2006 Annual Report

Group financial statements

Notes to the group financial statements

For the year ended 31 December

11 Share-based payments
  Share incentive schemes
In addition to schemes approved in prior years, during the financial year the shareholders of AngloGold Ashanti approved the Employee Share Ownership Plan, for the employees in the South African operations and a Black Economic Empowerment transaction. New awards were made under the existing BSP and LTIP plans.

Employee Share Ownership Plan (ESOP)
On 12 December 2006, AngloGold Ashanti announced the finalisation of the Bokamoso employee share ownership plan (Bokamoso ESOP) with the National Union of Mineworkers, Solidarity and United Association. The Bokamoso ESOP creates an opportunity for AngloGold Ashanti and the unions to ensure a closer alignment of the interest between employees and the company, and the seeking of shared growth solutions to build partnerships in areas of shared interest. Participation is restricted to those employees not eligible for participation in any other South African Share Incentive Plan.

The company also undertook an empowerment transaction with a Black Economic Empowerment investment vehicle, Izingwe Holdings (Proprietary) Limited (Izingwe).

In order to facilitate this transaction the company established a trust to acquire and administer the ESOP shares. AngloGold Ashanti allotted and issued free ordinary shares to the trust and also created, allotted and issued E ordinary shares to the trust for the benefit of employees. The company also created, allotted and issued E ordinary shares to Izingwe. The key terms of the E ordinary share are:

  • AngloGold Ashanti will have the right to cancel the E ordinary shares, or a portion of them, in accordance with the ESOP and Izingwe cancellation formulae, respectively;
  • the E ordinary shares will not be listed;
  • the E ordinary shares which are not cancelled will be converted into ordinary shares; and
  • the E ordinary shares will each be entitled to receive a dividend equal to one-half of the dividend per ordinary share declared by the company from time to time and a further one half is included in the strike price.

The award of free ordinary shares to the employees:
The fair value of each free share awarded in 2006 is R320. The fair value is equal to the market value at the date-of-grant. Dividends declared and paid to the trust will accrue and be paid to ESOP members, pro rata to the number of shares allocated to them.

  • number of free shares awarded to employees: 928,590
  • grant date: 13 December 2006
  • vesting conditions: A fifth of the shares vest after three years' service and a further fifth vests in each subsequent year until fully vested.
  • cancelled if not exercised: 1 November 2013
  • number of free shares outstanding at end of period: 928,590
  • income statement charge: $1,7 million, R12 million

A total of 7,050 shares of deceased, retired or retrenched employees vested during December 2006 and will be transferred to employees in accordance with the rules of the scheme.

The award of E ordinary shares to employees
The average fair value of the E ordinary shares granted to employees on 13 December 2006 was R105 per share. Dividends declared in respect of the E ordinary shares will firstly be allocated to cover administration expenses of the trust, where after it will accrue and be paid to ESOP members, pro rata to the number of shares allocated to them. At each anniversary over a five year period commencing on the third anniversary of the award, the company will cancel the relevant number of E ordinary shares as stipulated by a cancellation formula. Any E ordinary shares remaining in that tranche will be converted to ordinary shares for the benefit of the employees. All unexercised awards will be cancelled on 1 May 2014.

      Weighted
    Number average
    of exercise
    shares price
    SA Rands 2006
  E ordinary shares granted during the year and outstanding at end of year 2,785,770 289.00
  E ordinary shares cancelled during the year – –
  E ordinary shares converted during the year – –
       
  Weighted average exercise price is calculated as the initial grant price of R288 plus interest factor less dividend apportionment. This value will change on a monthly basis to take account of employees leaving the company and those shares being reissued to new employees. The income statement charge for the year was $1,7 million, R12 million.
 		    
  A total of 21,150 shares of deceased, retired or retrenched employees vested during December 2006 and ordinary shares will be issued in accordance with the rules of the scheme.
 		    
  The award of E ordinary shares to Izingwe    
  The average fair value of the E ordinary shares granted to Izingwe on 13 December 2006 was R90 per share. Dividends declared in respect of the E ordinary shares will accrue and be paid to Izingwe, pro rata to the number of shares allocated to them. At each anniversary over a five year period commencing on the third anniversary of the award, Izingwe has a six month period to instruct the company to cancel the relevant number of E ordinary shares as stipulated by a cancellation formula. Any E ordinary shares remaining in that tranche will be converted to ordinary shares for the benefit of Izingwe. If no instruction is received at the end of the six month period the cancellation formula will be applied automatically.    
  E ordinary shares granted during the year and outstanding at end of year 1,400,000 289.00
  E ordinary shares cancelled during the year – –
  E ordinary shares converted during the year
 		 – –
  Weighted average exercise price is calculated as the initial grant price of R288 per share plus interest factor less dividend apportionment. The income statement charge for the year was $19 million, R131 million (note 6).
 		    
  The fair value of each share granted for the ESOP and Izingwe schemes was estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the option award and share price volatility. The expected term of award granted is derived from historical data on employee exercise behaviour for the ESOP award. Expected volatility is based on the historical volatility of our shares. These estimates involve inherent uncertainties and the application of management judgment. In addition, we are required to estimate the expected forfeiture rate and only recognise expense for those options expected to vest. As a result, if other assumptions had been used, our recorded share-based compensation expense could have been different from that reported. The Black-Scholes option-pricing model used the following assumption for the year ended 31 December 2006, weighted-average risk free interest rates of 7%; dividend yield of 2.3% and volatility of 36%.    
       
  Bonus Share Plan (BSP)

  		 The BSP is intended to provide effective incentives to eligible employees. An eligible employee is one who devotes substantially the whole of his working time to the business of AngloGold Ashanti, any subsidiary of AngloGold Ashanti or a company under the control of AngloGold Ashanti, unless the board of directors (the board) excludes such a company. An award in terms of the BSP may be made at any date at the discretion of the board. The board is required to determine a BSP award value and this will be converted to a ‘share’ amount based on the closing price of AngloGold Ashanti shares on the JSE on the last business day prior to the date of grant.
 
