Anglogold Ashanti PLC (AU) 2004 Q1 法說會逐字稿

Good morning. Welcome to the AngloGold first quarter results conference hosted by the AngloGold Ashanti team. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the No. 2 on your telephone keypad. Thank you.

Mr. Lenahan you may begin your conference.

Thank you very much. Ladies and gentlemen, good afternoon from Johannesburg. Good morning to you in the United States. Good afternoon to our participants in Europe. And welcome to the presentation by the AngloGold Ashanti executive team of our results for the first quarter of 2004.

The format today will be as follows. Bobby Godsell will review AngloGold Ashanti's performance of the period and comment on some important strategic issues and on the Ashanti merger. Jonathan Best will comment briefly on some important financial observations. Kevin Williams our Marketing Director will summarize the gold market conditions in the company's forward sales activities during this period. This will be followed by an overview of our operating performance from Dave Hodgson and after these four presentations, we will, as we usually do, take your questions.

However, before we begin, it's necessary for me to read a declaration regarding forward-looking statements that may be made during the presentation and subsequent question time. Except for the historical information contained in the presentation, there are matters discussed here that a forward-looking statements within the meanings mentioned in Section 27 A of the Securities Act of 1933, Section 21 E of Securities Exchange Act of 1934, and the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1994.

AngloGold Ashanti believes that the expectations predicted in these forward-looking statements are reasonable at this time. No assurance can be given that these expectations will prove to have been correct. These statements including those given during the question and answer part of this presentation are therefore only predictions and actual events or results may differ materially.

You are cautioned not to place undue reliance on these forward looking-statements, discussion of important risk 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 risk factors which may cause actual results to differ materially from any forward-looking statements. Please refer to the company's annual report on Form 20 F for the year ended December 31, 2003, which was filed with the Securities and Exchange Commission on March 19th, 2004 and any documents filed on the Form 6 K in connection with the merger of AngloGold and Ashanti.

With that, I will hand it over to Bobby.

Thank you, Steven. Gold production for this quarter decreased by 11% to 1.235 million ounces. Operating profit decreased by 4% to $132 million. Quarterly production decrease was due in part to the slow production start following the year end shut down of our South African mines and also to lower grades at [INAUDIBLE] in Tanzania and reduced ore throughput and grade at the [INAUDIBLE] mine in Mali and also Cerro Vanguardia in Argentina.

Capital cash costs increased to $259 an ounce in consequence of the lower volume and grade. Adjusted headline earnings of $60 million with $15 million were 20% lower than the previous quarter, which gave rise to our trading update of last week. The quarter on quarter reduction in earnings was due largely to a $5 million lower adjusted operating profit and the inclusion in the previous quarter of a $7 million abnormal item.

In addition to the lower adjusted headline earnings, there was a $30 million movement in the unrealized non-hedged derivatives and fair value gains or losses on interest rate swaps net of tax. These two items largely account for a substantial decrease in net profit from $93 million in the fourth quarter of last year to $38 million in the first quarter of this year.

Average spot price for the quarter was $408 an ounce, 4% higher than the average of the previous quarter. AngloGold's received price was up $405 an ounce, reflecting the company's continued quality of managing hedge positions with the objective of tracking, so far as we can, the spot price for the metal.

As our CFO Jonathan Best explained in our last earnings call, AngloGold implemented a change in the accounting treatment of all reserve development expenditure with the fed from January of 2004. Previously, a portion of this expenditure was expensed in the period that it was incurred. From the beginning of 2004 AngloGold has begun to capitalize all reserve development expenditure and is amortizing this over the life of the mining area to which the expenditure applies, as we believe this is a more accurate accounting treatment.

On Monday of this week, the merger between Ashanti and AngloGold became effective and this company transforming transaction is now complete. It has been many months in the making. I believe this time has been well spent in developing strong relationships between the management of the two companies and also with the government of Ghana. With this new chapter now opened, AngloGold Ashanti looks to the future.

With the prospects for gold continuing to look strong, notwithstanding the volatility of recent weeks and indeed of the last 24 hours, the single focus of our future strategy is on growth. In the first instance, of course we will seek to grow reserves, production and margins from the new enriched asset base of the combined company. Ashanti's assets bring the new company the prospect of growing production both in the reasonably near and also the long-term future.

I'm excited about the exploration prospects that our combined exploration team can now focus on Ghana, Guinea, Mali, Tanzania and also in the Democratic Republic of the Congo. The key focus for us is to deliver growth in our reserve base and growth of high margin ounces.

