Anglogold Ashanti PLC (AU) 2006 Q1 法說會逐字稿

Good afternoon and welcome to the AngloGold Ashanti conference call. All participants will be in listen-only mode. There will be an opportunity for you to ask your questions at the end of today's presentation. (OPERATOR INSTRUCTIONS). Please note that this conference is being recorded.

At this time, I would like to turn the call over to Charles Carter. Please go ahead.

Thank you, Dylan, and welcome to participants to this presentation by the AngloGold Ashanti executive team of our results for the first quarter ended 31 March, 2006.

The format of the presentation will be as follows -- Bobby Godsell, our Chief Executive Officer, will review AngloGold Ashanti's financial and operating performance over this period. Kelvin Williams, our Marketing Director, in what will be his last conference call, will briefly summarize the gold market conditions and comments on the management of our hedge book during the quarter. This will be followed by brief presentations by our two Chief Operating Officers, with Neville Nicolau discussing the operations in Africa and Roberto Carvalho Silva covering international operations. After these presentations, we will take your questions.

Before we begin, it is necessary for me to read a declaration regarding forward-looking statements that may be made during this presentation. Certain statements made during this presentation, including, without limitation, those concerning the economic outlook for the gold mining industry; expectations regarding gold prices, production, cash costs and other operating results; growth prospects and the outlook of any AngloGold Ashanti operations, including the completion and commencement of commercial operations of certain of AngloGold Ashanti's exploration and production projects and its liquidity and capital resources and expenditure, contain certain forward-looking statements regarding AngloGold Ashanti's operations, economic performance and financial condition.

Although AngloGold Ashanti believes that these expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, among other factors, changes in economic condition and market conditions; success of business and operating initiatives; changes in the regulating environment and other government actions; fluctuations in gold prices and exchange rates; and business and operational risk management.

For a discussion of such factors, refer to AngloGold Ashanti's Annual Report on Form 20F for the year ended 31 December, 2005, which was filed with the Securities and Exchange Commission on 17 March, 2006. AngloGold Ashanti undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after today's date or to reflect the occurrence of unanticipated events.

With that, let me hand over to Bobby Godsell.

Thank you, Charles. The March quarter was marked by strong financial performance, with headline earnings before unrealized non-hedged derivatives and a loss on the convertible bond increasing by 110% to $86 million. This was primarily the result of our strong participation in the quarter's gold price rally, with our received price coming in at just 2% under spot or $69 per ounce higher than in the fourth quarter of 2005.

In respect of our operating performance, production at 1.34 million ounces was 10% below that of the previous quarter, due in the first instance to anticipated lower grades and the fewer production shifts occurring in this quarter in South Africa, compounded by an unanticipated severe drought affecting our Geita operation.

Total cash costs for the Company consequently increased by 11% to $308 per ounce. Our production was broadly in line with our mid-quarter guidance, and our cash cost performance was some 4% better than previously indicated.

Production in South Africa was primarily affected in the first quarter by the slow startup after the December break. Lower volumes from TauTona and Kopanang and fewer ounces from Savuka and Tau Lekoa, which two operations are in the process of restructuring, resulted in a 9% production declined for the region.

Total cash costs were 10% up quarter on quarter in local currency terms at 61,747 rands per kilogram. It is, however, worth noting that this increase in part reflects the commencement of commercial production at Moab Khotsong and the low volumes and high costs expected in this phase of the operation's slow buildup. Excluding the impact of Moab, our South African cash costs would have been maintained, and this for the ninth quarter in a row, at about 60,000 rands per kilogram.

Of the other African assets, the quarter was marked by some good operating performances from the Ghanaian and Namibian assets, with lower production from Siguiri in Guinea and two of the Malian operations. Geita had a disappointing quarter due importantly to the drought and adverse weather conditions, which Neville will talk to in a moment.

The international operations were generally steady-state, with solid operations from Cerro Vanguardia in Argentina and Serra Grande in Brazil, even as inflation and local currency strength respectively affected cash costs at these operations.