  The AngloGold Ashanti Remuneration Committee has at their discretion, the right to pay dividends, or dividend equivalents, to the participants of the BSP. The fair value of each BSP awarded in 2006 is R308.00 (awarded in 2005: R197.50) per share, including dividends, or R286.75 (2005: R190.76) per share, excluding dividends. Having no history of any discretionary dividend payments, the higher fair value was used to determine the income statement expense. The fair value is equal to the award value determined by the board.
 
  Accordingly for the awards made in 2005 the following information is available:
 
  • number of BSPs awarded: 283,915
  • number of BSPs outstanding at the beginning of the period: 271,945
  • award value: R197.50 per share
  • grant date: 4 May 2005
  • vesting condition: three-years' service
  • expire if not exercised by: 3 May 2015
  • number of BSPs outstanding at the end of the period: 242,487
  • income statement charge: $2 million, R16 million (2005: $2 million, R12 million)
  During 2006, the rights to a total of 26,416 (2005: 11,682) shares were surrendered by the participants. A total of 4,182 (2005: 288) shares were allotted to deceased, retired or retrenched employees. A further 1,140 awards were issued to employees during the year.
 
  Accordingly for the awards made in 2006 the following information is available:
 
  Up to 31 December 2006, the rights to a total of 14,805 shares were surrendered by the participants. A total of 67 shares were alloted to deceased, retired or retrenched employees.
 
  Long-Term Incentive Plan (LTIP)
  The LTIP is an equity settled share-based payment arrangement, intended to provide effective incentives for executives to earn shares in the company based on the achievement of stretched company performance conditions. Participation in the LTIP will be offered to executive directors, executive officers and selected senior management of participating companies. Participating companies include AngloGold Ashanti, any subsidiary of AngloGold Ashanti or a company under the control of AngloGold Ashanti unless the board excludes such a company. An award in terms of the LTIP may be granted at any date during the year that the board of AngloGold Ashanti determine and may even be more than once a year. The board is required to determine an LTIP award value and this will be converted to a ‘share’ amount based on the closing price of AngloGold Ashanti shares on the JSE on the last business day prior to the date of grant.
 
  The AngloGold Ashanti remuneration committee has at their discretion, the right to pay dividends, or dividend equivalents to the participants of the LTIP. The fair value of each LTIP share awarded in 2006 is R327.00 (awarded in 2005: R197.50) per share, including dividends, or R304.44 (2005: R190.76) per share, excluding dividends. Having no history of any discretionary dividend payments, the higher fair value was used to determine the income statement expense. The fair value is equal to the award value determined by the board.
 
  Accordingly for the award made in 2005, the following information is available:
 The main performance conditions in terms of the LTIP are:
  • up to 40% of an award will be determined by the performance of total shareholder returns (TSR) compared with that of a group of
    comparator gold-producing companies;
  • up to 40% of an award will be determined by real growth (above US inflation) in an adjusted earnings per share over the performance
    period;
  • up to 20% of an award will be dependent on the achievement of strategic performance measures which will be set by the Remuneration
    Committee; and
  • three-years’ service is required.

Further information:

  • number of LTIPs outstanding at the beginning of the period: 363,500
  • award value: R197.50 per share
  • grant date: 4 May 2005
  • vesting condition: based on stretched company performance and
  • three-years' service
  • expire if not exercised by: 3 May 2015
  • number of LTIPs outstanding at the end of the year: 343,500
  • income statement charge: $3 million, R17 million (2005: $0.5 million, R3 million)

During 2006, the rights to a total of 20,000 (2005: 5,000) LTIP shares were surrendered by the participants.
 
  Accordingly for the award made in 2006, the following information is available:
The main performance conditions in terms of the LTIP are:
  • up to 40% of an award will be determined by the performance of total shareholder returns (TSR) compared with that of a group of
    comparator gold-producing companies;
  • up to 30% of an award will be determined by an adjusted earnings per share compared to a planned adjusted earnings per share
    over the performance period;
  • up to 30% of an award will be dependent on the achievement of strategic performance measures which will be set by the
    Remuneration Committee; and
  • three-years’ service is required.

Further information:

  • number of LTIPs awarded: 316,675
  • award value: R327.00 per share
  • grant date: 31 July 2006
  • vesting condition: based on stretched company performance and;
  • three-years’ service
  • expire if not exercised by: 31 July 2016
  • number of LTIPs outstanding at the end of the year: 316,675
  • income statement charge: $1 million, R6 million

Performance-related share-based remuneration scheme – 1 May 2003
The options, if vested, may be exercised at the end of a three-year period commencing 1 May 2003. The share options were granted at an exercise price of R221.90. The performance condition applicable to these options was that the US dollar EPS must increase by at least 6% in real terms, after inflation, over the next three years, in order to vest. As none of the performance criteria were met, in the initial three years, the grantor decided to roll the scheme forward on a “roll over reset” basis, in February 2006, to be reviewed annually. The performance criteria of these options was achieved during 2006. The remaining weighted average contractual life of the options granted is 6.33 years. An employee would only be able to exercise his options after the date upon which he has received written notification from the directors that the previously specified performance criteria has been fulfilled.
 
  Weighted         Weighted
Number average       Number average
of exercise       of exercise
shares price     Figures in million shares price
SA Rands 2005          SA Rands 2006
1,225,800 221.86     Options outstanding at the beginning of the year 999,400 221.90
nil nil     Options granted during the year nil nil
224,000 221.70     Options lapsed during the year 112,000 221.90
2,400 221.90     Options exercised during the year 1,500 221.90
nil nil     Options expired during the year nil nil
999,400 221.90     Options outstanding at the end of the year 885,900 221.90
nil nil     Options exercisable at the end of the year 885,900 221.90
       
During the year 1,500 (2005: 2,400) options were exercised by the estate of a deceased employee. On death, the performance criteria were set aside.
 		    
