Anglogold Ashanti PLC (AU) 2003 Q2 法說會逐字稿

Good morning. My name is Tamera (ph) and I will be your conference facilitator. At this time I would like to welcome everyone to the AngloGold Second Quarter Earnings Conference Call. After the speaker's remarks there will be a question and answer period. Thank you. Mr. Lenahan, you may begin your conference.

Thank you, Tamera (ph). Ladies and Gentlemen, Good morning to our participants in the United States and Canada and Good Afternoon in the U.K. and here in South Africa. We are speaking to you today from the AngloGold offices in Johannesburg and welcome to this presentation by the AngloGold Executive team of our results for the second quarter this year. The format today will be as follows. Bobby will review AngloGold financial performance the quarter. Kelvin Williams will then summarize the gold market conditions in AngloGold forward sales activities during the period and this will be followed by an overview of our operating performance presented by Dave Hodgson, AngloGold's COO. After these three presentation we will as usual take your questions. However, before we begin, I need to read a declaration regarding the forward-looking statements that may be made during this presentation.

Accept for the historical information contained in the presentation to be made, there are matters discussed here that are forward-looking statements. These statements are only predictions and actual events or results may differ materially. For a discussion of important factors including but not limited to the development of the company's business, the economic outlook in the gold mining industry, expectations regarding gold prices and production and other factors which could cause actual results to differ materially from any forward-looking statements, please refer to the company's annual report for the year-ended 31 December, 2002, which was filed with the Securities and Exchange Commission on the 7th of April, 2003. Ladies and Gentlemen, thank you and I will now hand it over to Bobby.

Thank you, very much and good morning and good afternoon. In the June quarter, AngloGold has again produced results which are operationally sound with gold production 2% higher despite the anticipated lower grades at many of the operations. As we anticipated in our report for the first three months of 2003, the results were however adversely affected by local currency strength in seven of the eight countries in which we do business. Total cash costs rose 6% to $223 an ounce and operating profit was 4% lower at $140 million. (inaudible) earnings were 11% down to $66 million for the quarter. The effects of the lower grade and stronger currencies were moderated by a higher received price for gold which was 3% higher at $354 an ounce despite the marginal decline in the average spot gold price for the quarter.

Going forward we expect the company's prudent management of its hedge book, which declined by a further 610,000 ounces this quarter was 7% to insure that the price we received for gold will continue to be close to the dollar spot price. At a meeting with the AngloGold board, a decision was taken to review the current hedging upper limit of 50% of five years gold production. In the lot of the enduring strength of the dollar spot gold price, and the stability of AngloGold's operations, it has been decided to change the targeted level of forward price commitments to 30% of five years' production. Additionally, it was confirmed that management would continue to have the latitude to put new forward pricing contracts in place. With the gold price, and/or operating second sense has made this necessary or prudent.

Looking ahead to the operations for the rest of the year, we expect the performance to improve as the grade at the greater mine strengthened and production levels at the Cripple Creek convector mine increased during the third and fourth quarters. We are pleased that this year's wise negotiations in South Africa have resulted in a settlement. We would hope through continuing productivity improvement measures to ensure that this increase does not lead to a material increase in unit labor costs and AngloGold South African operations.

On the subject of Shente (ph), we understand that Shente gold fields have been advised by the Government of Gona that the government has appointed a consortium led by (ph) to act as advisor to the government as a shareholder, as the holder of the gold and share in Shente and in Israel as regulator of the mining industry in that country. And to assist that government in arriving at a decision on the proposed merger of Shente and AngloGold, it is our hope that we would be in a position by the middle of September to have clarity on the government attitude towards our proposal.

Finally, we announced today that partly AngloGold has declared an interim dividend of 275 South African cents per share or 51 euro cents per-share. This compares to a interim dividend paid for the first half of 2002 of 675 South African cents or 64 euro cents per-share. This level of dividend is consistent with AngloGold's established practice of paying out a significant proportion of its earnings to shareholders after providing for its organic growth objectives. Thank you.

