AngloGold Ashanti's CEO Discusses Q4 2010 Results - Earnings Call Transcript

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AngloGold Ashanti (NYSE:AU)

Q4 2010 Earnings Call

February 17, 2011 9:00 am ET


Srinivasan Venkatakrishnan - Chief Financial Officer, Executive Director, Member of Risk & Information Integrity Committee, Member of Investment Committee and Member of Executive Committee

Stewart Bailey -

Mark Cutifani - Chief Executive Officer, Executive Director, Chairman of Executive Committee, Member of Safety, Health & Sustainable Development Committee, Member of Investment Committee, Member of Risk & Information Integrity Committee, Member of Party Political Donations Committee and Member of Transformation & Human Resources Development Committee


Ladies and gentlemen, a very good afternoon to you, and welcome to the AngloGold Ashanti Q4 2010 Earnings Results Conference Call. [Operator Instructions] I would now like to hand the conference call over to Stewart Bailey. Thank you, and over to you.

Stewart Bailey

Thanks Leeroy, and good afternoon, or good morning, everybody, and welcome to the presentation by the AngloGold Ashanti executives of our results for the quarter and for the year ended 31st of December, 2010.

Turning to the presentation of the format. We will have Mark Cutifani reviewing the company's performance over the quarter before Venkat walks us through the financials. Mark will then wrap up and take questions. We do have members of our executive team present. We have Charles Carter, EVP, Strategy; and we've got Robbie Lazare, EVP, South Africa with us to field any questions you might have.

As is customary, I'll read the Safe Harbor disclaimer before we proceed. Certain statements made in this communication, including without limitation, those concerning the economic outlook for the gold mining industry; expectations regarding gold prices, production, cash costs and other operating results; growth prospects and the outlook of AngloGold Ashanti's operations, individually or in the aggregate, including the completion, commencement of commercial operations of certain of AngloGold Ashanti's exploration and production projects; the completion of announced mergers and acquisitions transactions; AngloGold Ashanti's liquidity and capital resources and expenditure and the outcome and consequences of any litigation proceedings; and AngloGold Ashanti's Project ONE performance targets contain certain forward-looking statements regarding AngloGold Ashanti's operations, economic performance and financial condition. AngloGold Ashanti believes that the expectations reflected in such forward-looking statements are reasonable. No assurance can be given if such expectations will prove to be incorrect. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, among other factors: changes in economic and market conditions; success of business and operating initiatives; changes in the regulatory environment and other government actions, including environmental approvals and actions; fluctuations in gold price and exchange rates; and business and operational risk management.

For a discussion of these factors, refer to AngloGold Ashanti's annual report for the year ended 31st of December, 2009, which was distributed to shareholders on 30 March, 2010. The company's annual reports and Form 20-F was filed with the SEC in United States on April 29, 2010, as amended on May 18, 2010.

AngloGold Ashanti undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after today's date, or to reflect the occurrence of unanticipated events. All subsequent written 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 contains certain non-GAAP financial measures. AngloGold Ashanti utilizes certain non-GAAP performance measures and ratios in managing its business. Non-GAAP financial measures should be viewed in addition to and not as an alternative for the reported operating results or cash flows 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 the information that is important to investors in the main page of its website at, and under the Investors tab on the main page. The information is updated regularly. Investors should visit this website to obtain important information about AngloGold Ashanti.

And with that, I'll hand you over to Mark.

Mark Cutifani

Well, thank you very much, Stewart, and welcome to everybody in tune to our results presentation.

I'll swing straight into the fourth quarter overview. The good news is we've had a solid performance in the fourth quarter with operations under firm control. The significant highlight was the continuing improvement in safety as we recorded only the second fatality-free quarter in our recorded history. This represents another milestone for every individual in our business and is a performance that we're particularly proud of and particularly in the case of our South African operations.

We saw Project ONE continue to make a difference with production of 1.148 million ounces at $672 an ounce. Again, ahead of guidance. It is no coincidence that delivery of five consecutive quarters on guidance, as well as making our annual guidance, coincides with the accelerated implementation of Project ONE. Adjusted headline earnings of $294 million were well ahead of last quarter once you strip out the one-off tax credit of $84 million that boosted the previous results. You'll also notice our improved cash generation capacity after elimination of the hedge, with operating cash flow at almost $700 million for the quarter.