        The income statement charge for the year was $10 million, R69 million (2005: nil).
 		    
        Performance-related share-based remuneration scheme – 1 November 2004    
         
The options, if vested, may be exercised at the end of a three-year period commencing 1 November 2004. The share options were granted at an exercise price of R228.00. The performance condition applicable to these options was that US dollar EPS must increase from the 2004 year by at least 6% in real terms, i.e. after inflation, over the next three years in order to vest. The performance criteria is expected to be met. The remaining weighted average contractual life of options granted is 7.84 years. An employee would only be able to exercise his options after the date upon which he has received written notification from the directors that the previously specified performance criteria has been fulfilled. 		   
             
1,149,300 228.00     Options outstanding at the beginning of the year 1,012,900 228.00
nil nil     Options granted during the year nil nil
135,500 228.00     Options lapsed during the year 100,200 228.00
900 228.00     Options exercised during the year 1,300 228.00
nil nil     Options expired during the year nil nil
1,012,900 228.00     Options outstanding at the end of the year 911,400 228.00
nil nil     Options exercisable at the end of the year nil nil
         
During the year, 1,300 (2005: 900) options were exercised by the estate of a deceased employee. On death, the performance criteria were set aside in accordance with the scheme rules.
 		    
        The income statement charge for the year was $9 million, R60 million (2005: nil).
 		    
        There are currently two share incentive schemes that fall outside the transitional provisions of IFRS 2, as the options were granted prior to 7 November 2002, the details of which are as follows:
 		    
        Performance-related share-based remuneration scheme – 1 May 2002
 		    
        The share options were granted at an exercise price of R299.50 per share. The performance condition applicable to these options was that US dollar EPS must increase by 7.5% for each of the three years. On 24 December 2002, AngloGold Ashanti underwent a share split on a 2:1 basis therefore the EPS target was reduced accordingly. As none of the performance criteria were met, in the initial three years, the grantor decided to roll the scheme forward on a “roll over reset” basis, to be reviewed annually. The performance criteria of these options were achieved during 2006. The remaining weighted average contractual life of options granted is 5.33 years. An employee would only be able to exercise his options after the date upon which he has received written notification from the directors that the previously specified performance criteria has been fulfilled.    
             
1,050,800 299.50     Options outstanding at the beginning of the year 884,700 299.50
nil nil     Options granted during the year nil nil
166,100 299.50     Options lapsed during the year 94,700 299.50
nil nil     Options exercised during the year 1,500 299.50
nil nil     Options expired during the year nil nil
884,700 299.50     Options outstanding at the end of the year 788,500 299.50
nil nil     Options exercisable at the end of the year 788,500 299.50
        During the year, 1,500 options were exercised by the estate of a deceased employee. On death, the performance criteria were set aside in accordance with the scheme rules.
 		    
        Time-related share-based remuneration scheme – granted up to 30 April 2002
 		    
        Except where the directors, in their sole and absolute discretion decide otherwise, a grantee may not exercise his options until after the lapse of a period calculated from the date on which the option was granted. The remaining weighted average contractual life of options granted is 3.6 years. The period in which and the extent to which the options vest and may be exercised are as follows:    
        – After two years – up to 20% of options granted    
        – After three years – up to 40% of options granted    
        – After four years – up to 60% of options granted    
        – After five years – up to 100% of options granted    
1,391,060 126.38     Options outstanding at the beginning of the year 864,710 126.91
nil nil     Options granted during the year nil nil
54,400 122.00     Options lapsed during the year 1,600 211.00
471,950 125.91     Options exercised during the year 389,850 127.89
nil nil     Options expired during the year nil nil
864,710 126.91     Options outstanding at the end of the year 473,260 125.82
758,150 124.12     Options exercisable at the end of the year 465,260 123.90
     
  No grants were made with respect to the time related scheme options and performance related options during 2005 and 2006. The value of each option granted during 2002, 2003 and 2004 is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the option award and share price volatility. The expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behaviour. Expected volatility is based on the historical volatility of our shares. These estimates involve inherent uncertainties and the application of management judgment. In addition, we are required to estimate the expected forfeiture rate and only recognise expense for those options expected to vest. As a result, if other assumptions had been used, the recorded share-based compensation expense could have been different from that reported.
 
  The Black-Scholes option-pricing model used the following assumptions    
         
  at grant date: 2002 2003 2004
  Risk-free interest rate 11.00% 11.00% 8.18%
  Dividend yield 4.27% 4.27% 2.27%
  Volatility factor of market share price 0.390 0.390 0.300
  Weighted average expected life 7 years 7 years 7 years
  Calculated fair value R100.20 R77.76 R94.65
             
2005 2006     Figures in million 2006 2005
SA Rands        US Dollars
       12 Taxation    
        Current taxation    
182 1,370         Normal 201 29
2 13         Disposal of tangible assets (note 14) 2 –
347 49         Under provision prior year 7 53
531 1,432         (note 35) 210 82
        Deferred taxation    
248 215         Temporary differences 30 38
(128) (742)         Unrealised non-hedge derivatives and other commodity contracts (106) (21)
(19) –         Taxation on contract termination fee at Geita Gold Mining Limited – (3)
(79) 56         Impairment and disposal of tangible assets (note 14) 8 (12)
(74) 271         Change in estimated deferred taxation (1) (2) 38 (12)
(695) –         Change in statutory tax rate – (107)
(747) (200)         (note 33) (30) (117)
(216) 1,232       180 (35)
Figures in million 2006 2005
     Tax reconciliation    
  A reconciliation of the current tax rate compared to that charged in the income statement is set out in the following table:    
    % %
       Current tax rate 37 37
       Disallowable items 89 (32)
       Foreign income tax allowances and rate differentials (23) (25)
       Previously unrecognised tax assets (39) –
       Change in estimated deferred tax rate (1) (2) 35 7
       Change in statutory tax rate – 67
       Under (over) provision prior year 4 (33)
       Other 4 1
       Effective tax rate 107 22
Mining tax on mining income in South Africa is determined according to a formula based on the profit and revenue from mining operations.

