Anglogold Ashanti PLC (AU) 2012 Q2 法說會逐字稿

Good afternoon and welcome to the AngloGold Ashanti second-quarter earnings report conference call.

All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions) Please note that this conference is being recorded.

I would now like to turn the conference over to Mr. Stewart Bailey. Please go ahead, sir.

Thanks, Chris, and everyone welcomed to, as Chris said, our second-quarter earnings call. You have several members of our executive team president, including Mark Cutifani and Venkat, our CFO. We will be available to take questions immediately after the formal part of the presentation.

As usual, the presentation will run through an overview by Mark and Venkat will talk to the details of the financials. We will go into some info on the new technology breakthroughs that we have made, details on projects and exploration, and then Mark will wrap up with some concluding comments.

As is customary, just a quick run through the Safe Harbor statement, which I will make as painless as possible.

Certain statements made in this communication other than statements of historical fact including, without limitation, those concerning the economic outlook for the gold mining industry; expectations regarding gold prices, production cash costs, and operating results; growth prospects and outlook of AngloGold Ashanti's operations, individually or in aggregate, including the achievement of project milestones, completion of acquisitions, and dispositions, AngloGold Ashanti's liquidity and capital resources, and capital expenditure and outcome consequence of any potential pending litigation or regulatory proceedings or environmental issues are forward-looking statements regarding AngloGold Ashanti's operations, economic performance, and financial condition.

These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause AngloGold Ashanti's actual results, performance, or achievements to differ materially from the anticipated results, performance, or achievements expressed or implied in these forward-looking statements. 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 forward-looking statements as a result of, amongst other factors, changes in the economic and market conditions, successive business and operating initiatives, changes in the regulatory environment, and other government actions, including environmental approvals and actions, fluctuations in gold prices and exchange rates, and business and operational risk management.

For a discussion of certain of these and other factors refer to AngloGold Ashanti's annual report for the year ended December 31, 2011, distributed to shareholders on the April 4, 2012. The Company's 2011 annual report on Form 20-F with the SEC in the US on April 23, 2012, and the prospectus supplement to the Company's prospectus filed July 17, 2012, that was filed with the SEC on July 25.

These factors are not necessarily all of the important factors that could cause AngloGold Ashanti's actual results to differ materially from those expressed in any forward-looking statement. Other unknown or unpredictable factors could also have material adverse effect on future results. Consequently, stakeholders are cautioned not to place undue reliance on forward-looking statements.

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 except to the extent required by applicable law. All subsequent written or oral forward-looking statements attributable to AngloGold Ashanti, or any person acting on its behalf, are qualified by the cautionary statements herein.

The communication may contain certain non-GAAP financial measures. AngloGold Ashanti uses these non-GAAP financial performance measures and 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's posts information important to investors on the main page of its website, www.AngloGoldAshanti.com, and under the Investors tab on the main page. The information is updated regularly. Investors should please visit this website to obtain important information about AngloGold Ashanti.

And with that lead in, over to Mark.

Thanks very much, Stewart. Good morning and good afternoon, ladies and gentlemen. It is great to be here again reporting our Q2 results.

Before I actually kick in to the actual numbers, it is probably worth reflecting for a moment, and Stewart and the team put together a little collage of headlines that you have seen in the industry in relation to the gold industry. I am working off, I think, it is overhead four in your pack.

I have changed my story a bit during the course of the day based on a number of questions I have got, but it is important to reflect on the points nevertheless. The key issues we have seen in the industry -- operations challenges as the industry is stretched in terms of mature deposits. Not much new stuff coming on so it is getting tougher.

Project overruns and delays, and when I talk about project overruns and delays I'm talking about mega project delays and overruns. Poorly executed transactions, balance sheets that are deteriorating as net debt is rising, and inflationary pressures continue to mount.

A little bit deeper into my conversation I will explain why I think we have differentiated ourselves in this market, not only in the gold industry but in the mining industry alike. But let me share with you just a couple of statistics to kick the conversation away.

In 2008 AngloGold Ashanti put forward a strategy that focused on cash flow returns and actually announced the [data] of the industry model was dead. I find it instructive to see new CEOs in this space reflecting on the same model that we talked to about four years ago. The only difference is instead of talking we have been doing.

Our EBITDA in that period is up 200%. Our net debt is down 50%. Our return on equity is north of 25% and, in fact, if I take all impairments and after-tax, our return on invested capital is around 15%.

Now remember that was a base of about 3% in 2007. In fact, it was looking even uglier in 2008 when we were staring down the gun barrel of the hedge book operations that weren't performing. Missed guidance 17 quarters in a row.

Since that time we have had a better than 80% hit rate on our guidance numbers, albeit we have still got more work to do to be more consistent. Yet we have stubbed our toe a couple of times, but the overall strategy has been right and it has positioned, we believe, ourselves well in the industry. Yes, we are discounted significantly. But when you look at where we have come from and what we have delivered and what we look like going forward, we really have positioned ourselves in quiet a unique position relative to our competitors in the industry.

So to go to the highlights of Q2, adjusted headlining earnings are up 25% to a record $682 million for the first half. Our EBITDA is also a record, up 10% to $1.47 billion. So despite a little bit weaker on the gold price, some heavy going in Q1, we have still posted a record first half. Again, that continues on from the restructuring that we have been putting in place, some of these sales and the other things we have done to improve the operation.

Adjusted headline earnings of $253 million was a little bit noisy compared to last quarter based on no one-off tax credits, timing of some sales, but still a very solid number under the circumstances. Production and cost both beat guidance. Again, a good performance after a tough first quarter.