Thanks, Bobby. Kelvin?

Thank you, Steve and Good Afternoon. Good morning. If one were to look, looking at this market today, if you were to look at the opening and closing prices for this past quarter and the average price for gold, particularly, one would think that this had been a relatively uneventful quarter. The average price for the quarter of $347 for ounces was slightly lower than that for the first quarter. However, these average prices conceal what was in fact a very active quarter in the gold price in which we saw once again a price run-up similar but not as high as the third quarter reaching $374 in May by comparison with the $389 touched at the beginning of February. More importantly, the quarter saw gold price range of $56 an ounce. The currency markets showed similar volatility and, in fact, the movements in the U.S. dollar currency market, particularly provided the triggers for much of the gold price movement. The U.S. dollar reached an all time low against the euro of $1.19 to the euro during this quarter, but presenting a fully 10% from its opening stand rate of $1.09 at the beginning of this quarter. Rand volatility showed a much greater range, almost 20% between the strongest and weakest points of seven Rand two cents and eight Rand thirty three respectively to the U.S. dollar.

Looking at the gold price particularly, we believe globally economic circumstances continue to tend to favor sustained interest in gold. Notwithstanding the recovery in equity markets, particularly in the U.S. during this past quarter, there remains widespread concern over economic conditions. In developed markets in particular about the U.S. market in respect to budget and trade deficits and with this the U.S. dollar remains under pressure and we believe that speculators and investors in the U.S. market in particular will continue to buy gold on any signal dollar of weakness.

Looking forward, the strength of weakness of the U.S. dollar over the euro during the medium and short-term the next 24 months say will be an important factor in sustaining the health of the growth price that we currently enjoy. There are of course spectrum of use as to what the euro exchange rate against the dollar might reach but a number of variability's in each of these forecasts makes it difficult to choose between them. We simply believe that the currency trend is in our favor in the gold market and without calling any specific dollar euro exchange rate believe that it is likely to continue to support our metal.

Inevitably, however, the higher and volatile growth price has negatively impacted physical off take. This has been particularly so in the developing markets and in India, in particular, where we saw an almost complete halt to gold imports during the gold price rally in May and early June. The developing market response is one that's very sensitive to gold price movements and we must trust that the underlying and fundamental interest in the metal in those markets is unaffected in the long-term. Perhaps greater secular concern has been the weakness of gold demand in the developed markets whereas one illustration during the first quarter of this year offtake in Italy fell by 27% by comparison with offtake in that country during the first quarter of 2002. These changes we believe should concern all gold producers and we continue to work with other gold producers to support the health of physical offtake where we can. For the moment, there is weakness in offtake is again compensated however in large part by the de-hedging of a number of gold producers.

In that context, we have reduced our hedge position by a further 610,000 ounces during the past quarter and you will see from the quarterly documents that detail breakdown of the remaining hedge and of its current net value. Regarding the hedged position, as Bobby has sketched out the Anglo board yesterday reviewed the management of the hedge of the past six quarters and took the decision to change the target level of forward pricing commitments to 30% five-year production was confirming that management should continue to manage these positions actively and to enter into the market when and as circumstances made it sensible to do so. Thank you.

Okay. Thank you, Stephen. Good morning and good afternoon. As Bobby has said, our operating performance has been steady quarter on quarter with higher volumes offsetting the expected decline in grade and unit costs suffering the impact of stronger, local currencies everywhere except in the United States. Starting with South Africa, production increased remained unchanged at five of the seven operations. With overall production increasing by 2% to 813,000 ounces. (inaudible) gold production was up by 8% to 196,000 ounces and Tau Lekoa (ph) by 10% to 53,000 ounces. Those Tau Tona (ph) and (inaudible) continued to produce good results with gold production up and unit cash costs down at these operations. Across the South African operations, Rand per kilogram cash costs came down quarter and quarter to 60,499 Rand per kilogram. The stronger Rand, Rand pushed up dollar net costs to $244 per ounce. Unfortunately, we report disappointing sector results for the quarter with increases in both our lost time injury and vital accident frequency rates. Every effort has been made by management and elected representatives to find ways of improving our safety performances. The board has approved capital expenditure for $1.2 billion Rand extension project at Dotona. Two of these projects are under (inaudible) contract and one is on the carbon leader lease with an extension of 120 level. These projects will deliver 1.8 million ounces over the next ten years.