In the near term, the injection of working capital that this merger has made possible, and which has already begun, should in this time span of some four to six quarters see both cost benefits and a modest growth in production levels from the existing Ashanti operations. We're determined to realize the synergies identified during the transaction and indeed believe we can exceed those.

A significant movement of people has already begun with Sam Jonah joining the executive committee of the combined company in the role of President, [INAUDIBLE] becoming the deputy CFO, Merene Botsio-Phillips assuming the position of General Counsel.

Moving in the other direction, Nigel [INAUDIBLE] previously was the general manager of the Great Noligwa mine in South Africa is already in place as general manager of [Avawasee] in Ghana. Our African exploration team is in the process of rebasing itself to [INAUDIBLE].

We are determined to not only meet the value creation defined in the transaction but to exceed this and we intend to keep the market regularly informed as to both our targets in this regard as well as our progress in meeting those targets.

Apart from the annualized savings of $15 million from reduced corporate costs, improved financing costs and greater procurement efficiency, the key driver of value in this transaction will be on our focus on generating more ounces at lower costs from Ashanti's existing operations.

The second way that you'll be seeing growth is to look at the margins of our current production in the combined company. Gold producers, particularly those whose production currency is fundamentally not dollar based, are experiencing margin squeeze.

Jonathan Best, our CFO has been charged to undertake a comprehensive review of the cost structure of the combined company. Jonathan and the team supporting him will review all aspects of the costs with a view in particular to examine new and different ways of doing things. The aspects of our costs will be exempt from this review.

AngloGold at its birth had to undertake such a cost [INAUDIBLE] from margins, we did it successfully then and I believe we will do it successfully now.

Thirdly, we begin now to look at new avenues of growth beyond those immediately presented by the merger. To this end, our new President Sam Jonah will assume responsibility both with the green field exploration activities of the company and also its new business activities. In this he will be supported by the current head of exploration, Gordon Wylie and Richard Duffy who moves to a new portfolio and will head up the new business development unit.

This team will be refining and developing strategies to enter new important gold regions where we are not presently active or recently active, such as China and Russia, as well as to expand our partnerships with gold explorations and gold junior companies worldwide.

Finally, we will continue to explore ways in which we can encourage the growth of the customer base for gold. In particular, there will be seeking ways to grow gold jewelry to mine, which is the one aspect of the gold market which continues to be of concern for us. Jewelry demand is a key area of demand alongside the investment pure of gold. In this regard, we would hope to have new and expanded activities to announce during the course of 2004.

AngloGold Ashanti is therefore intent on growing reserves in production, delivering sustainable cost reductions, entering new geographic areas of operation, and reinvigorating the jewelry value chain.

I turn finally to the rest of the year. We indicated in our trading statement of last week that we expect the AngloGold assets, that is excluding Ashanti, to meet the previously forecast production target of 5.3 million ounces for 2004. However, our estimates for total cash costs and capital expenditure have been increase in dollar terms due to a revised view on the rand dollar exchange rate, which we previously set at 7 rands to the dollar on average for 2004 and we now sit at 6 rand 81 cents to the dollar for 2004. This leads to revised estimates of cash costs of $254 an ounce and of capital for AngloGold, excluding Ashanti, of $484 million.

The combined company is forecasting production for the second quarter of 1.53 million ounces and our adjusted forecast for the year, particularly taking into account that we previously hope to incorporate Ashanti's production from the first of April and now in fact incorporated from the first of May. Forecast for the year is for production of 6 ,34 million ounces of gold and an average cash cost of $250 an ounce and with a capital expenditure, there again, of $573 million for the year 2004. Thanks very much.

Thanks, Bobby. Before we go on to Jonathon, I would just like to draw your attention in case some of you might have missed it that on Pages 58 and 59 of our quarterly report there is some important information on the AngloGold Ashanti merger. And, importantly, we record Ashanti's results for the quarter ended 31st of March 2004, although these results have not been included in AngloGold's results. Jonathon?

Following on what Bobby had to say about the outlook for the rest of the year, what he spoke about was essentially production and costs, which is at the operating profit level. Below the operating profit level we would just like to give you some figures which will effect the bottom line. The first one is that we anticipate that expensed exploration for this year, which is essentially greenfield exploration, will amount to $44 million. Then under financing charges, you will recall that we recently issued a $1 billion convertible bond at a coupon of 2.375%.

