CFO’s report

Venkat discusses the financial prospects for AngloGold Ashanti

Please read the cautionary statement regarding forward-looking statements before listening to this podcast.

Srinivasan Venkatakrishnan (Venkat) Chief Financial Officer

Introduction

In a year of volatile gold prices and exchange rates, AngloGold Ashanti successfully accomplished a number of financial milestones:

• Adjusted headline earnings (excluding the impact of accelerated hedge buy-backs) were a record at $708m, a result of better received prices, improved performance from some assets and foreign exchange gains;
• The full year dividend was increased by 30% compared to the previous year, to 130 South African cents per share (approximately 16.75 US cents per share);
• Net debt levels were reduced by 32% or $415m during the year to close at $868m;
• The issue of a five-year $732.5m convertible bond at competitive terms lengthened the tenor of borrowings;
• The hedge book was reduced by 35% or 2.1Moz to close the year with 3.9Moz of hedge commitments, which represents less than one year’s forecast production;
• The rationalisation of the asset portfolio was completed with the sale of AngloGold Ashanti’s 33.33% interest in Boddington mine for a cash consideration of $990m plus royalties; and
• An equity raising of $284m was completed to part fund the $344m acquisition of an effective 45% interest in the Kibali gold project in the Democratic Republic of the Congo.

Looking ahead, the financial objectives for 2010 include:

• Maximising margins and cash generation in the business;
• Continuing with opportunistic reductions to the hedge book to further improve participation in a gold price rally; and
• Introducing more tenor into the statement of financial position whilst refinancing the group’s $1.15bn revolving credit facility before December 2010.

Production

Production for the year at 4.6Moz was 8% or 383,000oz less than that of 2008.

Southern Africa’s production declined by 14% to 1.86Moz, reflecting the increased number of safety-related stoppages resulting from more stringent policing of safety regulations as well as the proactive approach by the company’s managers to averting accidents. In addition, on 22 May 2009 the seismic event at Savuka caused damage to the shaft infrastructure thus reducing production. On 23 October 2009, underground operations at the TauTona mine were suspended to conduct inspection and shaft steel work rehabilitation along the shaft barrel. TauTona was brought back into production in January 2010, after the inspection and rehabilitation work were successfully completed.

Production during the year from Continental Africa fell by 3% to 1.52Moz as improvements at Geita and Obuasi offset declines from Sadiola and Morila in South America, production increased by 6% to 598,000oz, with a strong turnaround In from Argentina. Cripple Creek & Victor in North America suffered from below-par recoveries from the leach pad, resulting in in a 16% drop in production to 218,000oz.

Australasia’s production decreased by 7% to 401,000oz due to the lower grade of ore processed given that the high-grade Mega open pit was exhausted in 2008.

Income statement

An analysis of the abridged income statement for the year, with comments on significant variances is presented as follows:

Dollar million	Notes	2009	2008
Gold income	1	3,768	3,619
Cost of sales	2	(2,813)	(2,728)
Loss on non-hedge derivatives and other commodity contracts	3	(1,533)	(297)
Gross (loss) profit		(578)	594
Corporate, marketing and exploration costs	4	(322)	(276)
Operating special items	5	691	(1,538)
Operating loss		(209)	(1,220)
Net interest paid	6	(85)	(48)
Exchange gains and fair value adjustments on convertible bonds	7	79	29
Share of equity accounted investments’ profit (loss)		94	(138)
Loss before taxation		(121)	(1,377)
Taxation	8	(147)	197
Loss after taxation from continuing operations		(268)	(1,180)
Profit from discontinued operations		–	25
Loss for the year		(268)	(1,155)
Other financial data
EBITDA (excluding hedge buy-back costs)		1,663	1,131
Adjusted headline earnings (excluding hedge buy-back costs)		708	19
Adjusted headline loss		(50)	(897)

Income statement commentary

The reduction in the loss for the year from $1,155m in 2008 to $268m in 2009 is mainly the impact of the higher received gold price and asset impairment reversals in 2009 compared to the impairment of assets in 2008. This was partially negated by the higher loss on the non-hedge derivatives as outlined in note 3.

1. Gold income

Despite the lower gold production, gold income at $3,768m was 4% higher than in 2008. This is due to the average received gold price (including hedge buy-back costs) increasing from $485/oz to $751/oz mainly due to the higher gold spot price and the lower cost of the hedge buy-back in 2009. The price received excluding the cost of the hedge buy-back increased from $702/oz to $925/oz, which is a 5% discount to the average spot gold price.