We saw another strong performance from the South African team, keeping a tight rein on the cost and maintaining production despite the sale of Tao Lekoa. Uranium also delivered another growing quarter, delivering increasing volumes into an increasingly positive market. Sunrise Dam delivered a strong result on all metrics, while Siguiri showed increased traction from the Project ONE intervention. Argentina, once again, shut the lights out in what is a difficult inflation environment. Our project teams have made good progress on all fronts with Córrego do Sítio, Tropicana and the Mponeng Deepening all moving ahead according to plan as did our feasibility studies in the DRC and Colombia.

Our exploration effort continues to forge ahead with some recent exceptional growth in Tropicana, reinforcing our faith in the significant growth potential of this district. In Colombia, we continued drilling at Gramalote and La Colosa and started work on the Quebredona property, which continues to look like another really interesting prospect.

In terms of the full year overview, while 2010 was not without its challenges, most notably in Obuasi and Savuka, the balance of the portfolio performed well and demonstrated the benefits flowing from our interventions over the past six months. And this particularly applies in the second half of the year. A quick look at the full year performance shows a strong underlying earnings of $787 million despite 10 months of discounted gold sales. Production came within our original guidance at 4.52 million ounces at a total cash cost of $638 an ounce.

On the full year, look, Uranium 1.46 million pounds was ahead of our expectation. Our four critical turnarounds, South Africa, Geita -- well, three of our four critical turnaround projects, South Africa, Geita and Cripple Creek, delivered to their recovery plans, and our Project ONE teams initiated implementation across 15 new sites as they apply it in the mining and processing.

On safety, it is an enormous privilege to me, again, for us to report, on behalf of 63,000 employees, of the fatality-free quarter for only the second time in the company's history. Certainly, a most significant event. Given the strong operating result, this proves that safe and productive mining go hand-in-hand. A look at our long line achievement in improving the ol' injury frequency ratios, the very promising long-term trend and how it has dubbed up [ph] with our operating improvements in recent years. There is more for us to do, but we continue to set high water marks as we progress through our new operations model, or as we talked to it, Project ONE.

On reserves and resources, our exploration effort added modestly to reserves during the quarter, with the total now at 71.2 million ounces after depletion with good additions from South Africa, the U.S. and Mali. There was little change to our significant resource base of 220 million ounces. However, you'll notice that we've maintained a conservative $850 an ounce price in calculating those reserves and $1,100 an ounce for resources. We are currently working on an update to our resource and reserve inventory at somewhat higher prices in the second half. We're looking it in the range of $1,000 to $1,100, which is in line with a robust fundamentals for the gold market and our positive medium- to long-term view on the price.

It is important to note that we see our exploration investment as a long-term endeavor with discovery cycles that don't necessarily coincide with the calendar year. Over the past four years, our brownfields team has added 31 million ounces at an average cost of $13 an ounce. Our greenfields team, which is a much longer-term horizon, has contributed more than 22.3 million ounces over the past eight years at less than $25 an ounce. And we would expect that number, in terms of ounces, to go up significantly as we continue to open up the potential of these regions that we've established good positions in. And obviously, as a consequence, the cost per ounce discovery would also go down.

On a combined basis, we've added 53 million ounces of less than $18 an ounce. Obviously, a very strong result. And when you add then our prudent acquisitions, we've added another 20 million ounces at around $28 an ounce. We believe that's a pretty good metric against the purchases that we've seen in the market in most recent times, going up to $1,000 an ounce in terms of cost to resources and reserves. So we're very pleased with what we've seen in our regions. And add to that, the potential that we see given those positions, we think the upside in terms of the next two or three years is quite significant.