Continental Africa, the Americas, South Africa all delivering -- sorry, Australia -- all delivering on budget. Certainly a better place than we were four years ago when we were missing our budgets by 25%. And South Africa began its recovery with an 18% improvement compared to the first quarter.

All of our growth projects remain on schedule, and let me remind you again we have hit our capital numbers four years running after 50% blowouts in 2008 and with Tropicana, Kibali, Mongbwalu we are looking at forecast commissionings through the last quarter of 2013, which really does position us well for 2014. We have also approved the Cripple Creek development project, and Sadiola is still being reviewed, but we think we have made the right decision in holding that back until we get all the right indications from the government.

Venkat and the team have done a fantastic job refinancing with the $1 billion five-year revolving credit facility. We have the $750 million 10-year corporate bond at a 5.125% coupon, dividend of ZAR100 per share has been maintained, and we continue to make progress on our new technology projects in South Africa. It has been a solid result off a slower first quarter, but very happy with the way the team is coming together.

On the safety front, disappointed to see five fatalities in the quarter, although I will say that we had the first two fatalities in the first couple of days of the quarter. We have had a much better run since then. A lot of improvements have been made in South Africa, but the underlying safety performance is holding with our all accident frequency rate 14% better than we were last year.

So we have got to work both fronts, the high-risk incidents and the cultural transformation of the business, and we are working on some accelerated programs, particularly in South Africa and the higher risk programs. In terms of operations and production in continental Africa, we are in a solid quarter -- 407,000 ounces at a total cost of 827 ounces.

Good performance from Geita. Obuasi a lot better than the first quarter after its problems so a little bit more of a solid result there. Iduapriem continues to go well. Siguiri continuing to improve. Sadiola holding back a little bit as we have watched carefully the political events, but certainly we have had no threats on site. And Navachab third quarter in a row delivering on its target, so it is making good progress.

So for Richard and the team great progress across the site, some really good outstanding performances, and continuing for the third quarter in a row to hit all of their targets.

The America's continuing to do well, 233,000 ounces, cash cost of around $670 an ounce. Good work at Cripple Creek, even though it is off a bit compared to last year. That was expected as part of the cycle and we are still very happy with the way the operation is going and we are really looking forward to the 130,000 ounce development as we put the new mill in.

Brazil going very well. Some big improvements at [Cueyba] and very pleased to pick up the other 50% of Serra Grande that had a very good June. And we are hoping that trend continues into the new quarters as we continue to improve production as the site fully implements Project ONE. We are seeing some great improvements in the physicals. They had 15% improvement in productivity along in the last few months.

At Cerro Vanguardia obviously a tough political environment, but again the guys are doing a good job getting materials to the site. And whilst it is still tough, we are managing the environment and certainly the production and the cost results remain pretty good. Silver was a bit down on the quarter, but that is a timing issue. We will see that pick back up and that will give us a bit of product cost net of byproduct credits in the next couple of quarters as well.

In Australian, the story continues to unfold in Sunrise Dam. We have recovered from the flooding. The guys are hitting their numbers.

Improvements in cash costs, but even more important the improved results from our drilling work under the main ore body. And, quite frankly, we are seeing the third phase of the developments unfold with the Vogue ore body and continuing encouraging intersections down to depth, right down to what we call the Carey shear, which is another 1,000 meters below the operation.

So very excited with what we are seeing there. We believe definitely the results are there to support a 15-year probably bolt style operation target with about 400,000 ounces a year being the long-term project delivery and 300,000 being the shorter-term delivery target over the next three years. So very excited, very [current], and with Tropicana Australia is going to be contributing 650,000 to 700,000 ounces, once we get Tropicana going, for a long period of time.

In South Africa, tough first quarter, big improvement second quarter, but a lot more to be done. Doing a lot of work on accelerating Project ONE implementations at Kopanang where we have gone first. Our face (inaudible), and that is the areas available to mine, have improved about 15% in the last six months as we have really gone into an accelerated implementation program. And whilst that won't be enough to get us back to full production over the course of this year, it certainly will give us a good start into 2013 and certainly continue the recovery that we have seen in the second quarter.

So more work to be done. Certainly our most significant risk over the next 12 months in terms of the operations, but some good work being done and certainly happy with the recoveries that have been made so far.

So solid quarter on the operating side, good deliveries from the three international jurisdictions that we continue to grow and build, and certainly a much better performance from South Africa that obviously still has room to improve. With that I will hand across to Venkat.

Thank you, Mark. Good morning, ladies and gentlemen. I would like to cover four areas in today's presentation. Kicking off with the second-quarter 2012 financial results, then cash flow and balance sheet, then cover the refinancing that was completed last month, and finish with the third-quarter 2012 outlook.

For those of you who have got the slide show open in front, we will now talk to slide number 12, second quarter's financial results.

Better-than-expected gold production of 1.073 million ounces and lower unit cash costs of $801 an ounce helped AngloGold Ashanti post adjusted headline earnings of $253 million, or $0.65 per share. However, this level of adjusted headline earnings is lower when compared to both the previous quarter and the second quarter of 2011, and I will explain why in a few seconds.

When compared to the $429 million adjusted headline earnings recorded in the first quarter of 2012, the second-quarter earnings were lower due to the following principal reasons. The first-quarter adjusted headline earnings included a once-off deferred tax credit for $90 million, and that does not recur during the second quarter. That accounts for the bulk of the swing in quarter-on-quarter earnings.