All mining capital expenditure is deducted to the extent that it does not result in an assessed loss, and depreciation is ignored when calculating the South African mining income. Capital expenditure not deducted from the mining income is carried forward as unredeemed capital to be deducted from future mining income.

The formula for determining the South African mining tax is:

Y = 45 – 225/X

where Y is the percentage rate of tax payable and X is the ratio of mining profit net of any redeemable capital expenditure to mining revenue expressed as a percentage.

(1)
  		 In South Africa the mining operations are taxed on a variable rate that increases as profitability increases. The tax rate used to calculate deferred tax is based on the company’s current estimate of what the future profitability and therefore future tax rate will be when temporary differences will reverse. Depending on aforementioned factors that will impact the profitability of the operations, the tax rate can then as a consequence be significantly different from year to year. During 2005 and 2006 financial year, estimates were revised in South Africa to reflect the future anticipated taxation rate at the time the temporary differences reverse $59 million, R412 million (2005: $12 million, R74 million).
 
(2)
  		 The Ghanaian taxation authorities have granted an extension on tax losses which would have been forfeited during the current year $21 million, R141 million.
 
 
2005 2006 Figures in million 2006 2005
SA Rands     US Dollars
          Unrecognised tax losses    
1,484 1,943   The unrecognised tax losses of the US operations which are available for offset against future profits earned in the USA. 277 234
925 –   The unrecognised tax losses of the Ghanaian operations which are available for offset against future profits earned in Ghana. – 146
2,409 1,943     277 380
      Analysis of tax losses    
      Tax losses available to be used against future profits    
925 –   – Utilisation required within one year – 146
1,484 1,943   – Utilisation in excess of five years 277 234
2,409 1,943     277 380
      Unrecognised tax losses utilised    
– 448   Assessed losses utilised during the year 64 –
 
2005 2006 Figures in million 2006 2005
SA Rands     US Dollars
      13 Discontinued operations    
       The Ergo reclamation surface operation, which forms part of the South African operations and is included under South Africa for segmental reporting, has reached the end of its useful life and the assets are no longer in use. After a detailed investigation of several options and scenarios, and based on management’s decision reached on 1 February 2005, mining operations at Ergo ceased on 31 March 2005, with only site restoration obligations remaining. The environmental rehabilitation programme to restore the site continues until all the legal requirements have been met.

The group has reclassified the income statement results from the historical presentation to loss from discontinued operations in the consolidated income statement for all periods presented. The consolidated cash flow statement has been reclassified for discontinued operations for all periods presented.

    
             
      The results of Ergo are presented below:  
111 26   Gold income 4 18
(418) (39)   Cost of sales (6) (66)
(307) (13)   Gross loss (2) (48)
115 –   Impairment reversal (note 16) – 17
(192) (13)   Loss before taxation (2) (31)
(8) (17)   Normal taxation (note 35) (2) (2)
(19) 18   Deferred taxation (note 33) 2 (3)
(219) (12)   Net loss after taxation (note 14) (2) (36)
       Following the decision to discontinue the Ergo operation, AngloGold Ashanti Limited reassessed the carrying values of the remaining infrastructure assets of Ergo, based on the current market price of the assets. AngloGold Ashanti has restated the assets’ carrying value to the carrying amount that would have been determined (net of amortisation) had no impairment loss been recognised for the assets in prior periods, which management believes is less than fair value less costs to sell. This resulted in an impairment reversal in the current period of nil (2005: $17 million, R115 million).    
             
2005 2006 Figures in million 2006 2005
SA Cents      US Cents 
      14 Earnings per ordinary share    
      Basic loss per ordinary share
(391) (211)   – Continuing operations (15) (55)
The calculation of basic loss per ordinary share is based on losses attributable to equity shareholders of $42 million, R575 million (2005: $146 million, R1,036 million) and 272,808,217 (2005: 264,635,634) shares being the weighted average number of ordinary shares in issue during the financial year.    
(83) (4)   – Discontinued operations (1) (14)
The calculation of basic loss per ordinary share is based on losses attributable to equity shareholders of $2 million, R12 million (2005: $36 million, R219 million) and 272,808,217 (2005: 264,635,634) shares being the weighted average number of ordinary shares in issue during the financial year.
   
    Diluted loss per ordinary share    
(391) (211) – Continuing operations (15) (55)
    The calculation of diluted loss per ordinary share is based on losses attributable to equity shareholders of $42 million, R575 million (2005: $146 million, R1,036 million) and 272,808,217 (2005: 264,635,634) shares being the diluted number of ordinary shares. In 2005 and 2006, no adjustment is made since the effect is anti-dilutive.    
(83) (4) – Discontinued operations (1) (14)
The calculation of diluted loss per ordinary share is based on losses attributable to equity shareholders of $2 million, R12 million (2005: $36 million, R219 million) and 272,808,217 (2005: 264,635,634) shares being the diluted number of ordinary shares. In 2005 and 2006, no adjustment was made since the effect is anti-dilutive.

