Anglogold Ashanti PLC (AU) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the AngloGold Ashanti second quarter 2013 results. (Operator Instructions) Please also note that this conference is being recorded.

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

Thanks, Dillon, and everybody welcome to the presentation of AngloGold Ashanti's Q2 results for the three months to June 30th. It's a fairly full agenda here today, a slightly longer presentation than usual. And if I might just quickly talk to the flow of events for today -- we're going to kick off with our CEO, Venkat, who many of you know, who will give some introductory remarks and an overview of the quarter and some of the initiatives that are currently underway in the business. He'll hand over to Mike O'Hare, who is our Chief Operating Officer of the South African business, who will pass to Ron Largent, who is the Chief Operating Officer of the international assets. Richard Duffy, our CFO, will just give an update on the earnings and Venkat will close with some concluding remarks.

As is custom with us, just a quick read through the Safe Harbor statements before we proceed. Certain statements contained in this document, other than statements of historical facts, including, without limitation, those concerning the economic outlook for the gold mining industry, expectations regarding gold prices, production cash costs, and other operating results, return on equity, productivity improvements, growth prospects, and outlook for AngloGold Ashanti's operations individually or in the aggregate, including the achievements of project milestones, commencement and completion of commercial operations with certain of our exploration and production projects, and the completion of acquisitions and dispositions, Anglo Ashanti's liquidity and capital resources and capital expenditures and the outcome and consequence of any potential or pending litigations or regulatory proceedings or environmental issues are forward-looking statements regarding our operations, economic performance, and financial condition.

These forward-looking statements or forecasts involve known and unknown risks, uncertainties, and other factors that may cause our 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 the expectations reflected in such forward-looking statements and forecasts 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 forward-looking statements as a result of, among other factors, changes in economic, social, and political and market conditions, the success of business and operating initiatives, changes in the regulatory environments and other government actions, including environmental approvals, fluctuations in gold prices and exchange rates, the outcome of pending or future litigation, and business and operational risk management.

For a discussion of these and other risks factors, I refer to a document called Risk Factors Related to AngloGold Ashanti's Suite of 2012 reports on the AngloGold Ashanti online corporate website at agareports.com. These factors are not necessarily all of the important factors that could cause our actual results to differ materially from those expressed in forward-looking statements. Other unknown or unpredictable factors could also have material and adverse affects on future results. Consequently, readers 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 the date hereof, 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.

This communication may contain certain non-GAAP financial measures. AngloGold Ashanti uses these non-GAAP performance measures and ratios to manage 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 that is important to investors on the main page of its website, at AngloGoldAshanti.com, or under the Investors tab on the main page. The information is updated regularly. Please visit the website to obtain important information about the company. Venkat?

Thank you, Stewart. Good morning, ladies and gentlemen on the call. If we can start off and if I can walk you through the slides in the presentation, starting with slide 5, you will notice that this is a repeat from our last quarter's presentation, where we set our imperatives, in terms of taking the business forward, getting sustainable free cash flow from a good quality portfolio, at the same time keeping the integrity of the business fully intact.

We talked about capital allocation and how we are going to be aggressive when it comes to cost savings, and in terms of how we'll actually deal with the asset base, and importantly, maintain a robust balance sheet for all environments. We committed, in respect of certain of projects, to bring them on stream within budget and on schedule, and talked about roughly 500,000 ounces of incremental annual production coming on stream from Tropicana and Kibali at significantly lower cost levels as compared to the average cost profile of the group.

At the same time, we said we will preserve our long-term optionality within the portfolio in the South African site by the Technology Innovation Consortium, which is looking at improving the way we mine and giving us access into previously mined out areas and (inaudible). And with regard to the international portfolio around Colombia we also said throughout this process the safety of our people will not at any cost be compromised and we also said we have got the leadership (inaudible) of the team and the people to deliver these results.

So moving a quarter forward, we're going to walk you through and you'll see a number of these points have been addressed or are in the process of being addressed in the course of this presentation.

Starting with safety, safety is and will always be our first value. We've done a lot of good work over the past five years in this area of safety, creating a mindset change in terms of how we approach safety within the business. And there has been a greater focus in terms of safety initiators and efforts throughout the organization during difficult times.

Sadly we had two fatalities recorded in the second quarter. One was at TauTona and the other was in Mponeng as a result of hollow ground and a locomotive accident respectively. Both of them related to our mines in the West Wits region and we have gone through a detailed investigation of all of our fatalities which have occurred in the last 12 months to learn from the mistakes which have happened and how our behavior, our training and control and potentially sanctioned procedures can be improved as a result to basically bring down the level of fatalities.

We are focused on fatalities, largely because obviously we have to give a -- we've got to get to a zero harm environment within the workplace and one fatality is one fatality too many. But importantly over the last five years the level of fatalities at our mines have relatively been flat and have shown signs of increasing at the end of 2012.

Green shoots are starting to emerge on the fatality front. If you look at the first six months of this year compared to the first six months of last year, here on slide number 6, you would notice that our continental African region, our Americas region, our Australia region and exploration team, in addition to that our valuable region in South Africa, all of them recorded a fatality free first six months that that's an all-time record. The fatalities were focused in the West Wits area and Mike O'Hare and our head of safety for the group are actually focused on improving the performance in the West Wits region. And year-on-year we have reduced the fatalities for the same period from nine to five.

Importantly in the Continental African region in the month of June, the month of June is important because that is when Continental African operations were transitioning from Richard Duffy to Ron Largent and they were going through quite a formidable change during that period and even during this period the overall safety culture was not compromised and the region recorded 5.4 million hours worth through the month without a single lost time injury.

So focus of safety is of paramount importance because whenever the industry or the operations are under pressure we can't afford to have corners cut from a safety point of view.

Turning on to the second quarter, I'm going to cover this at a relatively high level and Mike, Ron and Richard will impact these from their respective areas of accountability. Production of 935,000 ounces was at the top half of the guidance and it was around 4% better than the first quarter of 2013. Our cash costs at $898 an ounce was better than both the initial guidance of $900 to $950 an ounce and also our July announcement of $900 to $920 an ounce, so the focus on costs is coming through and we have had improved performance from the Continental African assets and Serra Grande mine in Brazil.

