Anglogold Ashanti PLC (AU) 2004 Q3 法說會逐字稿

At this time I would like to welcome everyone to the AngloGold Ashanti third quarter earnings conference call. (OPERATOR INSTRUCTIONS). Mr. Lenahan, you may begin your conference.

Ladies and gentlemen, good morning and good afternoon to this presentation by the AngloGold Ashanti executive team of our results for the third quarter of 2004. The order of proceedings this afternoon or this morning will be as follows, Bobby Godsell will review the Company's financial and operating performance over the period. Kelvin Williams will then briefly summarize the gold market conditions and give some insight into the management of the Company's hedging activities in the third quarter. And then this will be followed by an overview by Dave Hodgson of our operational performance in the period.

After these three presentations we will take your questions. However, before we begin it is necessary for me to read a declaration regarding any forward-looking statements that we might make during this conference call.

Except for the historical information contained in the presentation, there will be matters here that may be forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Securities Exchange Act and the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Although AngloGold Ashanti believes that the expectations reflected in any such 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 presentation are therefore only projections, and actual events or results may differ materially. You're cautioned not to place undue reliance on such forelooking statements. For a 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 20F for the year ended December 31, 2003, which was filed with the SEC on March 19, 2004, and any documents filed under Form 6K in connection with the merger of AngloGold Ashanti. Finally AngloGold Ashanti does not undertake any obligation to update publicly any forward-looking statements discussed in the presentation whether as a result of new information, future events or otherwise.

For the third quarter AngloGold Ashanti reports gold production of 1,6 million ounces. This is 9 percent up on the previous quarter, that is the June quarter 2004. Our operations in North and South America and in Australia produced very well. The South African mines put in a generally good performance. Management concern and attention remained firmly focused on the Obuasi mine in Ghana, the Morila mine in Mali and the Geita mine in Tanzania.

Total cash costs increased by 5 percent to $272 per ounce, the highest oil prices in many years. Strengthening currencies in most of the countries in which we operate, and contractor mining cost ratios all contributed to this rise. In South Africa, however, unit costs in rand per kilogram terms rose just 3 percent to R60,687 per kilogram of gold produced. Given the 7 percent wage increase, which became effective on the first of July this year, and the significantly higher winter electricity charges, I regard this rate of increase as a considerable achievement. And the R60,000 per kilogram cost level is highly competitive with other South African gold producers.

The Company received an average price for its products of $392 per ounce. This is 2 percent higher than the previous quarter and $10 below the average spot for the quarter of $402 per ounce. This, together with a favorable inventory adjustment in the second quarter, has produced a 9 percent quarter on quarter third quarter on second quarter reduction in the adjusted operating profit to $98 million. Adjusted headline earnings at $43 million was 16 percent below those of the previous quarter.

This quarter has seen a modest further step in the Company's new Frontier strategy with our partnership with Red 5, giving us a prospecting presence for the first time in the Philippines. The significantly higher dollar gold price has left the mix delta position of our hedge virtually unchanged. This notwithstanding a significant reduction in the outright forward contracts.

As Kelvin will indicate, we continue to be very positive indeed about the prospects for the gold price, and we will continue to reduce the level of hedging in the combined Shanti AngloGold hedge book. The dramatic relaxation of exchange control for South African companies announced by the South African Minister of Finance earlier this week enables companies based in South Africa to operate on a globally competitive basis. We applaud the minister for this bold step.

Good morning, good evening. During this third quarter of 2004 we saw reassuring performance in the gold market and saw the gold price recover all of the ground lost in the price correction that we had seen in the second quarter of the year. This price recovery continued beyond the end of the quarter into October. And during this month we have seen the gold price touch as high as $430 per ounce, which we had reached earlier this year. And the price seems to be consolidating now in the mid 420's.

The health of the U.S. dollar against the euro in particular remains the key driver in the gold price. And the fall of the dollar against the euro to 129 in the third week of October was entirely responsible for gold returning to its high point of 430.

However, in addition to the influence on the gold price of movements in the U.S. dollar exchange rate, we think that the gold price has also shown some encouraging signs of support from economic circumstances other than those in the currency markets. There has been gold buying by investors and speculators on the back of general commodity price increases and on the back of higher oil prices.

Overall the surrounding circumstances in global economies and politics that impact on investor sentiment towards gold looked strongly favorable in almost all respects for the gold price. It is difficult to see any scenario that might be negative for gold or for the gold price, other than perhaps a complete recovery in the balance in the U.S. economy, being the elimination of U.S. deficits and a stronger U.S. dollar, which circumstances do not seem to be an imminent to us at the moment.