Turning to the east and West Africa region, Gator gold production decreased as expected about 3% to 62,000 ounces with declining grades. But the grades will improve in the next two quarters. The throughput increased to 5.6 million tons per annum that was anticipated with the completion of the plant extension project at the end of 2002 is been achieved and exceeded. Production at Morila was unchanged from the previous quarter at 95,000 ounces. Morila super rates should increase from 270,000 tons per month to 350,000 tons per month with expansion of the plant which is expected to be commissioned during the fourth quarter so we expect grades to start declining from the December quarter.

Production at Sadiola was maintained at similar levels to that as the previous quarter at 39,000 ounces. Operating profit for the quarter fell by 25% to $3 million mainly as a result of the three-cent production in gold (inaudible) and leather sales. At Jatila (ph), gold production rose by 43% to 30,000 ounces. Largely as a result of the 49% increase in recovered grade to 3.3 grams per ton. These higher grades are unlikely to be sustained going into the future. The element on the Tale project that is located ten kilometers from Jatila is on schedule to deliver all during the fourth quarter of 2003. In the North American region, production at Cripple Creek and victor was up by 24% quarter on quarter at 78,000 ounces due to the improvements in Leach solution chemistry which had adversely affected gold production during the first quarter. Operating profit increased to $3 million primarily due to higher gold sales. Front upgrades were completed by the end of the quarter and Phase IV-B of the lease bed construction is ahead of schedule and it has commenced. This should see improved gold production during the second half of 2003. Jerritt Canyon production increased by 10%, 56,000 ounces this quarter due to higher grades mold and the fewer additional shifts. The Jerritt Canyon joint venture partners, AngloGold and Meridian have concluded the agreement in terms of which (inaudible) resources would purchase the assets of the Jerritt Canyon mine. This sale was affective as of 30th of June. Following this a decision has been taken to substantially down size the AngloGold office in Denver. This process will continue over the next few months. In the south American region, gold production that served Anguardia decreased 18% to 49,000 ounces. Water in the pits and the result in weight ore continues to restrict the amount of high good material delivered to the plant for processing. As result, the plant was fed with lower grade dry ore from contingency stockpile that affected the production levels. It is anticipated that this will continue through the third quarter until a scrubber is commissioned in late September, align the treatment of wet, higher grade material. Total cash costs for 27% higher than those of the previous quarter at $152 per ounce, chiefly due to the depreciation of the peso and the decrease in gold production.

At Morivilla, gold production at 55,000 ounces was 4% higher than the March quarter but this was partially offset by lower grades down by 5% just over 6 grams per ton. Total cash costs were 13% higher at 143 cents per ounce due to the depreciation of the Rial. At Taragrande, production unchanged from the previous quarter at 24,000 ounces. Total cash costs were 12% higher at $104 per ounce, again due largely to the depreciated local currency. Both Morivilla and Taragrande cash cost are on target in the local currency. At Sunrise Dam in the Australian region, production decreased by 12% to 84,000 ounces primarily due to an expected reduction in mill grade. In line with the decreased production total cash costs increased by 14% to 380 Australian dollars per ounce or 244 U.S. dollars per ounce. The underground development scope and study was completed with underground development expected to commence in the fourth quarter of 2003. This development will allow additional exploration of the full potential of the Sunrise Dam or body. A sum of 87 million Australian dollars has been approved by the board for the underground feasibility study at Sunrise Dam. This cost will be more than offset by revenue generated from the 300,000 ounces produced from the trial mining that will form part of the study. At union Reece, mining is in its final stages and is focused on one (inaudible) resource in the vicinity of the plant. Mining will be completed during the third quarter and milling operations will close down in the final quarter of 2003. Aggressive rehabilitation of the site means that only minor works, which have been pre-funded, will be required after operations cease

Finally, turning to exploration, details of AngloGold's exploration activities are provided in the full report for the quarter. I would draw your attention in particular to the encouraging results around Sirella, Nutella and Mali which indicated the potential to increase offsite resources in the area and to new geological information at Sunrise Dam providing positive indications of substantial underground resources. Thank you, Stephen.