In addition, the second quarter of 2012 also saw a drop of $85 an ounce in the gold price quarter on quarter. Lower byproduct credits during the second quarter due to lower silver production and prices, and stockpiling of uranium in order to meet a legacy contractual delivery of 860,000 pounds at a premium of 22% to current spot during the fourth quarter. And that amounted to around of $16 million as we are stockpiling the uranium to deliver at a premium to spot in the fourth quarter.

Higher levels of exploration and other expenditure quarter on quarter tracking guidance and lower level of gold sales relative to production due to the timing of gold shipments, which is around $17 million. Looking at it differently, if we had sold all of our uranium and all of our gold which we produced during the quarter the earnings would have been higher by $30 million to $33 million. The other factors were partially mitigated by higher production and the benefit of lower operating currencies.

You will also have seen the swing in the effective tax rate quarter on quarter was due to the nonrecurring tax credit of $90 million that was included in the first quarter only, which accounts for the bulk of the swing in the effective tax rate; withholding taxes and translation effects on deferred tax balances due to the sharp weakening of the Brazilian real, which is really a non-cash charge which goes through on a reset which goes through the income statement. And that impact was around $20 million.

The second-quarter adjusted headline earnings were 29% lower than the adjusted headline earnings of $342 million recorded in the same quarter in 2011 for the following principal reason. The once-off benefit received in the second quarter of 2011 of the Ayanfuri royalty amounting to $30 million after tax; higher exploration, corporate, and capacity building costs year on year; and higher tax charges year on year as the second quarter of last year included the benefit of hedge and other attacks losses which have been utilized, particularly in South Africa.

Now moving on to slide 13, as flagged during the first-quarter's results call, net debt increased during the quarter from $483 million to $879 million due to higher capital expenditure levels of $451 million as compared to the $354 million in the first quarter, an increase of around $97 million in terms of capital expenditure, purchase consideration of $220 million paid in June 2012 to acquire the residual 50% interest in Serra Grande, and timing of tax interest payments and, needless to say, gold sales and uranium sales as well.

During the second quarter of 2012 cash flow metrics were as follows -- EBITDA of $668 million, cash inflow from operating activities of $462 million; free cash flow was an outflow of $101 million due primarily to the planned higher project capital expenditure. As flagged during the first-quarter results, given the residual capital expenditure of between $1.4 billion to $1.5 billion for the remainder of the year, a large proportion of which is project capital, and the purchase consideration of $335 million for the acquisition of Mine Waste Solutions which was sent only in July of this year post quarter end, we expect net debt to increase during the remainder of 2012.

If we can then spend a few moments on the July 2012 refinancing, slide 14, in line with our prudent approach to financing and balance sheet management we successfully implemented a two-part refinancing plan after the quarter end to achieve the following objectives. Remove concentration of debt maturities in the first half of 2014 when our US dollar revolving credit facility and the $732.5 million convertible bond both mature for repayment roughly at the same time. Improving tenure of debt profile to better match our long-life assets. Further diversification of debt sources away from the bank market.

In the latter part of July the Company replaced its existing $1 billion revolving credit facility that matured in 2014 with a new, five-year, unsecured $1 billion revolving credit facility with its banking syndicate. The facility only matures in July 2017, so same [quantum], but the maturity is not in 2014 but in 2017.

Shortly after signing the new revolver the group also issued a 10-year $750 million unsecured rated bond at a coupon of 5.125% per annum, which is lower than the coupon on the previous 10-year bond. The proceeds from the bond is now available to meet the Group's cash and capital investment needs, leaving the new revolver largely as a standby credit facility or headroom. This strategy to use the new revolver to purchase a convertible, if required, could significantly reduce the potential refinancing risk in 2014 and will provide us with both the time and the flexibility to look at the options when the $732.5 million convertible bond matures for redemption.

For those of you who will remember, in 2008 and 2009 we had a similar convertible bond that matured and we saw the market fall off before our eyes as we were going to refinance the bond. And we have to enter into an expensive bridge facility to cover it. With the current refinancing that risk has been significantly reduced.

We are pleased that this refinancing has been very successfully implemented in a proactive manner at competitive rates in extremely volatile markets and in record time. That has been possible by the good work of the treasury team, the legal team, the finance, and the IR teams who did a splendid job pulling this off within 10 days. The slide you're seeing now shows our key financing facilities that are currently in place, and you will see that this has a good mix of funding sources, tenure, and liquidity.

Turning to slide 15, the third-quarter 2012 outlook. Gold production for the third quarter is estimated at between 1.07 million and 1.1 million ounces at a total cash cost of $8.35 to $8.65 an ounce at average exchange rates, as shown on the slide, with the rand at 8.15, the real at 1.85, Aussie dollar at 1, and 4.60 for the Argentinian peso, and fuel at $100 per barrel. The increase in unit costs quarter on quarter is due to the impact of (inaudible) in South Africa, half-yearly wage increases, timing of uranium sales, and inventory movements.

The Group's full-year gold production and total cash costs and capital expenditure guidance remains intact. However, as flagged in our previous earnings releases, all production and cash cost estimates could see some downside exposure in the light of safety related stoppages in South Africa and other unforeseen factors.

I will now hand you back to Mark Cutifani.

Thanks very much, Venkat. Ladies and gentlemen, one of the things to point out that we have been particularly pleased with this year is obviously the transaction team headed by Venkat.

