Anglogold Ashanti PLC (AU) 2001 Q1 法說會逐字稿

Good morning my name is Chantelle, and I will be your conference facilitator today. At this time I would like to welcome everyone to the AngloGold's first quarter conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. And if you would like to ask a question during this time simply press the number 1 via your telephone keypad. The questions will be taken in the order that they are received. If you would like to withdraw your question press the pound (#) key. Thank you Mr. Lenahan, you may begin your conference.

Thank you Chantelle. Ladies and gentleman, good morning and welcome to this conference call on AngloGold's first quarter results for 2001. As I I must read the statement regarding this report looking that we might make during this call. Certain statements made during this conference including those concerning the economic output for the gold mining industries, expectations regarding gold prices and production. The completion and commencement of commercial operations of certain of AngloGold exploration and production project and its liquidity and capital resources and expenditure contains certain forward looking statements regarding AngloGold's operations, economic performance and financial conditions. Although AngloGold believes that the expectations reflected in these statement are reasonable. No assurance can be given that these expectations will prove to have been correct. Accordingly, results couldn't differ materially from those in the forward-looking statements as a result of a variety of factors. Ladies and gentleman, here with us in Johannesburg, today are Bobby Godsell, Jonathan Best, and Kelvin Williams. They are joined by Dave Hodgson, Nigel Unwin, Peter Turner and Richard Duffy and Alan Smith. Joining us today in Denver, Colorado also is Jim Komadina, President of AngloGold, North America, and the order today that we are suggesting is that Bobby Godsell will take you through the quarter in general. Kelvin Williams will then talk to you about the gold market and about AngloGold activities during the quarter. Dave Hudson will discuss with you the performance of the South African operation and look at some project, which we announced in our quarterly results release this morning. Jim Komadina will then pickup with the performance of the North American assets and the CC&V project. Jonathan Best will then close up with a discussion of the operation in the rest of AngloGold and take you through some observations about the change to the accounting procedures applying in particular to through the book this quarter. With that I'll hand you over to Bobby.

Thank you Steve. In this first quarter of 2001 we have seen the gold price weaken. We have also experienced the seasonal problems, which seem to be a pattern of the calendar of first quarter. In also South African operations, we have a significant shut down over the Christmas, New Year period, which is the high holiday season in this part of the world and we have seen for a number of years now a slow and difficult startup on peoples return from that In both Australia and North America, we have seen a negative impact on production from with affect as heavy rain in Australia weather in North America. So, the management team has come to see the first calendar quarter as one of the most difficult it's probably the most difficult of the four quarters. Against that background, what we are reporting in financial terms is headline earnings and operating profit modestly up or constant and the management team regards that as a good performance. We are particularly pleased with the continuing indicated turnaround of the South African operations and Dave Hudson will talk to that but the South African operations appeared to be well on the way back to performing according to management expectation and the inhered capabilities of all bodies. A feature of this quarter is the growth in importance of the Africa region, which now produces 11% of the companies gold production, but this quarter has produced 19% of all EBIDTA. Another feature has been the continued benefit that we have enjoyed per my hedging activities with this quarter and I could not express that in the number of quarters and may be Kelvin Williams can, but now for a very longtime over a decade we have been able to slightly enhance the dollar gold price that this company receives and this makes a very material contribution to the profitability of the company and the returns were able to generate for our shareholders. Our hedge book nevertheless is 800, 000 ounces down in size over the December quarter and a last feature of the results is that at our board meeting last week, we approved three capital expansion projects some 317 million US dollars, two of these in South Africa in the mining complex and one of them at the Cripple Creek and Victor joint venture in Colorado. Dave and Jim will provide further details of these projects. It is a major investment in an earning stream 4 to 5 years down the road with very attractive returns. We are as a company in a mist of a major investment program to secure our production and our earnings as we got into the future and that is particularly strong in this year and 2002. We nevertheless are targeting to modestly grow our earnings over that two-year period and we intend to maintain what is the character of this company and that is a high dividend pay out and an attractive dividend yield from 2003. Our earnings are going to rise more sharply and our cash generation is going to be much stronger and we will be in a position to quite significantly reduce the levels of debt in the company. So that is the company character that emerges at least for me from these results. Thanks Steve.