Thanks, Dave.

We would be happy to take participants questions now.

Your first question comes from Victor Flores with HSBC.

Thank you and good morning. A question for you on cash costs. Are you including any adjustment for your currency derivatives or other non-hedged derivatives or hedged derivatives in your cash cost calculation and, if so, how much did that amount to?

Victor, the answer to that is no. Our derivatives are related to gold hedging and go through the revenue line.

So there has been no adjustment and there is no plan to make any adjustment?

Yeah.

Great, Thank you.

Once again if you would like to ask a question, please press "*" then the number "1" on your telephone keypad. Your next question comes from Jim Copland from Goldman Sachs.

Good afternoon, gentlemen. On Cripple Creek, it has had a tough 12 to -- I would say months but it does seem to be improving at the time. I notice that Jim has now left and you're winding down a little bit the North American operations. Are you confident that Cripple Creek is turning the corner or I guess just an update on your outlook for that operation, please?

Jim, it's David Hodgson speaking. Yes, with the downsizing of the end office, Jim Komadina has left us, Run Large, General Manager of Cripple Creek Convector are now reporting through Bentgunter (ph) and they know the people in the area very well. And second part of the question, we are confident we're going to have strength in performance going forward. The PIH (ph) Leach pad has improved and resolved oxygen levels have improved as well as affected the Phase IV-B of the Leach pad has gone well. We're ahead of our schedule there and we are thinking Leach four will be the Leach pad and we are hoping for improving trends going forward. Anything you want to add?

I think that was correct. There was improvement from the first quarter to the second quarter and we expect to see improvements going forward.

Thank you. And if I may ask, is there any update on the royalty bill in South Africa, please?

Unfortunately I have to say, no. I would say that it seems extremely unlikely that this bill will be passed through our parliament during calendar 2003. I drew encouragement from this fact for 2 reasons. I mean, a new tax deferred is always better than a new tax supplied but in a way more substantially I'm encouraged in that by all accounts our treasury or finance ministry has been surprised by the volume and extend and detail of comments and response that the proposed royalties for a range of mineral products has elicited. Also the many responses that have indicated that it's preferable to base a royalty on profits earned rather than on economic activity undertaken such as revenues. So I drew the most modest of encouragements from the fact that it got more responses. I hope most of the responses have been like ourselves. You know, we as a company have been arguing absolutely as strenuously as we can. Firstly for the profit based royalty because this really takes us (inaudible) what has been created as opposed to revenue which reduces really the scope of mining activity by raising parliaments. Certainly many people have made this comment and I'm encouraged. We certainly would be hoping for something better in gold than a 3% revenue based royalty which was what was the proposal. We have nevertheless factored into our forward planning that proposal is a worst-case scenario. If you see us coming forward, for example, capital expenditure for organic growth such as the projects we have announced at the Tau Tona, mine, it is on the basis that have affected on the worst-case scenario into the evaluation model.

Thank you. If I might just follow-up. On the implications of that royalty bill being postponed beyond calendar 2003, does that have any implications for the like in parliament legislation and I guess your compliance with that and I guess specifically the measurement of the 59%, the 26%, is that -- if it's in units of production, is that as it was at the time that divested those assets or is it at the time your proposal is being considered by the government?