In calculating the diluted number of ordinary shares outstanding for the year, the following were taken into consideration: 

   
Ordinary Shares  272,214,937 264,230,586
E Ordinary Shares (1)  194,954 –
Time Related Options (TRO) (2)  398,326 405,048
Weighted average number of shares  272,808,217 264,635,634
Dilutive potential of share options (3)  – –
Diluted number of ordinary shares 272,808,217 264,635,634
   
(1)
  		 As E ordinary shares participate in the profit available to ordinary shareholders, these shares were included in basic earnings per share.
(2)
  		 Employee compensation awards, are included in basic earnings per share from the date that all necessary conditions have been satisfied and it is virtually certain that shares will be issued as a result of employees exercising their options.
(3)
  		 The calculation of diluted earnings per share did not assume the effect of 854,643 (2005: 601,315) shares issuable on share options as their effects are anti-dilutive for this period.

The calculation of diluted earnings per share did not assume the effect of 15,384,615 (2005: 15,384,615) shares issuable upon the exercise of convertible bonds as their effects are anti-dilutive for this period.
         
      Headline loss    
      The loss attributable to equity shareholders has been adjusted by    
      the following to arrive at headline loss:    
(1,255) (587)   Loss attributable to equity shareholders (44) (182)
125 –   Impairment of intangible assets (notes 6 and 17) – 20
300 44   Impairment of tangible assets (notes 6 and 16) 6 44
(39) (376)   Profit on disposal of assets (note 6) (54) (5)
      Taxation on items above    
2 13   – current portion (note 12) 2 –
(79) 56   – deferred portion (note 12) 8 (12)
11 –   Impairment of investment in associates – 2
219 12   Net loss from discontinued operations (note 13) 2 36
(716) (838)   Headline loss (80) (97)
      Cents per share    
      Headline loss removes items of a capital nature from the calculation of earnings per share, calculated in accordance with circular 7/2002 issued by the South African Institute of Chartered Accountants (SAICA).    
(271) (307)   The calculation of headline loss per ordinary share is based on headline losses of $80 million, R838 million (2005: $97 million, R716 million) and 272,808,217 (2005: 264,635,634) shares being the weighted average number of ordinary shares in issue during the year. (29) (37)
             
2005 2006 Figures in million 2006 2005
SA Rands     US Dollars
      15 Dividends    
      Ordinary shares    
476 –   No. 97 of 180 SA cents per ordinary share was declared on 26 January 2005 and paid on 25 February 2005 (30 US cents per share). – 80
         
450 –   No. 98 of 170 SA cents per ordinary share was declared on 27 July 2005 and paid on 26 August 2005 (26 US cents per share). – 69
         
– 164   No. 99 of 62 SA cents per ordinary share was declared on 9 February 2006 and paid on 10 March 2006 (10 US cents per share). 26 –
           
– 578   No. 100 of 210 SA cents per ordinary share was declared on 26 July 2006 and paid on 25 August 2006 (29 US cents per share). 81 –
926 742   (note 28) 107 149
No. 101 of 240 SA cents per ordinary share was declared on 12 February 2007 and will be paid on 16 March 2007 (approximately 33 US cents per share). The actual rate of payment will depend on the exchange rate on the date of currency conversion.
No. E1 of 120 SA cents per E ordinary share was declared on 12 February 2007 and will be paid on 16 March 2007 (approximately 17 US cents per share). The actual rate of payment will depend on the exchange rate on the date of currency conversion.
16 Tangible assets
        Exploration    
  Mine   Mineral and    
Figures in million development Mine rights and evaluation    
  costs infrastructure dumps assets Land Total
US Dollars            
Cost            
Balance at 1 January 2005 4,816 2,182 1,248 35 24 8,305
Additions            
– project expenditure 225 29 – – – 254
– stay-in-business expenditure 392 57 1 1 1 452
Disposals (50) (9) – (3) (1) (63)
Transfers and other movements (1) 17 69 (25) – 3 64
Finance costs capitalised (note 7) 16 – – – – 16
Translation (288) (84) (6) – – (378)
Balance at 31 December 2005 5,128 2,244 1,218 33 27 8,650
Accumulated amortisation            
Balance at 1 January 2005 1,358 951 106 2 – 2,417
Amortisation for the year            
(notes 4, 9 and 36) 324 148 29 2 – 503
Impairments (notes 6 and 14) 35 9 – – – 44
Impairments reversal (note 13) – (17) – – – (17)
Disposals (50) (5) – (3) – (58)
Transfers and other movements (1) (2) – (9) – – (11)
Translation (96) (51) 11 – – (136)
Balance at 31 December 2005 1,569 1,035 137 1 – 2,742
Net book value at 31 December 2005 3,559 1,209 1,081 32 27 5,908
Cost            
Balance at 1 January 2006 5,128 2,244 1,218 33 27 8,650
Additions            
– project expenditure 293 8 2 – – 303
– stay-in-business expenditure 405 97 – – 2 504
Disposals (2) (14) (3) (2) (2) (23)
Transfers and other movements (1) (66) 173 (31) – – 76
Finance costs capitalised (note 7) 10 – – – – 10
Translation (191) (71) (1) – (1) (264)
Balance at 31 December 2006 5,577 2,437 1,185 31 26 9,256
Accumulated amortisation            
Balance at 1 January 2006 1,569 1,035 137 1 – 2,742
Amortisation for the year            
(notes 4, 9 and 36) 466 107 23 1 – 597
Impairments (notes 6 and 14) 2 4 – – – 6
Disposals (1) (3) – (1) – (5)
Transfers and other movements (1) (92) 62 (1) – – (31)
Translation (66) (39) (2) – – (107)
Balance at 31 December 2006 1,878 1,166 157 1 – 3,202
Net book value at 31 December 2006 3,699 1,271 1,028 30 26 6,054
SA Rands            
Cost            
Balance at 1 January 2005 27,186 12,319 7,044 198 138 46,885
Additions            
– project expenditure 1,433 186 – – – 1,619
– stay-in-business expenditure 2,495 365 8 4 7 2,879
Disposals (327) (61) (4) (19) (4) (415)
Transfers and other movements (1) 99 441 (156) – 27 411
Finance costs capitalised (note 7) 102 – – – – 102
Translation 1,548 991 839 23 6 3,407
Balance at 31 December 2005 32,536 14,241 7,731 206 174 54,888
Accumulated amortisation            
Balance at 1 January 2005 7,672 5,361 602 9 1 13,645
Amortisation for the year            
(notes 4, 9 and 36) 2,061 941 188 13 – 3,203
Impairments (notes 6 and 14) 243 57 – – – 300
Impairments reversal (note 13) – (115) – – – (115)
Disposals (318) (31) – (18) – (367)
Transfers and other movements (1) (12) – (56) – – (68)
Translation 311 352 140 – – 803
Balance at 31 December 2005 9,957 6,565 874 4 1 17,401
Net book value at 31 December 2005 22,579 7,676 6,857 202 173 37,487
Cost            
Balance at 1 January 2006 32,536 14,241 7,731 206 174 54,888
Additions            
– project expenditure 1,977 55 14 – – 2,046
– stay-in-business expenditure 2,745 660 – – 11 3,416
Disposals (13) (98) (20) (11) (11) (153)
Transfers and other movements (1) (427) 1,171 (210) – (3) 531
Finance costs capitalised (note 7) 71 – – – – 71
Translation 2,153 1,036 783 22 14 4,008
Balance at 31 December 2006 39,042 17,065 8,298 217 185 64,807
Accumulated amortisation            
Balance at 1 January 2006 9,957 6,565 874 4 1 17,401
Amortisation for the year            
(notes 4, 9 and 36) 3,167 730 152 10 – 4,059
Impairments (notes 6 and 14) 13 28 – – 3 44
Disposals (7) (20) – (9) – (36)
Transfers and other movements (1) (620) 422 (9) – (3) (210)
Translation 634 442 90 1 – 1,167
Balance at 31 December 2006 13,144 8,167 1,107 6 1 22,425
Net book value at 31 December 2006 25,898 8,898 7,191 211 184 42,382
(1)  Transfers and other movements comprise amounts from deferred stripping, change in estimates and asset reclassifications.
 