In terms of net profit, we reported a net loss for the period given the accounting adjustments on impairment. We flagged to the market given the sharp drop in the gold price and the movement of the discount rate. We will record an impairment charge, including the write-down of stockpiles, of between $2.2 billion to $2.6 billion. The impact was in the middle of the range around $2.4 billion and the impact on adjusted headline earnings was a consequence of the lower gold price and the fact that stockpile write-downs, although a book entry, are not added back for the purpose of headline earnings. But Richard will demonstrate to you that if you had to strip out these exceptional items, we were positive to the tune of around $9 million for the quarter.

We have made solid progress in terms of the cuts, cost reduction in areas like corporate, exploration and even capital expenditure. We'll cover that in subsequent slides. And the good news is on the production front, Tropicana has started commissioning. Apologies from Graham Hem, he is not at this presentation today, he's at the Tropicana site taking the time to ensure that the commissioning actually happens as per plan. He started importing gold pour -- targeting gold pour in the third quarter. And Randgold has also announced that they are targeting the first gold pour from Kibali in the month of October, so we've got two projects coming on stream.

Refinancing, Richard will talk about it. We raised $1.25 billion, removing the refinancing risk from the maturing convertible in May 2014. We've also turned our maturity profile, added liquidity at an incremental interest cost as compared to where we are now, which is within our tolerance limit. Importantly we have allowed ourselves flexibility to redeem the bond early under certain scenarios.

In terms of dividend, the board at its meeting held earlier this week deliberated the (inaudible). We declared a first quarter dividend of ZAR0.50 and we have taken a call that for the second quarter and the third quarter given the volatile gold price environment, the potential around the weight negotiations in South Africa and also importantly we are in capital project build mode where the projects bring in gold before the end of the year. And therefore we have taken a breather for both quarter 2 and quarter 3 and the quarter 4 dividend will be reviewed at the year-end. And we are then reverting back to half yearly, quarterly -- half yearly payments of dividends going into 2014.

Turning to slide 8, a snapshot of the management team. The team is fully committed, the transition has been relatively smooth. The team is committed in terms of the challenges with the business space. We are certainly going to go through as an industry pretty challenging times over the next set of 6 to 18 months and the business is geared up to take those challenges. If I can spend -- most of the faces would be familiar for those on the call.

If I can spend a little bit of time on the operational and technical side. They have been clustered now under three of our colleagues and between the three of them, Ron Largent, Mike O'Hare and Graham Ehm, between the three of them have operating experience of over 105 years between the three of them. If I can start off with Ron, Ron is our Chief Operating Officer International Operations and he's currently continuing to manage the Americas region, has got (inaudible) under his belt transitioning from Richard Duffy into his structure. And he's also overseeing the cost reduction program across all of our mine sites with support from both Mike O'Hare and Graham Ehm.

Mike O'Hare has been in the South African region for several years. He knows the ore body backwards and Mike is managing the South African portfolio and is spending a significant proportion of time at the mine sites during these periods.

With regard to Graham Ehm, Graham retains the accountability for Australia until the projects are commissioned and continental Africa is settled within Ron's structure. He has also taken on the planning and technical portfolio from Tony O'Neil and the exploration portfolio from Tony as well.

So we have transitioned the operational piece pretty successfully within a two-month period since the appointment was announced. Richard has moved across to being the CFO and Charles has taken on my accountability in terms of M&A and transaction execution, et cetera. The rest of the portfolios are largely unchanged.

Moving on to slide number 9, which quite an important slide in the presentation, here we demonstrate how we are coming at the problem, which AngloGold Ashanti is tackling. We're taking it head on and we are coming at it from two broad angles.

Firstly around revenue enhancement, here we have two projects, Tropicana and Kibali coming on stream on time and on budget, particularly given the backdrop of project blowouts in terms of costs and in terms of timeline. These two projects, and one has to bear in mind, Tropicana is the first greenfield project built by AngloGold Ashanti since its formation outside South Africa. So given that challenge, which we have had, Tropicana has come along exceptionally nicely. And Kibali, through our joint venture partner and operator Randgold is looking at pouring gold in short time scale as compared to when Tropicana is set to pour gold.

Between the two of them, they should be giving around 550,000 to 600,000 ounces in 2014 at an average cash cost well below our current cost number. That reduces the value of the debt, in other words, we are basically bringing in cash flows to pull down the debt. It also brings in cash flow, which was not there in the business before and it lowers our average cash cost profile.

At the same time we are expanding Cripple Creek & Victor in North America. And that effectively, the incremental expansion, which takes place until 2016-2017 will start to push production up from end '14, early '15 over that period.

What we're also doing over the current planning cycle, which has started this month going until the end of December, we'll be removing unprofitable ounces from the plan, all of the business plans are going back to the chopping block again and we are looking at planning at low prices at around $1,100, call it the base case scenario. And the three operators are working in terms of all of their mine plans and effectively looking at price scenarios both above and below that.

And at the end of the day, certain assets won't make it, some of them may need to mine stockpiles. For a period some of the assets may need to be forward or put on care and maintenance or mothball. At this stage we do not want to speculate what they would be because historically the mines were actually looking at preserving probably production and mine life here as a focus is on preserving optionality and generating cash flow. So we want to go back in there to look at what is doable in terms of the mine plan and making this change in quite an aggressive manner. But what we will not do is to look at just the short-term. We will see whether there are other price lines appropriate for some of the ore bodies given their lifecycle maturity.

Last, we are looking at the revenue enhancement on one hand, we can't ignore the cost site. Project capital will reduce next year as these two projects have been commissioned. There will be an element of underground capital in Kibali, going into next year, but Tropicana project capital will cease and the project capital reduces significantly going into next year with pure projects and at the same time we'll be attacking sustainable capital savings. At the same time, Ron Largent, with the help of the operators, will be looking at direct cost reductions across the suite.