In this broader market context, we have continued to manage the AngloGold Ashanti hedge as much as we have in the past. As a result of the size of the reduction in the second quarter of just on 1.5 million ounces, or 46 tons of gold, we perhaps run a little ahead of ourselves in some of the parts of the hedge in the third quarter saw no major steps in pallet reduction.

The reported hedge at 30 September was in fact slightly larger than the position we reported at 30 June 2004, and shows a net delta increase of some 212,000 ounces, or 6 tons. This is in spite of the fact that outright forward contracts were reduced by some 11 tons during the quarter. The reason for the mix delta increase lies with the increase in delta accounted volumes, or short call options in the hedge when valued at a spot gold price which was $25 per ounce higher than the price at which the hedge had been valued at the end of June 2004. It is our intention to continue to drive reductions in the hedge and to manage the hedge positions with this objective in mind.

Good morning and afternoon. Before we get into production results I would like to talk briefly about safety. Every one of our operating regions improved on a safety performance this quarter reflecting the results of the safety focus across the group with a year-to-date improvement of 28 percent in lost time injury rates and a 57 percent improvement in fatal accidents rates.

Morila and Sadiola in Mali, Navachab in Numibia, Bibiani and Iduapriem in Ghana and Cripple Creek in the United States, all completed the quarter without lost time injuries.

Cerro (ph) in South Africa, production increased by 1 percent quarter on quarter to 789,000 ounces. And as Bobby has said, total cash costs remained well contained in spite of a midyear wage increase and significantly higher winter electricity charges, rising only 2.8 percent to R60,687 per kilogram.

Of our large South African producers, Great Noligwa, Mponeng and Kopanang continued to deliver steady performances. Volume mine grade and production improved at Great Noligwa quarter on quarter. And at Mponeng operating results reversed the loss recorded last quarter to post an adjusted operating profit of $3 million.

Development grade, which we report on page 37 of the quarterly report at both Mponeng and Kopanang continued to provide confidence in the future with more than a kilometer of (indiscernible) development at both mines, giving grades in excess of 2,600 centimeter grams per ton.

At TauTona grade declined 2.5 grams per ton due to increased development in (indiscernible) mining as (indiscernible) are negotiated. And we anticipate grades (inaudible) per ton for the foreseeable at TauTona.

Noligwa reported slightly lower grades and decreased volumes mined this quarter, following a Department of Minerals and Energy decision to stop work on Sundays for three weeks following a fatal accident. Both volume and grade should pick up again next quarter.

Our South American operations continued to deliver excellent results. This is a well-managed region with a good contribution margin, as some members of the investment community saw this August on an analyst trip that resulted in several very positive published reports.

Cerro Vanguardia had a particularly impressive third quarter with gold production up 30 percent and a 40 percent improvement in grade to just less than 9 grams a ton. And Cerro Vanguardia will achieve year-end production estimates.

At Sunrise Dam in Australia this quarter production increased 15 percent to a record 112,000 ounces, and grade improved by 10 percent to 3,8 grams per ton as mining operations moved as planned to higher grade areas post the heavy rains in the first half of the year. Cash costs also decreased quarter on quarter as the higher gold production offset the effect of a rising fuel price. In addition, over 800 meters of underground capital development was completed this quarter and drilling results continued to show positive mineralization in grades.

In Mali, Morila is meeting targets agreed to by the joint venture partners, which were set last quarter to address the operational difficulties. The plant expansion is operating at design capacity. And mining is on schedule to feed higher grade ore in the fourth quarter. The grade improved at Morila this last quarter, but the benefit was somewhat offset by decreased tonnage throughput due to a gear box replacement on the sagmo (ph) and the motor changer for the primary crusher.

Cash costs were 4 percent higher due to the rise in diesel price and higher mining contractor costs. The October results were positive and ahead of plan.

Both Yatela and Sadiola reported lower productions for the third quarter. And Sadiola, as result of lower grades, and at Yatela due to a 13 day strike by the mining contract employees and heavy rain. Rain at Sadiola will improve going forward, and the mine will achieve the planne production levels for this year.

Brownfield exploration at Sadiola yielded particularly encouraging results this quarter with the completion of drilling at the FE3 southern extension and the FE3 (indiscernible) gap, which confirmed early results indicating the extended life of oxide satellite at Sadiola.

Gold production rose 13 percent at Navachab in Numibia this last quarter, while cash costs decreased by 6 percent. The conversion to undermining has progressed well, and Navachab is on target for the year.