You will also recall that it had a conversion premium of 60%. However, the IRS accounting rules require us to put this through the income statement, taking into account the option value included in the coupon and therefore the amount going through the income statement will not be 2.375%, but 4.28%, although the real cash effect is 2.375%.

The average tax rate for the remainder of the year is estimated to be 27%.

Turning to the Ashanti transaction itself, we have as a result of this transaction issued 42 million new shares at a price of $33.21. This price is the transaction or values the transaction at $1.4 billion. Included in that is the market to market of the Ashanti hedge book at acquisition at a gold price of $394 an ounce for a market to market of $450 million.

This book will be marked to market at acquisition and therefore any future movements in the income statement relating to Ashanti will be movements off the price of $394 an ounce and not off the break-even hedge price in the book. However, as Kevin will mention right now, we will continue to manage the hedge book on a cash basis and so from a cash point of view, it will be treated quite normally as it was before, but from an accounting point of view, it will have a preacquisition element in the income statement.

The rest of the fair values has not yet been completed and as soon as we have done this, we will inform you what the effect on the amortization going forward is. Thanks.

Thank you, Jonathon. Detail of division on aspects of the several markets that effect our business are spelled out in the review of the gold market on pages 11 to 12 of the quarterly report. I would like to simply summarize the pertinent point of those observations.

The gold price during the previous quarter touched its highest levels in almost 16 years. The price for the quarter maintained its rising trend of the past three years, during which time we've seen the average gold spot price rise in 12 out of 13 quarters. However, with these higher prices come significant price volatility and since the end of the quarter in particular, we've seen a major correction in the price of gold falling over $40 an ounce during the month of April.

This volatility reflects a number of circumstances in the gold market, but underlines particularly the central role played in the gold price by the levels of trading interest in the New York [permix]. This is nothing new, but those of us who follow the gold price right through the '90s, we know that the price moved almost consistently on the short attitude on the New York [permix] for the balance of the '90s, and the economics has for a long time determined the stock price of gold.

But on this exchange today the levels of both total open interest and net long open positions have again reached record highs. During the quarter we saw net long positions reaching almost 21 million ounces or 650 tons long.

This record long position lifted gold to just about 430 ounces, $430 an ounce, as I've said, the highest levels in almost 16 years. This interest on [permix] contains a strong speculative element and the exchange is prone to sharp changes in the direction or the level of open interest. And investors and speculators on the exchange during this quarter, close positions equal to almost 8 million ounces at one state, 240 tons of net long positions in one week in mid April, dragging gold price down by $25 per ounce with these closures.

Given the influence in the New York [permix] in pricing gold, this price volatility is likely to continue, as speculators and traders continue to take positions in gold in response to circumstances in other non-gold markets.

The prime movement during the past two years influencing this investor and speculator buying in gold has been the relative weakness or strength of the U.S. dollar against the Euro. In fact, the rising U.S. dollar spot price for gold has closely tracked the weakening dollar exchange rate, particularly against the Euro for the past two years. Once this relationship has been derailed on a couple of occasions during this period, there is little doubt that expectations of the dollar exchange rate remain the single most determining influence on position taking in gold today.

However, reviewing the past quarter, it's clear that in addition to the influence of the dollar on the gold price, we are having to deal with other influences from time to time, including influence from political events, and economic events with broad implications, whether these be signals of rising inflation in the USA or signals of an end to growth in China.

The weakened spot price of gold today, where we saw the price fall below 380, reflects to a large degree both the strengthening of the dollar during this past quarter, specifically since mid February, as well as several of these other factors.

Turning to other areas of the gold market and the price, circumstances remain much as we saw them at the beginning of the first quarter. The good news anticipated for sometime of the extension of the 1999 Washington agreement for a further five years from September 2004 has been accepted by the market as a done and non-disruptive deal. This is notwithstanding a lack of clarity as to exactly which banks will sell to meet the indicators sales volume of 2 ,500 tons over five years.

Similarly, the physical market remains disappointing and the recently published market figures released by Gold Fuels Mineral Services confirmed that global jewelry off take is almost 700 tons less in 2003 than off take in the sector four years ago. The slippage in demand in this critical gold off take category of over 20%.

Turning in conclusion to the AngloGold hedge position at 31 March 2004, you will see that AngloGold's hedge volume declined to a little over 8 million ounces or 250 tons. Looking at the incremental hedge position of Ashanti, which we have taken on for Monday, the 26th of April, the combined hedge position of the new AngloGold Ashanti on that date and at a spot price gold price of $395 per ounce, was a total of 339 tons or 12.8 million ounces, with a market to market value of some $970 million negative.