The two refinancing -- the two acquisitions it made me reflect back on what we have done over the last five years. Five acquisitions; cost us about $1 billion. Those acquisitions are worth about $3 billion in our hands today, and that is using very conservative estimates, so we have ticked the box in terms of value accretive acquisitions.

If you look at bringing t2o new projects from expiration to development, being Tropicana and Mongbwalu, well underway; numerous brownfield expansions. Between the M&A work, the exploration work, and the brownfields expansions we have brought in or are in the process of bringing in 1.8 million ounces at a cost per new ounce of around $2,400 an ounce, which is less than half the industry average when you take into -- well less than half when you take into account acquisition and capital development costs.

So that is why we are, if you like, the leader in terms of our total cost structure, or the most competitive, why we have got some great margins, and why our capital returns are so strong in what some would argue is an inflationary and tough market. So credit to Venkat and the team.

Of all the transactions that we have put our eye to we have not missed one we have gone public on in five years. We have not missed one. We have certainly aborted a couple of things before they got on the runway. That was because, one, we couldn't see value or, secondly, we saw transaction risk that didn't justify the next phase.

So we are very pleased with our track record and that is something we will hope to maintain. Can't always guarantee it, but certainly in terms of other groups that have struggled a getting their transactions away we have not missed one.

Just going to that point, let me talk about the strengthening of the executive and the Board. As a company we have continued to renew and build bench strength. It is not about reinventing the same people or moving the deck chairs. It is about reinvention, developing people, and continuing to add quality and strength to the bench.

With that I'm very pleased to announce the appointment of David Noko to our Executive Vice President, Social and Sustainable Development role. People know that I have been looking for someone on a global basis for more than 18 months. We have found someone, former South African CEO of De Beers that did some wonderful work in the community development area and great work within the operations, particularly in business improvement. So very pleased to have David on board.

We have also added Mike MacFarlane, Executive Vice President Business Strategy. Mike was the clear leader in the development of a new innovation technique that we have used to get ourselves up the curve on the technology development in South Africa, working collaboratively with the South African team. Mike hails out of Mt. Isa or, as you would know it, the Xtrata Copper business today.

I've known Mike for a number of years and I consider him one of the top engineers in the industry, certainly will add breadth, depth, and expertise and experience to the operating team. So I welcome both of them.

The third addition or the third change in the executive is Charles Carter is now being appointed as the Executive Vice President Colombia. We are reinforcing how important we see Colombia is. Supporting the fact that we have made great progress over the last 18 months under Ron Largent, [Ken Clarksdale], and Rafael Herz in getting the operations up to speed. So very pleased with the work they have done.

Now we are at a point with Gramalote, with La Colosa, the new discovery at (inaudible) that we are ready to take another couple of those aggressive steps in developing our Colombian positions, and Charles has taken on dedicated responsibility for Colombia. He will continue to work closely with Ron and his team, who will provide logistical support, and Tony O'Neill, who will provide both exploration and technical support.

So great team of guys actually helping us take our next steps in Colombia, but it also is a statement on how important and how far we are starting to progress with our Colombian position.

At the same time, we have added Mr. Michael Kirkwood, financial director out of the UK, who will help provide more of an international flavor and expertise in our Board. So very pleased with the additions that have been made there.

On growth, in particular I will start with exploration highlights. Continuing good results out of Colombia, now that we are talking about it. La Colosa another intersection more than 200 meters at 1.73 grams per ton. The asset now north of 25 million ounces resources.

We still think there is growth potential, still lots of work to be done, but certainly the drilling continues to encourage us and we are still open along strike and so the good news keeps coming.

In Geita we have also seen some good results pushing us towards the future development of an underground operation under the high-grade Nyankanga pit and you will see some fairly fancy intersection, 20 meters at better than 6 grams, 12 meters at 5.23, 22 at 3.3, and under Nyankanga 21 meters at 7, 16 meters at 10.46. So we are very confident that we will see some underground developments being chartered out in the next 18 months, and we have already starting on the scoping studies, have got a pretty good handle of where that is going. So that is some more good news that we are adding to the portfolio.

In going into the DRC I should also pause on our approach to managing the business and managing risk. For those that can remember, we saw a great asset or potential asset in Moto some years back. We tried to find a good partner. Randgold, Mark Bristow in particular, we felt had the expertise and the experience, and also had done a lot of homework already on Moto.

Putting the two of us together, I think, was a good outcome for both organizations. Their understanding and willingness to drive hard in Africa and our technical breadth and support has turned out to be a real winner. Kibali is progressing to schedule and certainly very pleased with where that is going.

I should also reflect and I got a couple of questions about our South African projects this morning, and it goes with the Kibali conversation. We are quite happy to have 45% of a world-class asset if it is the right thing from a risk perspective, but more particularly, if it is the right thing for the shareholders.

In South Africa we used to put up $1 billion to $1.5 billion on a project that wouldn't yield cash flow in 12 years. Those days have gone. We understand how to reconstruct projects. We now break those projects up to three parts where we can start seeing gold flow within three years.

So an 11% project that was presented to us at the end of 2007 -- rebuilt, reoptimized, reconstructed with different thinking and different approaches -- broke that project up into three parts with an overall cash flow starting within three years and a return north of 20%. We not only come with good projects, we come with new ideas, new execution strategies, and we have delivered our capital budgets four years running. So we have got a great track record and we also understand what it takes to create real value for shareholders.

Same approach in the DRC in Mongbwalu. It is on schedule for delivery late quarter three 2013. It has got a bit more schedule pressure. We are starting and certainly come back from a further back start compared to our other couple of projects. So it might tickle into the first quarter of 2014, but we have got a good handle on the costs, keeping the project at a scalable level.

