Anglogold Ashanti PLC (AU) 2011 Q3 法說會逐字稿

Good morning, everybody, and welcome to the presentation for the AngloGold Ashanti executive team for our results for the quarter ended September 30.

Before we begin the meeting, as is customary, we will go through the safety procedures. As usual in the event of an emergency, a siren will sound and information will be broadcast over the building's public address system. Please move quickly but in an orderly way to the nearest exit points, which are behind me and to the right. Gather in the open space on Miriam Makeba Street to the west of Turbine Hall where our safety wardens will advise on additional safety procedures.

Our agenda, the format will be as follows. Mark to my left will review the Company's performance over the quarter. Venkat on the far left will walk through the financials before Mark will wrap up with a discussion on projects and exploration before taking your questions.

Other members of our leadership team are present in the audience. We will be available for -- during Q&A and for discussion afterwards. We also have Frank Arisman, one of our nonexecutive directors, present as well.

I'll just run through the disclaimer very briefly. Certain statements made in this communication 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 outlook of AngloGold Ashanti's operations individually or in the aggregate including completion and commencement of commercial operations of certain of AngloGold Ashanti's exploration and production projects and the completion of announced mergers and acquisition transactions; AngloGold Ashanti's liquidity, capital resources, and capital expenditure; and the outcome and consequences of any litigation or regulatory proceedings or environmental issues 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 be correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of among other factors changes in the economic and market conditions; success of business and operating initiatives; changes in the regulatory environment and other government actions including environmental approvals and actions; fluctuations in gold price and exchange rates; and business and operational risk management.

For a discussion of these and other factors, refer to AngloGold Ashanti's annual report for the year ended December 31, 2010 distributed to shareholders on March 29, 2011 and the Company's 2010 annual report on Form 20-F, which was filed with the SEC, the United States on May 31, 2011.

These factors are not necessarily all the important factors that could cause AngloGold Ashanti's actual results to differ materially from those expressed in forward-looking statements. Other unknown or unpredictable factors could also have been -- have material adverse effect on future results. 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. All subsequent written and oral forward-looking statements attributable to AngloGold Ashanti or any person acting on its behalf are qualified by the cautionary statements herein.

This communication statement contains certain non-GAAP financial measures. AngloGold Ashanti utilizes certain non-GAAP performance measures in ratios in managing its business. Non-GAAP financial measures should be viewed in addition to and not as an alternative for the reported operating results or cash flow from operations or any other measures of performance prepared in accordance with IFRS. In addition, the presentation of these measures may not be comparable to similarly titled measures other companies may use.

AngloGold Ashanti posts information important to investors on the main page of its website at www.AngloGoldAshanti.com and under the investors tab on the main page. This information is updated regularly and investors should visit this website to obtain important information about AngloGold Ashanti.

Just before handing over to Mark, I would just like to welcome our Chairman, Mr. Tito Mboweni, who has just arrived as well. Welcome.

Ladies and gentlemen, it is good to be here this morning. Before I actually start talking to the results, I think it's important to maybe reflect on an important event we have just seen. Unfortunately I can't say much -- many positive things about South Africa or Australia's performance in the World Cup, but I know we do have at least one Kiwi in the audience, so we should acknowledge New Zealand's win in the World Cup. And if I could say and I know I speak about half of most of the people in the room, I can only hope that the next 24 years are as rewarding as the last 24 years for New Zealand in terms of the World Cup. But congratulations.

Ladies and gentlemen, I am happy to report another record earnings result for the quarter against the backdrop of a record gold price. Bullion touched yet another new record during the quarter driven by similar themes that have pushed it progressively higher this year. Lest we forget, we had the US debt downgrade and now we have a worsening sovereign debt crisis in Europe. The default by Greece or others may open Pandora's box for the global credit markets.

Physical demand meanwhile has continued to give bullion a solid fundamental underpin. During the quarter, we continued to see strong demand from Central Banks with Russia, Tajikistan, Thailand, and Bolivia are all adding to their gold reserves. ATFs have also provided another good source of demand highlighting the broad-based demand for what remains the ultimate safe haven.