This combined position will lift our hedge cover from some 28% of five years production of AngloGold at the end of the March quarter to a combined cover closely to 40% to five years production. And it is our intention to manage that combined level down to AngloGold's mandate and target levels of below 30% of five years production as circumstances permit. Thank you.

Thanks, Steven. As Bobby has said, all of the South African mines were effected by there having been fewer effective productions shifts this quarter due to the slow start to the year. However, overall, the South African operations performed in line with expectations with exceptions of Taulekoa and Savuka. The volumes now in Taulekoa increased by 4% as a result of improved bastings. Although [INAUDIBLE] declined by 10% to 3 ,6 grams per tonne and plant throughput was lower on a quarter on quarter basis, largely because of their new fee high tonnage in the previous period.

Gold production dropped to 67,000 ounces and total cash costs went up 18% to 79 grams per kilogram or $367 per ounce. Grades have now returned to their expected levels and we are confident that the mine will achieve the forecast set out in the annual financial statements.

The [INAUDIBLE] mine fell by 13% as a result in the reduction of sizings and fewer productions shifts, although yield improved by 4% to 5 ,9 grams per tonne. Gold production fell by 16% to 35,000 ounces.

Savings and labor costs arising from the effect that the operation is in closure mode and the change in (INAUDIBLE) development accounting, result in total cash costs decreasing by 10% to 98,000 rand a kilogram, or $451 per ounce. For the year, production is expected to be slightly lower than the forecast in the 2003 annual financial statements.

At Ergo, gold production increased by some 20% to 62,000 ounces as a result of improved grades. Negotiations on the sale of Ergo have not been successful and we are managing the operation closure.

At Mponeng, gold production was down 13% to 104,000 ounces following an outstanding fourth quarter last year. And total cash costs increased by 11% to 68,000 rand to kilograms or $314 per ounce. At Tautuna yield was steady at 12.17 grams per tonne, although gold production fell by 10% to 146,000 ounces. Production was adversely effected by mine accidents, which claimed the lives of three employees during the quarter.

During this last quarter, Moab Khotsong started ledging and produced 1,200 ounces of gold. However, we note in the quarterly report that these ounces will not be reported as part of the South African region's total production ounces, as the revenue has been capitalized against preproduction costs. Commercial production at Moab Khotsong is scheduled for 2006 onwards.

East and West Africa, at Geita in Tanzania, production decreased by 21% to 93,000 ounces, largely because of the expected 24% decline in recovery grade to 4 grams per tonne, after the very high grades of 5.2 grams per tonne in the December quarter. The grades are expected to remain around this level for the rest of the year.

At Morila in Mali, a 6% decrease in throughput, coupled with the 5% decline in recovery grade resulted in production decreasing by 10% to 43,000 ounces. Total cash costs were $158 per ounce. Commissioning of the plant expansion project commenced in March. Plans are in progress to improve the production profile in the second half of 2004.

Production at Tau Tona rose by 18% to 20,000 ounces, largely owing to an increase of 30% in recovery grade 2.4 grams per tonne. As a consequence of the higher production, total cash costs decreased by 15% to $274 per ounce.

At Cripple Creek & Victor in Colorado, production was down by about 5% to 72,000 ounces, although total cash costs were only up by 2% at $208 per ounce. The new process and facilities exceeded design capacity during the quarter and [INAUDIBLE] in the quarter, slightly above planned levels. [INAUDIBLE] pad construction has ceased for the winter and will resume in June 2004. Although chemistry in the pad has improved, leach times appear to be longer than expected. CCNV is not expected to be some 10% below the annual forecasts.

In South America at Morro Velho gold production decreased by 15% to 52,000 ounces. This was the result of a 10% decline in the ore treated and the 4,000 ounce drop in heap leaching operations due to the close of operations at Morro Velho and the [INAUDIBLE] respectively in October of last year. Plus, heap leaching operations were interrupted in February as a consequence of very heavy rains.

Total cash costs were 3% lower at $139 per ounce, chiefly because of reduced operating costs and higher sulphuric acid by product credits. Cerro Vanguardia gold production was down by 40% at 35,000 ounces as a result of a planned decrease in the tonnes mined in the lower grades or treated. Good progress is being made in dewatering the pits and mine plans are taking account of higher stripping ratios and the optimal mining plan.

In the second half of the year, two higher grade pits become available in grades will significantly improved, such that Cerro Vanguardia will be in line with its annual forecasts. Serra Grande continues to perform well.