To preempt a question which may come on the call, are we giving any guidance for 2014 in terms of production, cash costs or capital? No, at this stage we want to complete the extent of the planning [exercise] because the three of these are intertwined and at the time of announcing our results at the end of the year, we will actually provide the guidance for 2014.

But here the objective will not be to chase a particular production number, but to look at what is the most optimum methodology to use in terms of maximizing our cash flow generation over the period we were preserving the long-term optionality intact.

Whilst this is happening, certainly to incentivize the operators to get to the reductions faster, the corporate office has taken control of the exploration spend and the corporate cost savings and we'll come onto that in a second. We are looking at taking out around $460 million depending on the midpoint in 2014 as compared to the 2012 spend. And we illustrate on how we intend getting there. That's around $100 an ounce coming off the all-in sustaining cost of the group when we go into 2014 as compared to 2012. And we have approached it quite methodically and step by step.

If I can then spend time on slides 10, 11 and 12, focusing on three areas. One around capital discipline. We have reduced our capital expenditure for the year by around $100 million to $150 million and all of that is occurring in the second half of the year. We have not touched the capital spend in Tropicana and Kibali. They bring in gold within a short period of time. In addition to suspending the Mongbwalu project and pushing out the Sadiola south (inaudible) project, Moab Khotsong project has been postponed whilst Mike looks at alternative ways of accessing that project. Mponeng deepening has also been slowed down as part of a review of the business plan to see if there's a better way of optimizing the expenditure and the production profile.

The Cripple Creek expansion will continue, so will the Obuasi ramp projects it brings in the high grade ounces sooner. All of the mine plans are being redrawn as I said previously. Our ERP project, which involves having the entire group migrating to a single system [stack] has been completed in South Africa. It's been completed in Australia and it's in progress in the Americas. Once that is done we will suspend the project for continental Africa region and take a breather that's around a saving of $113 million over a three-year period. That's in terms of the capital spend.

Turning to exploration, one needs to bear in mind that the group's new projects, particularly Tropicana, have come as a result of exploration successes and also our find in Colombia has been as a result of exploration. It has not been on account of acquisitions. So what is important is that we approach this not like an accountant would and preserve the optionality and not making a (inaudible) site.

So the exploration rationalization has been built bottom-up by asking the exploration team themselves where they would see the best bang for the buck. And the impact of that is that the spend in 2013, the expensed exploration for the year has been reduced by $50 million to $327 million. All of these cuts are coming in in the second half of the year and that has to take into account exit costs from projects and termination provisions, et cetera.

This the best estimate at present, but what we can say is the exploration forecast for 2014, the expensed exploration is locked in at $150 million to $175 million and that expense greenfields at about $35 million to $40 million. Colombia to preserve the tenements and to carry out limited geological work around $75 million to $86 million. Expensed brownfields at about $10 million to $12 million. And [assay] technology project, which Mike will talk about, between $30 million to $35 million. That represents a sharp decline in what I would call the nice to have exploration spend, which was incurred in 2012 and parts of 2013.

So how have we achieved that? Core exploration skills have been retained to ensure that we have got continuity and historical institutional knowledge. We are focused on why we have been successful in previous years and providing for optionality in strategic areas. And as a result of that, we have decided to withdraw our farm out or effectively trade in for our royalty or equity projects which are currently being worked upon in 13 regions. And only focus on three key areas, which are Tropicana, given the prospectivity which we are seeing in and around the mine site concession, beyond the brownfield boundary, Colombia, to preserve additional optionality in respect of that asset and importantly Siguiri, given it's out performance over the last two to three years. The capital is being directed to Siguiri to basically help get additional feed into the plant.

So there is a lot more focus going into exploration and that has been reduced by over 60% -- 60% to 65% as compared to prior periods.

The next area of focus is that in regard to corporate costs, at the end of the day if we were to get the savings out of the system, more costs to (inaudible). So if you look at our corporate costs, they've gone up steadily from 2008 as we were building capacity, in 2012 it was around $291 million. We forecast a saving of $50 million as a one-line saving adjustment when we went up with our guidance of $240 million in 2013. We are preserving that guidance intact, given that some of the cuts which we are seeing right now will involve some redundancy and termination payments, so we're not changing the annual guidance on corporate costs.

What we are targeting is costs coming down to between $120 million to $140 million in 2014. Here I'm on slide number 12. And the way we are doing it is coming at it from two broad angles. In fact three broad angles. And if I can give you the approach we have taken, if we want the business to believe that we are serious about the cuts, we have to start from the very top and here we mean the (inaudible), the executive committee going down to various regional structures.

The executive committee as you would have seen has shrunk from the same time last year by three individuals and we are down from 13 to 10 as an executive team. That's a reduction of around 25%. And in total cost to Company, that's come down by around roughly 35% to 40%. And at the same time or in terms of senior roles, there have been about roughly 20% to 25%, which has come out from some of the senior roles over that same period.

The focus here has been firstly starting with the looking at the inside organizational structure, streamlining the management structures across the organization, particularly given where the operations are clocking in to with regard to the various operators, we (inaudible) find multiple areas of duplication within the business and some nice to have activities which perhaps one can (technical difficulty) without compromising the integrating of the business. But importantly putting the technical support, which the operations need, closer to the operations rather than distant away from the operations.

And we have looked at the number of roles that exist within the group out of a complement of around 60,000 employees across the group, in terms of who are not actually at the mineshaft or at the plant, but provide ancillary services to the mine or the country office or regional corporate. And this is across all of the countries we operate and we calculate the number to be around 2,000 and we are targeting removing 40% of that roles across the entire global sphere. And this is starting from Denver, going through continental Africa and getting through Johannesburg through to our office in Perth.

Out of that 2,000 employees, 800 is the number which will be the result of the exercise. We would not have roles going into 2014 and we are more than halfway through this process of separation and redundancy time.

