Anglogold Ashanti PLC (AU) 2006 Q2 法說會逐字稿

Good afternoon and welcome to the AngloGold Ashanti second-quarter earnings results conference. 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 conference over to Charles Carter. Please go ahead.

Welcome to this presentation by the AngloGold Ashanti executive team of our results for the second quarter ended 30 June, 2006. The format of the presentation will be as follows -- Bobby Godsell, our CEO, will review the Company's financial and operating performance over the period; Venkat, our financial director, will briefly discuss our financial hedge book and debt position followed by Thero Setiloane who heads up marketing who will briefly review a new enlisted Nufcor entity and this will be followed by the presentations by our two Chief Operating Officers with Neville Nicolau discussing the Africa operations and Roberto Carvalho Silva covering the international operations. Last but not least, Richard Duffy, who heads up business development and exploration, will review our exploration activities during the quarter. 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. Gross prospects and the outlook of AngloGold Ashanti's operations, including the completion and commencement of commercial operations of certain of our exploration and production projects and our 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 the 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 and market conditions; success of business and operating initiatives; changes in the regulatory 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. I'll now hand over to Bobby Godsell.

Thank you, Charles. I'm pleased to report an improved financial performance for the June quarter with adjusted headline earning 63% higher at US$140 million or US$0.51 per share. This improvement was primarily the result of increased production which was up 6% on the prior quarter and a better received price, 10% higher. (indiscernible) the quarter saw a modest improvement in the lost time injury rate which improved from 6.8 to 6.6. It also saw a more significant reduction in fatal accidents, five this quarter compared to last quarter's 11. Fatality rates reduced significantly from 0.28 to 0.12.

Three operations in the Company standout for their lost time injury pre-quarter -- Cripple Creek and Victor in Colorado, Bibiana in Ghana and Yatela in Mali. A further seven operations recorded only a single lost time injury for the three-month period, these being Cerro Vanguardia in Argentina, Sunrise Dam in Australia, Serra Grande in Brazil, Morila and Sadiola in Mali, Iduapriem in Ghana and Siguiri in Guinea. Obviously improved sector performance across all our operations remains a core focus of the management team.

Getting to the operating performance, I would characterize this as solid production, rose 6% to [1.415] million ounces due primarily to improved results for most of our South African assets with four out of the seven operations reporting higher production and lower costs and also several of the international operations, particularly Sunrise Dam in Australia and Cerro Vanguardia in Argentina.

In South Africa the Mponeng, Kopanang and TauTona mines reported particularly strong results with increases of 14%, 11% and 9% respectively and total cash cost improvements of 5% at both the Kopanang and TauTona minds at 80% at Mponeng. For the region production increased by 6% to some 20,150 kilograms and total cash costs came in again below the 60,000 rands per kilogram mark improving 4% quarter on quarter to 59,200 rands per kilogram of gold produced.

In respect to the other African assets, all three of our Malian operations reported solid results as did Siguiri in Guinea where production rose 4%. Neville will speak in greater detail to the Tanzanian operation, Geita. This mine continued to suffer the effects of the first quarter's drought and subsequent heavy rains and the associated delay in the pushback in the Nyankanga pit. This had the effect of reducing production by 15% to 71,000 ounces and pushed our costs 38% to $507 per ounce.

We have also applied a new grade evaluation model at Geita and the ultimate effect of this has been to reduce our forecast of both feed grade and consequently gold output. The combination of these three factors has resulted in a revised production outlook for Geita in 2006 to about 350,000 ounces for the year with a potential to double this next year 2007 as we access the higher grades in the Nyankanga pit. I should note that this revision does not impact our view of the long-term potential of this ore body which remains one of the key long life assets of the Company.

The international assets were marked by some excellent performances this quarter including Sunrise Dam in Australia where higher grades led to production up 24% and Cerro Vanguardia in Argentina where production was up by 23%. AngloGold Ashanti Mineracao in Brazil also reported a 16% higher production. At Cripple Creek and Victor in the United States both production and total cash costs improved modestly by 2%.

Despite this improvement, however, we've revised down the 2006 production outlook for this operation to approximately 300,000 ounces for the year. Roberto will take you through this in greater detail, but the revision is largely the consequence of the quarter's reduced rainfall. The release of these ounces in the pad but not yet producing gold is anticipated to improve the production outlook for Cripple Creek and Victor in 2007.