Included in the amounts above for mine infrastructure are assets held under finance leases with a net book value of $15 million, R105 million (2005: $22 million, R140 million).
 
Leased assets are pledged as security for the related finance lease.
 
The carrying value of assets encumbered by project finance amounts to $12 million, R85 million (2005: nil).
 
The weighted average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 8.23% (2005: 10.65%).
 
A register containing details of properties is available for inspection by shareholders or their duly authorised agents during business hours at the registered office of the company.
 
2005 2006 Figures in million 2006 2005
SA Rands          US Dollars
      Impairments include the following:    
– 44   Write off of various minor tangible assets and equipment 6 –
         
      Ghana    
255 –   Bibiani mine – cash generating unit – 38
      The life of mine at Bibiani was reassessed and reduced. As a result, Bibiani’s recoverable amount did not support its carrying value in 2005 and an impairment loss was recognised. Recoverable amount was determined based on the impairment  assumptions detailed below. Bibiani was sold on 1 December 2006 for a consideration of $ 40 million, R280 million.    
         
      South Africa – mine development costs    
14 –   Goedgenoeg drilling and 1650 level decline drilling – 2
      An impairment charge was recognised in 2005 during the assessment and review of exploration properties as Goedgenoeg will not generate future cash flows.    
31 –   East of Bank Dyke at TauTona – 4
       Due to a change in original mine plan, the East of Bank Dyke access development has been impaired as it will not generate future cash flows.    
300 44   (note 6) 6 44
The above impairments relate to mining properties, mine development costs and mine plant facilities and have been recognised in operating special items (note 6). The recoverable amount was determined by reference to value in use.

Impairment calculation

Management assumptions for the value in use of tangible assets and goodwill include:

–
  		 the forward gold price curve for the first 10 years, where a forward gold market and quoted prices exist (starting point based on a 30-day average during the fourth quarter of 2006 –US$630/oz (2005 – US$505/oz)). Thereafter, the estimated future gold price has been increased by 2.25% (2005: 2.25%) per annum over the remaining life of the mines. These prices have been adjusted for the effects of including the normal sale forward contracts to arrive at an average received price across all of the cash generating units (CGUs). Previously, the normal sale forward contracts were allocated to each cash generating unit, based on the then prevailing contractual relationship with hedge counter parties. Following the removal of certain hedge counter party restrictions and the granting of group level guarantees during 2006, we have applied an average received gold price across all cash generating units. The use of this approach has had a consequential impact on the value in use of the cash generating units.
 
            2006 2005
  Annual life of mine plans which take into account the following:    
  – proven and probable ore reserves included in pages 90 to 94; and    
  – value beyond proven and probable reserves (including exploration potential) determined using the    
    gold price assumption referred to above;    
  – a real pre-tax discount rate adjusted for country risk and project risk for cash flows relating to mines    
    not yet in commercial production and deep level mining projects based on the discount rate    
    applicable to the long-term US dollar market rates;    
  – foreign currency cash flows are translated at estimated forward exchange rates and then discounted    
    using appropriate discount rates for that currency;    
  – cash flows used in impairment calculations are based on life of mine plans which exceed five years    
    for the majority of the mines; and    
  – variable operating cash flows are increased at local Consumer Price Index rates.    
         
