated, significant risks and opportunities are prioritised and managed within the group’s risk framework.

OUR PRINCIPAL RISKS

AngloGold Ashanti’s major risks are classified in terms of three aspects as follows:

• Strategic risks are those taken voluntarily after consideration of risk-versus-reward to achieve AngloGold Ashanti’s strategic objectives.
• Operational risks are preventable risks resulting from employees’ undesirable and unauthorised actions as well as from breakdowns in routine operational processes and human error.
• External risks are those emanating from uncertain and uncontrollable events.

Risks assessments are undertaken annually. The risks discussed here were identified, reviewed and assessed by the Executive Committee.

Full details and the status of each of the risks are monitored on a continuing basis. The information provided for each risk includes details of the: risk context and background; risk performance indicators; mitigation plans; expected outcome and residual risks; expected dates for completion of mitigation measures; possible root causes and consequences; and mitigatory and preventative controls. This information is updated and provided twice a year to the Audit and Risk Committee.

TOP GROUP RISKS

The top group risks are depicted in the graphic below which maps the severity and likelihood of the top risks. The risks depicted are those that are considered to be within the ‘likelihood’ range of ‘almost impossible’ to ‘almost certain’ and ‘consequence’ of ‘moderate’ to ‘extreme’ should they materialise.

Our risks and their time horizons

We have categorised our risks in terms of their expected time horizons. Those with an imminent (short-term) horizon are more likely to occur within around 12 months. Those categorised as medium-term risks are considered to have a one- to three-year time horizon.

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. Such an occurrence would be likely to cause significant headwinds that could adversely impact the implementation of AngloGold Ashanti’s strategy, despite the successes achieved to date, and could potentially threaten AngloGold Ashanti’s liquidity and viability.

The table below lists the top risks – both imminent and medium-term – to the group, ranked from highest to lowest in terms both of the potential severity of the consequence of each risk and the likelihood of that risk arising.

Risk ranking	Type	Potential risk
2014
1	Strategic	Protracted financial pressure on the business from the depressed gold price coupled with high debt and declining grades and consequential rise in unit costs as assets mature **
2	External	Adverse gold and commodity prices, and currency movements *
3	Strategic	Inability to develop projects to bring the Ore Reserve to account **
4	External	Covenant compliance and inability to reduce debt *
5	External	Protracted labour-related stoppages in South Africa *
6	Operational	Operational and safety underperformance negatively impacting improved track record **
7	External	Legacy occupational and community health compensation claims/litigation **
8	Strategic	Inability to remain competitive impacting the long-term investment case *
9	External	Elevated country risk profile in core production areas **
10	Operational	Input cost inflation exceeding cost containment and productivity strategies **
11	External	Security of power supply and rising cost of power in South Africa *
12	Strategic	Failure to successfully operationalise (ATIC) technology step-change **
13	Operational	Asset integrity failures and compromised reliability at South African operations *
14	Strategic	Failure to demonstrate and/ or realise business case for Obuasi redevelopment *
15	External	Unfavourable regulatory environment changes *
16	Operational	Critical skills and talent retention *
17	External	Failure to acquire or loss of ‘social licence to operate’ *
18	Strategic	Lack of strategic growth projects to renew portfolio **
19	External	Operational disruption in West Africa resulting from Ebola virus disease **

1. ^* Denotes a risk with an imminent time horizon
2. ^** Denotes a risk with a medium-term time horizon

MITIGATION OF RISKS

Action plans to mitigate the risks identified have been put in place. The mitigation measures associated with the top five imminent risks are detailed in the table below.

Mitigation of top five imminent risks

Risk (ranking)	Potential consequences	Mitigation action plan	Expected outcome and residual risk	Progress/current status
Adverse gold and commodity prices, and currency movements a (2)	Inadequate free cashflow/ liquidity/ creditrating impact Inability to develop strategic growth and development projectsto bring reserves to account Lower market capitalisation	Credible track record of cost control and solid delivery Ongoing cost control measures Business planning and portfolio optimisation Asset sales Access capital markets	Potential impact on valuation Altered asset portfolio Premature closure or moth-balling of operations and reduced production profile Elevated debt Inability to pay dividends	In progress
Covenant compliance and inability to reduce debt b (4)	Balance sheet stress Raised cost of capital Equity overhang Inability to develop strategic growth and development projects Impeded portfolio options Breach of debt covenants	Proactive and timely approach to refinancing of facilities Diversified sources/ facility tenor Self-help measures to generate cash from internal sources to reduce debt. Includes optimising mine plans for cash generation, focus on high-margin production, pursuing efficiencies across the portfolio and considering potential asset sales or joint ventures for full value	Reduced costs and restructured organisation Optimised portfolio Potential impact on valuation Reduced production profile Severe capital constraints Inability to pay dividends	Debt refinancing (complete) Additional mitigation measures commenced and in progress as the gold price declined sharply towards the end of 2014
Protracted labour-related stoppages in South Africa c, d (5)	Production stoppages and losses leading to liquidity crisis Intimidation of employees and violence and damaged assets Compromised safety and operational conditions Lower market capitalisation Organisational restructuring	Legal strategies Three-tier union and employee consultation process/ media Recognition agreements Wage increases extended to all employees Union/ government facilitation SASRIA insurance Restructuring	Two-year wage agreement with higher input costs/ wages Inter-union tensions exacerbated by competition for majority representation at all South African gold mines Restructuring occasioned by cost and gold price pressures Ongoing litigation Current labour law review and Mining Charter imperatives	AMCU’s Labour Court Appeal (Q4 2015) Labour Court review of dismissed Moab Khotsong employees Wage negotiations (mid-2015)
Inability to remain competitive impacts long-term investment case  e (8)	Market capitalisation reduction Inability to reduce debt Inadequate cash flow and liquidity Premature closure or mothballing of operations Lack of strategic growth projects	Credible track record of cost control and solid delivery Ongoing cost control measures Business planning and portfolio optimisation Asset sales Access capital markets	Improved market capitalisation and asset portfolio Premature closure or moth-balling/ reduced production profile Reduced debt levels Inability to pay dividends	In progress
Security of power supply and rising cost of power in South Africa f, g (11)	Production losses Inadequate free cash flow/ liquidity/ credit rating impact Lower market capitalisation Compromised safety Increased operational costs Flooding of workings	Power saving and reduction initiatives Proactive and continuous engagement with Eskom Emergency response plans	Over the next three to five years: Frequent loadshedding disrupting production Potential for complete loss of power for ‘days at a time’ as Eskom protects the national grid	Ongoing No ability to cater for complete, prolonged power loss from the grid