The effect of the downward revisions at Cripple Creek and at Geita combined with the Company's year-to-date performance suggest to us the need to lower our production outlook for the year to approximately [5,7] million ounces. This is modestly below the low and of the range we provided to the market earlier this year which the lower end was [5,8] million ounces.

On current standing total cash costs for 2006 are estimated at around $301 an ounce and capital expenditure is forecast at $851 million. These forecasts are based on exchange rates in the case of South Africa of 6 rands 65 cents per U.S. dollar. In Brazil of 220 reals to the dollar, Argentina 309 pesos to the dollar. In the case of Australia on a forecast rate wherein Australian dollar would buy 75 American cents.

In the next quarter we're estimating production flat at around 1.4 million ounces with an average cash cost of $306 per ounce. This assumes for the quarter exchange rates of 7 rand to the dollar, 218 Brazilian reals to the dollar, 307 Argentina pesos and in Australian dollar buying 75 American cents.

Finally, for the six months ended 30 June, 2006 we're declaring a dividend of 2 rand 10 or US$0.30 per share. This is on the basis of a similar payout ratio as the first six months of last year, namely 40% of the adjusted headline earnings, which we regard as a prudent payout given our current high capital expenditure base. Interim dividend of 210 or US$0.30 represents in rand terms an increase of 24% on the interim dividend of last year. I'll now hand you to Venkat.

Thank you, Bobby. As Bobby has noted production was up 6% on the previous quarter with total cash cost 1% lower than that of the last quarter. Our price received at $600 an ounce was 10% higher than that of the March quarter and some 5% lower than the average spot price during the quarter. In this higher gold price environment, and given the substantial increased volatility that has come to categorize today's gold market, you should expect our price received to be in a range of some 5 to 10% of average spot prices.

Importantly this is because we continue to deliver into the book as fully as we possibly can. Thus I would point out to you that if you look at our hedge book this past quarter the hedge delta at quarter end was 315 tons or 10.1 million ounces, marking a 10% reduction or a decrease of some 1.1 million ounces from the previous quarter's reported hedge delta. This was achieved despite a gold price that was some $38 per ounce higher as compared to the previous quarter end price.

Going forward we remain committed to opportunistically implementing value accretive reducing strategies, although we do not intend to reduce the hedge book at any cost, particularly in this highly volatile gold price environment. Our treasurer, Mark Lynam, is with us today and will be happy to take any questions that you have on the hedge book.

In terms of our adjusted headline earnings, you will see that these are 63% higher than the previous quarter at $140 million or $0.51 per share on the enlarged (indiscernible) capital. This improvement has been driven mainly by production and price together with marginally improved costs. Our financial returns on both capital employed and on equity are now comfortably back in the double digits.

Lastly, turning to our debt position, the proceeds of our recently completed equity raising and improved cash generation from the business have enabled us to reduce the Company's net debt level by some 38% from US$1.66 billion to US$1.03 billion during the quarter. The annual rolling net debt to EBITDA ratio improved from 2.27 times at the end of 2005 to 1.15 times as at 30 June, 2006. I'll now hand you over to Thero to discuss the recent listing of Nufcor Uranium Ltd.

Thank you, Venkat. I'm going to briefly walk you through the recent IPO of London's alternative investment market of Nufcor Uranium Ltd., Nufcor Uranium. First let me start with some background. Since 1999 AngloGold Ashanti has held a 50-50 joint venture with First Rand Int'l in a London-based company called Nufcor Int'l Limited, Nufcor Int'l. This was established to market and trade nuclear fuel products in various stages of the nuclear fuel cycle including but not limited to our own production of uranium. Nufcor Int'l is today a well-established player in the global uranium products market.

It is Nufcor Int'l that has listed a newly created investment company, Nufcor Uranium [on aim]. This new listing which started trading last Friday under the ticker NU is 10% held by Nufcor Int'l with the rest now being a free float held by institutional investors. The strategy of Nufcor Uranium is to buy and hold uranium in the form of U308 for the long-term and not to trade it actively. This is really the first time that equity investors can gain direct exposure to the uranium price in the form of U308 on a European exchange.