  Real pre-tax discount rates applied in impairment calculations on assets which had impairment    
  indicators or on cash generating units which had significant allocated goodwill are as follows:    
  South Africa 6.3 to 7.4% 6.0%
  Ghana 5.9 to 7.9% 6.5 to 8.5%
  Australia 5.4 to 5.9% 5.4 to 6.3%
  Tanzania 7.1% 6.5%
Based on a real pre-tax discount rate of 6.5% in 2005 at Bibiani the calculated recoverable amount did not support the carrying values and an impairment charge to write the assets down to a recoverable amount was recognised in the income statement.
The group reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. In addition, goodwill is tested on an annual basis for impairment. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets. Expected future cash flows used to determine the value in use of goodwill and tangible assets are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including reserves and production estimates, together with economic factors such as spot and forward gold prices, discount rates, foreign currency exchange rates, estimates of costs to produce reserves and future capital expenditure.
 
2006 2005 Figures in million 2006 2005
SA Rands       US Dollars
Should management’s estimate of the future not reflect actual events, further impairments may be identified. The factors affecting the estimates include:
–
  		 changes in proved and probable Ore Reserves as well as value beyond proven and probable reserves;
–
  		 the grade of Ore Reserves as well as value beyond proven and probable reserves may vary significantly from time to time;
–
  		 differences between actual commodity prices and commodity price assumptions;
–
  		 unforeseen operational issues at mine sites; and
–
  		 changes in capital, operating mining, processing and reclamation costs and foreign exchange rates.
Based on an analysis carried out by the group, the carrying value and value in use of cash generating units that are most sensitive to gold price, ounces, costs and discount rate assumptions are:
Carrying Value in       Carrying Value in
value use     2006 value use
10,760 11,065     Obuasi 1,537 1,580
782 880     Tau Lekoa 112 126
        2005    
9,391 10,095     Obuasi 1,480 1,591
4,045 4,221     Moab Khotsong 638 665
656 816     Tau Lekoa 103 129
      Should any of the assumptions used change adversely and the impact is not mitigated by a change in other factors, this could  result in an impairment of the above assets.    
         
      The above cash generating units do not have goodwill allocated to them.    
         
      It is impracticable to disclose the extent of the possible effects of changes in the assumptions for the future gold price and hence life of mine plans at 31 December 2006 because these assumptions and others used in impairment testing of tangible assets and  goodwill are inextricably linked. In addition, for those mines with a  functional currency other than the US dollar, movements in the US dollar exchange rate will also be a critical factor in determining life  of mine and production plans.    
         
      Therefore it is possible that outcomes within the next financial year that are different from the assumptions used in the impairment testing process for goodwill and tangible assets could require a  material adjustment to the carrying amounts disclosed at  31 December 2006.    
           
2005 2006 Figures in million 2006 2005
SA Rands        US Dollars
    17 Intangible assets    
      Goodwill    
      Net carrying value    
2,188 2,366   Balance at beginning of year 373 387
178 373   Translation 18 (14)
2,366 2,739   Balance at end of year 391 373
Goodwill has been allocated to its respective cash generating units (CGUs) where it is tested for impairment as part of the CGU (note 16).
           
      Net carrying amount allocated to each of the cash generating units:    
700 836   Sunrise Dam 119 110
700 836   Boddington 119 110
692 763   Geita Gold Mining Limited 109 109
134 148   Morila Limited 21 21
90 100   AngloGold Ashanti Brasil Mineração 15 15
50 56   Serra Grande Company Limited 8 8
2,366 2,739     391 373
      Royalty and tax rate concession    
      Cost    
277 312   Balance at beginning of year 49 49
35 32   Translation – –
312 344   Balance at end of year 49 49
      Accumulated amortisation    
7 145   Balance at beginning of year 23 1
13 13   Amortisation (notes 4 and 36) 2 2
125 –   Impairments (1) (notes 6 and 14) – 20
– 16   Translation – –
145 174   Balance at end of year 25 23
167 170   Net book value 24 26
2,533 2,909   Total intangible assets 415 399
      The government of Ghana agreed to a concession on the royalty payments by maintaining a rate of 3% for 15 years from 2004.    
     
(1)
  		 The above impairment relates to the tax rate concession which was granted at a rate of 30% for the Ashanti business combination in 2004. During 2005, the corporate tax rate in Ghana was revised down to 25% and the tax rate concession was fully impaired.
 
   
2005 2006 Figures in million 2006 2005
SA Rands          US Dollars
    18 Investments in associates    
      – The group has a 25.0% (2005: 25.0%) interest in Oro Group (Proprietary) Limited which is involved in the manufacture and wholesale of jewellery. The year-end of Oro Group (Proprietary) Limited is 31 March. Equity accounting is based on results to 30 September 2006.    
      – The group has a 29.9% (2005: 29.9%) interest in Trans-Siberian Gold plc (listed on the London Stock Exchange), which is involved in the exploration and development of gold mines. The year-end of Trans-Siberian Gold plc is 31 December. Equity accounting is based on results to 30 September 2006.    
        The carrying value of associates consists of:    
21 218     Shares at carrying value brought forward 35 5
2 (15)     Share of retained (loss) earnings brought forward (3) –
23 203       32 5
(17) (6)     Share of associates' loss (note 8) (1) (3)
        Transfer of Trans-Siberian Gold plc from other investments    
92 –     (note 19) – 14
93 –     Additional investment acquired in Trans-Siberian Gold plc – 15
12 18     Translation – 1
203 215       31 32
20 85     Loans advanced (1) 12 3
223 300     43 35
(1)
  		 Loans advanced consist of $10 million, R70 million (2005: nil) to Trans-Siberian Gold plc and $2 million, R15 million to Oro Group (Proprietary) Limited (2005: $3 million).
 
The TSG loan bears interest at LIBOR + 4% and is convertible into equity under certain circumstances at the option of the borrower.
 
The Oro loan bears interest at a rate determined by the Oro Group (Proprietary) Limited’s board of directors and is repayable at their discretion.
 