And jewelry demand remains robust in key emerging markets despite record gold prices. While we continue to see a high degree of volatility, the fundamental picture is bullish (technical difficulty) The market remains short new gold supply and coupled with macro picture, a macro picture fraught with structural uncertainty. The bull market is intact and we believe the risk is to the upside.

On the third-quarter results on the detail, today's record earning results of $457 was achieved despite some stiff headwinds from strike, increased safety stoppages, and higher winter tariffs in South Africa as well as annual payroll increases in both South Africa and Brazil. At the same time, we are recovering from flooding in Australia and a drought in Colorado.

Despite the operating challenges, we have performed better than guidance on cost. Production at 1.1 million ounces was up on last quarter but marginally below forecast. Continental Africa and the Americas turned in solid performances, with Cerro Vanguardia Geita the standouts.

South Africa and Australia in particular had difficult quarters, which when put together with the winter -- with the water shortages at Cripple Creek have prompted us to scale back our full-year production forecast. Given that some of these challenges will remain into the new year, we have advised that it is likely we will see flat production through 2012, which is what we have actually said in the last few months and it will be 2013 before we see the real kick in production, which is underpinned by our new projects, which I will talk to a little bit later in our presentation.

Venkat will also unpack the detail of the impressive cash flow growth in a few moments, but suffice to say we saw record cash inflows at the operating level at $863 million for the quarter. On a year-on-year basis, that represents a gain of more than 100%, which again underlines our cash flow leverage to a rising gold price.

A look at the year-on-year picture shows the leverage that exists across all financial key metrics. Earnings have more than doubled as has free cash flow. That's Venkat's favorite measure, has also tripled during the same period. For those of you that have known Venkat for some time and are familiar with how he wrestled this balance sheet and the legacy hedge book for so many years, you know it's strange for him to complain about cash balances.

On the dividend side and reflecting on the underlying cash generation, we have moved from twice yearly dividend payments to a quarterly schedule and consistent with our improved margin and cash generation, we have declared a maiden third-quarter dividend of $0.90 per share. This is equal to the entire first half payment for 2011. We anticipate matching that in the fourth quarter, which would take us to an annual run rate of some ZAR3.60 for the year.

Depending on gold price movements in 2012 and after providing for value enhancing growth, we will review the payout each quarter with a view to potentially stepping it up where appropriate. In our business we focus on cash generation as being the key determinant of what dividends we should be paying and obviously with the performance thus far, we have been able to step it up appreciably as we have consistently over the last three years.

On the detail on the operations and starting with safety, tragically we lost three colleagues during the quarter at separate incidents in South Africa, one each at Mponeng, Moab, and Kopanang. While the year-to-date fatality injury frequency rate has improved compared to last year by a further 15%, we continue to press for further gains on this front, particularly as we roll out our Project ONE change model.

The progress on this front is evident in the all injury frequency range, which dropped below the 10 million hours work of incident per million man-hours worked for the first time in the Company's history and represents a marked improvement over the 2010 results, again some 15% better than we did last year.

Ron Largent and his team in the Americas worked well to show a 10% increase in production over the quarter. Total cash costs were up 8% to $524 per ounce for the period, reflecting continued inflationary pressures in both Argentina and Brazil, where we saw our annual payroll increase impact costs for the quarter.

At Cerro Vanguardia, where we have become accustomed to impressive operational performances from Jorge Palmes and the team, Project ONE helped the team deliver efficiencies on consumables, which again helped offset the impact of the lower byproduct credits and higher royalties during the quarter, the higher royalties being a function of the higher gold price.

Production was up 8% and with total cash costs of less than $300 an ounce; this remains our highest cash margin operation.

As I mentioned, Cripple Creek continued to face what could potentially be the worst drought on record in the Colorado basin. This has an ongoing impact on percolation rates through the heap leach, which in turn has a direct impact on production.

Now what we would say is that it's deferred production, because that production won't be lost but it does take time for the water to extract those rates if we have got lower flow rates. Still our team, Ray DuBois and the team in the US maintained our output at around 69,000 ounces. Costs were well contained at $561 an ounce, testament to one of the most efficiently run low-grade gold mines in the industry.