As you will know, U308 is an oil used in the feedstock in the early stages of production of nuclear fuel for use in nuclear power stations. It can only be transferred between licensed and secure storage facilities. In respect of the IPO of Nufcor Uranium, based on an offer price of 2 pounds 5 pence per ordinary share, the market cap is some 67.7 million pounds or $123 million. Both (indiscernible) will be used to acquire 2 million pounds of U308 from Nufcor Int'l. Having done so the Company will have approximately $22 million in cash for further purchases of U308 and to meet operating expenses. Nufcor Int'l is contracted to provide custodial and advisory services to Nufcor Uranium.

I'm therefore delighted with the successful launch of this investment opportunity on aim. Going forward we are continuing to work on additional ways to optimize our uranium production capabilities and to leverage on our well-established expertise in this very attractive market. I will now can you over to Neville Nicolau to take you through the operational performance of the African region.

The African assets produced a mixed set of results for this quarter with some significant improvements amongst the operations in South Africa and in Mali tempered by lower answers at higher cash costs from all three of the assets in Ghana and a disappointing quarter at Geita. As Bobby mentioned, of the seven South Africa operations four posted improved production and cash costs for this quarter with Mponeng reporting a particularly impressive 14% production increase and 8% lower total cash cost at 47,250 rand per kilogram.

At Savuka and Tau Lekoa, our two South Africa operations undergoing restructuring to take advantage of the higher gold price, operational performance was solid. At Savuka production was on par with the previous quarter at 653 kilograms and cash costs were 3% higher due to the additional maintenance work and redevelopment related to the decision to postpone Savuka's closure. At Tau Lekoa production declined 10% according to the downsizing plan and cash costs consequently improved 9%.

Turning to greater Africa, the Ghanaian assets had a difficult quarter. At Bibiana and Iduapriem production declined 14% and 5% respectively. At Bibiana the decrease was in part the result of the operation's continued downscaling to a tale ends only status; although lower recovery rates resulting from a circuit tank breakdown and power outages also contributed to the reduction. At Iduapriem (indiscernible) and crusher breakdowns resulted in lower production. At both Bibiana the Iduapriem the problems are being addressed and we should see operational improvements from these operations in the second half of the year.

At Obuasi production was more or less on par with the previous quarter at 97,000 ounces; a 5% yield decline partially offset by an improved processing availability led to a 16% increase in the total cash costs to $406 per ounce. Surface drilling continued at Obuasi during the quarter with the two deep holes reaching depths of 876 meters and 1,500 meters. The recent decisions are expected in the first half of 2007.

Finally, I'd like to discuss in more detail the problems we are currently experiencing at Geita. First we have transitioned now to owner mining. This has been undertaken at the same time that we've been trying to address the catch-up of the backlog of the stripping of the pushback number 4 in the Nyankanga pit. While mining rates and efficiencies have improved on our underperformance earlier this year, we at the same time have been reviewing our grade models to ensure optimum mining of this extensive deposit.

As you'll be aware, the Nyankanga ore body plunges and requires increasing removal of overburden for each pushback. As the depth increases the nature of the hanging wall becomes more significant in the mining process. The hanging wall contains minor satellite ore bodies in the form of hanging wall splays which require careful definition and evaluation before mining. Our experience of mining at the increasing depths of the Nyankanga ore body has led to refinements in the geological interpretation of the ore body and the application of a more appropriate grade evaluation model. This has resulted in a lowering of the forecast of the institute and an increase in the ore tonnage from the major Geita pit.

The effect of this is that the feed grade to the plant is reduced and this decreases the gold output since the plant is running at full capacity. This is a negative effect on the monthly gold output of the mine. Management are therefore considering cost effective ways of resolving this problem; the most obvious is to increase both the plant capacity and the mining feed capacity.

In the short-term the rain problems that slowed down the mining of pushback 4 earlier this year have delayed the mining in the higher grade ore underneath pushback 4 and into next year. This together with the lower than expected grades and recoveries of the Geita yield and other satellite ore bodies have caused management to revise the outlook for this year to approximately 350,000 ounces and an overall yield of about 2 grams per ton with the potential to double this production in 2007 as we access the higher grade ores at an expected yield of about 3.7 grams per ton.

In the medium-term and assuming the current plant and fleet constraints, the mine should settle down at an annual production profile of approximately 650,000 ounces at a yield of just over 3 grams a ton. Although this will vary as we mine through pushback 5 and pushback 6. Importantly and as Bobby noted, this near-term production revision at Geita does not impact our view that this is a very significant long-term ore body.