      The carrying value consists of the following:    
      Ordinary share capital    
15 20   Oro Group (Pty) Ltd 3 2
188 195   Trans-Siberian Gold plc 28 30
203 215     31 32
      Loans advanced    
20 15   Oro Group (Pty) Ltd 2 3
– 70   Trans-Siberian Gold plc 10 –
223 300     43 35
100 63   Market value of listed associate (1) 9 16
      The group's effective share of certain balance sheet items of its    
      associates at 30 September 2006 is as follows:    
80 117   Non-current assets 17 13
109 97   Current assets 14 17
189 214   Total assets 31 30
29 50   Non-current liabilities 7 5
31 30   Current liabilities 4 5
60 80   Total liabilities 11 10
129 134   Net assets 20 20
      Reconciliation of the carrying value of investments in associates    
      with net assets:    
129 134   Net assets 20 20
94 101   Goodwill 14 15
223 235     34 35
– 70   Loan advanced to Trans-Siberian Gold plc 10 –
– (5)   Repayment of Oro Group (Pty) Ltd shareholders' loan (1) –
223 300   Carrying value 43 35
(1)
  		 The market value at 31 December 2006 is less than the amount determined as value in use. The recoverable amount (higher of value in use and fair value less cost to sell) of the Trans-Siberian Gold plc investment exceeds its carrying amount which is determined using the equity method as allowed by IAS 28.33. Accordingly, no impairment was recognised.
 
2005 2006 Figures in million 2006 2005
SA Rands       US Dollars
    19 Other investments    
      Listed investments – available-for-sale    
167 97   Balance at beginning of year 15 29
15 512   Additions 76 2
(13) (388)   Disposals (57) (2)
(98) –   Transfer to investments in associates (1) (note 18) – (15)
      Fair value adjustment on transfer to investment in associate    
6 –   (note 18) – 1
11 77   Fair value adjustments 11 1
9 12   Translation (1) (1)
97 310   Balance at end of year 44 15
97 310   Market value of listed investments 44 15
      Available-for-sale listed investments consist of investments in ordinary shares, associated purchase warrants and options.  
           
    (1) With effect from 31 May 2005, AngloGold Ashanti increased its equity interest in Trans-Siberian Gold plc. to 29.9%.    
           
      The available-for-sale investments primarily consists of:    
– 91   Nufcor Uranium Limited 13 –
– 101   International Tower Hill Mines Limited 14 –
      Various listed investments held by Environmental Rehabilitation    
59 80   Trust Fund 11 9
38 38   Other 6 6
97 310     44 15
      Listed investments – held to maturity    
103 118   Balance at beginning of year 19 18
15 6   Interest earned 1 2
– –   Translation (2) (1)
118 124   Balance at end of year 18 19
      Rehabilitation Trust Fund administered by RMB Private Bank comprising:    
93 90   Corporate bonds and notes 13 15
25 34   Government bonds 5 4
118 124     18 19
 
      Unlisted investments available-for-sale    
3 2   Balance at beginning of year – –
(1) –   Disposals – –
2 2   Balance at end of year – –
      Available-for-sale unlisted investments primarily consist of The Chamber of Mines Building Company Limited.    
      Unlisted investments – held to maturity    
335 428   Balance at beginning of year 68 60
68 52   Additions 7 10
– (74)   Disposal (11) –
21 36   Interest earned 5 4
4 6   Translation (5) (6)
428 448   Balance at end of year 64 68
428 448   Directors' valuation of unlisted investments 64 68
      Additions to unlisted investments consist of contributions to the Environmental Rehabilitation Trust Fund and Environmental Protection Bond. These investments are collateral for certain of the group’s environmental obligations.    
      Disposals from unlisted investments consist of withdrawals from the Environmental Rehabilitation Trust Fund. These withdrawals are for rehabilitation work.    
      Unlisted investments – held to maturity include:    
      Corporate notes – Rehabilitation Trust Fund administered by RMB    
365 367   Private Bank 52 57
49 64   Environmental Protection Bond – fixed-term deposit required by legislation 9 8
14 17   Other 3 3
428 448     64 68
645 884   Total other investments 126 102
645 884   Total valuation (note 39) 126 102
             
2005 2006 Figures in million 2006 2005
SA Rands       US Dollars
    20 Interest in joint ventures    
      The group's effective share of income, expenses, assets and liabilities of joint ventures, which is included in the consolidated financial statements, is as follows:    
      Income statement    
1,504 2,146   Gold income 317 236
(1,002) (1,101)   Expenses (161) (158)
502 1,045   Operating profit 156 78
4 9   Interest received 1 1
(33) (46)   Finance costs (7) (5)
473 1,008   Profit before taxation 150 74
(79) (219)   Taxation (34) (12)
394 789   Profit after taxation 116 62
      Balance sheet    
      Non-current assets    
932 832   Tangible assets 119 147
134 148   Intangible assets 21 21
– 91   Other investments 13 –
235 485   Inventories 69 37
– 161   Trade and other receivables 23 –
– 74   Deferred taxation 11 –
      Current assets    
558 702   Inventories 100 88
336 204   Trade and other receivables 29 53
76 170   Cash and cash equivalents 24 12
2,271 2,867   Total assets 409 358
1,542 1,957   Equity 280 243
      Non-current liabilities    
70 59   Interest-bearing borrowings 8 11
197 248   Provisions and deferred taxation 35 31
      Current liabilities    
165 184   Interest-bearing borrowings 26 26
297 419   Trade and other payables 60 47
2,271 2,867   Total equity and liabilities 409 358
      Refer here for a list of joint ventures.    
 
Back to top
Notes to the group financial statements Note 1 - 10 < Back | Next > Note 21 - 30Home
 

AngloGold Ashanti Annual Report 2006 - Annual Financial Statements