From an operations overview point of view, it was another strong result from Ron Largent and our Americas team. Production trended lower, slightly lower as planned, to 196,000 ounces. Total cash cost were $465 an ounce for the period, with the escalation contained to 7% in what we consider a challenging currency environment particularly in our Brazilian operations. Cerro Vanguardia in Argentina delivered another exceptional quarter, lifting quarterly production 4% on the back of improved tonnages while lowering costs by 5% to $357 an ounce, and again, in terms of Argentina against a continued inflationary pressured environment. This remains the operation to beat in terms of consistency and operating excellence. And if you reflect again, back two years, we were almost draining up to $100 million a year in free cash flow. So the operating free cash flow turnaround has been more than $200 million in less than three years.

At Cripple Creek, we saw a planned drop in production, in line with our strategy of stacking higher-grade ore closer to the pad in the first half of the year. It's interesting to note that we've actually beaten our budget targets for the first time in five years, and I think that's certainly heralds a new understanding and operating line for the operations, which we believe sets us up nicely for 2011 and beyond. The new MLE project will kick in from Q2 this year, so you can expect higher production in the second half of the year. Notwithstanding the strong real as I mentioned earlier, the cash margin from our Brazilian operations is impressive of a cash cost base of less than $500 an ounce. Brazil remains the cornerstone for our medium-term growth plans for the Americas, with 842,000 ounces produced from the region in 2010, set to top 1 million ounces within the next two years and to step up further in the ensuing periods. And that's before an ounce from Colombia is factored into our forward projections.

Production from Continental Africa was largely unchanged at 374,000 ounces with cost up 9% to $790 an ounce. Good cash flows from Mali and another strong operating result from Geita underpinned the quarter, as did good improvements in Iduapriem, Siguiri and Navachab. Geita remains on track to achieve its 500,000-ounce target for the year, a remarkable recovery for what will now be -- from what is, in our eyes, one of the group's largest contributors and certainly represents a most gratifying turnaround story.

At Navachab, good tonnage and great improvements as well as the new DMS plant came together to deliver an excellent production result. While at Siguiri, the conveyor belt modifications that stemmed from the early Project ONE work helped us achieve a 15% bump in production.

Billy Mawasha is doing some great work with the team in Iduapriem, with record tonnages recorded in the last two months of the year flowing from improved availability in the plant, very similar to the early days of the Geita story. While production improved, cost filled the pinch from higher power tariffs, including one such charge for energy cost at the higher rank, which was backdated to the third quarter. As flagged during the fourth quarter, Obuasi continued to lag due to an unplanned plant shutdown and also continued all past hangups and suboptimal development performance. The latter resulted in an ongoing lack of flexibility, limiting access to higher-grade blocks. These are not new problems and form part of the extensive work already underway by the multi-disciplinary task force, which is on site and developing the next phase of recovery plan for this asset.

Now in Obuasi, while we have stripped out more than $70 million from our operating costs, this has obviously helped us turn a very negative cash flow outcome post two years to a positive outcome last year where we reproduced marginal cash flow, a marginal positive cash flow. However, we are still lagging on our production transition program due to the slow development rights and the inability to maintain the necessary tight control in our stope extraction processes. As I mentioned, at the last quarter in November, we have corrected the Obuasi task force under Richard Duffy's leadership and with the full support of the executive to address the significant and short-term operating challenge we face. The team comprises three areas: the focus on short-term stabilization and optimization is led by Peter Anderson; addressing legacy sustainability issues led by Tony Bradbury; and the development of the future plan, or blueprint of the strategy that we currently have in place, led by Keith Faulkner. Also three individuals are capable, experienced mining professionals who are familiar with Obuasi and the challenges and the issues it faces. Peter has assembled his team, and together they are prioritizing key areas of focus to affect rank by the improvements of the operations, much as Robbie did in South Africa a year ago. He is working with local contractors and stakeholders at the operation to develop a mutually beneficial and crucially a sustainable solution to bring this large resource to account. We will provide a progress up to date at midyear. Meanwhile, Keith and his team are working on the long-term strategy, which we expect to report back on around the end of year.