At Geita in Tanzania cash costs increased significantly to $294 per ounce from $226 per ounce last quarter, due to the rise in fuel price, realigning of the move, and in particular costs related to mining contractors. We're looking at moving on to national grid power and other cost saving initiatives in order to assist in managing these cost drivers. Geita throughput in higher grades will significantly improve production in the fourth quarter. And at Morila October results and data were positive and ahead of schedule.

As expected, Bibiani and Iduapriem in Ghana both showed significant improvement in attributable production, at 46,000 ounces and 55,000 ounces respectively. Bibiani suffered a minor pitfall slip in September after heavy rains, but buttressing is underway and successful, and mining has recommenced in both the pit and underground.

At Obuasi production continued to be affected by the lack of developments in drill reserves, which seriously limited the mining flexibility. Reorganization of the planning department and improvements in mining infrastructure is ongoing, and combined with the delivery of new equipment good results in underground production rates have been restored to planned levels towards the end of that year.

At Siguiri in Guinea the embargo on gold sales has been lifted, and unexpected shortages of cement supplies which resulted in reduced crushing and stacking operations has been resolved. Production at 23,000 ounces was lower than expected this last quarter due to the above issues, but full production on the heap leach pad is expected by early November.

Finally, Cripple Creek and Victor in Colorado showed substantial improvement in production quarter on quarter, from 76,000 ounces the record quarterly production of 90,000 ounces. Cash costs were well contained at $218 per ounce. But the impact of the strengthening in fuel price was significant, given that at CC&V that price levels in excess of $40 per barrel, a $1 per barrel increase in oil price, translates into 82 U.S. cents per ounce increase in cash costs.

Ladies and gentlemen, we would now be very happy to take any questions that you might have.

(OPERATOR INSTRUCTIONS). Victor Flores (ph) with HSBC.

I have a question about Obuasi. I can understand that if you don't have enough development and if the equipment isn't up to scratch that you won't be able to produce the ounces. But I noticed that the underground grades coming out of Obuasi on a recovery basis are only about 5.5 grams. And I think the in situ (ph) is about 8 grams. Could you explain to us why the underground grades have been so low, and when those will come back up to where they should be?

Yes, look at Obuasi, I think we have explained that there has been a move from the northern section of the mine which had the higher grade corsite to the southern section of the mine, which has got the lower grade methyl sulfites. However, we wouldn't want to have grades from underground at high 6s just below the 7s. So that is where we're aiming.

However, this last quarter particularly with a move to the stokes (ph) in that Southern section, we had quite a little dilution from hanging wall failures. Some of those open stokes are of quite large dimensions. We have looking at that. We have been looking at all the geotechnical implications, and we believe that there hey will probably be a need to reduce the size of some of those open stokes to reduce the dilution. So that will be part of the ongoing plan to reduce dilution. And then with great control of the draw (ph) points we would hope to get the grades up to the high 6s again.

Excellent. Thank you. A question on --.

Sorry, the other point is that if you look at the reserve grade it includes the drilling that is being done below 50 level. Remember we showed those holes had been drilled below 50 level. So obviously that is not available for mining at this stage. That would be part of phase 1 of the deep project. So those grades of the corsite grades were at 50 level, which is why you see it slightly higher.

My second question is on Geita. Unfortunately I don't know if there's a problem with the sound, but I couldn't hear exactly what your comments were with respect to the outlook of that asset.

Especially with Geita the fourth quarter was the highest throughput. In this last quarter there was a planned little shutdown. They used the opportunity to do the realigning of the mill. We have had extra hours now in October, so we will see higher throughputs. We will see the grades being better. And we will see significant improved production this quarter. And the grades will go back to what we have been saying. The standard for Geita is sort of just in the top of the 3s, the 3.6, 3.7. So we see a good fourth quarter for Geita, and to achieve its annual targets.

Excellent. Thank you. If I could just ask one last question, if you will bear with me. Could you give us a sense of what it was that attracted you to this Red 5 Company and their projects? It seems like the Philippines have more or less been forgotten by the market.

We will get our head of exploration to answer this, but you'll have to listen carefully because he speaks Scottish.

It is Gordon Wylie here. We have recognized the Philippines perspective for some years now. What Red 5 does is it gives us an opportunity to explore in some quite advanced projects in a well-recognized mineralized belt. So we are in there quite early in projects that are reasonably well advanced.

Jim Copeland with Goldman Sachs.

Bobby, you mentioned the minister talking about the relaxation of exchange controls. I just wanted to kind of get your thoughts about it. Was the timing of it perhaps a little sooner than you might have expected? And do you see further relaxation in the nearer or medium-term?