2. Cost of sales

Cost of sales increased by 3% from $2,728m to $2,813m in 2009.

Components in cost of sales consist of:

• Total cash costs increased by 8% from $2,113m in 2008 to $2,283m in 2009. In unit cash cost terms, total cash costs have increased from $444/oz to $514/oz (refer to graph below). This is mainly due to the lower production, lower grade, ore stockpile inventory draw downs and inflation.
• Rehabilitation costs decreased by 21% from $28m to $22m, mainly due to changes in estimates, discount and inflation rate assumptions. Retrenchment costs of $14m occurred mainly at the South African and Ghanaian operations.
• Amortisation of tangible and intangible assets decreased from $562m to $557m in 2009. The decrease is attributed to the reassessment of the useful lives of the assets and components of property, plant and equipment in accordance with revisions to the business plan as well as lower ounces produced.

3. Loss on non-hedge derivatives and other commodity contracts

There are mainly two reasons for the increase in the loss on the non-hedge derivative contracts from $297m in 2008 to $1,533m in 2009:

• During July 2009, hedge contracts to the value of $797m were accelerated and cash settled. Of these accelerated settlements, $580m were designated as normal purchase and sale exempted contracts (NPSE) and previously held off the statement of financial position. A further $217m was also incurred in accelerating the cash settlement of existing non-hedge derivative contracts. The cash settlement of the NPSE contracts resulted in the remaining NPSE designated contracts to be re-designated as non-hedge derivatives and recorded on the statement of financial position with changes in the fair value accounted for in the income statement. The consequential impact on the financial statements in July 2009 of the accelerated settlement and related re-designation of NPSE contracts was a loss on non-hedge derivatives of $1,028m, an increase in the non-hedge derivative liability of $558m and cash outflows of $797m.
• During 2009, the spot price of gold increased from $872/oz at the beginning of the year, to $1,102/oz at the end of the year. Upon fair valuing the hedge book at year-end, the substantially higher spot gold price contributed to a further loss on nonhedge derivatives.

4. Corporate, marketing and exploration costs

Corporate and other administration expenses increased from $131m to $154m in 2009 due to inflation, additional costs associated with the business improvement, Project ONE and the Safety Transformation projects.

Marketing costs of $10m are $3m less than in 2008 and include lower contributions to the World Gold Council following reduced annual production.

Exploration expenses increased from $126m in 2008 to $150m in 2009 mainly due to increased expenditure in Colombia, in Canada and the Solomon Islands. Exploration expenditure consisted of greenfields expenditure of $88m, brownfields of $36m and pre-feasibility and feasibility study expenditure of $26m at La Colosa in Colombia and Tropicana in Australia. AngloGold Ashanti has taken advantage of some outstanding early stage exploration opportunities and to consolidate significant land areas in underexplored areas ranging from low risk, mining friendly jurisdictions like Canada, to new frontier areas like the South West Pacific.

5. Operating special items

Operating special items in 2009 amounted to a credit of $691m compared to a charge in 2008 of $1,538m.

The charge to the income statement in 2008 was attributable to the large asset impairments of $1,608m relating to Obuasi, Geita and Iduapriem. In 2009 these asset impairments were partially reversed due to the increase in the long-term real gold price and improved mine plans. Asset impairment reversals of $717m were recorded in 2009 consisting of $373m at Obuasi, $261m at Geita and $83m at Iduapriem.

Other operating special items include a reassessment of indirect taxes in Tanzania and Guinea, profits and losses on the disposal of tangible assets and investments, write-off of loans not recoverable, and an insurance claim recovery for business interruption at the Savuka mine.

6. Net interest paid

The increase in net interest paid from $48m to $85m in 2009 is due to the higher interest and fees on the term facility, a reduction in capitalised interest and lower interest earned on cash and cash equivalents.

7. Exchange gains and fair value adjustments on convertible bonds

During 2009, part of the proceeds from the Boddington joint venture sale was applied towards repaying borrowings, resulting in the realisation of an exchange gain of $121m.

In 2009, the fair value loss of $33m on the convertible bond was mainly due to an increase in the volatilities and the share price underlying the new $732.5m convertible bond. In 2008, the fair value gain of $25m was attributable to the write-off of the option component of the previous convertible bond to nil as it approached maturity in February 2009.