In Australia, Australia posted its second consecutive production increase, this time by 10% to 102,000 ounces, while cost dropped 16% to $894 an ounce. Remember again that this includes a non-cash deferred stripping charge of some $160 an ounce, which obscures the real contribution from standardized -- You'll see a very strong cash flow at around $146 million in operations, which really does reflect the true production growth and the improvement in the operating costs when we take out that $160 an ounce. Work is well advanced on the pre-feasibility study looking at bulk underground mining efforts, with completion targeted for the end of the year.

South Africa delivered another encouraging quarter, maintaining production at 476,000 ounces despite the sale of Tao Lekoa during the period. Costs were well controlled at $616 an ounce despite a very strong rand, as the focus remained squarely on productivities and production improvement.

The key challenges we experienced during the quarter were some grade and dilution issues at Moab, which impacted the Vaal River operations. However, the West Wits delivered strong production gains from Mponeng and TauTona where the improved safety performance was a consequence of reduced disruption from 1,654 stoppages, which resulted in improving tonnage throughput. It's a virtuous circle, but we're working hard to perpetuate -- that is, safety and productivity as the two go hand-in-hand. Project ONE forms the basis of our efforts to embed those improvements in the DNA of the business. And the initial results following implementation across some of the deep underground mines, which are undoubtedly more logistically complex than processing plants and open pit operations where we've had early success. Each of the operations has identified five key leads for unlocking value and already the sharpened focus on scheduling and planning is yielding measurable gains and the things on the front foot in what remains a challenging inflationary environment.

The performance underscores the world class status of these assets, which are not only endowed with exceptionally long lives but are also capable of spinning off excellent cash flows. And $611 million free cash flow generated to 2010 is despite 10 months of hedged discounts. And if we reverse those discounts, we would have seen more than $700 million. And I think that really does demonstrate the potential that we're delivering, both the performance that we're delivering and the potential we have to improve as we run the business unhedged.

On Uranium, it's also pleasing for me to report an excellent year from our Uranium business. Remember that we are South Africa's largest uranium producer, a position we're in no danger of relinquishing. Better-than-expected production of 1.46 million pounds last year on the back of improved recovery and efficiencies have left us with inventories of around 1.2 million pounds as of year end. We've consciously held back sales as we waited for the price to improve as we were looking at the fundamentals with the business, and we've seen improvement from around $40 a pound to more than $65 a pound. And the market has certainly been very strong. With uranium priced at more than 50% over the past year, it looks like we've made the right call. We will continue to focus on this important aspect of our South African business, and we will look for ways realize growth from our significant resource of 239 million pounds. This is an important business for us. We cannot only provide as a partial offset against rising energy prices in South Africa but gives us an exciting optionality given the size of the resource base.

It is again the backdrop of this much improved operating performance that I am pleased to announce a final dividend of 80 South African cents a share, taking our total dividend for the year 145 South African cents. As a board, we are very mindful of the need to demonstrate our improved operating performance in a tangible way while maintaining a balance sheet that is able to fund that growth objectives. I believe this final dividend, an increase of 23% over the interim payout and 14% on last year's final declaration strikes that balance.

I'll now hand it over to Venkat to look at the financials.

Srinivasan Venkatakrishnan

Thank you, Mark. Good morning, ladies and gentlemen. I'll be covering the following four areas in today's presentation: fourth quarter's financial results, two years financial results, free cash flow and balance sheet and finally, the 2011 outlook.

Starting off with the fourth quarter's financial results. Record gold prices, full exposure to the spot price from the 7th of October, gold production and cost being marginally better than guidance helped push AngloGold Ashanti's adjusted headline earnings for the fourth quarter to $294 million, or USD $0.76 per share. This represents a $75 million uplift on third quarter's adjusted headline earnings after normalizing it for the one-off credit, which was taken during the third quarter. And this uplift is despite a $45 million after-tax impact following the annual reset of our environmental provisions. In other words, the improvement on net margins was close to $120 million. It was pulled back by the $45 million year-end annual reset of environmental provisions, giving us a net improvement of $75 million quarter-on-quarter.

As flagged during the last quarter's earnings call, the hedge book closeout which traveled across quarters three and four was completed on 7th of October. This was haltered in a charge to earnings of USD $1.06 billion, which was within the guided range, and it gives me great pleasure, ladies and gentlemen, that we will not be referring to the hedge book in future earnings calls.