To this end brownfield exploration drilling programs around Geita have confirmed a connection between the South and central ore body at Lone Cone. This quarter drilling indicated the potential for a second mineralized zone in Nyankanga South and the area three west showed encouraging results. I will now hand you over to Roberto who will discuss the international operations.

Thank you, Neville. The international operation posted generally solid results for the June quarter. Looking first to South America, Serra Grande again maintained its 24,000 ounce production level, although total cash costs rose 3% as a result of the continued appreciation of the Brazilian real and a slightly lower grade. At AngloGold Ashanti (indiscernible) South production returned to more normal levels, increasing 16% to 57,000 ounces following last quarter's production halt due to the (indiscernible) grade of the sharp (indiscernible) crusher at the (indiscernible) mine. Total cash costs rose slightly quarter on quarter to $190 per ounce.

Production and Cerro Vanguardia in Argentina was marked by a 23% improvement to 64,000 ounces due to higher feed grade. Cash costs were on par with those of the previous quarter as increases in labor (indiscernible) and maintenance costs offset the effect of increasing both production and the silver byproduct credit.

Looking across to Australia, Sunrise Dam had an excellent quarter -- second quarter, with production up 24% as a result of an increased term (indiscernible) at the high grades. Total cash costs consequently declined 4% to $366 (indiscernible). Also in Australia the (indiscernible) continued to make good progress this quarter, although we are of course still in the early stages of the project.

Finally I would like to comment on our North American operations, Cripple Creek and Victor in Colorado. As mentioned, CC&V had a good quarter with (indiscernible) production and total cash costs improving [2]% due to an increasing recoverable ounce place on the (indiscernible) pad. However, because we have placed higher volumes on the pad in the last two quarters to mitigate the effect of the lower grade mined from the bottom of the ultimate pit which we (indiscernible) last quarter, there is now an increased water requirement at CC&V to irrigate the (indiscernible).

In contrast, reduced rainfall in the Colorado area has led us to revise down the production for 2006 to approximately 300,000 ounces. Looking ahead the release of the (indiscernible) ounces on the leach pad is expected to improve the production outlook for this operation 2007. I should note that there are several management interventions currently underway to ensure that CC&V will take adequate steps to order supplies for the rest of the year.

Most important, we have sourced (indiscernible) water from the nearby towns of Victor and Colorado Springs and we are in the process of installing an additional pipeline to get this water to the mine. (indiscernible) note, new program efforts at CC&V continue to be primarily focused on the resource expansion. Results for an ongoing step up (indiscernible) model to the term, the impact of new billing results, and updated cost assumptions on expanding the deposit.

Infill and step-out development drilling in the south (indiscernible) deposit also continued during the second quarter with encouraging results. I will now hand over to Richard who will discuss our exploration activities and strategies.

Thanks, Roberto. Exploration highlights in the second quarter included the discovery of the new Havana zone at our Tropicana joint venture in Australia. Encouraging initial drill results from two of our Colombian projects, the signing of two regional exploration JVs in Colombia with Bema Gold and Antofagasta respectively, and the signing of a letter of intent for the sale and option of all of our Alaska exploration properties and databases to International Tower Hill Mines.

Results from infill drilling at the Tropicana zone included 34 meters at 4 grams a ton and 29 meters at 4.37 grams a ton. Gold mineralization is confirmed to extend 1,400 meters along strike and drilling is aimed at testing the (indiscernible) extension of mineralization which remains open. At the new Havana zone significant drill intercepts include 15 meters at 1.93 grams a ton and 20 meters at 2.1 grams a ton and remains open to the north and south and downdip.

We continue to target reaching prefeasibility in 2008. In Colombia phase 1 drilling directed at bulk tonnage targets on two of our projects in central Colombia returned encouraging initial results with a number of assays still outstanding. We also capitalized on our first mover advantage, a land staking program, by signing two regional exploration JVs which will facilitate accelerated exploration spend in these JV areas of interest.

In June we signed an agreement with Bema Gold Corp. to form a new company to explore a select group of our mineral opportunities located in Northern Colombia. Under the terms of this agreement this new company will have the right to earn into a 51% interest on any property that we elect to farm out within this area of interest by carrying out a minimum of 3,000 meters of exploration drilling and my matching our prior exploration spend. We have initially agreed to provide a minimum of eight exploration properties to this venture and Bema will provide a minimum $5 million in exploration funding.