8. Taxation

Taxation was a charge of $147m in 2009 compared with a benefit of $197m in 2008, mainly due to higher earnings and the lower deferred taxation benefit received on the hedge buy-back costs incurred in 2009. The taxation benefit in 2008 related to the cost of the hedge buy-back.

Other financial data

EBITDA (excluding hedge buy-back costs) increased from $1,131m in 2008 to $1,663m in 2009. The year-on-year increase of $532m was mainly attributable to higher gold income and realised gains on non-hedge derivatives and other commodity contracts of $652m, favourable inventory movements of $79m, share of equity accounted investments’ EBITDA of $68m, partially negated by an increase in total cash costs of $170m, indirect taxes of $48m and higher corporate and exploration costs of $47m.

Adjusted headline earnings (excluding hedge buy-back costs), increased from $19m in 2008 to $708m in 2009. This increase is due to the higher received gold price, the foreign exchange gain from the early repayment of the Australian dollar denominated loan, higher income from associates and equity accounted joint ventures which was partly offset by the lower production, higher operating, corporate and exploration costs. The adjusted headline loss for the year, after factoring in the hedge buy-back costs, was $50m.

Statement of financial position

An analysis of the abridged statement of financial position as at 31 December is presented and variations in balances to commented upon below.

US Dollar millions	Notes	2009	2008
Tangible and intangible assets (1)	1	6,083	5,286
Cash and cash equivalents		1,100	575
Other assets	2	2,604	2,199
Total assets		9,787	8,060
Total equity	3	3,030	2,511
Borrowings	4	1,931	1,933
Deferred taxation		753	617
Other liabilities	5	4,073	2,999
Total equity and liabilities		9,787	8,060

⁽¹⁾ Includes assets held for sale

Statement of financial position commentary

The statement of financial position has improved significantly during the 2008 and 2009 years. Equity of $2.0bn has been injected, hedge contracts of $1.9bn before taxation were accelerated and cash settled, and assets were disposed for cash of $1.1bn.

Significant events that impact on the statement of financial position are:

1. Tangible and intangible assets

The increase in the tangible and intangible assets from $5,286m to $6,083m is mainly due to the capital expenditure incurred during the year amounting to $1,019m, the effects of stronger local currencies’ closing positions against the US dollar of $473m, asset impairment reversals of $717m, partly offset by the amortisation and depreciation charge of $557m.

In 2009, capital expenditure reduced by some $175m mainly due to lower expenditure on the Boddington project. In 2008, $419m was spent at Boddington, compared with $145m in 2009, the latter having been reimbursed to AngloGold Ashanti upon completion of the sale.

2. Other assets

Other assets consist mainly of investments, inventories, financial derivatives, trade and other receivables, non-current assets, deferred tax assets, and cash restricted for use. Other assets increased from $2,199m in 2008 to $2,604m in 2009.

Significant movements include:

• investments in associates and equity accounted joint ventures increased due to the purchase of the effective 45% interest in the Kibali gold project for $344m, and additions to the investment value from equity accounted earnings;
• other investments increased due to a higher fair value of the investment in International Tower Hill and other sundry investment purchases;
• inventories increased due to the timing of gold dispatches, higher production costs and uranium inventory levels, and in North America the heap leach inventory increased with higher cost ounces placed on the leach pad and the slower percolation of the gold bearing solution through the leach pad; and
• financial derivative assets reduced mainly due to normal maturities of the hedge book during the year, partially offset by effect of an increase in the spot gold price.

3. Total equity

Total equity reflects an increase from $2,511m to $3,030m in 2009. Significant movements during 2009 consist of the hedge buy-back cost of $758m net of deferred taxation, the accounting for the NPSE contracts of $558m at 31 July 2009, asset impairment reversals of $717m, and the equity raising of $284m to part fund the acquisition of the effective 45% interest in the Kibali gold project.

4. Borrowings

Total long and short-term borrowings were at similar levels in 2008 and 2009 at $1,933m and $1,931m respectively. The 2009 year includes the following significant movements:

• during February 2009, a draw down of $1.0bn on the term facility was made to repay the 2.375% convertible bonds of $1.0bn;
• during May 2009, a five year 3.5% convertible bond of $732.5m was raised with an option component of $142m;
• during July 2009, a subsequent repayment of $750m was made on the term facility; and
• the net movement on the $1.15bn syndicated loan facility increased by $185m.