The fourth quarter saw the South African rand, the Brazilian real and Australian dollar all strengthened with the average rand exchange rates strengthening by around 6%. This currency strength, higher royalties on the back of improved spot price and fuel prices saw unit cash cost at $672 per ounce, which was within the exchange rate's adjusted guidance.

Excluding the accounting deferred stripping charge of $20 an ounce, the total cash cost was $652 an ounce, giving a cash margin of 52.5% off the average spot price for the quarter.

Turning to the full year's financial results. The 2010 annual results were impacted by the $2.5 billion cost of the accelerated hedge closeout. The adjusted headline earnings, excluding this impact, was $787 million. Production of 4.515 million ounces was within the guided range of 4.5 million to 4.7 million ounces and was impacted by the 10-week shutdown at Iduapriem, operational issues at Obuasi and the five-week impact at Savuka. The total cash cost of $638 per ounce were within the exchange rate-adjusted guidance. Excluding the accounting deferred stripping charge of $26 per ounce for the year, the total cash costs for the year came in at $612 per ounce.

Looking at returns, which is one of our strategic measures, our full year returns on net capital employed and on equity were 16% and 19.9%, respectively.

Now turning to free cash flow and balance sheet. The group's cash flow statement for the quarter and the full year are distorted by the accelerated hedge takeout and associated capital raisings. It will therefore be useful to look at the cash generation without these distorting items. The capital expenditure profile for the group tends to be higher during the fourth quarter of any year. Notwithstanding this expenditure of $365 million which was incurred in the fourth quarter, the groups, too, generated strong free cash flows, defined as after all outgoings, which is after all capital expenditure, exploration, comfort costs, tax and finance charges of $252 million during the fourth quarter. In addition, $68 million was generated from the sale of a 10% equity interest in B2Gold.

For the full year, despite the normalized hedged discounts seen during the first three quarters of the year and a capital expenditure bill of just over USD $1 billion, the group's free cash flow rose to $525 million. In addition, USD $134 million was realized from the sale of the Tao Lekoa mine in South Africa and the sale of B2Gold investment referred to earlier.

The group's operating cash flow, which is basically cash flow before capital expenditure and finance costs, was approximately $1.7 billion for the year, and this was after penalizing it for around $300 million to $400 million of hedged discount for the first nine months of the year.

The strong cash flows helped the group deliver a much better net debt position at the year end of USD $1.3 billion, thereby positioning it extremely well to meet the 2011 project capital requirements.

Looking at the outlook for 2011, we are forecasting group production at between 4.55 million to 4.75 million ounces. This represents a 200,000 ounces to 225,000 ounces increase, close to 5% year-on-year on the 2010 levels as adjusted for Tao Lekoa, which was sold in 2010 and the Savuka ounces.

Total cash costs are expected to be in the region of $660 to $685 per ounce at an average rand exchange rate to the U.S. dollar of 7.11, 1.70 for the Brazilian real, 0.98 for the Australian dollar and 4.12 for the Argentinian peso. Fuel is budgeted at $95 per barrel for the year.

Other one-line items that are forecast for the year are as follows: depreciation and amortization, $810 million; corporate, marketing, which is a cost of the World Gold Council subscription, Project ONE and capacity building costs, USD $275 million; expensed exploration and pre-feasibility studies, $295 million plus $30 million in respect of equity accounted associates and joint ventures; interest and finance charges, including the accounting unwinding of certain costs, i.e. the P&L costs is USD $205 million; the finance costs cash flow is $145 million, both of which include the coupon on the mandatory convertible bonds.

The capital expenditure for 2011 is estimated at between USD $1.5 billion to USD $1.6 billion, and this includes about $100 million that was unspent in 2010, which is carried forward to 2011.

The number of shares that qualify for EPS as of 31st December, 2010, was 334 million. Ladies and gentlemen, you will recall that the first quarter of each year tends to be a slow start given the seasonal slow startup in South Africa. And this year is going to be no different. For the first quarter of 2011, we are guiding production at 1.44 million ounces at a total cash cost of $675 to $700 per ounce at average rand exchange rates against the U.S. dollar of 7, 1.7 for the Brazilian real, 1 for the Australian dollar and 4.03 for the Argentinian peso. Fuel is at $95 per barrel.