Moving to Australia, as forecasted, mining at Sunrise Dam returned mostly to lower grade areas during the first quarter. In addition, abnormal seasonal rainfall resulted in limited access of almost half of the quarter. Those high grade areas are scheduled to be mined. The net result of which was a production during the quarter decreased by 6% to 87,000 ounces. Recovered grade was 2.84 grams per tonne, compared to the 3 grams per tonne in the previous quarter.

For the year, production is expected to be at the level 4 cost in the 2003 annual financial statements, but cash costs expected to be higher than forecast, largely due to the higher than forecast diesel prices.

Finally, exploration, the quarterly update of our exploration activities is included in the quarterly report. During this last period, the second AngloGold Exploration Workshop was held with presentations on our global exploration strategy to analysts and investors in Toronto, Johannesburg and Capetown. These presentations can be found on our website. Thank you, Steven.

Okay. We are ready to take questions from participants now.

At this time, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Jared Muroff with Prudential Equality Group.

Thank you very much, that's Prudential Equity Group. I had a couple questions. First, I was hoping you can give us a sense with the rand, what you're seeing there and what your expectations would be. There is some mention of it in the piece. But we've seen in recent weeks the dollar strengthened against almost every other currency except for the South African rand.

I'm wondering if you can give us flavor of what the rate environment is over there and whether we might see rates come down over there and when you would expect the currency to start to move more equivalently to the other currencies.

Well, it's Bobby Godsell. Let me start, I must say this is an area in which collective wisdom is desperately required, so I would hope that at least Jonathon and Kelvin might add a view. It's been sometime now, I mean pretty much two years in which the rand of traded currencies has performed very, very strongly against the U.S. dollar.

I think an important question in my own mind about the future is at what point the U.S. Fed would start to raise rates in the United States.

I say this because the fact of the matter is that there is a very substantial real interest rate difference between South African bonds and treasury bonds. While that persists, I think there is a good reason for bond investors to put money into South African bonds. When that interest rate gap starts to narrow, I think that we could expect some of the bond investor's money to start flowing out of South Africa and that is likely to be reflected in a weaker rand dollar exchange rate.

I'm afraid in terms of trying to look at what would move this market, that's about the best that I can do. I mean we have adjusted at the end of this quarter our expectation of the rand dollar exchange rate, from 7, which seemed conservative and prudent, at the end of last year, 6,81 and I think today it's actually trading at 690 or something of that region, so we're there or thereabouts. It may be that our 6,81 is conservative. In a way, I very much hope that it is. I think that it's certainly prudent. I think it's going to be a move in interest rate with liquidities, particularly between the U.S. and South Africa that will influence the direction. Jonathan?

You know, I think there is many opinions on this as there are people that you ask and to my mind there, are three things that affect the rand. Bob has mentioned the one, which is the interest rate differential. The other one you mentioned, that is the strength of the dollar against other currencies, and also third world, or should we say merging market credit spreads, also has an effect on it. And I suppose the one thing that has confounded most people in the last week or two has been, as you said, the dollar strengthening against everything except the rand.

We did see yesterday and today the rand start to fall in line and to react to that and in fact at one time today, the rand traded through 7, which was a fairly large shift and it's still trading just under 7 and at or about there. We are starting to see it react to the stronger dollar. In my view, it will still remain reasonably strong until we see the interest rate differential close, but nevertheless, it will continue to weaken. As we say, we see it now at 7, and as Bobby said, maybe 6.81 is slightly conservative and I'm sure that on my right here, Kelvin will give you yet another view.

Jared, I wouldn't doubt. I'm not in disagreement with my colleagues view. There are so many moving parts in the currency market right now. We know it would be difficult for the rand to strengthen, to weaken against a weakening dollar. And we have now, as Jonathan said, seen a belated weakening of the rand against the stronger dollar, against the Euro for the last eight weeks. There is going to be a correction at some point and it is likely to be interest rate triggered.

But I think the one thing we have to accept is when we had a weak rand, it was a time that the dollar Euro was a parity or less, and right now, we're a long way from parity or less. So, any notion that we're going back to the weak dollar that we saw a year or two ago is just unfounded.

Weak rand.

Weak rand. We have a step change here in as much as I think we have a step change in the dollar from a couple of years ago to where we are now. Even if, even if it traces against the Euro, to say 110 volume, it's still, you know 10-15% adrift of where it was a couple of years ago. Say, you must expect the rand to be 10-15% adrift of where it was a couple years ago, that is to say in real terms.