You know, to answer the first part of your question and evade the second part of your question. That which I would feel confident to offer you an answer that I think has got substance is that the one element of the proposal, which I think is extremely unlikely to continue into the future is that which lifts the imposition of the royalty with the conversion of what we call old order rights to new order rights and why I'm very confident this will not succeed into a revised drop of the (inaudible) is that it really brings two very important governmental public policy objectives into conflict with each other. The one is to earn a rent on a mineral act that is now in the words of the act in state custodianship and the other is to encourage the most referred conversion of all other action into new order acts. Clearly if the additional royalty or text becomes a payable on conversion, most sensible corporate citizens, economic actors will defer to the last possible moment and I think this point has been very widely made. And as far as I'm aware, this is one point which would -- which is likely to happen. On the specifics of the -- which are the answers that count, I would really prefer not to get into that discussion. I think most of the major mining companies in South Africa are in intensive discussion and dialogue with the Department of Mineral and Energy Affairs about how the system of conversion is going to operate, how the Mining charter and scorecard are going to be interpreted with a view to getting ready to have applications in as early as possible provided of course that doesn't bring early tax. In the middle of those discussions are really -- I really prefer not to go into further detail.

Thank you very much for that.

Your next question comes from Barry Cooper with CIBC.

Just a clarification. I see you on your Australian dollar hedges there, they have not change for the first half of the year. Am I reading that right? Is that, indeed, a positive position that you have there or is that maybe those are -- those are calls or puts at 29 million at .59?

It's Kelvin Williams. I apologize you were breaking up quite badly but let me give you a general observation in the Australian dollar positions. Those positions are absolutely as we had in place at the 30th of June. They recorded in annual buckets except for 2003 which is a 6-month bucket.

Right, but they haven't changed since December 31st?

No, we haven't done particularly anything with our Australian positions other than to allow them to mature as they come.

So should we assume that these mature in the later part of the year then?

The balance that is on the book for the balance of 2003 I don't think you can assume is all bunched in the end of the year.

Okay. And then your decision to move to a 30% hedge -- hedging for the next five years, you're basically there at this point of time. Does that necessarily imply that you're going to now become perhaps more active hedging at 30% of your current production levels?

No, not necessarily so at all. I think the one thing you should expect is that we will continue to manage this portfolio, the existing portfolio much as we have done to date, which is to run-off the book whatever is maturing. And in some cases where opportunity is there and it can be done quite affectively to restructure that which is not maturing in order to make the book better in its value, and it will continue to do this even below 30%. It does mean, however, that if circumstances in the future present themselves whether these are project related or market-related or operationally related, we remain free to look at the market and take a view on whether or not we need revenue management for a specific project. But regarding positions in place already, I think you must assume the company will continue to behave as it has in the last six quarters, six, seven quarters.

I see one of your objectives there is to achieve something close to the spot price. Could you not achieve that just by not doing hedging at all?

Yes, but we have hedges in place which still need management.

I see. So that is the objective to make the existing operations or the existing positions close to the spot -

Yes.

Finally perhaps Bobby, you talked about the price increase in terms of the wage negotiation and how you're going to perhaps not follow-through in terms of not having that come through in the cost line. Could you just explain how that might be achieved?

I think your question was, it's very -- all very fine to say you're going to work off the wage increases to selectivity increases but how are you going to do that? We have the Head of the South African Operations here and I think it is -- it would be a very important thing for him to at least participate in this great exercise in Inter-Continental Communications. I will ask Neville Nicolau to answer that question.

The answer to that is that over the past few years we have embarked in productivity improvement campaigns which have improved the productivity of our operations and we currently have plans in place into the future. Many of these are long-term plans, five-year plans, which aim to improve the productivity. It involves the layout of our mines, where the infrastructures are actually located. It involves the introduction of appropriate technology and very importantly, we bring those two together with a team-based training of rather labor intensive operations and we have seen in many of our operations that if you bring these three things together properly, you can achieve quite good productivity improvements. We don't say likely we're going to improve our productivity. We actually have plans in place to do that.

Yeah, you indicate that your productivity improved, what, 18% over the last five-year period but presumably the costs of gone up much more than that on the labor front.