I will now hand you back to Mark Cutifani.

Mark Cutifani

Thanks very much, Venkat. Ladies and gentlemen, I'm going to ask you to try and multitask. I will be referring specifically to Overhead 21 and Overhead 22 in our presentation. So if you've got your eye on the monitor, I think it's important that you run your eye over our operating assessment. And this chart, which shows our assessment of the portfolio in 2008 -- and on the right-hand side of the chart, we show our cash flow. So the way we like to put it is engineering meets financial imparity. And for us, a very important way of thinking about the engine in the business, or the engines in the business and where they're performing. And as you can see, in 2008 -- and we've ranked our assets from one to five, a red representing a one, which indicates a cash drain material risk to the business; right up to a blue, which indicates best industry practice as we assess it; and then you've got brown, showing improvement needed; yellow is an operation with a turnaround plan that is delivering good trends; green being solid performance delivering solid cash flows. And you'll see that in 2008, looking at 16 asset clusters with a potential score out of 80, we scored 32. Obviously, lot of improvement needed. Lots of reds and browns. On the right-hand side, you can see the operating free cash flow. South Africa, $426 million, basically carrying the business. Australia making marginal cash. Continental Africa draining $126 million and the Americas making a solid contribution. But again, nothing to write home about. Total cash flow from the business, around $597 million. When you took capital and other costs into account, we were losing money hand over fist.

And you roll the clock on two years and you go to the next overhead, you see the improvements that have been delivered within the operations in that two-year period. And as you can see, the reds are gone. The three reds, Obuasi, Geita and Cerro Vanguardia. Two of those assets are very strongly cash flow positive. And Obuasi, marginally cash flow positive. Each of them reflecting some very good work in terms of cost controls. Geita and Cerro Vanguardia reflecting significant operating improvements. Obuasi is obviously lagging, but at least we've taken it out of the emergency ward. Now it's a matter of getting to that potential across the portfolio. Lots of yellows. That represents -- so those yellows represent operations that had turnaround plans that have at least two quarters of positive trends indicating we're heading in the right direction. Greens are actually indicating that that's a solid operation with a solid plan with good ideas for future improvement. And the blue, our processing operations in South Africa, representing what we would consider best practice.

It's no accident that when you look on the right-hand side and you see the free cash flow generation from the business -- and don't forget even in 2010, we've gone three quarters of the year with a hedged discount. You're seeing improvement across every jurisdiction. Personally, the operating improvements as a consequence of the Project ONE work and its associated projects has improved the free cash flow cost across the business by more than $500 million a year. Secondly, obviously the gold price in absolute terms as we improve the performance. And the third point being the continuing reduction in hedged discounts. And as you know, the last quarter of last year, first quarter where we've been essentially hedged for free. And as we go into 2011, you have to think about, okay, a 5% improvement in volumes, a likely, or as we can best estimate, a likely 20% improvement in realized prices underpinning what we would expect to see a better than $2 billion free cash flow performance out of our operations expected so in 2011, obviously, subject to the gold price. But gives you a sense of where we come from, almost a four-fold increase, or a four-fold increase in our operating free cash flows. And so at this point in time, we think we can reasonably argue that the potential leverage in our business runs to the gold price now, is where it should be. And certainly, we believe 2011 is where we've set up the organization for a very strong 2011 and beyond.

On projects, 2010 saw significant progress in this regard. First, the MLE project at Cripple Creek, or leach pad extension, has been delivered 12 months earlier and at lower cost than planned. Córrego do Sítio in Brazil was approved in May, and since then, the speed of progress has been impressive. The Autoclave has been manufactured, delivered and installed. The stopes in mining infrastructure were also complete and ready for the production ramp-up starting at around the end of the third quarter. At Tropicana, improved in November, we planned first gold in the final quarter of 2013. Procurement for infrastructure is well advanced, and detailed plant design has commenced. We've received all key approvals and have made great strides, as promised, on the feasibility for Boston Shaker pit, and more about that in a moment. So not only have we focused on financial restructuring, getting the balance sheet right, getting the operations to start delivering to the pinch [ph] and as I said, with our assessment of the assets going from 34 out of 80, to 52 out of 80 in 2010 and delivering a $500 million free cash flow improvement, we believe we can deliver another $500 million underlying free cash flow improvement over the next three years. Put that with our new projects, then we really do become a value-accretive proposition in terms of today and into the future.