In Brasil Mineracao, higher tonnages and grades helped a 20% increase in production to 101,000 ounces. Costs, as I mentioned earlier, so the impact of higher wages and general inflation. At this point, I must also make a special mention of Helcio Guerra and his team as the team as they have put in some very good work in turning around the performance at Cuiaba and certainly we have seen a significant recovery and very pleased with the results that they've shown in the third quarter compared to where they were in the first two quarters of the year.

Richard Duffy's team in Continental Africa have turned in another solid quarter with production up 9%. Costs were up 5% after last quarter's 14% reduction, so net-net we are still almost 10% better than we were early in the year.

Again the highlight for the region and for the Company as a whole was Geita, the poster child for Project ONE. This operation has gone from strength to strength, hardly skipping a bit after last quarter's protracted mill shut down.

All credit to Gary Davies and his team on site for delivering the largest production contribution for the Group at 149,000 ounces, and extremely competitive cash costs of around $473 per ounce. Remember, this is an operation that not too long ago was producing a little over half the current rate at more than double the cost and we actually popped over $1000 an ounce at one stage.

We remain broadly in line for this year's target at Geita despite the SAG mill repairs conducted in Q2 and with some ongoing issues with gearbox vibration which are being attended to. We have allocated capital to replace the mill shell towards the end of next year after 13 years of service and we are now focused on maintenance of the associated infrastructure ahead of that project.

Obuasi had a solid quarter and recorded a modest slippage in production to 78,000 ounces on lower grades and equipment availability underground although the overall trend of the operation remains positive and the mine is still tracking its recovery plan. We continue to invest moneys on preventive maintenance of key equipment across the operation to develop the consistency we need and remain confident that this will show in our future operating results.

We will also give our friends in the analyst community a clearer insight into where we are going with Obuasi when we do our analyst presentation in a few weeks time.

At Sadiola, the mining teams didn't have the benefit of as much high-grade oxide this quarter as was available last quarter. The lower production combined with an increase of almost 30% in digital prices contributed to the rising cost to $792 an ounce, though the overall impact was somewhat mitigated by the higher tonnages process through the mail.

There is additional focus at Siguiri, where lower than anticipated grades in the Sintroko appeared, have again caused a disappointing operating performance. An accelerated brownfields drilling program is underway to improve their knowledge of the orebody, an exercise which will be ongoing at accelerated rates as we go into the next year. If you recall a couple of quarters ago, we announced a $19 million exploration program in Guinea.

In the meantime, we are pushing back against three headwinds with Project ONE interventions helping us increase tonnage to record levels to offset the production decline and to help us stabilize production. In addition to improving the quality of the grade control work, we have also made an exciting new discovery about two kilometers from the main processing plant, which I will talk to in our exploration section. That's certainly from our point of view in the next 18 months will help us manage the recovery and the grades that we have seen over the last few periods.

In Australia once again, some challenges faced due to the recovery from the flooding and the related slip of the pit wall in Q1, with the impact evident in both the cost and production line. Production from the pit remains suspended. Excavation of a new ramp was completed at the end of October and production has now resumed.

Dewatering and refurbishment of the underground was completed during the quarter and normal production levels were achieved towards the end of the quarter. Head grade was low due to the lower proportion of underground feed further diluted by the increase in ore processed from low-grade open pit stocks.

Reported cash costs were particularly high, given that the $235 an ounce related to underground remedial works and the new ramp and $120 per ounce related to non-cash industry impacting the cost lines; it's almost more than $350 an ounce in those items.

I will talk to the ongoing success of our brownfield exploration program at Sunrise Dam in our exploration discussion but suffice to say that the drilling of the underground extensions to the orebody in the new Vogue discovery continue to provide thick and high grade sections that really do encourage us in terms of what we can look forward to in Sunrise Dam over the next few years.

South Africa took the brunt of a five-day strike through the annual wage increases, winter power tariffs and the resurgence of safety stoppages imposed by the state mines inspector. Together these issues combined to deliver a 9% hit to production and a commensurate impact on cash costs.

All of the core operations were down quarter on quarter in what was a difficult period for our operations although the three operations in Naval River region bore the brunt of the disruption. Just to confirm, the number we lost on the strike was about 45,000 ounces in the quarter.

The good news is that given the normalized work environment in the current quarter with no public holidays and no strike action foreseen at this stage, a recovery in volumes will result in considerably lower costs this quarter. This of course will also be aided by the prevailing weaker exchange rate that we are seeing in the rand.