Second area we are targeting is indirect spend. Use of consultants has been banned unless it's approved by either one of the chief operating officers or the CEO or the CFO. And in addition to that, under the leadership of our group general counsel, we are going through meticulously looking at every element of spend included in the budget. and removing unnecessary items of spend. One could say these shouldn't have been there in the first place. Fair point, but notwithstanding that it's never late, we are basically eliminating items of consultancy spend, travel, communication, information technology, costs, et cetera. Most (technical difficulty) out here.

You will have noticed that our corporate costs have already come down in the second quarter by 13%, but as we go into the latter part of the year, that would involve separation costs which would be incurred. We are holding our guidance for the year. That will impact given the $50 million saving budgeted.

The third area where we are coming from is that typically the questions and answers, what happens if gold goes up again to $1,600, $1,700? Management is committed that we will exercise sufficient oversight to prevent the cost creep in the event the price were to pleasantly surprise us.

Slide 13 is a very good graphic illustration of what it means for the business. And this is the tailwind the operators need to basically start bringing the operating savings and the performance to budgets at various mines.

In 2012 you can see the amount spent was close to $750 million between expensed exploration, evaluation studies and corporate costs. We pulled the guidance down to close to $600 million. At the start of the year it pulled back further in the revised guidance, but going into 2014, the exploration expenditure is locked in and the corporate costs are being targeted with a fair amount of aggression so that it releases around $437 million to $482 million of savings as compared to 2012.

And that's over $100 an ounce production in our all-in sustaining costs and that's before the operators start to pull in the direct operating cost savings. So this is the tailwind which has been provided when we go into 2014 along with new projects pouring gold.

With that introductory comment, I'm going to hand you over to Mike O'Hare.

Thank you, Venkat. I'm on slide 15. The great start to the year certainly was challenged in Q2 as we came off the base. And that really happened in April as a result of the (inaudible). Our ramp-up of the (inaudible) was not as good as it could have been.

The two mines where we're having the biggest challenges are at Mponeng where the grades continues to decline. This was predicted in the models but is also contributing to the lower gold production at Mponeng. Safety stoppages as a result of the fatalities at the end of the previous quarter and going into Q2 also affected the volumes at Mponeng.

In late April we had an illegal strike at Moab Khotsong mine, which resulted in us dismissing over 539 employees from an illegal work stoppage. It took us some time to reorganize the work at that particular mine. The surface operations continue to perform well and we're very comfortable with the improvements we've made at the Mine Waste Solutions complex, which we bought not so long ago.

On slide 16 we very briefly tried to put down the major challenges that faced us in the short-term. And the first one I think uppermost in our minds is finding a sustainable solution to the 2013 wage negotiations. We have put out as a gold industry who bargained to get under the Chamber of Mines quite clearly with our stakeholders, particularly our unions. With the sharp fall in the gold price, rising costs and lower productivity are putting us -- what kind of position they're putting us in.

We have made an initial offer of 5%, which was rejected by the unions. We handed over to an independent mediator -- two experienced mediators who are currently talking to use as the gold producers and to the union.

All parties are currently participating in that process. Clearly we understand that we would like to achieve a win-win scenario for the Company, the industry and the country, but certainly this will not be at all costs.

We need to be completing our regional restructuring much along the lines that Venkat described for the corporate pieces. We should have our plans complete by the end of August and hopefully we've implemented by the end of November.

Our capital spend in (inaudible) is busy being rationalized. We've talked already about the project spend at Moab Khotsong as being postponed. The opening Phase 2 project has been slowed down, we'll continue with it. Effectively that means it will take us an extra year to complete that project. And then we've completed the analysis of our ore reserve development and been able to stop development in areas where we are quite far ahead.

The key issue of the productivity decline in the South African gold mining area is uppermost in our minds and it's certainly where I'm spending a lot of time at the moment. The two key mines that we need to be targeting there are Moab Khotsong and Mponeng. But ultimately the productivity step-up required in (inaudible) will come from technology.

If we move to slide 17, a quick update on the way we are with the technology. A reminder, we're saying that we want to safely mine all of the gold, only the gold, all of the time. Initially this new mining process will access those resources which currently aren't reserved and mostly as a result of being in areas that currently we feel to be too unsafe to mine with the current mining methods.

We've purchased our first four machines beyond the tech machine, which we've been using for a year. Those machines are being constructed as we speak. The new cutter head that we've put on the reef borer is proving quite successful and we're progressing well with the ultra high strength [back fall] and the geology drilling process.

On slide 18, a brief update on how we're preparing new sites to receive the machinery that we've purchased. And you'll see that we've chosen four sites to implement mining in 2014. Three of those sites at TauTona are targeted as high grade areas within shaft pillars that we've had to abandon over the years for safety reasons. And then we've targeted the fact that Kopanang Mine, which is specifically aimed at seeing whether we can increase the productivity of mining ultra-narrow high grade (inaudible) of which we have many that currently (inaudible) always has taken (inaudible). So very pleased with the progress that we're making on the technology side.

So I can hand over to Ron Largent to talk to us about the efficiency improvements.

Thanks, Mike and good morning, everyone. I'd like to start my discussion by expanding on a little bit of the discussion that Venkat had regarding structural cost work that we're doing throughout the Company. And if I break that structural cost down a little bit, basically Venkat spoke to you about some CapEx and the overhead work that's been done. But what we're attacking also is our direct operating costs. And probably one of the biggest questions we get asked is how do we execute this in a sustainable way? And I'll just briefly go into it a little bit to explain the sustainability of this program.

Basically we're attaching this to our operating framework using our operating framework as the base to do this work. It includes work from multi-disciplinary teams across the region and the corporates and ultimately penned by the general manager as the leader to all this work. We commenced -- we chose sites to commence so we could refine our model and those sites were Geita, Moab Khotsong, Cuiaba and Siguiri. From those we learned how to take them throughout the rest of our operations globally. Since then Cripple Creek & Victor, Sunrise Dam have been executed and this week we're actually in Brazil.