Yes, that's true. You know, our labor productivity is -- hasn't quite helped with all of the other increases that we have faced. But one must bear-in-mind that our assets are being mined further and further away from the infrastructure and if we hadn't put these productivity plans in place, we would have been in a significantly worse position than we are now.

Yeah, I don't doubt that. I was just wondering, you know, what the 10% increase in wages again, whether that's going to equate to 10% -- I guess you don't need a 10% improvement in productivity. You were probably only need a 5% improvement in productivity to affect the total 100% of your costs. I just wondering, you know, if that is truly something that we can expect over the next year.

Well, you know, Marsee (ph) is sitting over here looking at me and I can't use the wages as an excuse for increasing costs. The reality is our wages are not part of our total costs. They're a portion of our costs and 10% increase only affects a portion of our labor force so it's not that our productivity would decline by 10% because of this wage increase.

Yeah, I didn't -

You need a smaller increase in productivity. I mean, it's much more of the order on 2.5, 3%. 2% actually.

2%, okay.

That is what we're shooting at.

Okay, thank you very much. That is all I have then.

Your next question comes from Heather Douglas (ph) with BMO Nesbitt Burn.

Hi, good afternoon everyone. Yesterday Ashante reported some exploration results of data and they're pretty encouraging at Ninkanga (ph) I wonder if you can give us what you think are happening at Geita (ph) and are they transferring to reserves and resources this year, that sort of thing (indiscernible).

Heather, it is David Hodgson here. Obviously, Yes, we see a lot of upside potential in our Geita resources and reserves. When we started with acquisition we were down like 5 million ounces of reserves and now nearly at ten and our resources are at 15. These results we refer to in this quarter are Geita in the Northeast extensions. We have more mineralization going to the Northeast extensions on that trend and at Ninkanga, this is drilling on the west side, which does show good intersections which we believe will further drilling will be economic. Therefore, as we go forward, we see both increases to our resources and our reserves at Geita. Last year we had quite a resource increase reserve increase and this year we are drilling and expect our resources to increase as we go forward with our drilling.

Do you have any plans to increase the capacity at Geita in the near-term, longer term?

Obviously we at the end of last year we expanded the plant. We expanded it up to 5.6 million tons per annum. Right now in fact we are exceeding that amount. It depends on your mix of the head feed, but we are at sometimes including it at the rate of 6 million tons per annum. We will actually match our increase in resources to reserves based on, you know, the tonnage. So we will review taking the plant further to 7 million tons to annum but it will be an economic justification based on the resources and reserves that we prove going forward in the exploration program.

So you would expect that sort of decision to be made next year after we see what -

We can still see this year is an intensive year of drilling as well as next year.

And my follow-up question is just in terms of all your growth projects you outlined earlier this year is that you approved Sunrise Dam and Tau Tona. Can you give us a brief update on the status of your other projects, you know, the ones -- the other South African hundreds as well as the Korea 1 in Bottington (ph)

You know, we had a previously approved more than $10 million U.S. for our ramp down to level 14 from a level 11 for what we doing drilling. We'll have those results at the end of the first quarter next year. We would expect to go to the board in midyear next year with the feasibility study for the extension of our Korea project which would take it down to then 21 levels. So that one is on progress. We are busy with the ramp, drilling and go to the board mid next year. So that's the Korea project. Speak to South Africa, we brought these now, Tau Tona and the South African region has technical teams working on the feasibility studies on the projects which for example Inpeningula 120 (ph) and in Carbon Leader below 120 and both these (inaudible) 120. I just -- I want to add the comment on the south, I think it's useful to say we are proceeding to get to the feasibility and board approval stage on the other projects notwithstanding the change in the exchange rate. So I'm saying that according to our present understanding, these projects are exchange rate robust.

Okay. What about pardon my, how do you say good enough or?

That is very good. I understand what you're saying. We call it good enough. That is also VCR. We have approved 15 million Rands worth of drilling. We drilled two holes. We now drilling the next two and we would expect the results of those to come through in this quarter so I think the jury is still out. We need to get the results before we can finalize our modeling around the area so we need to complete in drilling, Heather.