Uranium production at 361,000 pounds was ahead of plan, notwithstanding the production challenges faced in South Africa. So another good effort by the team working on the uranium side.

The improving recoveries with technology developed by our metallurgical teams in South Africa continued to contribute to the ongoing success we are seeing in the business. We remain bullish long-term fundamentals for this important fuel source and continue to look at ways to expand production to further consolidate our position as South Africa's largest producer.

I will now hand over to Venkat to take you through the financials before taking you through our projects and exploration activities. Venkat?

Thank you, Mark. Good morning, ladies and gentlemen. I will be covering the following three areas in today's presentation, third quarter's financial results, free cash flow and balance sheet, and outlook for the fourth quarter and full year 2011.

As Mark mentioned, we fostered a new record in terms of adjusted headline earnings of $457 million, which represents $1.18 per share or ZAR8.57. The quarter-on-quarter increase of 34% was on the back of a 13% rise in the gold price received and a deferred tax credit of $70 million.

Looking at the total unit cash costs, our market guidance using stronger local currency assumption was around $775 per ounce for the quarter. If this were to be revised for the actual average exchange rates that prevailed during the quarter, the equivalent number would have been approximately $745 an ounce. Our third-quarter cash cost of $737 an ounce came in better by around $8 an ounce.

The quarter-on-quarter increase in Group's total cash operating costs of $32 an ounce is made up as follows. Annual wage increases on South African winter power tariffs of $15 an ounce; higher royalties on the back of stronger gold prices $8 an ounce; these were partially mitigated by weaker local currencies of $17 an ounce. However, as flagged in August, the second quarter's cash costs included the benefit of high-grade feed to compensate for Geita's SAG mill downtime, which accounted for a quarter-on-quarter swing of $24 an ounce.

We have had a challenging third quarter in South Africa which has had an adverse impact on our rand denominated cash costs for the region, although it will not be apparent on a US dollar basis. The quarter-on-quarter increase of 15.7% or ZAR23,000 a kilogram in the South African region's cash cost is due to the following four factors.

Impact of 9% lower production due to industrial action and safety stoppages of the ZAR13,000 a kilogram; wage increases and winter power tariffs of around a ZAR6000 a kilogram; higher royalties of ZAR2000 a kilogram; lower byproduct credit on the back of lower uranium practices; and sales amounting to ZAR2000 per kilogram. We expect our fourth-quarter South African rand-denominated cash costs to recover due to improved production levels.

Notwithstanding the challenges faced during the third quarter, our margins remain strong. Our margins on a total cash cost basis were 57% and on a fully costed basis, i.e. including all capital expenditure, was around 36%, helping the Group continue to deliver on its targeted returns on capital and equity of more than 15% per annum.

Turning to cash flow, strong cash generation continued into the third quarter with a cash inflow from operating activities, that is after-tax but before capital expenditure and finance charges of $863 million, up to $28 million or 36% on the previous quarter. The Group's free cash flow, that is after all outflows excluding dividends, amounted to approximately $300 million for the quarter.

Healthy cash generation helped the Group reduce net debt quarter-on-quarter by 29% or $246 million from $866 million to $620 million. We however expect net debt to increase during the fourth quarter in line with our capital expenditure profile and increased dividends.

Looking at the outlook for the fourth quarter and full year 2011, with increased safety stoppages in South Africa, continued water shortages at CC&V, and slower post-flood ramp up at Sunrise Dam, 2011 gold production is now estimated at 4.33 million ounces.

Total cash costs are estimated at between $735 an ounce and $745 an ounce assuming average exchange rates for the year of ZAR7.10 for the rand; AUD1.03 for the Australian dollar; BRL1.66 for the Brazilian real, and ARS4.12 for the Argentinean peso. And Brent crude at $111 per barrel for the year.

Turning to the fourth quarter, gold production is therefore estimated at around 1.11 million ounces. Total cash costs are estimated at $790 an ounce, assuming exchange rates of ZAR7.50 for the rand; AUD1 for the Australian dollar; BRL1.75 for the real; and ARS4.25 for the Argentinean peso; and Brent crude at $105. We currently are seeing weaker exchange rates than the exchange rates quoted, so the cash costs should see benefits from weakening exchange rates.