Having said that, I wouldn't have anything further to add. We are a different economy today. I think there is a measure of recognition of our currency that reflects a better run economy. We have a much, much more, more healthy current account position. We have a much healthier budget deficit we had when the government changed in 1994. There really has been 10 years in this country of solid economic management and at some point that has to be reflected in our share price, in our currency price.

Great. Thank you.

Your next question comes from George Laquim with RBC Capital.

Hi, gentlemen. Just got two quick questions, one for Dave. I wonder if now that you have come a little closer in finalizing the merger with Ashanti, can you give a better insight as to what you're finding [INAUDIBLE] where we hear about the oil reserves that are available and to the [INAUDIBLE] and whether that's still a lot different to what you expecting to find and whether it's going maybe give you some kind of a hiccup over the next 12 months or 18 months until we start really getting some improvements coming through.

George, it's Dave here. (INAUDIBLE) potential oil reserves, we still see upside potential, above 50 level and we will be looking for the upside potential above 50 level, but of course the big potential that we see is below 50 level and that's where our 44 million drilling program over the next five years will be focused.

With respect to saying what are we seeing in our due diligence visits? Obviously, [INAUDIBLE] is a major player and at [INAUDIBLE], they are slightly down on their grades delivered to their plant and we believe that is due to a couple of factors that we've highlighted, that is that they haven't had sufficient developments, so they have less mining flexibility, the more they are forced to mine where they are and we believe they haven't done enough ore definition drilling, so we think the dilution is higher than it should be.

We believe there is possibly area to make room for improvements in the mine planning and we were able to be working on that in the short-term. Obviously, the changes in developed ore reserves are improving dilution and matters like that, we'll take 12-18 months. We have ordered mining equipment. We have ordered nine loaders. There will be four new [INAUDIBLE] coming. The first of those been delivered and the rest will be delivered by end of July. So we should start seeing the benefits of new equipment towards end of the year. But the longer term fundamentals will take 12-18 months.

Are you comfortable with the capex number you gave us previously, that it's pretty much in place, that you're not going to push up the capex in the short-term?

No, we're comfortable with that and we can work within that capex.

George, if I can just make a comment. This has been a cooperative merger. We did extensive due diligence. We have been talking to them for a protracted period of time, so this is not a case where we've suddenly got closer to it and found a whole lot of things jump out of the cupboard at us, so nothing has jumped out at us that we hadn't anticipated or that they hadn't told us about it.

If anything has worked a little bit against us, it's time, in that we hoped this transaction action would have closed a bit earlier and we would have been able to take action a bit sooner. This is not a case we suddenly gone in there and had opportunities to find skeletons in the cupboard. We've known for a long time what's there.

Okay. That's good. Another question that keeps proposing, because of all the presentations you keep putting a slide up about your pillars of growth and you mentioned one which you don't really expand on about your growth in jewelry demand.

Now given the size of your company, it's difficult to try and work out how much capital you are allocating to that side of the business and whether it's really going to be meaningful and really why you put the slide up at most of your presentations.

It's Bobby Godsell here. I think that's a fairly fair challenge. I mean in the short-term, because we are - - I mean the analogy I would make is with, frankly, with green field's exploration. I think you start off by spending money pretty modestly until you identify some areas of real value, and we certainly are not contemplating huge capital investments in downstream activities.

We have been busy for five years. We have done some things that have worked quite well. If we look at the Africa manufacturing facility in Capetown, it's worked well and it's grown significant market share from a very low base into the United States and to an important market. We have done some things that have absolutely not worked such as the internet business Gold Avenue.

Throughout these activities, successful and unsuccessful, we've learned a great deal about this market. You know, I guess when we come with the next activities, you will judge whether they are sensible or not. They are certainly not going to be huge investments.

I do have to say that I am surprised that there isn't greater concern amongst our gold producing colleagues at a nonsystemic weakness over a number of years in major gold jewelry off take markets, such as India and the United States.

So, you know, once we haven't cracked it yet, I guess after two years or three years or four years of not finding something in green field's exploration, I think Gordon Wylie would tell us not to stop green field's exploration. I certainly am going to continue to better a way at the down field activities.

We're looking throughout the entire value chain the way in which manufacturers access gold, for example, the efficiency and capitalization of manufacturing, at design, at retail and particularly at marketing where, you know, it's our analysis, and quite detailed analysis, that gold jewelry has significantly lost market share and market voice against both other categories of jewelry, but very importantly against other areas of discretionary spend. And we're simply going to keep on doing what we can do, look for partners with expertise where we don't have it, to see whether we can reinvigorate this.