So the ultimate outcome is to embed the outcome of this work into the 2014 business plan. I think it's important to realize as you work on operating costs that you first must stop the, I'll call it the annual inflationary growth before you can actually get into a reduction. And the real key to this is to measure dollars out the door, not some metric that can be changed by an ounce or by a ton. It's really dollars out the door. So our ultimate goal is to actually remove costs, but to also embed it into our 2014 business plan.

Just for example there's many people have asked how do you go in after working on your project one or your operating framework and pull additional costs? I think that the operating framework gave us the information and the solid grounding of a framework so were able to start working on some real structural costs such as contract mining, different mining schedules and methods, power demand work and lifecycle optimization. So we're well into this process and our objective is to have them into our 2014 business plan.

On slide 20 is just a visual representation of the process. I think the key is when we say data analysis we now have data that similar site to site based on our operating framework. And then ultimately you get into where you're changing a specific action at each site to create a more efficient use of operating costs.

But I think one of the keys is this got be a change and it's got be led by the operating site. So we're well down the way and hopefully you will see this in quarterly results.

On slide 21, Continental Africa, some highlights. Production rose to 343,000 ounces for the quarter at $883 per ounce. Individual asset highlights, the Geita production increased 113,000 following the planned downtime of the SAG mill replacement. Siguiri had its sixth quarter in a row where it met or exceeded expectation. And I think the cost reduction has been seen here but it primarily comes from increase in production and actually had some reduction in operating costs at a couple of the assets.

The other asset I would touch on is Obuasi, the transition to owner development continues. And at the end of the quarter we've actually seen an increase in our underground ore production by around 20%. Also, at Obuasi, as per a board approved project, we've commenced the decline development to allow new access into the ore body. This decline has -- we've met the first 250 meters of completion of this decline.

The next slide is a little slide on Kibali, which I believe Randgold has already presented today. But the personal target is by the end of the year, I think he's come out and said in October. But I think there's some key aspects to this where there's already a 1 million ton stockpile from the open pit so that gives us confidence that we got the ore available for the processing in the fourth quarter. Work on the underground is progressing well and the project still appears to have all the project specifics as was presented a couple of years ago as far as around 485,000 ounces per year at $750 an ounce.

The next set of slides is just a pictorial view of the mechanical work with the CIL tanks flotation banks, the gold room and the generation farm of the Kibali asset.

Now on to slide 24, the Americas. Constant production in America at 235,000 ounces at $733 per ounce. The largest cost impact, because that is an increase in costs, some in Brazil with lower byproduct credit and lower production due to some mining changes at Cuiaba mine.

Cerro Vanguardia continues to be challenged with this inflationary environment, but production at Cerro Vanguardia has been as planned for quite a few quarters in a row. So that highlights the Americas.

The next slide, slide number 25, is the CC&V MLE2 Project. It's in the early stages from a construction standpoint but the major milestones have been completed. Engineering is 99% complete and major contracts for civil and mechanical have been awarded. And the earth moving is taking place and first concrete pour was in July. So this project is on schedule for completion in quarter 4, 2014.

Slide 26 is Australia. Basically, the production is 100% out at Sunrise Dam and had a tough quarter 2. And I think it states that there's $350 per ounce, attributable to the recommencing the mining of the high-grade Crown Pillar in the bottom of the pit and the top of the underground. We will see these ounces come out in quarter 3 and quarter 4 at a quite considerable rate so it will impact positively quarter 3 and quarter 4 production.

The exciting part in Australia is the commissioning of the Tropicana project were Venkat stated that Graham Ehm is right now and not on this call. So if we go to the next slide, go into the Tropicana project. It's in the middle of commissioning. There's certain things completed, the powerhouse, the tailings facility. We have been mining for a full year there, as far as getting the open pit operation ready to go to feed the plant. And I think a key is the initial grade control results are in line with the resource model, so the work continues and there's some exciting times at Tropicana.

Next slide 28 is just a couple of pictures of the first ore going through the crushing plant and the infrastructure at the mill.

Slide 29 is some pictures of the open pit operation. And again, I think the real key or the exciting part from an operating standpoint is when you can start confirming your resource model with grade control estimate. So that brings our -- or reduces our risk I guess is how I'll put that and as we move into the milling operation.

And slide 30, I think it's worthwhile noting that throughout the implementation and construction of the asset the reserve and resources have continued to grow. You now have almost a 4 million ounce reserve and an 8 million ounce resource at Tropicana.

So with that I'll turn it over to Richard Duffy.

Thanks, Ron. I'm talking to the earnings reconciliation on slide 32. Our adjusted headline earnings for quarter 2 were a negative $135 million as compared to a positive $113 million in quarter 1. The reasons for the reduction in earnings included a much lower gold price, $1,421 an ounce versus $1,636 an ounce in quarter 1, which contributed some $140 million in lost earnings after tax.

Inventory lockup of gold resulting in 15,000 ounces of gold being produced but not sold and net realizable value right down at ore stock piles of $125 million. Indirect tax provisions of $15 million and corporate restructuring costs of $4 million. After adjusting for these exceptional items, this results in adjusted headline earnings of $9 million.

On the 15th of July in our quarterly preannouncement we noted that we would be booking an impairment charge of between $2.2 billion and $2.6 billion in quarter 2. The review of the carrying value of our mining assets, including ore stockpiles, was in accordance with International Financial Reporting Standards. Given the number of indicators that have changed, including a sharp drop in the gold price, higher discount rates and a reduction in our market capitalization. The impairment is now being finalized to just under $2.4 billion post tax. Impairments of our continental Africa assets totaled $1.56 billion with $608 million in the Americas and $230 million in South Africa.

Importantly these charges do not impact our cash flow and are excluded for the purposes of the financial covenant included in our banking agreement.

I'll now go to slide 33 on the balance sheet. At the end of the quarter our net debt had increased to $2.78 billion largely as a result of funding capital expenditure compounded by the lower gold price. Our net debt to EBITDA was 1.56 times, well within the loan covenant on our bank facilities of 3 times.