The quarter-on-quarter increase in total cash cost is mainly driven by deferred stripping and inventory charges. As in previous years, the fourth-quarter numbers will be distorted by year-end accounting adjustments such as reassessment of useful lives, environmental, rehabilitation, direct and indirect taxes, and inventory provisions.

I will now hand you back to Mark.

Thanks, Venkat. Notwithstanding some of the challenges we have had this year, we have continued to generate robust cash flows. We continue to make good headway on project development as we push to our 5.5 million ounce target by 2014. And the affordability of our blend of green and brownfield growth options remains a key competitive advantage for the Group.

Looking to our project pipeline, you will know we've worked hard to build capacity in our project team over the past year and certainly the talent we have been able to recruit, put into the teams on the ground have certainly made a difference in terms of project development and performance.

This has been crucial given that our balance sheet constraints for the past year has impeded our ability to meaningfully invest in growth. Already now we are seeing the benefits of an improved execution capability.

Looking back to 2007 we missed -- and this is on major capital projects -- we missed our capital schedules on projects by more than 17% and the budget miss was 49%. Those numbers are now 7% and 14% respectively and improving all the time.

At the same time or in the last three years, we have hit our capital forecast each year over the last three years and so I think the turnaround in terms of hitting the numbers, improving our performance, and continuing to improve as we have more improvement initiatives in place I think is demonstrating that we've got the capacity, that we have introduced the management processes and we've improved our operating disciplines such that we are well positioned to deliver on the growth strategies that we have been talking to.

And whilst the industry has certainly been challenged and we have seen massive capital blowouts across the industry, I think it's another area of performance that we have demonstrated an ability to turn the business around and deliver solid a performance and we have room to improve. Certainly from our point of view it's going to be critical for us over the next three years as we move into that significant project execution phase. Already with Corrego do Sitio we've seen pretty solid performance.

Now dealing first with Tropicana, a slight of projects are beginning to grow in traction with good headway made on both green and brownfield sites. Tropicana remains on budget and on track to pour our first gold in Q4 2013. Engineering design work is progressing well. All long lead equipment items have been ordered. Construction of the 220 kilometer access road is more than 70% complete.

Key tenders have been awarded to build the main site camp, which will house some 660 people and crucially the brownfields drilling work at Boston Shaker and Havana Deeps since the approval of the additional feasibility study a year ago continues to provide encouraging evidence of continuity along strike and a depth to the east of the main Tropicana deposit.

At this stage we expect the original pit to increase in size before proceeding underground, but there is still work to be done on that front in the years ahead. This gives us increased confidence in our ability to maintain the elevated production levels of above 300,000 ounces, and that's our share of production from the site, beyond the first three years, as originally forecast.

In the DRC at Kibali, the project is keeping its schedule with open pit development expected to commence next year and with first production in early 2014 at the latest. Our partners have forecast commissioning in Q4 2013. The project is on track to deliver on that. We have been a little more prudent in forecasting the 2014 but we do fully support Randgold's efforts and the team's objective of hitting a 2013 commissioning date.

Our long lead items are secured and we have the necessary regulatory approvals to start construction pending what we are sure will be a positive outcome from the presentation of the finalized feasibility study at our January Board.

Crucially our partners at Randgold have expertly managed the resettlement of the first 13 villages with the second scheduled for later this month. Our business and technical development teams, meanwhile, are reviewing the underground mine design and adjudication of the tenders for the open pit civils and other contracts are underway. We are still waiting for Randgold to advise on the final capital forecasts and we expect that will come over the next few months and will obviously be communicated as we are informed at the appropriate times.

There's also a cause for significant optimism regarding the upside based on the work -- this is on the physicals upside -- based on the work that Randgold's exploration teams have done on the main deposit and the adjoining Zambula and Kalimva targets. All of this continues to reinforce its status as a Tier 1 asset by any measure across the global gold industry.

Elsewhere in the DRC at our Mongbwalu project, we are also in the final throes of optimizing our feasibility study before presenting this to the Board for approval at the same Board meeting early next year. We have completed refurbishment of the first phase of the regional hydropower plant and have funded reconstruction of [Bunya's] main road, a crucial artery for the area, which was completed by the local government.