Thanks Bobby.

Good morning and on the matter of the market, I am sure that the broad outline of market events during this preceding quarter was clear enough to all of us on this call at the time and your understanding these events is probably every bit as clear as anyone else in the industry. However, I would like briefly to highlight two aspects of the quarter, which for us determine the character of the market and provided us with some conformations of some of our views on the gold market today. The two aspects I referred to are of course the sudden squeeze in gold lending liquidity with the result in sharp rise in short [term] gold lease rates since the second half of February, and the other is the continuing strength of US dollar in the world currency market. Regarding the first of these events, the issue of limited short-term gold lending availability is still with us today and the pressure on short-term gold lease rates has helped to keep the stock market firm and to support the gold price. Now, industry analysts for this tightness in the lending market will offer a number of explanations. I am afraid that we remain unconvinced that any of the commentators know for certain the cause of this dislocation in short-term lending. This unfortunately is one of those several important areas of the gold market, where a greater transparency would be of benefit to all participants in the understanding of our business. But this is still an area in which we remain locked into a market dynamic and market practices, which belong very much to the traditional secrecy of the bullion market. However, whatever the reasons for the dislocation, we believe that this signal confirms an important reality of the gold market for the future, and that is the reality that there are finite boundaries to gold lending. How these arise and exactly what level they sit would be impossible in the current market circumstances of confidentiality, as I mentioned a moment ago, to pinpoint. That they exist seems throughout to be in no doubt. Going forward, this feeling should contribute to a beneficial tightening in our market and from time to time give real support to the price against speculative shocks. The second major aspect of the market has worked rather against the stock price of gold and in this I refer to the strength of the US dollar. Dollar strength encouraged a resurgence of short telling of gold by funds and by speculators during this quarter, and the net short position the New York exceeded 200 tons at one point in February. This is the highest level of net short that we have seen since the third quarter of 1999. Now as long as US Dollar strength endures, this pressure on the gold stock market and the price is likely to continue. Should current forecast of a weaker dollar in the future be realized, this will at least remove an important source of downward pressure on the gold price. Dollar weakness, we believe however, will not necessary trigger the wholesale reversal of the lower gold prices of recent years, and for this to occur, it would require a revival of positive investor interest in gold and a revival of some of the sustained long positions in the metal, which we saw earlier in the 1990s. Mechanics in the market in the context of a fairly active gold and currency market during this past quarter and an old time record high ran spot price of gold. It may be worth noting that AngloGold continued to receive gold prices which match and beat the moving spot gold price, and that the hedge continues to perform exactly that same function for which it was intended, and that is to provide an adequate measure of its price and revenue certainty, particularly in the short and medium term, to enable the company to manage effectively its other corporate objectives including returns on capital and the completion of major capital expenditure programs. Our hedges have always been in respect of a limited percentage for future production with exposure to the stock price of gold for a meaningful amount of production in the future. In particular, we managed to a guideline of 50% to five years of production. Hedge to which totally is spread out over a longer period than five years providing greater medium [term] exposure to gold price improvement. This level of hedging falls well within a category of moderate forward pricing by comparison to the significantly higher levels of hedging of both future production and total company reserves, which one sees amongst the large majority of Australian produces and also many of the North American gold mining companies which hedge. Nevertheless, in our particular circumstances, this is the level, which we feel is manageable, and which combines for the company both fair measure of revenue certainty and the meaningful opportunity to benefit from improvements in the stock price of gold in the future. The hedges are managed as actively as good accounting practice permits and are adjusted within accounting period to respond to changes in market circumstances, such as for example the unexpected strength of the US dollar in the early part of this year. The results are as you see them this quarter and as you have seen them within this company over a period of years now. Thank you.