The term facility was renegotiated in August 2009 for a one year period maturing in August 2010, consisting of a $250m term portion and a $250m revolver portion, and is extendable for another year at the option of the company until August 2011.

5. Other liabilities

Other liabilities consist mainly of provisions such as the environmental rehabilitation liability, retirement defined benefit plans, liabilities held for sale, trade and other payables and financial derivatives. The increase from $2,999m to $4,073m in 2009 is mainly due to:

• increases in the environmental rehabilitation and other provisions of $43m due to changes in estimates, discount and inflation rate assumptions as well as stronger local currencies;
• increases in the provision for pension and post-retirement benefits of $22m largely due to exchange movements, partly offset by the effect of changes to discount and inflation rate assumptions;
• financial derivative liabilities increased by $939m mainly due to the contracts amounting to $558m at 31 July 2009 previously designated as NPSE and now accounted for in the statement of financial position. In addition, a 3.5% convertible bond was issued during the year and the resultant option component also increased the financial derivative by $176m at year-end. The substantial increase in the spot gold price further increased the financial derivative liability;
• liabilities held for sale include that of Tau Lekoa in 2009 of $7m. In 2008, liabilities held for sale related to the Boddington joint venture of $48m; and
• trade and other payables and deferred income increased by $61m and related mainly to increased payroll and other benefits.

Statement of cash flows

An analysis of the abridged statement of cash flows is presented and significant variations in balances are commented upon below.

US dollar millions	Notes	2009	2008
Cash generated from operations including discontinued operations	1	1,345	631
Dividends received from equity accounted investments	2	101	78
Taxation paid		(147)	(125)
Cash utilised for hedge buy-back costs		(797)	(1,113)
Net cash inflow (outflow) from operating activities		502	(529)
Capital expenditure	3	(1,019)	(1,194)
Net proceeds from the acquisition and disposal of tangible assets,
investments, and associate and joint venture loans	4	778	92
Interest received		55	67
Other investing activities		(9)	(6)
Net cash outflow from investing activities		(195)	(1,041)
Net proceeds from share issues	5	295	1,668
Net borrowings proceeds	6	43	239
Dividends and finance costs paid		(167)	(151)
Net cash inflow from financing activities		171	1,756
Net increase in cash and cash equivalents		478	186
Translation		47	(88)
Cash and cash equivalents at beginning of year		575	477
Cash and cash equivalents at end of year		1,100	575

Statement of cash flows commentary

The higher closing cash position is mainly the result of improved cash generated from the operations and the sale of the Boddington joint venture. Other items that contributed to significant movements in the cash flow year-on-year were the hedge buy-back costs, capital expenditure, net proceeds from the sale and acquisition of assets and investments, as well as proceeds from the issue of shares.

Operating activities

1. Cash generated from operations including discontinued operations more than doubled from $631m to $1,345m mainly due to the higher received gold price, partly negated by the lower ounces produced and sold and the higher total cash costs. Movements in working capital resulted in a net outflow of $206m in 2008 compared with $50m in 2009. The reduced level of cash locked up in working capital is mainly due to an increase in trade and other payables. Trade and other payables increased due to the timing of payments and higher year-end accruals following annual escalations and inflationary increases on payroll and other benefits.
2. The marginally higher dividends received in 2009 from equity accounted investments is due to an additional distribution of $30m from Yatela largely attributed to the 35% increase in production to 89,000oz and the improved received gold price.

Investing activities

3. Capital expenditure reduced by $175m from $1,194m to $1,019m in 2009. This was primarily driven by a reduction of capital expenditure at the Boddington gold mine of $274m. Capital expenditure during 2009 consisted of $413m relating to project capital, $348m for Ore Reserve development and $258m for stay-in-business capital.

   Excluding the Boddington joint venture, project capital expenditure year-on-year was up by $34m and is primarily attributed to the MLE1 project at Cripple Creek & Victor which had increased by $54m. Ore Reserve development expenditure increased by $87m and mainly arose at South Africa, in line with increased Ore Reserve development metres. Stay-in business expenditure decreased by $21m and was mainly driven by reduced capital requirements at Geita of $34m.