If we can't, this is an important limitation for the gold market going further and should certainly force people to be rather questioning about whether the increase in gold production is a great idea.

How much are you spending this year? Are you budgeting it similar to what you're doing green field's exploration? Is it significant?

You know, George, we're at around $11 million to the World Gold Council, which is the basic, generic work that's done cooperatively with the other four majors. On top of that, we would probably spend between $6-7 million on a whole spectrum of things. We are currently doing a branding exercise in the United States. We're doing some research. We're doing all the local South African [INAUDIBLE] exercises, so it will be between $6-7 million over about the World Gold Council contribution.

That's less than half of green fields, but to this I would say, we're trying to do something here, we're determined to do something. We're going to spend money wisely and not foolishly. If we could find more stuff to do and spend as much as we were spending on green field's on really value adding thing, I certainly would be very delighted.

That's half a percent of turn over at $380 gold price. I think as you know, the platinum guild operates on closer to 3% of platinum turn over.

Well, that's fine. [INAUDIBLE] move closer toward the platinum guild or even what [INAUDIBLE] are spending on their side of the business.

I think as Bobby signaled, this is something that should be an industry concern. We in AngloGold cannot carry the major generic responsibility for this kind of thing. What can we can only do in our own focus on this is, as Bobby indicated, look for projects that have some commercial discipline to them, but which have the capacity to reinvigorate the category in areas and to make gold jewelry more fashionable, more desirable, more modern, make the retailing practices more modern and in a sense, start to bring about a turn around in the market slippage that we suffered in the last four or five years.

Thanks, Kelvin. Thanks, Bobby.

Your next question comes from Jim Copeland with Goldman Sachs.

Good afternoon, everybody and congratulations on completing the deal with Ashanti and on 10 years of democracy in South Africa.

With the election out of the way now, could you please provide us a little bit of a road map for the year in terms of the promulgation of the mineral spill royalties and I guess will there be any progress made or when might you expect some progress to be made on some converting (INAUDIBLE) into the right place? Thank you.

Okay. Bobby here. The minerals development has been promulgated. We are absolutely ready to file our applications and in the process of doing that, we will seek the earliest possible conversion of our rights.

So on the subject of royalties, we've got some good negative knowledge. We know that there will be no royalties until 2009. We are also anticipating a comprehensive review of the tax regime for gold mining companies in South Africa. That regime for a long period of time, I think going back to 1935, has been differentiated from other mining and general corporate tax.

There is both an immediate expensing of capital expenditure, which incidentally accounts for our prior practice as a company, but also there is a formula tax, profit formula-driven tax for gold companies and the government has indicated a desire to review that.

We would hope to energetically participate in that review. From our point of view, the objective of the review would be to ensure that South Africa is able to convert as much of its remaining mineral reserve into produced gold tax profit and employment. And I don't have any particular reason to believe that the government would have any different objective. So we're on quite a long time span for the royalty.

I don't believe that we will have clarity on the royalty levels for gold mining companies until this general review has been conducted. It would seem sensible do the review first and then sit one component of the text later.

We are certainly hoping that the royalty level, if there remains a royalty in the mix, would be lower than the 3% initially indicated in the draft bowl.

And just on the review of the taxation regime, I had always considered that the South African tax system was actually a competitive one and quite a positive one for the industry. Is there any sort of negative connotation that we might take away from a review?

I don't believe so. You know, I think what have you to do with the review, you know what you need, is to see the tax contribution of the gold mining industry through a price cycle and when prices are low, because it's formula-driven, the gold mines pay little tax. When prices are high, they pay a great deal more than other corporations.

I think anybody looking back at the 70 or so years that this regime has been in operation would see two things, they would see a gold mining industry much larger than would otherwise have eventuated without certainly the immediate capital allowance and I think the formula tax. And I think they would see a perfectly healthy contribution to the fiscas over a period of time and, as I say, through the price cycles, when the price is high and when the price is low.

I detect absolutely no animous, hostility or negativity on the part of the government towards the gold mining industry. It was the current Minister of Mineral and Energy who, I'm delighted to say, has retained her portfolio who talked particularly about the gold mining industry as being a sun rise industry and not a sun set industry and has put a lot of effort into trying to ensure its optimal growth into the future and I can imagine no reason why she would, she or her cabinet colleagues would change their mind.