While this will be a smaller operation than Kibali, we are looking at a higher grade operation with a smaller initial footprint with production at a targeted 130,000 ounces for the year before increasing the contribution from what is proving an extremely prospective district. This project too remains on track for first production around 2014 and as you would expect, the two project teams have a healthy competitive spirit and certainly we are encouraging them to make sure they do all the right things but at the same time aggressively chase the production targets.

Given that we started from literally a standing start with Mongbwalu, we didn't have the same amount of information, the progress from the team has been outstanding and very pleased with the way both projects are being taken forward.

At Corrego do Sitio, as I mentioned earlier, Helcio Guerra and his team have done an outstanding job on this project. The asset was bought for $85 million and we have spent a further $170 million to refurbish the old Sao Bento Plant to bring this 140,000 ounce a year mine into operation.

Cold commissioning of the plant is complete and the ramp-up will be under way from later this month. We are now looking to Phase II and beyond to ramp production up to 170,000 ounces, with potential to kick it to up to more than 200,000 ounces given the recent success in finding new ounces in a previously undiscovered oxide zone as well as in the larger than anticipated sulfide ore body.

Drilling last month delivered a result in the underground of four meters of 21.86 grams per ton from a downhole depth of 88 meters. This is in addition to the big oxide showing of more than 16 grams we spoke to last quarter. We are stringing more than a few of these results together now and all told this is looking more and more like a 5 million ounce deposit.

Now if you go back to the original purchase price of $85 million at the Capital, it is still one of the lowest cost acquisitions and developments across the global gold industry, and that's why we continue to improve our relatively total -- our relative total cost position in the industry and we will continue to improve over the next three to five years as we bring our new projects into play.

But from an exploration point of view, we wouldn't have had those projects at all if it wasn't for the good ongoing work done by our greenfield and brownfields exploration teams. As I have mentioned in the past, we have an extraordinary track record of adding ounces to the portfolio over time at less than $35 an ounce. This is an achievement and really underpins our long-term growth and earnings growth ambitions.

Among the highlights for the quarter was the significant intersection of what we are calling the [Silokoro] area at Siguiri, only two kilometers from the main processing plant. The intersection, 9.77 grams across a width of 20 meters from a downhole depth of six meters, almost as tall as Venkat. We're doing more analysis of this intersection, but it's an extraordinary result from an area with an average grade of less than 1 gram per ton.

Elsewhere infill drilling at the [Coast] and Central West area has also returned significant intersections, one of 4.36 grams per ton, almost 13 meters, and another of 1.79 grams, over 29 meters. These speak for themselves in terms of the potential and I think as we accelerate the exploration work, get the balance back, Siguiri will recover and start to show the real potential we see at the deposit over the next couple of years.

At Sunrise Dam, we continue to work to better understand the Vogue extension to the underground orebodies. We are getting regular long intercepts of relatively high-grade material. Some of the notable results last month include 113 meters at 2.8 grams per ton, 2.89 grams per ton and 75 meters at 3.62 grams per ton.

Again it's early days, but the picture emerging from this work is that this orebody is likely to lend itself to bulk underground mining, which will have a positive -- a more than positive impact on long-term costs. For those that have watched us carefully in building our team, you will know that we have recruited very well and we have four individuals that have actually helped develop the most productive underground bulk operation in the world and they currently are part of the AngloGold Ashanti team. And as I've said, we have recruited with the long-term in mind and certainly we look to be well positioned to support the Sunrise Dam operations team, Graham, Mike Erickson and the rest of the crew.

On exploration, the real price for us over the past quarter, though, has been La Colosa in Colombia, which continues to surprise on the upside. The results show grades well in excess of the current average and several of them of considerable widths from a hole drilled on the northern part of the concession. So the area we are now drilling is open to the north, off the current known areas in the orebody.

The intersection returned a grade of 3.14 grams over 240 meters. Within that was a 70 meter width grading of 14.49 grams per ton. We have built an impressive capability in Colombia and they are working -- and the team is working through a complex set of tasks ranging from the topography and to an evolving regulatory regime in the country. We have a good relationship with the current government and they are working through with us on how to bring the project through the processes. While we will never underestimate the complexities that this opportunity presents, the fact remains that we have our arms around an astonishing orebody in a highly prospective water concession.