In July we signed an agreement with Antofagasta to jointly explore for new copper and gold deposits in a highly prospective belt in Southern Colombia. Under this agreement we will include all of our mineral applications and contracts and Antofagasta will commit to fund a minimum of $1.3 million of exploration within 12 months of signing the agreement with the option to invest an additional $6.7 million within four years to earn in to 50% of the joint venture.

In the DRC the arrival of a second diamond drill rig enabled us to accelerate our drilling activities which were focused on testing the Adidi Kanga and Nzebi/Senzere corridors. Significant new intercepts included 14 meters at 6.4 grams a ton from 57 meters. Resource delineation drilling will continue in the DRC in the third and fourth quarters.

We signed a letter of intent with ITH in June for the sale and option of all of our Alaskan mineral exploration properties and associated databases. Under the terms of this agreement we will be issued with just under 20% of ITH's issued share capital. While Alaska remains highly prospective for the discovery of new gold mines, our commitment in countries such as the DRC, Colombia and Australia limit our ability to optimally develop these Alaskan projects.

Through the envisaged cooperation with ITH the exploration programs at these projects will be accelerated. And given that we will retain a significant share holding at ITH in addition to JV rights and interests in the LMS and Terra projects, our shareholders will have considerable upside exposure to any future discoveries made in Alaska by ITH. Thank you. I will now hand back to Charles.

Thank you, Richard. Dillon, we invite you to prompt for questions.

(OPERATOR INSTRUCTIONS). George Lequime, RBC Capital Markets.

I've got two questions. Just the first one to Neville. I wondered if you could just shed a little bit more clarity on exactly what's going on at Obuasi and as far as a sort of medium-term outlook.

George, Obuasi is still, as we said in the script, had a steady quarter-on-quarter in terms of production. And what we also said, but let me emphasize, is that there was a decline in grade. And the decline in grade was from underground. And it's an effective -- a still very limited developed reserve which is up at about five months now, but still really quite difficult to actually manage the mining mix. What is encouraging, but also bad news, is the fact that we managed to up the tonnage from the mine and the processing capacity of the plant for the quarter and we actually improved on that. I mean, the effect of this is bad news because the costs of course went up in a similar way.

What we are finding an Obuasi is that the volatility of the monthly production -- sort of up and down of the monthly production is becoming less dramatic. We are starting to get into a steady-state. And for the medium-term we are looking forward to some steady improvement, but not dramatic improvement.

Can you give us the answers and (indiscernible) as well, Neville? Sort of 2007, what you think is achievable given where you are right now?

I think -- I mean, we have given guidance on this and we'll update that guidance as we go along. But from where we are at the moment I think you can look forward to some steady improvement going into the future. I really wouldn't like to say much more than that. The one thing I can add is that the second quarter did actually have some one-off cost in it in terms of some salary increases which made the numbers particularly bad.

Thanks, Neville. And just a question for Bobby. I wonder if you can just clarify -- I believe you made some comments in the morning conference call about the situation with Anglo American's holding in AngloGold, how you see things developing, what all the options are?

Sure. It's good to know that the global media works globally. I was asked to comment on the statement made by Anglo American's CFO in March I think or a little while ago at the Merrill Lynch investment conference in Miami where he indicated that Anglo hoped to have exited fully their gold investment in two to three years time. And I was asked to comment both about the timetable and also about the modalities of that exit.

Now, firstly, on the timetable, I guess that's an update on an earlier statement which said there would be significant holders for the medium-term. And I guess that indicates the medium-term is two to three years. On the modalities, obviously this is Anglo American's shot to call. They will determine how they further exits. (indiscernible) from AngloGold Ashanti's point of view we'd be keen on the exit being as quick and clean as possible and then talked about two methods of such an exit, the one being an M&A activity of some kind and the other being a merger, that is the distribution in (indiscernible) of the AngloGold Ashanti shares held by Anglo American to their own shareholders.

And I just think together that those were two methods of completing the exit which would meet the criterion of this company, AngloGold Ashanti, of having the exit happen sooner and quicker than what would otherwise be the case.

Thanks for clarifying that.

Victor Flores, HSBC.

Good morning. Just following up on George's question with respect to Obuasi. Can you give us a sense for what your expectations are for reserve development? Because it seems that you've struggled quite a bit to get the level of development to where you want it and that is continuing to have an impact on grade and production.