4. The net proceeds from the sale of assets increased from $92m to $778m in 2009. During 2009, $990m was received from the sale of the Boddington joint venture and $145m was reimbursed for the capital expenditure incurred. The balance of the proceeds relates mainly to real estate activities in Brazil. The proceeds were partly offset by the acquisition of an effective 45% interest in the Kibali gold project of $344m, an additional interest in Sadiola for $6m, and investments in environmental rehabilitation trust funds established by AngloGold Ashanti in compliance with regulatory requirements, and other sundry investment purchases.

   Proceeds from the sale of assets in 2008 consisted of $14m for the North American royalty and production related interests of the El Chante and Marigold projects, $14m from the disposal of a 50% interest in Amikan and AS APK, $7m from real estate activities in Brazil, $10m from the sale of the Ergo assets and $48m arising from the sale of the 50% interest in Nufcor International Limited partly offset by investments in environmental rehabilitation trust funds.

Financing activities

5. The net proceeds from the issue of shares reduced from $1,668m in 2008 to $295m in 2009. In 2008, the rights offer resulted in the issuing of 69,470,442 shares of 25 South African cents each at a subscription price of R194.00 raising some $1.7bn. On 1 September 2009, AngloGold Ashanti announced the placing of 7,624,162 AngloGold Ashanti ordinary shares at an issue price of $37.25 per American Depositary Share. The offering closed on 8 September 2009 and total proceeds of $284m were received.
6. Net borrowing proceeds decreased from $239m in 2008 to $43m in 2009. The 2009 year included proceeds of $732.5m on the 3.5% convertible bonds, $1bn on the term facility and $985m on the syndicated loan facility ($1,150m). This was partly offset by repayments of $1bn on the 2.375% convertible bonds, $750m on the term facility and $899m on the syndicated loan facility ($1,150m). The balance of the movements relate to proceeds and repayments in terms of other loan agreements.

   In 2008, net borrowing proceeds include a draw down of $743m on the $1,150m syndicated loan facility. Repayments include $242m on the corporate bond, and $316m on the $1,150m syndicated loan facility. The balance of the movements relate to proceeds and repayments in terms of other loan agreements.

One-year forecast – 2010

AngloGold Ashanti’s annual production guidance for 2010 is 4.5Moz to 4.7Moz. This reflects the sale of Tau Lekoa, cautious assumptions regarding the frequency of safety related stoppages in South Africa, and increased production from CC&V, where the grade is expected to stabilise in 2010 after having been negatively affected by recoveries from the leach pad in 2009.

Capital expenditure for 2010 is estimated at $1bn to $1.1bn.

For the year ending 31 December 2010

	Forecast production 000oz	Expected total cash cost $/oz (1)	Forecast capital expenditure $m (4)
South Africa (2)(3)	1,722 – 1,800	553 – 571	391
Namibia	96 – 100	600 – 628	18
Ghana	593 – 619	562 – 588	156
Mali	265 – 277	663 – 695	12
Guinea	295 – 308	527 – 552	11
Tanzania	339 – 354	833 – 872	36
Australia	381 – 398	901 – 943	36
Argentina	176 – 184	411 – 430	48
Brazil	419 – 437	424 – 444	251
United States of America	214 – 223	480 – 503	78
Democratic Republic of the Congo	–	–	17
Other	–	–	27
AngloGold Ashanti	4,500 – 4,700	590 - 615	1,081

(1)	Based on the following assumptions: R7.70/$, A$/$0.93, BRL1.70/$ and Argentinian peso 3.90/$; oil at $75 per barrel. The year-on-year increase in total cash costs is due to the unwinding of previously incurred deferred stripping charges, implementation of royalties in South Africa, higher power tariffs, escalation and stronger local operating currencies.
(2)	In South Africa, production assumes stable power supply from Eskom and a 35% increase in power tariffs.
(3)	Excludes Tau Lekoa.
(4)	Capital expenditure is managed in line with earnings and cash flows and may fluctuate accordingly. Forecast capital expenditure for operations with non-controlling interests is reported at 100%. For entities which are equity accounted, the forecast capital spend is the attributable share.
	AngloGold Ashanti anticipates a discount to the spot gold price of 8% to 10% based on a gold price of $950/oz to $1,250/oz.

Other illustrative estimates

For the year ending 31 December 2010

	$m
Depreciation and amortisation	700
Corporate costs, marketing and business process framework	210
Expensed exploration and pre-feasibilities	216
Interest and finance charges	120

Srinivasan Venkatakrishnan
Chief Financial Officer