Cripple Creek & Victor in Colorado posted a grade-driven production decline of 25%, which was both anticipated and indicated last quarter. While Neville and Roberto will take you through our operational performance in detail, in the context of the first quarter's reduced number of production shifts and the planned and forecast grade declines at Cripple Creek & Victor, I view these results as relatively sound, keeping in mind that we're anticipating in the second quarter improved production of 1.483 million ounces and lower cash costs estimated at $299 per ounce.

This cash cost estimate is based on exchange rates of the South African rand of 6.22, Australian dollar of 0.72, the Brazilian real at 2.19, and the Argentinian peso at 3.05.

I would like to make a brief comment on the quarter's equity offering, which saw AngloGold Ashanti issue some very nearly 10 million new ordinary shares, along with a concurrent secondary sale by Anglo-American of 19.7 million AngloGold Ashanti shares. The combined offering, priced at a 1% discount to the 30-day average weighted price on the JSE, the price was $51.25 per ADS and 315.19 rands per ordinary share.

It was successfully completed on April 20 and has resulted in net proceeds to the Company of approximately $495 million, as well as a reduction in the holding of Anglo-American to 41.8%. I'm very keen to welcome all new shareholders to the Company, as well as to extend my appreciation to existing institutional holders who stepped up to increase their holding in our Company.

Before I hand over to him, I would like to note that today marks Kelvin's final quarterly presentation. It marks also the end of an entirely remarkable career with AngloGold Ashanti and its predecessors. Three things in particular for me distinguish this career.

The first is Kelvin's direction of the Company's hedging activities, starting in the late 1980s. Under his stewardship, hedging has provided this Company with a valuable risk management tool in both bull and bear gold markets.

The second distinguishing feature of this career is Kelvin's passion for our product, gold, and his understanding of that most important truth of Peter Drucker, that a company exists to meet the needs of its customers. With the demonetization of gold in the early 1970s, Kelvin understood the vital role that gold jewelry demand in both Western and Eastern markets plays in gold demand.

He was a founding member of the World Gold Council in the 1980s and has served on that body's Board of Directors and Executive Committee from its foundation. He has also led the Company's downstream activities and our investment in the South African jewelry manufacturer OroAfrica, as well as the gold jewelry design competitions that we have run worldwide. These are eloquent witness to his legacy.

The third aspect of his career is his ability to attract, inspire and then give space to grow to younger managers, and the clearest indication of that is to be found in the person of Mark Lynam, who will now lead our hedging activities going forward, and Thero Setiloane, who will be leading our downstream activities.

I would like to record my thanks to Kelvin, and hand over to him.

Bobby, thank you, and thank you for those very kind words and for being handed over to. And our metal has been sufficiently in the news during this past quarter that you would hardly need to read my comments on the gold market in our quarterly results to learn anything about the gold price and the gold market. My observation at the beginning of the quarter that we live in exciting times has become true in Technicolor since then.

As you know, the gold price has managed to rise by over $160 an ounce since the beginning of the year to a price level over 30% up in one quarter, and the momentum of the increase has barely stalled or abated during this time.

It remains the case that the behavior of the gold price is pretty well delinked from the U.S. dollar/euro exchange rate and from the level of trading and open interest on the New York commodities exchange, although not entirely so, and I say this because the market still takes reference to movements or circumstances in those two markets to justify trading moves in gold.

So a slight weakening of the dollar will give rise to a material strengthening in the gold price, but the two are nowhere strictly or proportionately correlated, as they were from 2002 to 2005. Similarly, the spot gold price has reached its current highs without the New York COMEX reaching or surpassing the net high open position of 22 million ounces, which it touched two years ago.

The closest correlation we can see with other markets today is that with the base metal and commodity market. And it's certainly true that gold has been buoyed by continued investment flows into commodities in general. In this context, or against this yardstick, the gold price has actually lagged other metals somewhat, in both base and silver sectors. And this could augur well for further gold prices strength in the months ahead.