Victor, that's true. We said this time last year that we hoped to be at ten months developed reserve by the end of this year and we are still -- we're still heading for those numbers. We should be in -- of the order of ten months developed by the end of the year. If you look at the developed results for -- the development results for Obuasi, we haven't had a great quarter and we have taken steps to rectify the situation.

The benefits of the refrigeration are starting to show. The infrastructure upgrades are starting to add value and at the moment we are continually improving our developed reserve situation. What's quite important is that we also have this year completed an extensive review of the business plan of Obuasi and this is work that is still in progress. We would have a better idea by the end of this year when we actually publish the reserves as to what the future of Obuasi is. We are also doing work in terms of the deepening projects, the below 50 level where we are looking at a series of projects to exploit those reserves.

So there are other things going on at Obuasi at the moment. Most of it has been as we've been forecasting for the last two quarters. We have stepped up a little bit in the development, but we have put things in place to improve that and we think that by the end of the year we should be at ten months developed reserve. Quite importantly that ten months developed reserve is the target for the end of the year, it's by no means the end of the road.

The deep table South African mines which have sort of a comparable mining mix problem, we would be looking for 24 months developed reserve to be able to manage mining mix effectively and until we get the number up to that level there will be certain -- it's difficult to manage mining mix and sometimes it will be up and sometimes it will be down. What is encouraging from the last quarter, that notwithstanding the grade, that we actually managed to mine and to process the volumes that we require to improve the production at Obuasi.

Just a follow-up. Do you get the sense that you still have a problem with dilution or do you think that has been brought under control?

We do still -- we still have dilution that is at higher rates than what we would like it to be. It's significantly better than where we were a year ago. And the benefits of the definition drilling programs are coming through. We are looking quite carefully at the mining method; in fact we have a project and it will be about a three-month project going at the moment to try and make sure that the definition drilling results in more efficient mine planning and therefore more efficient inspection of the ore body. So we do look at dilution. The rates have halved in the last 12 months though, but are still at quite high levels.

Great. Just following on to your other problem child at Geita. Can you give us a slightly better quantification of what you mean by a review of the ore body has indicated lower grades but higher tonnage? And what implications that might have for increasing the plant capacity?

Well, I think we covered a lot of it in the script. But the problem that we have with Geita in terms of interpreting the geological model is that you've got this massive ore body and there's quite a nice sketch in the presentation which shows that this ore body plunges and as it gets deeper the hanging wall does become quite important. In the hanging wall there are these satellite ore bodies or splays that sort of -- that we mine through when we remove the overburden. And the geological model that we used to interpret these splays we found to be not appropriate. We've upgraded that model and we are using a better evaluation model.

Technically what we're doing is undervaluing the effect of internal waste within the ore body. Because it's very difficult to mine the ore body as selectively as the previous model required us to do, and that we now have a realist mining method in relation to the evaluation model, there's been a drop in grade. We can't select the ore mining as sharply as what the previous model required us to do.

As a result of that the gold is still there, but it's more diluted than it was in our previous interpretation of the model and this has the affected the plant throughput. The only other thing to say about these hanging wall splays is although they contribute significant gold they are quite difficult to mine through. Because you have to actually drill the ore body to define where these hanging wall splays and this slows down the rate of mining towards the big ore body at the bottom of the pushback.

So then this is a short-term problem rather than a long-term problem?

No, pushback 5 and pushback 6 would have the same effect. Of course we understand the geological model better now and we are better able to forecast what pushback 5 and pushback 6 will be, but the same hanging wall is above those two pushbacks.

Thank you. I'll say goodbye and let a few other folks ask questions. Thank you.

Heather Douglas, BMO Capital Markets.

Good afternoon, everyone. Just if I could follow-up a bit more on Victor's questions on Geita. Can you quantify what the potential impact of this grade evaluation will be on your reserve grade at the end of the year? You sort of mentioned in the medium-term a yield a 3 grams per ton, it sort of implies there was an in situ grade of maybe 3.8, and right now the reserve grade is 4.23. Am I doing the math right or is there something I'm ignoring?

The numbers are as we forecast them. You're right, we will be able to determine the reserve grade by the end of year which is when we publish the reserve. We are in a planning process at the moment to value exactly what the reserve situation will be and we'd like to confirm these numbers through our business planning process before we actually publish our reserve figures.

Okay. That means you're not going to tell me, right?