All right, thank you very much.

Our next question comes from George Laquinn (ph) with Royal Bank of Canada.

Hi. Just a question for Dave and Nicolau. At the beginning of the year you were looking for 950,000 ounces from great that have. Looks like you're there for 200,000 less than that. Can you give us a update on what the problem has been?

Hi, George, this is Dave. We are (inaudible) second of the day.

Thanks. It was great from the beginning of the hedge shown some improvement and it's getting up to the levels that we expect it to be at for the next year to 18 months. We have said that after that the grade will decline as the mine - mines out towards its western boundary. In terms of this year, the mine at the moment is forecasting 25.5 tons. Unfortunately Jonathan is going to hit the calculator. The importantly the second half of the year will be better than the first. We are forecasting 820,000 ounces for this year at this stage.

820. And the cost originally looking at 44,500 Rand kilogram. Is it going to be quite a bit higher?

The cost will certainly improve in the second half of the year as the gold production goes up. It's 56 at the moment and we should be able to improve on that. I don't right with me have an outlook for the year on that figure.

Okay. Thank you.

We could certainly get back to you on that number.

Thanks.

Your next question comes from John Bridges of J.P. Morgan.

Good morning everybody. On this side of the pond we're used to sort of instant gratification and sort of lack of information at Ashante and the negotiation is been frustrating. Can you give us any indication as to what takes so long?

Well, you know, I'm afraid all I can do is express solidarity with your frustration. You know, we're enthusiastic about this prospect and look forward to an opportunity to tell the market why we think it is such a good idea. At the moment we're governed by the very sensible laws of non-selective disclosure and at the moment we're governed by the information being provided in the cautionaries which is essentially the ratio that we were (inaudible) for the shared transaction. But I very much hope that we will be able to say something soon. We have not said -- we have said something about our view of the time scale by which time we would hope the Government of Ghana will have a well-informed and well advised view of our offer and that time scale is the middle of September.

Okay.

Unfortunately we cannot say anything more than that.

I understand. I thank you.

Your next question comes from Jerrad Moroth with Prudential financial.

Thank you. I have a couple of questions. One if just a follow-up on a question John just asked. Why do you think now mid September? What is leading you to believe that in the next six weeks this is going to happen? Is there anything you can tell us on that?

Well, we have said two things today. We've said we believe that the board of Ashante have been advised by the Government of Ghana that they have appointed professional advisors and we said we hope they would have a view by mid September so I guess what you can interpret from that is we're making a judgment about the period of time that the professional advisor would need to do their work.

Okay. And the other question I had was in regards to the new contract signed in South Africa. If you could just layout what the wage rate increase was and whether there's also a knock on affect from moving workers up in grade and about what percentage of your cost in South Africa are labor casts?

The wage increase was at a flat 10% and this was -- this was a negotiated figure so it was across the industry. In terms of the other issues, the roll-up of the surface category work as to the 2000 and minimum per month and days of leave, et cetera, will have a minimal affect of AngloGold's operation in south Africa. In most of these respects we are at or about where the agreement requires us to be. The results of that is that the actual wage increase for the bargaining unit is very, very slightly over the 10%. taking all factors into account and this is particular for AngloGold mine I say because we're very close to what the standard set in the wage negotiations was. In terms of the overall cost of labor, our total cost of labor is about 55% in South Africa but the bargaining unit is only about half of that labor cost.

Great, thank you very much.

Your next question comes from Ono Retin with Scotia Capital.

Yes. Good afternoon gentlemen. Just a short question about Sadiola. Could you provide us any guidance for the future meaning '04, '05, '06, the up grade of 2.95 grams per ton and the lower grades being mined currently and also connected to that the exploration results whether that would change the forecast, for let's say, for the mining plan?

I have Tase Sobako (ph) with me who is head of that region and I will ask him to answer that question.