The idea then is to build that or bootstrap it up after three years from 130,000 ounces to north of 250,000. Very happy with the progress, and Richard and the team are making good progress there. We will give more updates later in the year.

In the Americas, Cripple Creek got the Guernsey last quarter, or as they would say the jumper in other jurisdictions. Looking good; a bit too early to call any trends as yet, but we expect to be commissioning in 2016.

In Australia, Tropicana on budget, on schedule. Our 70% doing well. Happy, expected to see a Q13 commissiong and the picture you see is the fact that we have actually started mining. So in all of our projects we have got metal underground, we are building -- 99% of the engineering is complete, and we are on time -- in fact, we are a month ahead of schedule -- and we are on budget. That is for the four projects, and there aren't many companies in the world of gold, in fact the world of mining, that can make those statements.

So we are well on the way. Not saying there won't be a few bumps, but we are well and truly in the right place delivering the right projects. From $3 billion EBITDA we are contract to push it over $4 billion EBITDA over the next couple of years.

Few other photos there. If you don't believe what we are saying, you can see the photos of Tropicana starting to take shape. In fact, I will visit the site on Thursday and I'm very excited to be there in the next week or so.

Finally, when you think about South Africa, and I am talking about the operating and growth side, one thing we have also done and been very successful has been incremental technology. With the development and the implementation of Project ONE we have already delivered $946 million worth of additional cash flow on an annual basis. That is where we have gone from $1 billion to $3 billion, and we are going to $4 billion with our project improvement.

Part of that approach has been the focus on technology incremental technology that can make a big difference to our operating assets. In South Africa you will see that we have been looking at underground drilling technology. So instead of doing the usual drill and blast, we actually extract the reef or, as some would say, we extract the hot dog from the hamburger or the hot dog from the roll.

So instead of adding 200% dilution, we take only the gold and all of the gold in a 1 meter reef structure. The whole you are looking at is a 1 meter hole extracting only the gold and all the gold for that 30 meters. 28 ounces of gold came out of that hole.

Our first hole took us six weeks. Our second hole took us nine days. We are on our third hole as we speak and we expect to half that time again. It will take time, but the good thing is all the technologies we are using are known, it is just known in a different application. From our point of view, there have been five key technology developments that set us apart from some of the work that was done back in the '70s.

Firstly, the pilot hole technologies worked very successfully. It took us that first couple of weeks to get it right, but it is good. The reaming to 1.2 meter depth took us another week to get right, but that seems to be working well.

Backfill, we have now developed backfill that is very different to anything we have seen before, higher strength and low compressibility. We need both of those characteristics to work so that we can backfill these holes and then drill another hole next to it. So we will actually drill a hole, leave a gap, drill a hole, leave a gap. We will then backfill the holes that we leave behind and then go back and drill the remnant ore that is remaining.

The reason the compressibility and the strength of the backfill is important is it means that it keeps the area stable when we drill the second row of holes. That is very important from a safety point of view, a productivity point of view, and a cost point of view.

We have also developed new in-camera technologies that tell us exactly where the hole is in relation to the reef structure so we can then decide on what size bit to take the full reef. That is another (inaudible) technology we have developed that is working very well.

And, fifth, and I made the point earlier, all these technologies are currently available. There is nothing new, nothing more difficult. It is a matter of stringing the pieces together and working in this environment, and so far we are making very good progress.

We would like to have a fully operational unit in place by the end of next year, which is a full year earlier than we thought. It will take us two to three years to get those prototypes working to their full capability before we would commit to a major change to the South African operation.

So about 18 months ago I said this has got a 10% chance of working. Based on what we have seen now we think we are up to 30%. Still a long way to go; can't make any promises, but we are making a difference and it's because of the team we have put together, the different thoughts from all over the world. The experience we have in this team is second to none in this industry and I would argue across the mining industry.

This is the sort of stuff, putting intellectual capital to work to make a difference, and that has been a big part of what we have done on Project ONE and how we have delivered that $1 billion worth of improvement in cash flow that we have already seen.

Finally, if you will roll over to our value proposition on page 26, we talked about returns on capital. We used return on equity, which was in the high 20%s. Some people have said, well, wait a minute you haven't included your impairments. We have included the impairments.

Some people said it was before tax. Well, we have put after impairments, after tax showing our return on net capital employed doing best in the industry. And you can see how our EBITDA has continued to track up.

So certainly in terms of results, for those that are talking about a new model, just send them a copy of our presentation and they can see what it might be worth.

Finally, page 27, talk about why we believe we are different to the industry. We believe we set ourselves apart on five key fronts.

First, our margins are growing. You know we have done the hedge book. We are implementing Project ONE, which is about managing costs and improving revenues, and we are delivering on projects in terms of incremental value at a total cost a fraction of our competitors.

Our projects, four major projects as we speak today, and we have already delivered two, are on budget, on schedule. The disciplines we have put in place -- and people sort of said you are boiling the ocean. You have got to boil the ocean to get it right. It does take time, but we have certainly seen the results and we have delivered capital four years running.

M&A transactions, as I said before, we have added and I include those five major transactions are in the process. Some have already delivered and are in the process of delivering 700,000 ounces of new production at half the average cost -- sorry, about a 30% discount to the average cost of other capital developments in the industry. And in fact, I haven't included some of the acquisition costs that have been thrown around.