Thank you Steve and good morning. I am pleased to report on improved performances in the South African region. There was a 17% improvement in headlines, earnings in Rand terms to 397 million Rand or 750 million US dollars. Gold production was on target. Quarter and quarter gold production decreased by 10% to 1.2 million ounces. This was due to the sale of and and the continued downsizing at Total cash cost at 202 dollars an ounce improved in the previous quarter's 208 dollars an ounce and so the production costs were at 224 dollars an ounce. I am also pleased to report that improvements in safety performances across the operations with some notable safety champions. Turning to the individual business units we have categorized the business units into three different categories, one is excellent performers, two the solid performers, and three our problem business units. In the excellent performers, we have Kopanang, Bambanani, Tshepong, Great Noligwa, and Ergo. I think it is worth commenting on the turnaround at Bambanani that there was an 8% improvement in the total unit cash cost and some good cost value initiatives, which resulted from the closure of the waste and operating profit was lifted to 2.5 million US dollars compared to the one million loss in the December quarter. Gradually, we could continue to this good performance and maintained operating profit of 35 million US dollars. Over the last 12 months, it is interesting to note that Great Noligwa has produced one million ounces of gold and done this at good profits as well as with good safety. Moving to our solid performers, in this category we have Tau Tona, Tau Lekoa, and Matjhabeng. Tau Tona is the other major producer. Volume was slightly down but there was a 7% improvement in grade and this enabled Tau Tona to make a contribution of 14.5 million US dollars to operating profit. With respect to our problem business units, they are Savuka in the westwards region, Mponeng, and Joel mines. Mponeng improved quarter and quarter but is still not operating where we believe this business unit should operate. We do have four additional raise lines, which will be coming into operation in the second half of the year. These four-raise lines have better grade and we would expect Mponeng to improve its performance in operating profit in the second half of this year. Joel is our problem business unit. The mining values in grades continued to drop and the average grade declined by 9% along with a lot of mine volumes gold production is down by 27%. Joel mine has been restructured. The mine would be reduced in volumes of 20,000 square meters a month. Our full cooperation has been terminated. All this restructuring and reduction in labor would be completed by the end of April. Joel now has some very rigorous milestones, which will be monitored in this next quarter, and by the end of the second quarter, a decision will have to be made on Joel as to whether the restructuring has been successful. Moving on to the capital projects, which were mentioned by Bobby. The original project, which was approved in 1996, has now been separated into three separate projects. We will have the Mponeng deepening project down to 120 level. The are currently at this 120 level, and development would be done to exploit The other part of the project will now be at TauTona, it will be a TauTona project. This project will mine the TauTona upper Carbon Leader and lower Carbon Leader. It will also mine 21 tons of gold out of the Carbon Leader This ground any influence and it will mine additional from the lower Carbon Leader. There will also be a future project which will address the both BCR and Carbon Leader below the 120 level. These new projects, Mponeng project, the TauTona project have lower technical risk, lower financial risk, and actually can provide improved financial returns compared to the project which was approved in 1996. Some financial details. at Mponeng to date 67 million US dollars have been spent and another 107 million US dollars will be spent over the next three years, and at TauTona, we will be spending 51 million US dollars for this project which is to prepare for the extraction of the as well as developments for the lower Carbon Leader. The IRR in the original project was 14.4%. The IRR for Mponeng project including is 20%, excluding 20%, excluding 37%, and for the TauTona project the IRR 35%. At Joel, there is a Joel North project, which we have been working on. This project has been placed on hold, pending additional drilling to confirm the grades. Based on the complexity of the ore reserves and our current problems at Joel, we believe it is wise and prudent to drill a third or fourth hole into the area of the new project shaft to confirm the high-grade areas and to confirm low-grade cut off areas. These four holes will be drilled, and information will be obtained by December this year, at which time a decision can be made as to the continuation of this project or not. In conclusion, the South African operations had improved performances and it is good to note that the major gold producers and profit generators are well placed to continue with their good performance throughout the remainder of this year. Thank you Steven.