In addition to the strength of investment flows, sentiment in regard to gold continues to be supported by the long-anticipated weakening in the U.S. currency, by continuing signs of international tension in the Middle East, and by record-high nominal energy prices. There's every reason to hope and look for higher prices for our metal in this market.

The Company's strategy of active management of our maturing hedge positions and of the hedge book as a whole has not changed during this more positive gold market. We have continued to allow all maturing forwards to roll off the book and to manage trading activities around the existing hedge positions in a manner aimed at generating higher received prices for the Company.

As a result, the Company achieved a received price of $545 per ounce for the first quarter of 2006, compared with the average spot of $554 per ounce. This shortfall in our received price against spot price of $9 per ounce was the same shortfall as that received in the previous quarter, when gold price averaged $485 per ounce. But definitely, the full benefit of the $69 per ounce increase in the average spot price quarter on quarter was enjoyed by our shareholders in the Company.

Looking forward, in a continually rising gold price, we will continue to manage the book to secure as much benefit as possible of this spot price increase from quarter to quarter. The gap between received price and spot price will certainly increase in a rising market. And active management of the Company's price contract is that much more difficult in a volatile price environment.

It is certain that a rather larger shortfall between received and spot will be experienced with the gold price well into the $600 range than would be the case at lower prices. Nevertheless, we remind you that the Company's hedge positions have been reduced by restructuring in the past 18 months and the major benefit of gold price rises will continue to be enjoyed by the Company.

Regarding the quarter-end evaluation valuation of the hedge, the increase of some 390,000 ounces in the delta size of the hedge and the increase in the negative valuation of the hedge are both due entirely to the increase of $65 per ounce in the spot price of gold, on which the hedge was marked to market at the end of the quarter.

Had the spot price of gold at the end of March 2006 remained unchanged from the price of $517 per ounce at the end of December, the hedge would have reduced in size to 10.34 million ounces, with a mark-to-market negative value of just on $2 billion.

The Company continues to manage its hedge positions actively and to reduce overall levels of pricing commitments in respect of future gold production by the Company.

Thank you, and I now hand over to Neville to report on the African operations.

Thank you, Kelvin. The African assets produced a mixed set of results for this quarter, with solid performances from all three of our Ghanaian operations and from Sadiola and Yatala in Mali. Production at Siguiri in Guinea declined quarter on quarter and production was also down, as expected, across the South African assets, although Mponeng demonstrated excellent cost management, holding these constant quarter on quarter at 51,487 rand a kilogram, in spite of a 4% lower production.

Production at Morila in Mali declined by 7% while holding steady at 22,000 ounces at Navachab in Namibia. As Bobby mentioned, commercial production began at Moab Khotsong this January, and it is for the first time included in the South Africa region's results. We had previously indicated that Moab will build up slowly over the next few years, reaching full production and optimum cash costs in 2012, although we anticipate significant yearly production increases.

As I noted last quarter, the grades at Moab are lower in the initial buildup phase than we had originally anticipated, but as mining moves east, grades will gradually increase through the year, and going forward, as we completed the buildup, just as Great Noligwa was mined from high grade to low grade over its life, so the buildup at the adjacent Moab mine started low grade and works towards a high grade.

As costs begin to accordingly decline, this will have a significantly positive effect on the South African costs, which as a whole were pushed up this quarter as a result of Moab's initial low volumes and high costs.

The South African operations were also affected by the normal slow start of the year after the December holidays, and this, combined with the expected lower grades at Tau Lekoa and Savuka, resulted in a 9% decline for the group to 610,000 ounces.

You'll note in the quarterly text that we have decided in light of the very positive gold price environment to move Savuka back into a double-shift mining operation, with the intention of maintaining production to December 2006. This is in addition to our current plans, and as [Venkat] so eloquently says, this is jam in our pocket.

The downscaling at Tau Lekoa, in order to restore it to profitability, has also been completed, and the full effects of the restructuring will be seen in the next few quarters.