At the same time, we are prepared to sell assets that we don't believe add value to the portfolio or where we can see we can better divert that capital to make it work harder to improve returns.

Our balance sheet is well-managed. As I said, net debt down 50%, EBITDA is up 200%. The basic ratios are very strong. We are well positioned; we understand what we have got to do. We have got to hold back because the gold price doesn't do what we would like. We have got plenty of options to move the portfolio and make sure we manage ourselves going forward.

Finally, we have got a strong management team with a proven track record. We continue to build bench strength and quality across the team. And whilst we haven't got everything right, we are getting most of our stuff right. That is why it is making a difference and that is why we are the industry leader in terms of returns on capital and creation of shareholder value.

With that I think we might be happy to take questions. Thank you.

(Operator Instructions) Harry Mateer, Barclays.

Thanks for taking the question. Just looking through the guidance you provided and using the midpoint numbers for 3Q, it would seem to indicate pretty significant improvement in 4Q this year, both in terms of production as well as cash costs. I was just wondering if you can walk me through what the big drivers are for potential improvement in the fourth quarter.

Sure, Harry. Harry, normally we have a better second half, somewhere between 5% and 7%, compared to our first half. Certainly that is the average over the last four years, so it represents more available face time in South Africa.

We usually do better in continental Africa as we also get the same benefit of additional working days. In the America's we generally do much better on the second half as well. So on average I think it is about 5.6%, so it ranges between 5% and 7%.

The other thing, Harry, is we have got a couple of other little increments in there with the MSG purchase and a little bit of an increment that we will get off Mine Waste Solutions. So we think it is still a reasonable number. It is certainly a step up, but we have got all the right things going and certainly we have seen that historically from the business. Venkat, do you want to add anything?

If I can add on the cost side, the big driver in the drop in costs from fourth quarter is obviously answers, but in addition to that what one has to bear in mind is the third-quarter jump in cash cost is specifically due to winter power tariffs in a big way, so that would not recur in the fourth quarter. Also, we will have the full benefit of the margin on the 860,000 pounds of uranium which gets sold in the fourth quarter, and that is quite a big contributor to the costs.

So we would say that that will make a good contribution towards the end, Harry.

Got it, thanks. Then I guess leading on from that, apart from the seasonal effects because that would seem to imply that year over year 4Q will be the first quarter this year where your cash costs are down relative to 2011. So it is more than just seasonality, is that fair to say?

It is. There is a little bit more in the there, you are right, Harry. Interestingly, we were tracking our costs across the rest of the industry. Our cost increase in the last 12 months are running about two-thirds of the industry average, so we are under the midpoint on cost increases.

We are hoping by Q4 that we can demonstrate that we are, in real terms, maybe 2% or 3% versus an industry north of 10%. In fact, the whole industry is up 18%. So we think during the course of this year we can separate ourselves from the industry and really present a good story.

Great, thank you.

(Operator Instructions) Terence Ortsland, TSO & Associates.

Mark, good presentation, a lot of details. I think the world of mining has gone back to the somewhat a few decades ago when risking on the geological sense becoming more prominent. Could you go over a bit more about how you intend to derisk some of the regressive regimes which are under way from a fiscal point of view, as well as an ownership point of view?

This is going to become a major issue as we go on with respect to valuations and maybe multiples and so, including the project return calculations. Actually I was amazed to talk about -- when you talked about the years to go by before you see any returning cash flow in certain projects in the southern part of Africa.

The risking issue, the way you are approaching it, and where do you see the trouble points? Because I don't think it is anywhere near ebbing at this moment in time because I think the tide is still rising.

You have asked a big question, so I might take that in two or three parts if I can. And maybe I might take your mind back to -- and I am going to think 2006, 2007.

In 2004 in Sudbury, if you can remember how much pressure Inco was under in terms of its community relations work. We were heading in 2006 where we were looking at a strike. As a team we agreed that we would work in the community, be much more aggressive in our community engagement, and work to see if we could get the community on our side.

By 2006 we had the community on our side, we didn't have a strike, and in the next three years we saw a 40% improvement in productivity as we implemented the sort forerunner to our Project ONE and we really got the community of Sudbury behind us.

That was all about Canadians engaging Canadians and changing the nature of the conversation. So I think that experience is very instructive and it has certainly that I have carried with me through AngloGold Ashanti. I have seen it from day one.

If you look at our strategy, sustainability will be the key in terms of the way we engage our local communities, in terms of getting access to ground, and ultimately getting access to resources. So this whole sustainability push has been a key strategy for us for the last three or four years.

We are actually being used by the United Nations to develop some of the new protocols on security and engagement approaches. We have actually launched the first Millenium Development site in Guinea as the forerunner to new developments through Africa. And we have done a number of other things in other communities where we have previously struggled to improve the local community relations and give support for our developments.

At the same time, I have also personally been quite aggressive around the conversations in Australia. I think it is very negative for the industry to see what happened and, quite frankly, I think it was quite negative of some of the industry's major players to agree with something that everybody knew was wrong.

You will see there is a presentation I gave about three weeks ago where I talked about mining's contribution to society. 11.5% GDP direct, 21% when you take services and support into account, and when you take the products of our industry at 45% driver for the world's GDP it was interesting how a number of players changed the conversation.

We were already working with a few NGOs, Oxfam and others, looking at a new sustainability concept that we'll be talking about at Northwestern University in Kellogg. We are doing stuff here in South Africa, stuff up through Africa, and in fact even taking some of those conversations to what we have done at Tropicana where we have won a number of awards.