Thanks Kevin. Jim, I attest that you are still with us.

Yes, I am Steve.

Thank you.

North America for the quarter, production decreased 13% as compared to fourth quarter 2000 levels primarily due to lower production at CC&V. This was again a record fourth quarter for North America. At Jerritt Canyon the first quarter production was 6% lower than the fourth quarter results. As a result, batch milling the Cortez ore. That batch milling process is now been unitized and we're overcoming those problems. The total tonnage processed in the first quarter was approximately 1% higher than the fourth quarter. However, again we have lower ore grades processed under this custom-milling feature. The total cash cost for the first quarter were 233 dollars per ounce at Jerritt Canyon approximately 4% lower than in the fourth quarter but again unacceptable, and I will talk a little about the things that we are doing at Jerritt Canyon and the effects of California energy impacts. Production at CC&V was again lower by 22% in the fourth quarter levels, and again this relates to crusher availability in the fourth quarter of 2000, which I will expand a little bit upon. First quarter crushed tonnage was at budget while run in mine volumes were significantly above budget, and again total cash cost for the first quarter at CC&V were 169 dollars per ounce, some 4% lower than the fourth quarter. Looking a little bit more in detail of the two operations. At Jerritt Canyon, we have seen unbudgeted energy effects remarkably effect our operations there. Just in the last 12 months, we have had energy increases specifically electrical increases of about 60%, propane increases of nearly 200%, and diesel increases of about 130%. Again all these things really arise to natural gas cost as well as electrical cost arising from the California experience. What we have done at Jerritt Canyon is to raise the cutoff grade to more match current prices versus our current profile of cost. Again we state our reserves at 300 dollars per ounce. So, the first thing we have done is to respond by raising the cutoff grade. Again, report that grades maintained that is model versus production have been achieved at Jerritt Canyon for the better part for the last year. So, we feel confident that the mining methods continue to put us in good stead. One of the things we have also done unfortunately is had to reduce our labor force by about 8%. Reduction in force and that was completed in late April and that was predominantly through the surface mine areas. So, all in all we expect a markedly improved balance of the year from Jerritt Canyon arising from these changes. Turning a little bit to CC&V for those of you who have been out at the mine site in Colorado and again this is probably the largest gold(inaudible) in North America and probably in the world after we finish this expansion. The problems we encountered in the fourth quarter were mechanical related to the primary pressure and again by the time you place these ounces on the pad, leach them, typically you have a four to six month lag time and that is what we are seeing right now is the mechanical difficulties we had in the fourth quarter are now affecting first quarter production. Those mechanical difficulties have been overcome. We have placed about 40% higher ounces than budget. We expect to return to budget by the end of the second quarter at CC&V and our forecast already exceeds budget for the calendar year at CC&V, so I think things look very-very positive for the Colorado operations. Turning to the capital project the reserve at the CC&V has grown enormously. I think we look back to early 1990. There were no resources, no reserves in the district at all. Since that time reserves have exceeded 7 million ounces developed and that is including depletion. We also have an inventory of measured, indicated material drill define in access of 5 million ounces. Those two things are pretty compelling; arguments and again we look at what are the opportunities to further enhance production and shareholder value of CC&V. The response is really been one to expand production and also modify our cost profile that is when we look for in real dollar terms. We are looking at a cash cost production around 227 dollars per ounce. This expansion that was recently approved by the board will reduce our average cash cost of 174 dollars and that is in real dollar terms over the life of the mine. And how we are going to achieve this? First of all when we look at the mining of this district. Currently we are mining about 30 million short tons per year. The mining rate will double to roughly about 60 million tons per year and again one of the things that we are attempting to do is use the economies and scale that is available on some larger equipment. So we will move from an 85-ton class truck to that of a 290-ton class and with some modifications to the bed. We should be able to haul about 330 tons on each one of these trucks. We will require 8 of these trucks and these should be on site beginning in December of this calendar year. We have got one on site right now. The net of this is to lower our average mining cost form 68 cents per short ton to approximately 50 cents per short ton and again for us this reserve is more sensitive to mining cost then the average price of gold. Second thing that will do is construct a new facility and that will go from current 10 million short ton per year, processing rate to 20 million tons per year. Also we will reduce the average product size from 1.5 inches to about 0.5 inch and again this will yield about 65% recovery so as we go deeper in the surface mine it is necessary to pressure to finer size to get the metallurgical recovery. Also we are continuing ongoing work to further improve this recovery. In terms of capital, the capital that was approved by the board is 194 million dollars over the life of mine roughly 160 million of which will be spent over the next three years. The facilities that will be constructed are as mentioned are a new crushing facility. The rolling stock fleet also will be a highway reroute roughly 2 miles in length across 1,200-foot bridge. The truck shop facility is necessary to accommodate the new fleet at facility necessary to accommodate at least 260 million tons of ore. We have conducted sensitivities on this expenditure at the base case goal price assumptions; it has an IRR of 27% and that is in real terms. Sensitivity wise if we decrease that average real price 260 dollars per ounce and it returns 15%. So again that is a brief review of the surface operations and again we are developing further underground mineralization at CC&V.