The successful issuance of a $1.25 billion seven-year bond at an 8.5% coupon eliminates our refinancing risk around a $733 million, 3.5% convertible bond which falls due in May next year. It improves our debt maturity profile and provides additional liquidity of around $500 million, as Venkat mentioned earlier.

We have also launched a tender offer for the early redemption of the $733 million convertible bond which expires on the 25th of August.

As a result of this refinancing, the $750 million standby facility is no longer required and has been cancelled. In addition, the new $1.25 billion bond has been structured to provide us with some flexibility through an early repayment option.

Once the $789 million, 6% mandatory convertible bond has been redeemed in September this year through the issue of just over 18.1 million shares, our net interest charge will increase by around $30 million.

Turning to slide 34 and looking at the outlook for quarter 3 and the full year. In quarter 3, production is forecast to be between 950,000 and 1 million ounces at a total cash cost of between $860 to $890 an ounce, which incorporates ongoing winter power tariffs and the impact of the annual power increases in South Africa.

For the full year, as detailed in our pre-quarterly announcement on the 15th of July, we have reduced our annual production guidance to between 4 million and 4.1 million ounces.

We are projecting a strong second half of the year with the two new projects, Tropicana and Kibali, coming on stream. Sunrise Dam accessing the higher grade Crown Pillar, and Geita having two full quarters of production following the extended shutdown of the SAG mill in quarter 1. We have also allowed for the removal of unprofitable ounces at these lower gold prices.

Our cash cost outlook for the year remains unchanged, at between $815 and $845 an ounce, with the lower guided production being mitigated by weaker local currencies.

We expect our all-in sustaining cash cost for the year to be around $1,200 an ounce. This is based on the World Gold Council measure, which includes our total cash cost, sustaining CapEx, and corporate overhead.

Through the revenue enhancement from Tropicana and Kibali, and the cost and capital reductions outlined by Venkat and Ron, we are targeting an all-in sustaining cash cost of $1,000 an ounce in 2014.

With that, I'll hand back to Venkat. Thank you.

Thank you, Richard. And if we can conclude, taking a look at slide number 36. Our strategic priorities remain the same. We are restructuring the business to face a low gold price environment. We are still bullish in terms of the gold price in the longer-term. But having said that, in the short-term I think we are likely to see a low gold price environment and quite formidable volatility in the gold price, so we want the business to be prepared. And if the price then surprises us on the upside, then we [claim] that extra cash and margin.

At the time we want to preserve long-term optionality at a reasonable cost to the business. We have demonstrated some of the savings which we have already locked in in the business going out into 2014 the rest of it are in progress. Hopefully when we have this call next quarter, we'd be able to report production from two of our major projects, Tropicana and also Kibali. They will be in gold pouring modes. And at the same time, we continue to pursue options around the asset sales and partnerships under (inaudible). And through this period we've always had a history of having a proactive balance sheet management strategy and showing sufficient liquidity for the business and that focus hasn't changed.

So when we start the quarterly call next time around, we'll probably use this again as the first slide to show what progress has been made as we go in quarter-by-quarter.

With that final note, I hand you back to Stewart to take a question.

Dillon, would you call for questions, please?

(Operator Instructions) Harry Mateer, Barclays.

I have several questions. I guess first when you look at curtailing production in a mine that might be on economic, and I know you haven't reached a decision on which those assets are, but can you give us a rough sense for how quick that process be from decision to curtail? So when you can realistically shut down operations and actually start saving cash? Is it a one quarter lag or less?

If I can pick up that question first and then I'll pass you across to Ron or Mike to supplement. The reality is part of the reasons why you see some of the high cash cost at the mines could be on what their objectives have been pushed down from corporate. If the objective of the mine which has got lower grades is basically to prolong mine life and to focus on a particular production target, the outcome is not necessarily going to be cash conducive. But if the target given is to get that optimum balance between cash flow and production you will get a different outcome.

So purely looking at where the cash costs are at a particular mind you can conclude that that's effectively on its last legs. So that's the broad aspect of the question, so you got to go back to doing the mine plan. And it really depends.

To answer your question on the nature of the asset, most of the assets would be unaffected but depending on the stage of the lifecycle you could see anything from between six to a nine month time lag to basically consult all of the stakeholders involved and start directing it towards either closure or care and maintenance. But it'll be a detailed trade-off analysis which has to be done mine by mine. And in some instances where you've got a sharper mine life that can move into closure or care and maintenance more -- pretty quickly. Ron, anything to add?

I think that's fair. I think it depends on the asset and on the amount of work that it takes, whether it's water, labor, government, all those things have to go into the plan. And then adding to that I would think if it's a complete closure because you're getting close enough to end of the reserve or if it's something you want to keep in care and maintenance. So I think a lot of those things go on.

But you can go from a very few months to some being a very long period of time depending on the physical asset -- the physical makeup of the asset.

My second question on the net debt to EBITDA covenant of 3.0 times. I know you're currently well within the calculation but it is a trailing calculation and presumably they're going to be a couple of tough course here ahead -- things start to really improve. So I guess what I'm wondering is have you had any preliminary conversations with the banks to perhaps loosen that covenant well in advance of having a potential issue with it several quarters from now?

Yes, I'll pick up that question if I may. Firstly, it is a trailing metric and it is tested in the month of December. And firstly if you look at -- it's tested in December and June, on a trailing metric in June. We are 1.56 times. What you've also got to bear in mind that we do get production coming in from Tropicana and based on what our joint venture partner has commented on this call and commenced recently we're also getting production coming through from Kibali.

So, you will start to see the pickup in production coming through whilst the CapEx tapers off as well. So from a comfort point of view in terms of the threshold on the covenants, we are within shooting range, even stress tested for gold prices, disruptions, et cetera.

So with regard to that point we are basically quite comfortable. Secondly, from a macro point of view with regard to the banks, we have had a very supportive bank group who have been with Ashanti since 2000. In the refinancing we have done, you've got to bear in mind that the current revolver is going back to an undrawn mode, the $1 billion will be undrawn under the revolver. And the only banking facility, which then relies on the covenant. Obviously, the Australian dollar facility, which is going to get the benefit of the Tropicana cash flows.