You've got a very good indication in terms of the yield. One should quit while you're ahead.

My second question is a bit broader. South Africa, a couple of years ago there was talk that the government wanted to review the overall income tax formula for the South African gold producers. And then also more recently there's been some news on the royalty bill. Can you give us an update?

It's Bobby Godsell here. The static I hear is as follows -- it was widely expected that the royalty bill that would be published for public comment at the end of June. I think coming up -- I mean, our government works with Wednesday cabinet meetings and I think it was the 26th of June where it was anticipated the draft bill would be published. What we said at the press cabinet press conference, and you can read into a what you would like to read is that the finance minister had decided to hold back the publication of the draft in order that he could better consult some of his other ministerial colleagues.

It's now expected and the indication was that there would be about a month's delay. That's all we can say. I mean, all I would add to this is that I'm reasonably optimistic that the South African government will not make significant changes to the tax regime for mining. I think they are becoming well aware of the competitive nature of tax regimes for resource rich countries. And actually the trend with some important exceptions, such as Peru and Chile, the trend has been to lower the tax rates certainly for gold miners. We've seen this very significantly for example in Ghana.

So we don't know. The initial indication was a 3% royalty on revenue for gold. If this change coming my expectation is that it should be changed for the better, but I mean, who knows what the politicians and governments will do.

Okay, thank you.

[Terren Ortzland], [Tesa] & Assoc.

You mentioned about your debt to EBITDA ratio is down maybe or is near 1. What's the ideal let's say (indiscernible) ratio capitalization for AngloGold that you think you will be configuring the balance sheet around?

Right. Sorry, I didn't understand the full question. Your question was in terms of the improvement of the net debt to EBITDA ratio. We've improved it from 2.27 to about 1.1 times. In terms of net debt to capital and net debt to capital employed, we are just below the 20% mark.

I think the question was what do you think the ideal threshold is?

We are quite comfortable where we are in terms of the ratio at present. It does allow us to leverage our balance sheet more if there is a suitable growth opportunity that presents itself and that was the intention of our financial strategy anyway.

And in terms of levering the balance sheet in case a suitable opportunity arises, what's the threshold that you many entertain?

As I said, we can go in terms of leveraging our balance sheet certainly up to where we were before of 2.27. We were quite comfortable at that position. The reason we had to raise the equity which we did was to fund the growth line of projects which were coming through in the next three years. So if there is a value enhancing opportunity that presents itself there's no reason why we can't go above the 2 mark if we choose to do so.

Got you on that one. Thank you. And on the exploration, you've been obviously very active and you illustrated all of the details that you've done with JVs and subs and new partners and all. Could you summarize for us in terms of what your net expiration costs may be this year and next year and what the gross numbers may be given all those (indiscernible) people that are going to spend money for you? Thank you.

Thanks, this is Richard Duffy. I think you can expect our greenfield exploration spend, and that's in our own right as AngloGold Ashanti, to be around $40 million for the 2006 year. If you add to that our brownfield exploration you get up to a number of around 80 or $85 million for the year. What we're doing particularly with the recently announced joint ventures in Colombia is taking advantage of the ground position we have in Colombia in particular and bringing in partners who can help us to optimally explore there.

And we probably this year would get about 5 to $10 million of spend through partners, but over time that would increase. So in terms of greenfield exploration we'll be looking to spend in total about $50 million, $40 million ourselves and about $10 million from partners. If you were also asking about our finding cost, we continue to target a cost of around $30 per ounce in terms of our greenfield exploration to get to an inferred resource.

Excellent, thanks. I don't know if I came maybe late or not, but I missed your customary gold market review and the highlights and the expectations. Or did I?

It's Mark Lynam here. We didn't speak to it this quarter, simply there were already enough people talking and there was enough on the agenda. It is covered in the report to shareholders. We remain positive on the gold price. There's been very good investment demand going through; (indiscernible) offtake has tailed off a little, but through the [ETS] structures that we're seeing being generated and also through commodity index funds, there is significant investment demand being generated for gold and we've got a positive outlook on price. We never actually give a number and put an exact number to our view, but we see it going forward as being volatile but positive.

Much obliged for your time. Thank you.

(OPERATOR INSTRUCTIONS). Barry Cooper, CIBC.