Thanks very much Jim. Jonathan on Africa, South America, and Australasia.

Good morning. I will just rap up briefly the balance of the portfolio. Starting with Africa, which had production 47% up from last quarter at a 194,000 contributable ounces. This was mainly due to coming into our figures for the first time in this quarter. As a result the operating profit went up 6% and total cash cost for this region amounted to 124 dollars an ounce. The region produced 21% of AngloGold's cash earnings, before finance cost from 11% of the company's gold production. Looking at the individual operation Sadiola mine was down last quarter in line with our plan as we gains lower grade areas produced 50, 000 ounces at a 130 dollars an ounce. The relay increased of output by 13% to 64,000 ounces but a total cash cost of 90 dollars now. As I said Geita came in for the first time this quarter and exceeded our expectation and is running very well. It came in for the quarter at 60,000 attributable ounces at a cash cost of 141 dollars an ounce. I have to add that while we would like it to stay at 141 dollars an ounce we do not think that this is sustainable and that it would probably rise to around 170 dollars an ounce. Our new mine at Morila at Yatela is under construction and progressing according to schedule and should pull the first gold in June of this year. Moving to South America. South America gold production was 13% lower than last quota, which was unusually high following a plant, clean up and the current level is a sort of level one should expect going forward. The total cash cost, however, were at an 8% low at 147 dollars an ounce and this was to a large degree due to the devaluation There had been improved performance for the quarter, which have been improving for sometime on which they should be a complemented. However an accident at the end of last week brought this good run to an end. Moving to Australasia. You will recall that this time last year we said that we had problems due to unseasonable rain and that they had rainfall of one in 100 years. Well you might not believe it but lightening occasionally does strike in the same place twice and for this quarter in parts of Australia the rainfall again exceeded the 1 in a100 mark and we will be severely affected by rainfall in this region. Production was therefore 6% down at 132,000 ounces; however, cash cost increased by only 1% that is 56% of the total production now comes from Sunrise Dam, which is running at 132 dollars an ounce. At Sunrise Dam itself, their production went up 13% to 74,000 ounces and cash costs down some 14% despite ongoing expansion work. The corporate office was moved from Melbourne to Perth saving some $4.3 million this year and with that we will see ongoing savings. That essentially wraps up the other region that we have and very briefly I would just like to say that this quarter so from an accounting point of view the introduction of which is essentially the same as phase 133 and phase 138 and in terms of this, we split our accounting into two major areas, the one is non-hedge activities which if you like are purely financial instruments such as call option to market and had an unrealized loss for the quarter of 2 million Rand but it is hardly registered on the dollar screen and we had a realized profit of some 6 million dollars on those activities. So, there is not a large movement on market activities of the non-hedge derivative and we think that going forward you will continue to see relatively small unrealized profits or losses and that is because to the extent that Calvin does use call options that are all pretty short dated and the profit that we have realized repeatedly reported in our gold revenue. So, we are not anticipating major swings there. Moving to the hedge accounting side of it, we have elected to apply a combination of our phase 133 and 138 where we are using the commodity hedge invention under 138 and part of our off balance sheet, roughly half of the book and the other half of the book is on balance sheet which is very similar to phase 133 where we moved the movement and the fair value through OCI and other comprehensive income and for this quarter, we saw balance sheet swing of 110 million dollars. While going forward you can expect swings on the balance sheet in and out of the value of the asset and OCI but we do not anticipate any large swings on the income statement through the of these financial standards. Thank you.