Make no mistake, these results in our view are further demonstrations of the potential and potentially game changing again for us in the region. So very pleased with the progress that has been made. And you have to remember as well that we are in Colombia at almost a net nil cost given how we entered, how we have joint ventured various prospects and how we funded the overall project. We almost have almost a nil carrying value across the portfolio, so again exceptional value in terms of shareholders and resources that we are creating.

At Gramalote, also in Colombia, we have drilled more than 26,000 meters this year. We continue to be encouraged by the results not only at the heart of the project area of (inaudible) Gramalote but also in several nearby satellite areas. We are on track to drill another 30,000 meters for the year and will do about the same again next year to get the best possible view of what looks to be a significant orebody with good growth potential both in the size of the resource and potentially the production contribution that this deposit will ultimately deliver.

The prefeasibility is moving ahead according to schedule and we are pleased that the metallurgy looks very straightforward, as does the overall project execution parameters. If you consider that we only took over control and the operatorship of this project a little more than a year ago, this is another very good win for us and demonstrates the capacity of the people that we've put in the ground and the project space.

On cash flows, I would refer you again to record earnings and cash flows we have generated despite the raft of challenges that we faced this year, many out of our control but some of our own making. And so whilst we've got lots of opportunities to improve, whilst we have a gold price and the market scenario that we are looking at, we think the future looks very strong.

We continue to look at improving the underlying health of the business and we are focused on operating and safe -- we are focused on operating and safety improvements and bringing new ounces to account that improved the character of that portfolio at the right price.

A look at the chart, you can see on the overheads demonstrates very clearly the strides we have made in improving the underlying health of the business since launching our new strategy three years ago. These cash flow gains have been helped in roughly equal measure by a rising gold price. Our decision to remove the hedge book and critically our ongoing business improvement work.

And as they say if you want to see and want to look at the health of business, just go and look at the bank balance at the end of the quarter. That's where you are seeing where the improvements are. They are real and they are accreting in terms of the balance sheet.

And finally in conclusion, while we have faced some challenges in 2011 in terms of our production performance, we remain in a corner of the market which is faring exceptionally well relative to several of our commodity peers. We are looking to generate record EBITDA and operating cash flows at around $3 billion for the full year and over the past nine months, we have generated free cash flow of around $750 million and earnings close to $1 billion.

We have a strong balance sheet, robust earnings leverage, a solid project and exploration project and we've got the team to continue to deliver real value over the longer term. As a company, we have never looked stronger.

With that, we would be very happy to take your questions.

Johann Steyn, Citibank.

Thank you very much. Good morning, gentlemen. Just a quick question on the dividend and the CapEx outlook. Yes, justifiably the absolute number of the dividend is up. The cover however has gone down quite a bit and I would assume this is because of higher CapEx outlook for next year, etc. So please can you just give us a bit of guidance on the capital budget for 2012 and maybe even a couple years after as well?

We haven't formally -- we are not formally guiding yet on the capital number, Johann, but if you look at this year, we will be around $1.6 billion. If you take some overruns into next year from this year, not overruns -- timing, scheduling issues -- you add some inflation numbers, certainly we would expect to see the capital north of $2 billion, but again we haven't formally guided. We'll do that in the next set of results.

But the profile looks good. We are not seeing major blowouts in our capital numbers so when you adjust for year-on-year inflation and some timing issues, we're going to be maybe a little bit north of that number. And you would certainly expect to see that again the following year.

Then we start to sort of tail off because we hit the 5.5 million ounce production level. The next capital set will be around the big new projects, the Kibali really starting to kick in, the Colombia propositions, but given where we are and given that we will be at 5.5 million ounces when those cash costs start to hit, our underlying cash generation will be 24%, 25% better than it is today, all things being equal.

So we are pretty well positioned we think and in that context, I then go to the dividend question, we have looked at the dividend very closely. We use free cash flow as the appropriate metrics to gauge what the dividend should be. As a point of principle, we won't borrow to fund the dividend and we do look beyond a quarter in making those decisions. But we've doubled -- almost doubled the dividends this year.

If we see continuing strength in the gold price, if we continue to improve the operations at the underlying level, we should improve our underlying free cash flows and we will try and return a material amount of our free cash flow back to our shareholders in the forms of dividends.