Hi, this is Tase Sobako. Sadiola grade remains quite consistent for the next five to six years and towards 2008. We start seeing the current ore body we're mining running out with the lower grades and then into the treatment of stockpiles. That is the profile of mining at Sadiola in terms of its current ore body. Two other parts that come into the picture. The one is the exploration that we have done on satellite Pitts in the facility of Sadiola. We call them the FE 3 and FE 4 areas. At this stage we're seeing very encouraging results coming from oxide reserves in that area but we're really not in a position at this stage to add them in to the current life of mine planned. The major portion that will affect Sadiola is when we move out of the current mixture of oxide and sulfide ores into what we call the deeper sulfide ores, this could take place from about 2008 onwards. The grades there are again very similar to the grades we are experiencing now. And the processing of the ore we believe shouldn't be any more difficult than the ore than we are treating now except for the hardness and the fact we may have to put some capital investment into the plant for that and this would take the mine-life through to 2014.

Okay, thank you for your very detailed answer. I appreciate it.

Once again if you would like to ask a question, please press "*" then the number "1" on your telephone keypad. You have a follow-up question from Victor Flores with HSBC.

Yeah, thank you. Just coming back to this issue of the charter. Bobby, you've indicated that the tracks transactions that you have completed previously your opinion get you pretty well where you need to be in terms of your equity requirements for the charter. There has also been indications from the DME that they would like to, you know, show that the process is a successful and by rapidly converting old order rights to new order rights and yet maybe I'm impatient but we haven't really seen any action on that front. Can you give us a sense when you think that this will take place keeping in mind what you said about the draft version of the royalty bill?

Yeah, it is a good and fair question. I also have a colleague here who is leading our team working with the DME on this. I'll seek to interpret his body language or give him the microphone.

It's tough. One thing that is going to have to be resolved one way or the other and doesn't of course necessarily need to wait for a new royalty book is this link between conversion and paying new taxes. I mean, this is really a policy issue which the government could decide tomorrow and I expect it will. I would point out that the mining charter and the scorecard both of which documents are publicly available and have been for some time, deals with many issues other than ownership and our processes going through the full list of issues and working out how these are to be scored. But, yeah, you know, I would hope that we would be ready from our side say in three to six months to make an application. The body language just hit if I interpreted it correctly '05. The issues is how the -- when the government is going to be ready to open up shop and accept these. At the moment this has been tied to the royalty being in operation. That link would have to be severed in time but there would need to be I think a piece of amending legislation to enable the new orders up to be granted with absent the implementation of the -- I think in all reality it's unlikely to start before the end of this year and perhaps more likely early next year.

And I'm getting nods from the body language sir.

Is this all going to rely also on passage of a benefit association bill and the mining titles registration amendment?

I think the answer to mining topic registration is yes because that is central to correcting certain defects in the existing legislation. I think in beneficiation is no direct link at all to conversion. I think either the beneficiation will may pave a roll in defining a way in which companies can offset beneficiation credits against other aesthetics of the charter.

Just a final question for you on this issuance, it is a pointed one. How much of the -- you know, the delay that we have seen and some of the contradictions that we have seen have to do with the perhaps lack of cooperation or communication between the DME and the treasury?

This is an interesting question from your side. Let me -- let me be -- I think if you -- if I'm not -- it is as you said a pointed question. Let me give you a pointed reply. How long has the United States been busy with mineral law reform currently? This is a change to a property system. It's a change that involves changing some concepts of what is property and how it might be earned, those are constitutional issues. There are financial issues. I'm not particularly surprised at the time it is -- it has taken. In South Africa, government departments cooperate with each other 100%. That is not generally my experience. But I have to say that is not at all my experience in the other seven countries in which we operate and in this instance actually including the United States of America.

Touche, well-done, thanks.

There are no further questions at this time. I will now turn the call back to Mr. Lenahan.

Thank you very much. On that high point it seems like it is good to end the conference call. Thank you very much for joining us this morning and this afternoon and we look forward to talking to you again soon.

This concludes today's AngloGold Second Quarter Earnings Conference Call. You may now disconnect.