Thanks Jonathan. Chantelle, we can move on to answer questions, just remind people that we have got a time limitation this morning as I understand the first quarter conference begins in about 20 minute's time, so I would just ask that we limit questions and answers to that period. Chantelle.

] Okay. At this time I would like to remind everyone if you wish to ask a question, please press the number 1 on your telephone keypad. Okay. Your first question comes from of J.P. Morgan. Hello Mr. [Wilstead]? Okay, sir I am sorry there is no response. Your next question comes from Victor Flores from HSBC.

Good morning gentlemen or good afternoon. Couple of quick questions. First of all when you give us your headline earnings, you are not making any adjustment for the IAS 39, are you?

No. We have not adjusted IAS 39 is totally immaterial in these earnings.

Yeah, no, I realize that. Just trying to clarify that. Second question, could you give us your best guess for what the production will be of the African assets for this year?

I mean I repeat the chairman can answer that question, but I would have to be and was

Good morning. At this stage, we are forecasting in the region of 820,000 ounces bearing in mind that we will be commissioning the circuits at Morila and bringing Yatela on screen.

Great. Thank you.

] Your next question comes from from Capital.

] Good afternoon gentlemen. I was wondering if you could give me an idea what the gold price assumption would be to generate the 22% and 35% IRR at Kopanang and TauTona?

We start for the stock price and we overlay on that on assumption that we will hedge a portion of the production up to 50% and the price line used in using that logic gives the price line gave a real gold price at $289 an ounce over the last few months.

] 289?

289--That is not correct? Yeah, 289 over the last

We must state that is a received price, as received by AngloGold not a spot forecast.

] Okay. So, it is based on your historical methodology of hedging.

That is correct.

] Okay. Thank you very much. Once again I would like to remind everyone in order to ask the question please press the #1 button on your telephone keypad. Thank you. Your next question comes from Mike Duval from Morgan Stanley.

Good morning everyone. Just a couple of questions. Number one on [Cripple Creek], could you just expand a little on how you are planning to finance it or is it going to be sort of 60-70 percent AngloGold and remaining with your joint venture partner or it is all going to be sort of upfront by AngloGold and you get the preferential payments like or how is that going to work?

The way our current arrangements with our partners is that we will be paying 100% of the capital expenditure which will be funded from internally generated funds within the group.

Okay. So, you will get paid first and et cetera et cetera, kind of the way it is now and secondly you did not really talk about and that project and where you stand in the potential expansion, can you maybe comment on that a little bit?

Yeah. This is mine gentlemen. We will by September October respectively the three partners take a decision as to whether we go ahead or not. What is happening between now and then are some issues around, for instance, environmental and the management structure of the company being sorted out between the partners and the west Australian government. The final decision as to whether we go ahead we will take in probably September or October.

Okay. Thank you.

] At this time I am showing that there are no further questions.

Well ladies and gentlemen if there are no further questions I will just say thank you very much for joining us and we hope that you have a good day.