So the banks, they have been supportive and are also in a reasonably comfortable position in that regard. And I think it's premature for us to comment on our -- any proactive discussions with regards to the bank group, which may or may not be having, but rest assured we got a track record of proactively managing our balance sheet and liquidity position. That's the best we can comment at this stage.

David Haughton, BMO.

I've got a couple of questions. I'll just start with the wage negotiations. I see that you've entered the mediation phase, what's the next step from here and when do you think a likely timeline is until the deal is finalized?

Venkat here. I'll pick it up and then hand you over to Mike O'Hare.

Firstly, the dispute has been [declined] and it's with the CCMA at the moment. There are lots of comments about the fact that the CCMA process is not going to involve all of the unions. That's been addressed all for unions. The CCMA has combined it as one dispute and all of the unions have actually been part of that discussions with the CCMA.

It is a 30 day process until probably towards the third or the fourth week in August where the mediators have certainly our side of the story. They are talking to the various unions at this stage. And if that dispute doesn't get resolved in 30 days, then the unions could be given a certificate to effectively embark on a protected strike. That's an option that's available in that regard.

But having said that, we are hopeful that certainly all of the stakeholders will understand that the impact which we have seen from a strike and what that consequence has had with regard to the Company, with regard to the unions and the employees and even with regard to I think as a potential mining industry destination. And we are hopeful that the discussions and negotiations of the chamber will be successful by the end of August. Mike, anything to add? No?

And what have you seen as the posture of the union? In the media that we've been seeing it's still quite confrontational. Are you finding that common ground so that you avoid the severe impact of strike?

At the end of the day what we don't want to do, David, is to comment on what is taking place within the closed doors in the mediation chambers. I think that would be inappropriate. The chamber has its own negotiating team through us. And so are the unions, but certainly the feedback we are picking up is pretty cordial.

All right. Well, there's a lot at stake, so I want to -- if I can ask --

Just one other point, David. What can also happen is it's not that it's an automatic period, that at the end of 30 days it's strike or nothing. It can be extended by mutual consent.

Next question. Not surprisingly once you run a $1,100 mine model you end up with those mines that make it, those that don't, et cetera. How have you found the appetite at the moment for looking for partnerships for the sale of those assets? It is certainly a buyer's market. Have you found any interest in either the partnership or sale avenue?

David, we are picking up a fair amount of interest in terms of potential partnerships and sale aspect. But as you rightly said, it's a buyer's market out there and what we don't want to do is to knee-jerk into reaction in terms of some of the assets and then effectively enter into partnerships for partnership's sake. It's all around the value trade-off equation.

But what we are very clear is even in terms of Navachab, which we have identified for sale, which is going through the sale process, Ron has got a clear backup strategy in terms of continuing to operate the mine if the sale process falls through. So it's not that we are banking on one particular outcome.

The guidance that you've got for this year looks very much backend loaded. I've heard what you said about the contribution of Tropicana and Kibali. Will those two assets be in commercial production or would you be counting pre-commercial production as part of the goal?

In terms of the guidance you are right. The fourth quarter does have a significant pickup in terms of production and the key sources of that, if we can recap this, Australia in terms of Tropicana that would be commercial production coming in. And Sunrise Dam is also accessing the Crown Pillar area in terms of ore. That's the second factor.

Thirdly, you will see Geita having a firmer six months of the year as compared to the first six months of this year where it was subject to the SAG mill realigning. And also a pickup in terms of the South African production.

And with regard to Kibali, we're still waiting for firm indications from our joint venture partner, so I don't want to be dragged into how any ounces of gone into the plan and whether it would from a point of view go into pre-production or commercial production. But from our point of view these are the primary areas where we see the pickup coming. It's Australia and it's coming from a part of Continental Africa and South Africa.

Just looking at Sunrise Dam, clearly high costs. Some of those costs associated with the prep work for the Crown Pillar. What happens -- how long will that Crown Pillar last and what happens after that?

The Sunrise Dam production profile is yes, it has the Crown Pillar in the second half of 2013. But there's also considerable work done in the underground with the exploration or the balance of those explorations and that the work around turning Sunrise Dam into a bulk underground is in the process. That's really the key to the future of Sunrise Dam.

So the Crown Pillar helps in 2013 and there may be some early into 2014, but it's really around the lower, I'll call it, it's called the GQ I think is the name of the ore body. And it becomes a bulk mineable ore body. And that's whether Sunrise Dam continues are not is key is the bulk mining.

And for that GQ in the bulk mining, are you looking at the long-haul scoping or are you even thinking about sublevel caving?

Well, I think that's right in the middle. They're looking at everything right now. What they've done is went in and they've implemented reverse circulation drilling underground, which has allowed them to get out in front of their ore body and they're starting to see great results in changing it from a narrow structure, I'll call it, instead of a narrow vein into a bulk mineable unit. And the development rates and the mining rates have increased tremendously in the past few quarters to where they're setting themselves up to take advantage of that in whatever that mining method could end up being.

Switching over to Obuasi, so I've just got one operational and then one financial question left. Switching over to Obuasi, clearly high costs. I heard a bit about what your plan was to improve those. Can you just run through what we should be expecting for Obuasi in the near and medium term please?

I mean the near and medium-term, the key -- I actually got to go spend some time in Obuasi, so I think I have a fairly good understanding of where were going in the short and medium term. The key at Obuasi is getting the material, the ore body to the surface. I know that sounds simple, but with the old infrastructure it can be challenging.

So ultimately that is the reason behind the decline access into the ore body. And secondary off the decline is to allow us to do underground drilling and ore body definition. Right now it's the productivity of the underground and that comes from where we've changed from a contract development miner to owner operator. And we need to get to about 5,000 tons per day out of the underground. And we've seen an improvement at the end of quarter 2 and we weren't quite at 5,000 but the plan is to get to that by the end of the year, which will give us at least breakeven economics at the mine without counting the decline.

So bottom line is you need to have that production profile of your 300,000 ounces a year to get to that breakeven profile. And we have a plan (multiple speakers).