Elsewhere in Africa, Geita in Tanzania had a difficult quarter, with production down 30% and total cash costs up 13% to $368 an ounce severe drought negatively impacted the water supply to the processing plant, reducing it to a two-shift operation. Subsequent heavy rains affected the transport of ore and mining and in particular made it difficult to keep the plant fed.

Apart from the first quarter's results, this has two important effects. First, the gold lost in the first quarter will be difficult to make up during the rest of the year, and second, the important progress in pushback 4 and 5 of Nyankanga pit is proceeding slower than expected and planned. The forecasted exposure of high-grade ore in the Nyankanga pit during the fourth quarter could be delayed as a result.

In Ghana, Iduapriem reported a 9% cash cost improvement and steady production after mining moved back into the high-grade zone, while production at Obuasi was also nearly on par with that of the previous quarter at 99,000 ounces and cash costs were slightly better at $349 an ounce. Production declined significantly at Bibiani, as the operation is downscaled to a tailings-only status and the elimination of all mining-related costs resulted in a 16% decrease in total cash costs.

I will now hand over to Roberto to discuss the international operations.

Thank you, Neville. The international operations boasted generally solid results for the March quarter. Looking first to South America, [Serra Grande gained], maintaining its 24,000 ounce production level, although total cash costs rose 7% as a result of the continued depreciation of the Brazilian real.

AngloGold Ashanti Mineracao, however, managed to hold costs steady quarter on quarter, in spite of the 26% production decline after mining was temporarily stopped, as planned, while the shaft and crusher at Cuiaba were upgraded as part of the expansion project.

Production at Cerro Vanguardia in Argentina was marked at a 2% improvement, although cash costs negatively affected by inflation and the higher reais as a consequence of higher price increased 8%.

In North America, production at Cripple Creek & Victor declined 25% [of cash] costs due to lower that originally anticipated grades at [Altaman] pit. Cast cost escalation, however, was held to 3% in spite of the lower production and increased [alternative transported to the pads], as well as increased consumption on line and another reagent. Production for the year, however, is still anticipated to meet the target of 323,000 to 330,000 ounces.

Look across to Sunrise Dam in Australia. Production was just 1% below that of the previous quarter, and total cash costs returned to the ordinary levels of $380 Aussie after the [ounce, runoff] or stockpile adjustment considered -- reduced total cash costs in the fourth quarter of 2005.

Also in Australia, and as we have previously announced, the AngloGold Ashanti and Newmont Boards approved Boddington project in the first half of the quarter. Construction of the project is expected to commence in the last two quarters of the year, with initial production anticipated in late 2008.

We expect to have a 33% interest. We're looking at the current project life of more than 15 years, with gold production of approximately 330,000 ounces per year and at assumed real cash costs of 209 per ounce for the first five years. The last number I quote is in U.S. dollars. Our 2006 share of project capital expenditures will be about 82 million in 2006 and be 183 million over the next three years.

I will now hand it back to Charles.

Thank you, Roberto, and with that, we'll hand back to the operator, Dylan, to poll for questions.

(OPERATOR INSTRUCTIONS). Pete Townsend, BJM.

My first question perhaps is for Kelvin. Looking at the commentary on the physical markets, Kelvin, perhaps it's just my interpretation, but you seem to be making some warnings regarding physical demand.

And I'm just wondering, if I am interpreting that correctly, if I'm also seeing the results of that in the hedge book, where you seem to have been quite active this quarter, and I presume that's why you've managed to track the gold price quite closely, especially in selling calls and puts. Does this reflects a view that the current level in the gold price is unsustainable?

Yes. Do you have any other questions? The physical market has always ebbed when the market has gone up. Some of the markets, like the United States, if the price is rising in a seasonally good time for gold, like September or October, when the manufacturers are beginning their pipelines for Christmas, it will have no effect on U.S. offtake.

It certainly will always impact, no matter what the time of the year, whether it's Divali, whether it's Chinese New Year, it will impact those countries which have low margin retail prices of gold. So there is no doubt that the Indian market retreated quite substantially in the last month or two and has remained very soft during this first quarter.