1. ^aIR: Refer to discussion on the gold market
2. ^bAFS: Refer to group note 27 on group borrowings
3. ^cIR: Refer to Engagement with organised labour
4. ^dSDR: Refer to the discussion on labour relations
5. ^e IR: Refer to section entitled Planning for future
6. ^f SDR: Refer to Energy usage, efficiency and security
7. ^g IR: Refer to Discussion on energy constraints

The mitigation measures associated with the top five medium-term risks are as follows:

Mitigation of top five medium-term risks

Risk (ranking)	Potential consequences	Mitigation action plan	Expected outcome and residual risk	Progress/current status
Protracted financial pressure on business from depressed gold price coupled with high debt and rapidly rising costs of mature asset portfolio (1)	Inadequate free cash flow/ liquidity Inability to develop strategic growth and development Low market capitalisation Credit rating impact Premature closure	Cost reduction, restructuring and business plan review Portfolio optimisation Refinancing banking facilities with looser covenants Credible cost control/ delivery Access capital markets Joint ventures and asset sales	Potential impact on valuation Altered asset portfolio Reduced production profile Elevated debt levels Inability to pay dividends	Continued focus on optimising balance sheet structure to maintain financial flexibility Active cost management continues to counter weaker gold price
Inability to develop projects to bring the Ore Reserve to account (3)	Ore Reserve writedown and market capitalisation decline Production profile and business plan reduction Loss of tenements Premature mine closure or mothballing	Identification of joint venture partnerships and alternative funding Focused exploration funding for critical operations Business planning and portfolio optimisation South Africa reef-boring programme Expansion and/or life extension projects at CC&V and Mponeng Obuasi feasibility study	Ore Reserve decreases and impairments Loss of growth opportunity and returns via potentially having to partner at less than optimal value	In progress and ongoing Completion dates uncertain
Operational and safety underperformance negatively impacting improved track record a, b (6)	Reduced cash flow and decreased liquidity Decline in investor confidence Credit ratings impact Restricted ability to invest in strategic growth and development projects	Business planning and portfolio optimisation Organisational restructuring Project 500 Robust safety systems and leadership, training, KPIs, and bow-tie controls	Improved ability to deliver on business plans and market guidance Improved asset portfolio Declining Ore Reserve	Initial phase of Project 500 complete and targets achieved Ongoing Project 500 team to continue searching for additional savings and efficiency opportunities
Legacy occupational and community health compensation claims/ litigation c, d (7)	Financial impact Market capitalisation reduction Reputational damage Impacted employee well-being	Defend claims Industry-wide project to assist with compensation and relief Gold Working Group	Court ruling in favour of AngloGold Ashanti Comprehensive solution involving all stakeholders Identification of suitable alternatives	Indeterminate Pursuing legal defence of claims
Elevated country risk profile in core production areas e, f (9)	Adverse impact on business plan delivery Reduced market capitalisation Increased costs and cash flow impact	Portfolio review Focused exploration Host government and local community engagement Emergency evacuation plans Risk management	Balanced and diverse portfolio Moderation of host government demands and legislation	Indeterminate and ongoing

1. ^a SDR: Improving safety performance
2. ^b IR: Refer to the discussion on safety performance in the regional review
3. ^c SDR: Building workplaces free of occupational illness
4. ^d AFS: Refer to group note 36 on contingencies and contractual commitments
5. ^e SDR: Engaging with stakeholders, communities and governments
6. ^f IR: Refer to the regional review

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	Benefits from increase in gold price enhanced by cost reduction	Actively improve the quality of the portfolio Focus on margins through initiatives to improve all-in sustaining costs and all-in costs, including Project 500 Improve leverage to the gold price
	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 a
	Benefits from weaker currencies and lower oil price	Demonstrate leverage at operations most exposed to declining currencies Demonstrate leverage at operations that use most oil/diesel
Strategic	Colombia	Revised tenements strategy with focused exploration funding Work to ensure that ‘social licence to operate’ is realised Partnering options b
	Obuasi	Maintain integrity of site and infrastructure during limited operations phase Deliver feasibility study; refine to ensure optimal returns from high-margin, mechanised operation Ensure buy-in for redevelopment from all stakeholders including government Ensure optimal regulatory and fiscal environment Test market for potential, value-creating joint venture and find optimal funding structure
	Business planning and portfolio optimisation processes	Sound business planning with top-down goals Portfolio rationalisation and optimisation
	Asset sale or joint venture for full value	Potential to realise full value in cash for sale or joint venture of operating asset Increased ability to deleverage in a value-enhancing manner

1. ^a IR: Refer to the discussion on technology and innovation in Planning for the future
2. ^b IR: Refer to the Americas regional review