So relatively speaking, you're satisfied with the mining and the direction it's moving in but your real problem is the ore handling what you've got it mined.

Yes, but what we're headed to with the decline, we'll open the ore body up with the initial part of what we call one part of the decline that allows us to get jumbos underground. And then the main decline will allow you to not only access the lower end but from the 50 level and above, we will be able to start looking at using truck haulage out of the decline for a certain amount of your.

So for the underground is 5,000 tons a day as good as it gets or do you have ambitions beyond that?

Of course I'm an operator, I have all sorts of ambitions. I think what the -- the bottom line is I think you can do 5,000 tons a day through the two primary shafts. And we're right in the middle of a whole planning sequence with these. Once we decided to go with the decline then we will see what we can subsidize that 5,000 ton a day with the decline from the material above the 50 level. And it's a process that we hope to have it in our next year's plan that gives us optionality with the initial decline. So 5,000 is approximately what you can do from the two shafts that we have right now.

And then finally, a question more I guess in Richard's area. Lots of adjusted earning numbers over the place. So the number that you feel most comfortable with as a representative number for this quarter just gone is your adjusted-adjusted $9 million profit as opposed to your loss of $135 million? Is that the rate we should be thinking about?

Correct, because what we've done there is the biggest move there is the ore stockpile write down. So we've added that back to the adjusted headline earnings with the other adjustments that I spoke to. So yes, $9 million is the number that we think is the most comparable number having made the adjustments for the oneoff items and the exceptional items.

Yes, because I was looking at those adjusted headline numbers compared to the headliner going, hmm, some of these should have gone the other way. So I'm glad that you explained that then $9 million is the better way to look at.

David, just one, if I can supplement what Richard has said. Basically, we are constrained in terms of what we can add and [contact] from a headline earnings point of view and going into adjusted headline earnings. Another area where you can look at if you're comparing it with your model is do look at the item number five, special items note, and you'll see quite a few items which have gone through in there, which we have not necessarily added back for adjusted headline earnings. And that my expense of the differences which you have.

Right, although the adjusted numbers that you reported of the loss of $135 million is a non-GAAP measure anyhow, so I get --

Yes, correct.

Andrew Byrne, Barclays.

A couple of questions. Maybe if we could kick off an easy accounting question to begin with. In the quarter there is quite a large associated loss at $183 million. I assume that that includes some type of impairments or inventory write down. And could you maybe clean up what that number is on a rolling basis?

So are you referring to the $183 million being the impairment which is going through the equity account at investment bank? Is that what you're referring to?

Yes, that's correct.

Effectively the total impairment for the group and the stock write-downs in total have been around $2.4 billion, of which $183 million goes to the equity line. And John and Richard can assist me here. Is that primarily around the Mongbwalu project?

Primarily the impairments for the joint ventures (inaudible)?

Yes.

And that includes Sadiola and certain -- there is the other assets.

Okay. And the stockpile write down goes through that. Okay?

Okay, perfect. And then moving on, it's obvious that you have focused a lot of attention on discretionary spend, which is certainly commendable. And whilst the progress at Tropicana and Kibali has been fantastic and Geita has made a welcome return in this quarter, it seems that the real engine is still not firing. Namely, when I look at Kopanang and Mponeng in South Africa, and Obuasi are materially underperforming.

Obviously you've just discussed there what you're looking for with Obuasi and prior results. But could you explain exactly what's going wrong at Kopanang and Mponeng? What you expect to -- how you expect to turn those assets around? And equally, what is included from those two assets inside of your formally announced guidance?

Mike here, sir. If I could firstly touch on Kopanang. Kopanang is one of those assets that had a significant amount of low grade mining, which doesn't make money that we've I think over the last six to nine months been whittling away at and taking out. So that's really the story at -- they're actually achieving to the budget -- beyond the budget that we set for them this year.

The bigger issue is at Mponeng. As I mentioned earlier, the first issue is the grade which has been coming off for quite a long period time. Our grade year on year is 10% lower and our grade quarter on quarter is 10% lower. That's not something we can do a whole lot about, so if you turn your attention to the volume part of the equation, firstly from the time we started to strike at Mponeng it's the mine that has struggled the most to get back to the level that it was at pre the strike.

We've changed the management team now at Mponeng, beefed him up a little bit, because the simple fact is, we're not mining enough with the crews underground. So we've analyzed what we're doing wrong and we've picked on five specific, really mining basic things to be concentrating on because that's what it takes. It's increasing the productivity of the mining crews underground. There's nothing else structural that's changed at that mine.

And if I can pick up the second part of the question, the numbers included for Kopanang for the year is around between 170,000 to 190,000 ounces, of which around 94,000 ounces has been banked in the first half of the year. With regard to Mponeng, it's 400,000 to 420,000 ounces for the year, of which around 173,000 ounces has been banked in for the first half of the year.

Okay, so it's at Mponeng where the real risk of a mess is really. You do actually need to have that productivity improvement come through to hit your guidance.

Yes, certainly we're seeing the green shoots. Mponeng will probably hit its highest ounce numbers for the year in the month that we're currently in at the moment. So certainly the trend appears to have turned around.

And then one final question if I may. Just when we look at your cost guidance for the year, it appears given what you've also guided for the 3Q it appears that 4Q is going to be a stellar quarter from a cost perspective. And whilst I understand that you've got Geita, you're continuing its ramp back to where it should be, equally you've got some volumes from Tropicana and Kibali. And from the numbers you just gave me there I would assume some cost improvements are in Mponeng. Are there any other particular assets you'd want to flag where we should see a material cost improvement?

No, I think you've got most of them. Just Sunrise Dam obviously the Crown Pillar, which Ron spoke to, is a big help there. But the only thing I would add is you just need to factor in the weaker local currencies as well in getting to the number -- the guidance number.

Gentlemen, we have no further questions. Do you have any closing comments?

No, Dillon, I think that more or less wraps it up. And just a thanks to everybody who joined us on the webcast.