That does not translate, as you know, to the price. So the fact that the price continued to rise by more than $160 over the last four months is confirmation of that, that the Indian demand wasn't driving it. It's being driven by the investment flows into metals in general, into commodity indexes, commodity funds, and as long as they continue, then there's no reason to call the prices toppish.

That then flows through to what it was that Mark did last quarter, and whether it meant that our trading around the price had implicit in it an assumption that the price was toppish. Quite honestly, I would think Mark would confirm to you that he didn't do very much in the way of selling of call options, because in a rising market, that's the very position you don't want to be in. So what is residually on our books is more in the line of short put options as protection in closing positions if the market were to retrace.

But yes, it was an unusual quarter. I don't think, and I'm not sure whether any of my colleagues would feel differently, but I don't think any of us feels that there is anything in the market at the moment to take off the top.

Yes, I see you're very busy on the put option of almost 1 million ounces, it looks like there. But on the physical markets, Barrick has also been a very active player, or certainly seemed to be in this quarter, and that could have had a big impact on the market, but that draws me into my second question, which is on the hedge book as it currently stands, and given the gold price where it currently stands, are you getting to the stage where you think you might have to bite the bullet and do something along the lines of what Barrick has done in terms of a very big restructure again?

Let me give you a general answer that gives you a context rather than what we intend to do next. The context is that what Barrick has just done is buy 4.7 million ounces in the quarter. Certainly that might have tightened the over-the-counter market and it might explain why the gold price continued to go up even when the New York COMEX was flatter than a pancake.

If you go back to the last quarter of 2001 and the first two quarters of 2002, AngloGold Ashanti took back over 3 million ounces without buying back. We did it by restructuring and we put no money into the restructuring -- into the take-back. We have in the overall period of the last five years probably reduced the hedge by close to 10 million ounces now, all without doing it in an upfront buyback impacting directly on the income statement.

So in a sense, you've seen a pattern of behavior by AngloGold, and I would think you would -- you should assume that Mark Lynam will continue to run the hedge exposures in the way. I don't think anybody ever rules out any options, but maybe Barrick is buying back 5.5 million ounces now because it did nothing five years ago when we were taking metal back.

I can't speculate, but I'm just saying there is very little in our pattern of behavior over the last year -- the last five years that I think should lead you to think that we think it's necessary to take that kind of step.

If I may squeeze one more in for Bobby, Bobby, perhaps of character recently, you've been quoted quite a lot in the press regarding potentially quite big corporate acquisitions or mergers, particularly with something with Gold Fields and then on South Deep.

In the current gold market, again, and where you are -- the Company as AngloGold Ashanti, do you think there is a strong argument for that sort of, say, a merger between Gold Fields and AngloGold Ashanti, because it's a strong counter to many of the discussions I've had with you in the past.

Let me just put this in the context. On a number of occasions, we've been asked whether we could be interested in a Gold Fields deal or a South Deep deal. I think it's a pretty dumb person who says we're not going to do A, B, C and D. What I repeatedly say and say again today, we have no formal proposals about up either of these companies. We have no deals to announce. If we get a deal, we'll announce it.

We don't tend to do is to preannounce deals, and what we certainly don't tend to do is to rule out a range of future opportunities. We are sitting on the largest-ever [part] plan of organic growth projects with the highest-ever expansion capital, and we've also got the most exciting prospects for greenfields exploration. That's where our growth intentions are clearly focused. Plus, M&A opportunities have always been opportunistic, and if somebody came to us with a good deal about a wide range of things, it would be our job as management to look at them, and that's what we'll do.

Victor Flores, HSBC.

I have two questions. First, with respect to Geita and the comments you made about the Nyankanga pit, could you quantify if there are delays with the stripping what production impact that might have for this year?