So without giving you a hard metric, if I could make one point, our view would be that we should be returning a material component of our free cash flow to our shareholders in the form of dividends contingent on making sure that we keep the balance sheet in shape and that we don't threaten our investment grade rating.

Venkat, if you want to give that a little more shape?

That's fine. I'm happy you answered it.

Thank you very much, and maybe just one last question is in terms of the 5.5 million ounces that you mentioned. Now, historically what we've seen in the gold sector is a lot of these projects do come on line but people underestimate the decline of the baseline. So how do you guys factor that into your planning, which mines will reach end of their lives and how do you see the baseline declining (multiple speakers)?

Let me (inaudible) the observation you make. You do make an astute observation that many companies underestimate the decline in the baseline. If you go back to our operations back in 2007 and when we did our forward-looking assessments, we underestimated the grade decline and we've seen about a 20% grade decline. Now we are mining -- we were mining above reserve grade at that time, not high grading, but we have a high proportion of high grade assets that we were mining and we've seen about a 20% decline.

We are now mining just under reserve grade, so we've actually got the operations now I think in a much better balance. We have in the 5.5 estimate assumed a baseline decline somewhere between 300,000 to 600,000 ounces over time. So I think we've done a much better job in understanding the business, forecasting a decline in the base to come up with that 5.5 number.

So it's something we watch closely. In fact our operating range was 5.4 to 5.6 and you know that the internal target for the team is 5.5. So I think we've done a much better job but we continue to watch that closely and our business improvement work that we are focusing on in the next 12 months is to make sure we hardwire and nail the key elements to make sure we deliver that number in 2014. For us it's a very important number to get to in terms of all the hard work we have been doing in terms of the future.

Excellent, thank you.

Allan Cooke, JPMorgan.

Just on the SA ops in your guidance for the fourth quarter, it seems a little conservative because you had a really tough quarter in the September quarter from a production perspective. Could you just talk to the guidance specifically and the status of the SA ops and perhaps outline what you've lost in terms of safety stoppages year-to-date in the quarter and what you factored now in the December quarter with your guidance?

And then Venkat, if you will, if you could just give us some detail in that deferred tax credit, the $70 million, that's around ZAR500 million I think. Should we be taking about VAR1.30 out of that 857 adjusted headline earnings per share to adjust the adjusted headline earnings per share to normalize the core earnings, if you like?

If I can pick up the second point, the second question, you're absolutely right. The deferred tax arose because CC&V carried the hedges in their accounts and it did have accumulated losses, but there was a valuation allowance against it. Once it's got a track record of generating 12 months worth of profits and the shareholder reserves goes into positive, the valuation allowance has to come out. That creates the deferred tax asset.

On a normalized basis, the effective tax rate around 33% to 35% has to be maintained for the Group. But what we do have is a very good schedule showing the effective tax rate reconciliation between the various quarters which I will get John to mail to you later on.

Now if I can cover the South African operations, in terms of the safety stoppages for the full year, we have had safety stoppages amounting to around 69,000 ounces. This is for the three quarters. In the third quarter alone, we have had 34,000 ounces impacted as a result of safety stoppages and it's around 50% BMR in post and 50% has been mined in full safety stoppages.

And in terms of the South African production numbers, we have had production of around 394,000 ounces for the quarter. We're looking at getting a production level of around 415,000 to 420,000 ounces for the fourth quarter.

I might add to that, you suggested that maybe our forecast for Q4 is let's say prudent. We have had one fatality this quarter already, so in that context, we have taken proper account of that. It is prudent. We have missed our last two quarter guidances by around 1.5%. For us that's a personal issue because it is a personal integrity issue in terms of our shareholders, so we are very sensitive to it and each of the EVPs has taken a long, hard look at their forecast for the quarter and our commitment is to deliver on that guidance. So there is some sensitivity.

There is we believe a prudent approach being taken, but I think it's appropriate given that we've bumped around a bit this year and we've got to demonstrate that we've got the operations back under control. So one could say we've been a little too prudent but at this stage, I think it's important to get that control and that credibility back.

All right, any further questions? All right. I think that's about it. As always, thank you very much for coming and we will see you again in February. Thank you.