I was just wondering if you could elaborate a bit -- you mentioned that there was headway being made on Boddington and obviously the decision was made for a go ahead there. Could you just elaborate a bit more on what is being done and what accomplishments are being made and any changes that may be taking place?

Okay, Barry, it's Roberto Carvalho. All I can elaborate now is the following. We put together the project team. We had a very positive alignment meeting with the project team and the two major shareholders being Newmont and ourselves. And we settled a target for the team. The team is working, putting together some of the key elements. We contracted the design company in Chile.

It's progressing well. We just had a very brief revision on the last three months when the team was put together and we expect in October to have a normal revision. The (indiscernible) has started construction and some of the equipment has been ordered. I think this is a summary of what's going on. There is nothing outlined that should be highlighted at this point.

So there's no changes in the scope of the project or anything other than what has been relayed to us in the past?

No, not whatsoever. Until now the scope of the feasibility study has been followed by precision.

Okay. And then the second question relates to your hedge book. I was just wondering if you could just simplify things for me and tell me how much you delivered into the hedge book. I realize it went down by 1.1 million ounces, but that's a convolution of a number of things. Just how much was delivered into the hedge book at what U.S. dollar gold price? Because the calculation that I have suggests that you should have lost more than twice as much as what you've reported, i.e. something in excess of $80 million versus the $40 million that you're claiming.

I'll take that as a compliment, Barry. It's Mark here. We've had many discussions on this, it's quite a dynamic situation. I cannot quote you an exact number of ounces we delivered in our price. But, what we did (multiple speakers)

And the reason for that -- you can't is because you don't look at it that way or you just don't have it at your fingertips?

I don't (indiscernible) have it at my fingertips and the change in the hedge book is a result of delivering into some contract and we actively managed the position. We did go in and enter into contracts to purchase gold and I think if -- I don't know if you've had time yet -- in our disclosure table you see that we have got a long gold position for this year with a long dollar gold position. Which is a combination of -- we had a short one at the beginning of the quarter, we've now turned it into a long at $680 an ounce and you will see that managed over the remainder of the year. But it's a combination of deliveries and purchases, etc. that have led to a reduction of 10% in the hedge delta.

Okay, so that still doesn't answer my question as to why there's a $40 million difference between your calculation and mine.

And I don't think this is a suitable time to try and go into it in detail. I'll certainly take that off line with you and we can discuss it.

Okay. Well, maybe you can tell me when you call how many ounces you delivered at what price so that I can understand it in a simplistic form then. Thanks.

Thanks.

John Bridges, JPMorgan.

I'd just like to follow on from Victor's question on Geita and I just wondered to what extent your difficulty of mining these little splays is related to putting in the bigger equipment and whether there's a sort of trade-off going on there?

The difficulties in mining the splays are a (indiscernible) of the drop-down rate. And we would have to reduce the size of the equipment very, very dramatically and beyond sort of economic limits to really mine the splays completely affectively. So it's not really a matter that the size of the equipment has particularly influenced our mining, it's the interpretation of what these splays were and the size of the splays. And as I say, quite importantly, the amount of internal waste associated with the splays that has affected it.

We actually have not completely replaced the mining fleet at Geita with a large mining fleet. We still have the old mining fleet there. So we do have flexibility in terms of turning around between our large and small equipment. Our general plan at the moment is to mine through the overburden with the big equipment and once we get into the ore body to put the small equipment in because you can mine more selectively doing that.

The other thing is that the satellite ore bodies, which are quite important grade fillers between the times that we're mining in the Nyankanga pit, we do need some flexibility in terms of the mining fleet in these smaller ore bodies.

Okay, that's great. Thanks a lot.

(OPERATOR INSTRUCTIONS). Jason [Dahl], ASB Advisors.

Good morning. With the recent action of Barrick with their overture for NovaGold, I was just curious whether the projects and the long lived projects of Donlin and Galore have any interest as something that you would like to take a look at in the near future?

I just think generally -- and I'm claiming not to be unhelpful, but we don't speculate on proposed deals. But Richard Duffy may be ready to be more helpful than I am.

I would firstly agree with Bobby, but certainly say that these are properties where Barrick is already involved and I think it's -- whilst it's interesting, it's unlikely that we would pursue these.

Thank you very much.

At this time I would like to hand back to Charles Carter as we have no further questions in the queue. Thank you.

I'd just like to thank participants for joining us on this earnings call and all of the slides referred to are on our website. Thank you.

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