And just finally, are the unions involved in those discussions about the taxation regime, or are they separate from that discussion?

The unions will certainly have a view and on this I would say I would be very surprised if the view of the unions differed from the view of the industry. What we have fundamentally in common is we want to optimize the extent of mining and therefore the extent of employment. So I would have thought that the union views on this would be very closely in line with those of the industry.

Great. Thank you very much, Bobby. Thank you, everyone.

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

Good afternoon, Bobby. Question for Kelvin. Another mining company, yesterday, was talking about the accelerated buy backs, putting something on the floor of the gold price. Other people have been sort of suggesting that maybe there could be some accelerated hedging, as people are uncertain as to where the dollar is going.

I just wondered if from what you see in the markets, do you see any sort of indication of any hedging going on?

No, I think no more than anyone else. We did see Newcrest doing, I guess, what we would describe as financially rational hedging last year when they wished to lock in their financing and the structure of that project. We have seen no other evidence of hedging than that.

Certainly, we were interested to see the first references to the possibility of renewed hedging, but it was by a bank commentator taking a view on the point in the cycle. As far as we're concerned, we would imagine that the hedging will continue for a while.

At the end of the day as you know, we have a view that hedging is, and has been for us, a revenue management tool with higher revenue, with much more effectively selected assets in our portfolio, we have found in the last couple of years that we have been able to meet financial targets without hedging. No doubt in a different pricing cycle. A lot of members of the gold mining industry will have to look again, whether they wish to manage their revenue through hedging or whether they wish to be simply a put option on a gold price (INAUDIBLE).

Right.

That's just a very broad view. Look, I think have you to look quite critically what dehedging must have contributed to favorable tension in this market in the sense that gold dehedging has caused the market to lean very strongly on the upside.

Right, right. Do these moves in the last couple of days give you any opportunity to tweak your hedge book, or are you waiting to see what's going on?

No, I mean for us it's not an opportunistic management. We don't manage by waiting for the gold price to drop for 20.00 and then buying in bundle. It is a daily, daily working and managing of the hedge books. A move like this does have consequences for the positions on our book, but don't necessarily lead us to any specific actions.

What I would acknowledge is that we have during the past month put a rather higher leverage of leverage in our book in anticipation of taking on the Ashanti positions. And that was, again, as a preference for doing things in an orderly and incremental manner rather than attempting to do perhaps a large change all on one day. So we have during April put more volatility into AngloGold's book in order to deal with the increased short position of Ashanti and that we will have to deal with also incrementally during this quarter and you will see the outcomes we hope at the end of July at the next reporting point.

Okay. Thanks a lot, Kelvin.

Your next question is a follow-up from Jared Muroff with Prudential Equity Group.

Thank you. Just a follow-up on the hedge book issue. I was wondering, you guys did very well, it sounds only a couple of dollars off the spot price during the quarter. And I'm wondering if you can give us a sense of how much you deliver into your hedge book during the first quarter? And whether or not we may see a bigger gap or would see a bigger gap if gold were to move back up towards the 400 level in the following three quarters of the year, if you would almost taken the best hedges you could deliver in the first quarter or delayed some of the deliveries into final three quarters of the year?

Jared, on the whole, we haven't over the last couple of years moved maturities. We have tended to take that which matures in the financial period we're dealing with and to allow it to mature and not move it around. So that is also part and parcel of the nature of many of our individual contract terms, which do not provide for us to move the contract without causing it to cease to be a hedging contract and therefore it has an accounting consequence that would cause us to have to fund whatever closure and role occurred.

So what I'm saying is that we haven't moved the furniture around much in this quarter. We have taken back about 14 tons of the book during this quarter, that which is maturing now. There isn't a great deal of exposure to the rest of the quarter. I would think the gold price could move back into, into the low 400s and we would continue to do our best to track it.

If we were to see a sharp spike, it's always much more difficult to deal with $30 or 40 movements. I think we are not uncomfortable managing the hedge between 380 and 410 or 415 or 420. I don't know if that answers your question.

You know, I would add one thing. Obviously our objective in fading on the Ashanti hedge may be a little more volume oriented than price oriented. We might be keen to take them back a little bit more, but it will depend very much on how liquid the markets are over the next two months and how the prices move.

Great. Thank you.

At this time, there are no further questions. I will turn the call back over to Mr. Lenahan for closing remarks.

Thank you very much, ladies and gentlemen, for joining us today on this call, and we look forward to talking to you again soon.

This concludes today's conference call. You may disconnect at this time.