The outlook for this year is still within the range that we've given, and if that changes, we will update after, Victor. At the moment, things are working and we're not having any delays at the moment. We don't expect any further water issues at the mine, even if a drought was to recur, since we've upgraded the pipeline from Lake Victoria. And that the moment, we are going down in pushback 4 and 5. So the guidance that we gave, which is in our documentation and --

Actually, Neville, I can pick that up. The guidance we gave, Victor, was in the region of about 550,000 ounces, particularly if you recall when we [technical difficulty] we revised the Geita guidance to about 550-ish, roughly, for the year.

The second question goes to Obuasi. I know the goal there is to get development a bit ahead of where it's been and try to move that production level up from, say, 100,000 ounces a quarter to maybe as much as 110 or 120. It looks like the operation is still struggling to meet those improved objectives, and I was wondering if you could just comment on the progress there.

We have Robbie Lazare in the room, who is the Executive Officer for the region, but our outlook for the year for Obuasi we have given at about 415,000 ounces, and the first quarter's results are in line with achieving that target. And now I'll hand over to Robbie to talk about the development rates.

Development rates is also on target with this stage. We have now got five months' developed reserves. We are planning to get to 10 months by the end of the year. And the trend in terms of the development, you can see -- you won't be able to see it, but if you looked at the graphs, you would see that it's on a continual upward trend, so we are quite confident that we will get the mining flexibility that we need by the end of the year.

Muneer Ismail, Deutsche Securities.

Just two questions. I may have missed -- you may have answered one of the operational questions, but I'll ask it anyway. With regards to restructuring at Tau Lekoa, Neville, you mentioned that the restructuring is complete now. What do we have to look forward to? Is it a 400,000 ton per quarter mine, or will grades pick up -- will production get better from this point?

Well, again, Robbie Lazare is right here to answer that question.

Okay. The restructuring is on track. We've got down to our production levels now that we've planned after the first quarter. The cost is about in line. There's a little bit of tweaking still to do in terms of the costs. We've gone into the April month now and we've sort of finished our gold production, and it was on target, and the cost was about on target as well. And a major improvement in terms of cash flows has occurred. For the first time in a long time, Tau Lekoa actually, on this last month, had a positive cash flow.

Okay. On CapEx, then, just looking at a Obuasi and Great Noligwa, I see there are some big cuts to CapEx, or Great Noligwa, there's a drop in CapEx from $19 million to $9 million and Obuasi from $30 million to $16 million. Now, where did that come from? Is it something that's going to -- is this a trend, or are we going to see the resurge in CapEx going forward in the next quarter?

No, that was really the first quarter. There's always a slow start to the year, and we manage capital accordingly. We still by the end of the year will be on the capital that was forecast for the year.

And I think year on year, the Obuasi capital actually goes up with 20 million rand, and we will spend it.

20 million?

Dollars.

Dollars, sorry.

And then one last one, sorry. I'm dragging on. But just on Geita, Geita produced 84,000 ounces this quarter. You sort of -- you're targeting 500,000 plus for the year. Are you going to get this out in the next three quarters? It seems like a bit of a stretch, given that you're milling tonnages of 1.5 million tons per quarter. I can't see you growing much beyond that.

Yes, but Muneer, remember the plan is to get pushback 4 and 5 done. If you look at the electronic presentation which we put up, pushback 4 and 5 lie right on top of the high-grade ore body, and it is our plan to get into that high-grade ore body by the fourth quarter. So it's not over the next three quarters. It's actually towards the end of the year. And so it's low grades and constant volumes in the beginning or the next two quarters, and then in the fourth quarter, high grades and similar volumes.

Okay, but seriously high grades, then?

Yes, seriously high grades.

Great stuff.

(OPERATOR INSTRUCTIONS). Heather Douglas, BMO Nesbitt Burns.

I'm sorry, Heather Douglas has actually withdrawn her question. We have no further questions, ladies and gentlemen, if you would like to make a closing comment.

No, we'd just like to thank participants for joining us on this call, and our full results presentation is on our website. Thank you.

On behalf of AngloGold Ashanti, that concludes this afternoon's conference. Thank you for joining us. You may now disconnect your lines.