So the industry has to listen and work with local communities and start motivating in a different way and on a more unified basis to change the perception of the industry and the physical outcomes that occur on the ground. So we are working on all of those fronts.

I think in that context we are in a very constructive conversation with the South African government. We have turned around the nationalization debate. We have kicked that [for touch]. We are now in a conversation about why I don't think the resource rent tax is the right outcome. What we are looking to do is work up better social development models which we have just tabled in South Africa that has been really well received.

So it is a very complex issue. I think we as an industry have got to work on a number of fronts and I think we are backing what we are saying with people on the ground and new approaches in these projects that we are developing. The fact that we have looked so hard for a new sustainability leader I think is also a testament to that commitment to making a difference and being in a different set of conversations, and so far it is seems to be working for us, Terry.

Terry, I don't know if that is helping you with the conversation but certainly that is where I would start.

I think the market is generalizing everybody's risk profiles instead of derisking them company by company. I think I always encourage each company to talk about this topic because it is not mutually inclusive. In fact, every company can actually spend out and say here is what we are doing the way you described right now. It is at the ground level derisking the projects and derisking the existence in the countries instead of going to the capital city of the country and trying to make a deal, the investment agreements, and so on and so forth. I think both sides have to be well covered.

You are very multinational, international. I think there are issues whereby I think people have to approach and analyze this company per se. Example, Colombia; let's talk about that for a second before we may sign off. How are you approaching that to derisk the project? It is a great project, world class, a lot of ounces.

There are some ground-level issues and I am glad Charles Carter is taking the objectivity of joining you on that on the Colombian front. How are we going to see this project resolve itself in terms of derisking and getting to a critical path as soon as possible?

Okay. One other thing -- you made a good point; let me add to your point. One of the interesting things about AngloGold Ashanti, as we have been growing our international base we are now operating across 10 countries. That will increase to around 12.

So we are starting -- we are the most global of the gold miners, so we have got natural geographic diversity in our asset base. We are heading towards about 30%. Within three years we will be down to less than 23% in terms of our South African contributions, so our geographic diversity is becoming an advantage to us in this tougher world. That is one.

Two, our technical diversity. We have open cut, we have got underground; we have got a number of different operating types. With the team that we have very versatile in working off jurisdictions and we are learning from each other. And that has been a core element of our Project ONE.

Three, the actual mining operations and the actual size of the operations. No one asset, no one, two, or three assets is so important to us that it blows us away if we have a problem. So that diversity is starting to manifest in a way that is quite advantageous to us.

Now we have had to put Project ONE and a different way of running a mining business being our business process restructuring to manage some of that complexity, but we now see that as advantage with the improvements that we are sharing across the Group. But having worked for Rio Tinto for 12 years and understanding geographic commodity diversity, how you build and run a business in that diverse type situation has been very much up our alley and certainly has helped us improve.

Having said that, if I then go to Colombia -- and we are putting those practices into play -- in terms of Colombia we took a deliberate step to go back one step after we got feedback regarding how our exploration activities had upset people in Colombia. We don't want to get ourselves where we have put $2 billion or $3 billion into one asset and then have to stop the asset midway through. We will be sure that we are ready to go, because you must have the local community on board.

So we have gone from 5% approval rating to a 60% approval rating. Lots more to do; Charles and the team have got lots of challenges. But, interestingly, at Gramalote, which is our second development, we have already actually sorted through individual deals for 90% of the old artisanal miners around that site.

We expect in the next three months to finish that work off, whether it is working within the asset, whether it is going into a contract operation supporting the business. Some have wanted to retire. But taking the time to deal with the issues at a personal level is how you make a difference.

And so we have got great support from Gramalote, we have got improving support at Colosa. (inaudible) is probably more like a Gramalote in terms of local involvement, so we have learned a lot of lessons.

The other thing that a couple of people have heard me talk about is understanding where many of these groups start to get their motivation from. What we have learned, for example, with Catholic church, is that a lot of the funding and global support for some of the work that is done is actually put together in central areas or central organizations, for example, in the Vatican. It is time we started to engage the leaders of this work into how we can make a different contribution as mining.

I know that sounds a bit facetious, it may be a bit far-fetched, but in fact we are finding solutions in places that you would never know before. Go and have a look at what we have done with the hospital in Mongbwalu.

The Catholic Church is now running the hospital. We have got a great deal with them where we have upgraded, supported, and will support them physically, but they are actually running the hospital. And the relationship with our NGOs and our other partners in that community have certainly gone a long way.

So there is a lot we can learn as an industry that we haven't thought about, and that is where we have got to go. We have got to come up with new solutions and some of those solutions are coming from interesting places.

Fantastic, Mark. Thank you for all the details. I will let somebody else ask questions. Thank you.

[Aubrey Sharfman], Merrill Lynch.

Has there been a consideration in the future, considered doing share buybacks as an effective usage of cash?

Aubrey, two things. Firstly, we believe our dividend structure is about right. It's about a 1.7% yield. We think we have got that right. Along with the funding of the new growth projects, will certainly drive significant returns. In fact, we will double -- on those projects we will more than double value over the next five to seven years.

Now when you're looking at a share buyback you have got to compete with that. Now given we have discounted some 40% we are almost in value territory on a buyback, but what we believe is appropriate is to fundamentally restructure and improve the business, improve the margins, grow the business to our 5.5%.

That is the best value for shareholders because not only does it deliver a better value return than buybacks at this stage, albeit they are pretty close given the big discount we see, these are great projects. They improve the quality of the business, they create real value.