The minister indicated in his speech this week that the total evolution of exchange control was the goal of the government. The two particular steps that is an unlimited capacity to invest abroad and their requirement to bring dividends back are a very major change on the exchange controls in South African domiciled companies.

What remains is to an extent that the release of block trans (ph) from South Africa which has already been in principle agreed. The phasing is hard to predict, but it is pleasing that he absolutely embraced the goal of complete abolition. South African business has been calling for this for a long time. I guess is a bit like the walls of Jericho, you are surprised when it's sort of finally comes down. But I think we are in the very last phases of this.

I think it is an enormous sign of confidence that the government has done this. And I figure it also a sign of confidence in the capacity of South African companies to compete globally in a way that is in the interest of all stakeholders, including the South African employee shareholders, and of course the South African Ficous (ph).

Maybe a question for Jonathan. Jonathan, on the adjusted headline earnings number there was in U.S. dollars, there was a 16 million net gain from the non-hedge derivative. And between the sort of headline earnings and the adjusted (indiscernible) you typically back that out. There was a smaller, than I might have expected, backing out of that gain this quarter. Is there anything -- can you tell me at a little bit more about that please?

At the end of the day it is very difficult to predict that number. And we are unable to predict it, which I understand makes it very difficult for you. It just depends where the short derivative positions are during the month and which positions come into -- realizing which comes into unrealized. So unfortunately it is just the way the derivatives fall and the price at the time each one is closed out.

Thanks, Jonathan. And perhaps finally won for Kelvin. We have rolled over this central bank agreement this last quarter. There is about 130 tons more of gold coming from the Swiss under the old agreement. As far I know there's nothing formally put in place from the French, the Italians or the Germans in terms of gold sales. Do you see the possibility of lower than recent levels of central bank selling over the next couple of quarters until they sort of formalize any gold sales?

I would agree with that interpretation. It seems as though they have done their bit for 2004. So we will see if -- in so far as their sales were any pressure on the market, there won't be that pressure in the last quarter.

Looking beyond that obviously Italy will not be a seller. They have positioned themselves as not selling. And the lack of clarity from France and Germany doesn't really matter, they will be sellers. The good news is that we will probably -- this agreement underselling in the next year. And that will be a good signal to the market, that even though the market has 2,500 tons priced into it there will be less than 2,000 tons coming on to the market. Though both in the short term and the medium-term we think it is looking more favorable than it has been before.

Russell Prior (ph) with Deutsche Bank.

Can you tell me at Cripple Creek are you deal drilling the leach padthere? And a follow-on question is would you consider divesting from Yatela and Sadiola?

This is Ben Gunther (ph). We did drill a leach bed. We had the first tranche of drilling late last year really to look a problem areas. We drilled 12 holes. We drilled another 40 holes in the second quarter of this year to verify that the inventory that we've got is there, and indeed that is what it did show, that the inventory that we thought was there is there.

And this quarter?

The drilling we just did that one tranche of drilling in the second quarter. It was 30 holes.

Okay.

Certainly we haven't planned the sonic drilling for the leach padat Yatela, because obviously it is a much lower leach padjust with two lifts. And so far the leach pad has been performing to the designed recovery, so we haven't seen the need for sonic drilling on the leach pad at Yatela.

Like I said I guess my question is divestiture at Yatela or Sadiola, any thoughts that?

Divestiture, no. Actually (inaudible).

Barry Cooper with CIBC World Markets.

A question for Kelvin. And I realize it is a complicated issue, but I'm sort of looking for a simple answer. Your hedge book effectively increased by 540,000 ounces when you net out the deliveries of about the $25 increase in gold prices. Is that a proper sensitivity that we could use going forward, or just how sensitive is the hedge book increases, or for that matter decreases, as the gold price moves down.

That is a good question. It is a directional sensitivity that you could use. It is not arithmetically accurate though, because if we had done nothing with the hedge the delta would have increased more. In fact there were certain things we had done in the hedge, including with the call options, the consequence of which is that the net delta is actually lower for that.

So the simple answer is directionally yes. In terms of the precise amount you may always assume that we will be doing something in the direction of reduction and add that to the direction. I don't know if that answers your question?

Yes, I guess. It just seems a little bit counterintuitive that you are delivering into the hedges, but the hedges are going up. And I understand the thought process behind it, but as you probably can accept it is a bit counterintuitive to explain.

And it absolutely would be counterintuitive if the book consisted only of forwards. Then you would be absolutely correct, as we delivered the book would have to come down. But so long as the book has a dimension of optionality, and as you know it always has, but right from the day we publish the details. That option will tend to move in a leveraged way, I'm afraid -- I say I'm afraid because it does make your modeling more difficult. But your conclusion about the direction is correct.