At that point we start to look at other sources of value for shareholders, including dividends, continuing to build the portfolio. So we look at all options in returning capital, but share buybacks are still back in the pack at the moment given that we have got such great projects and that shareholders have said that they would like to see at least a value dividend stream north of 1%. So that is where we are at this stage.

I am going to let Venkat -- he would like to say something as well.

Just one important point, whatever investment strategy we look at one thing which is nonnegotiable is our investment grade rating.

Very important point. Thanks, Venkat.

Much appreciated.

No problem, Aubrey.

Chris, we are going to take one more question and then wrap it up. We are coming up to the end of the Q&A.

John Tumazos, John Tumazos Very Independent Research.

Thank you for taking my question. We read in the general media that the Touareg revolution in Mali has been taken over by Al Qaeda and that they aspire to take the southern half of the country.

We read in the general media that Ugandan troops have been asked to enter the DRC in the northeast quadrant where Kibali lies to help stabilize it. And, forgive me, I get some of the tribes and factions mixed up sometimes. I am not sure if Ugandan troops are allied with the government or whose side who is on.

But could you just talk just a little bit about the stability of your assets in Mali and DRC, whether they have OPIC risk insurance? To the best of my knowledge there has been no disruption or violence within tens or hundreds of miles of your locations, but we read these things in the newspaper and they frighten us.

John, first, I understand. I have worked in the United States, I have worked in Canada, worked in Australia, and I have worked in Africa, obviously, and in South America.

I guess to be blunt, Australia worries me more than Africa at the moment because, whilst you may have some risk in Africa, and I will talk to those risks specifically so I am not going to underplay your point, I think what has happened in Australia represents a far higher sovereign risk than what I have seen in Africa. I look at the threats of increased royalty payments in the US and some of the other things that are being done in jurisdictions as a far bigger risk. And I assess risk of nationalization in some South American countries far higher than I rank risks in Africa.

In my industry, and I am a global mining engineer and I have worked across six continents, Africa has its own risks so let me deal with the risk that you are talking to. Firstly, the Touaregs are a tribal group that actually occupy northern Mali into Libya and they are actually quite nomadic. They have been, for hundreds of years been arguing for an area of ground around the northern borders and that discussion and debate has been going on for many years.

There are a few representatives of Al Qaeda as well, reportedly, as there are in many other countries of the world, that threaten terrorist activities. What we know is that there is an argument between those different groups.

The Touaregs are very unhappy with that group because they have said we are not terrorists. We are people that move and work in these areas. We would like more autonomy in that area, and we don't want to be associated with yourselves. So apparently there is a dispute between those two groups.

We haven't seen anything south of Timbuktu. Certainly the fact that ECOWAS, the West African organization, has made it very clear that if there are further movements south then they would be very concerned and be looking for the UN to support holding them in that area north of Timbuktu. And, quite frankly, there aren't enough to actually spread across that area quite physically.

So it certainly is a northern concern. We don't see that it is likely to spread to the south given West Africa, the statements they have made, given Mali and it's improving situation in terms of the politics. Of course, none of us can ever guarantee that, but we see -- none of our operations have been impacted.

We are about 700 to 800 kilometers away from those areas. We are about 600 kilometers away from Bamako and we are right over near the other side, which is the Western African countries near Senegal.

So we have seen things like this occur in Africa as areas settle, so it doesn't represent, to us, a bigger risk. In fact, as I have said quite consistently, the (inaudible) in my view is a bigger risk because it is not only a threat, it has actually occurred. US in some jurisdictions are far higher risk. So certainly we think that is one that could managed, but again one that we are watching carefully.

In terms of the DRC, you have got a small military group that is operating adjacent to the Ugandan border about 400 kilometers away from us. And 400 kilometers in the dense jungle is a long distance and certainly, from our point of view, we have not had any influence or impact in terms of where we are.

We are aware that the US is very active, a number of UN representative groups are very active, because everybody wants to see stability in those areas. And so we have got quite a heavy UN engagement in terms of making sure those areas remain calm and that we can keep transitioning to a democratic rule.

So, yes, they are things we watch. Yes, we are very careful. We have in the past considered insurance; we haven't at this stage taken it on given the premium rates that are likely to be charged. But, quite frankly, in terms of where we are having been in Guinea, having been in Tanzania, we think the situation is manageable. Obviously, we will keep an eye on it.

We can't guarantee there won't be problems, but given where we see people operate around the rest of the world, given the technical challenge (inaudible) and the problems we have had, we have been less impacted by risk than most of the other investment opportunities you have.

Finally, I would change where you are getting your information from. There are far better sources. (inaudible) and people like that they do a very good job giving a great analysis of what is actually happening on the ground, and you might find -- Oxford Analytica, Venkat, is another good one and [Where on the Ground]. So I think they way you have characterized it would be far more concerning than we would see it.

We are obviously keeping a close eye on it, but certainly we are less concerned but obviously we keep them on the radar and watch them very carefully. And I certainly don't want to underplay the risks, but I think when people talk about Africa we have had more consistent production out of continental Africa than we had out of any other regions in the 18 months. And, quite frankly, we have seen less disruption in continental Africa than we have seen in North America, South America, and Australia combined.

(multiple speakers) I was reading The Wall Street Journal; I should have been reading the sports pages.

Thanks, John.

Chris, I think we will call it good on that. Everybody thank you very much for participating in the call. If you do have any follow-up questions, you know where to reach us and we will chat with you again in three months.

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