Victor Flores with HSBC.

Sorry to jump back in with a follow-up, but I forgot to ask you about the phase 7 drilling at Sadiola. Can you tell us what the results are coming out of that. And what you see is the next step for that asset, the '05 part of the asset?

Victor, this is Trace Haba (ph) speaking. We have concluded the drilling portion of phase 7 for the Sadiola deeps. We are awaiting the final analysis of those drill holes. We're comfortable that we now have sufficient information to start the prefeasibility study for that project and to complete it by the middle of next year. Depending on what that prefeasibility study shows we may or may not continue with phase 8 drilling, but that would remain to be seen middle of next year.

So if I understand you if you're happy with what the prefeasibility tells you by mid next year, you will just carry on with the feasibility and potentially began developing it?

We're sufficiently comfortable to commit funds to a prefeasibility study at least. Then of course we'll see at the end of that whether we need or we should invest any further into a feasibility study.

If I can add to that, the success we have had at the FE3, FE4 satellite pits mean that we have more oxides. We have extended the life of the oxides. So we have time, more time to look at the sulfites. That is beneficial for two reasons. If we can get good power, the hydropower from Anatoli it drops the price a lot for the cost of the power. And also if we can improve on cyanide recovery -- we are going to do a pilot test with Hannit (ph) Sonic Recovery in the first quarter of next year. That will also help us a lot with the sulfite treatment which could make quite a difference to the economics on the deep sulfite project.

Jim Copeland with Goldman Sachs.

Just it looks like you have added some silver hedging this quarter. Is it likely that you'll continue to add some hedging there? And maybe Kelvin you could talk a little bit about liquidity of the silver market, how far ahead you can actually look in silver prices?

We did it a couple of months ago, so we haven't been doing it in the current market. And it was done really as a revenue management thing for the activity for the by-product silver at CBSA. So it is not a core or mainstream activity. And our own experience when we went in, it wasn't difficult to get liquidity, but then again we're dealing in amounts that are small.

They are negligible relative to the size of the silver market. Mark Lowden (ph) speaking. There is sufficient liquidity in the silver market to easily facilitate anything that we would want to do. And tanners (ph) are available at five years and greater without any difficulty.

John Bridges with J.P. Morgan.

Kelvin, I just wondered, you have gone from being concerned about the level, or the weak level of jewelry demand in the gold market to seeing a market where it is difficult to see a negative scenario. You say that is driven by a lot more investment demand. I wonder if you can give us a few pointers as to what you see there? It is always a very opaque sort of part of the market.

Yes, we will make -- I am going to make two observations. The one is that we have by no means lost our concern about the health of the jewelry markets. It a little bit about the fear of shouting wolf every three months and nobody listened to us the first time. And we're getting on in our own environment to make sure that what funds we have available in agencies like the World Gold Council gets applied as effectively as we can.

Because any deterioration in the jewelry market really will, as you know, have no effect until the gold price is slipping. That is what will be relevant, not now. So we're not unconcerned and we're not inactive on the gold jewelry market. We still -- if I would make a final point on that, our major concern is the slippage of gold jewelry as a competitive commodity, the competitive consumer good in the United States market. We don't sort of mark Turkey or necessarily the Middle East as the denominators for long-term health. We're concerned perhaps most about the developed markets where it is a discretionary purchase.

Turning to investment demand, you know it is absolutely as opaque to us in most respects as it is to you. It is opaque as you know also to those who measure the market. So that even agencies and institutions like the Goldfield Mineral Services have to deal to a great extent with investment as a buy difference denominator. The one public denominator that we are all familiar with is KERMAC (ph). And certainly it is quite exciting to see KERMAC almost back at the 22 million net long position that it managed to touch six months ago.

I think we were encouraged on KERMAC that we saw a new player 6, 9 months ago. Those new players are certainly still there. I'm not sure that there is a further generation of new players. And I think the one thing we would look for in this cycle of the gold price having got all the way back to 430, is we would look to see that attract another generation of risk diversifiers, asset preservers. The kind of thinking that we are seeing come back into this market and that is spread into it through the commodities and base metals as well as into gold. So we have no particular insights on this last eight week movement, except to say that it has brought us back to where we were before. And as we say, all of the nongold market elements lean in favor of the gold price.

(OPERATOR INSTRUCTIONS). There are no further questions at this time, Mr. Lenahan.

Thank you very much indeed. And ladies and gentlemen, thank you very much for joining us today. And we look forward to speaking to you again soon.

Thank you for participating in today's conference. You may now disconnect.