The other metrics of growth for us is in the DRC, where we are running a dual track process to bring Kibali and Mongbwalu projects on track by 2014. Our partner, Randgold, is leading the Kibali process with the energy and commitment we expected when we formulated the joint venture in 2009. Mark Bristow and his team believe they can deliver the project by 2013. And while we can see some challenges to achieving this aggressive timeframe, we will do our best to be a supportive partner. Good progress has been made on scheduling resettlement and on developing infrastructure in this remote region in the Congo's northeast. The scale of work done is evident. Now we are more than the construction of that 179-kilometer road between Aru and Doko, an important staging important point for the project. This commute between these towns has been cut down to three hours, where it had used to take several days during the rainy season. This makes an enormous difference not only to the Kibali's development but also to regional commoners. We continue to plan for first production in 2014 and applaud the efforts to accelerate that schedule. We will continue to offer technical support to ensure the highest project management standards are maintained throughout and that we have a long-term, value-accretive and sustainable operation. At the smaller Mongbwalu project, our teams are working to deliver a feasibility study on schedule by the end of the first quarter. We're working on an agreement between Mongbwalu and the Kibali joint venture for hydropower generation and distribution in order to lock in an obvious regional synergy.

In exploration, the project pipeline has been fed by a world-class exploration team. Just to recap those numbers, 22.3 million ounces from the brownfield discoveries at $25 an ounce. And the best part is these discoveries are still growing in Columbia, Tropicana, DRC, Block 2 in Guinea amongst others. That stands in stark contrast to the process being paid for resources by several of our major peers, which are several multiples above the numbers we're delivering in terms of our exploration team. We are happily not in that contest. We are currently having one of the world's largest exploration -- we currently have one of the world's largest exploration holdings at more than 122,000 square kilometers. We are unashamed to meet the world's most aggressive explorer, and we have first mover advantage in the world's most important -- or some of the world's most important gold belts, which is where we generate the most value. We've reached out at our drilling campaign in Colombia during the fourth quarter and plan a major exploration push this year where we will workup our knowledge, and on the Colosa region, where there is significant potential.

At Tropicana, our program is considerably further along the track. As promised in November, additional drilling at Boston Shaker and Havana Deeps has been added to add upside to the production profile in years four and five in the project. The latest grades returned from Boston Shaker are pretty impressive, mostly notably 25 meters at 14.5 grams from around 277 meters with visible gold evident from that core sample. Results from Havana Deeps are similarly encouraging and not only affirm our decision to proceed with the development of this project, but also our view based on extensive knowledge of the geology that this deposit will both improve in quality and will keep growing. Elsewhere in the neighborhood, the Kelly joint venture in the Solomon Islands is also a cause for some optimism, with the latest drill results showing some exceptional growth of more than 8 grams out of a very decent win. My advice is to watch this space over the next two quarters.

On earnings leverage, we've secured a long and prosperous future given the strength of our opportunity pipeline. We have the business in good health, generating strong cash flows, and we haven't paid to create that opportunity pipeline. A look at last year's profile shows impressive step-up as we built production and peeled away the hedge. And that decision to wipe out the hedge for once and for all looks good from where we sit. Despite the difficult decision to issue equity to fund the takeout from 12 million ounces in 2008 to zero at the end of 2010, we've managed to more than double free cash flow on a per-share basis, perhaps the strongest measure of shareholder creation.

In terms of talking to driving shareholder value, in closing, I'd point to you the fact that our financial restructuring is complete. We have a robust capital structure, which is only enhanced by the operational prerogatives that we continue to make across the business. At the same time, our improved returns on both equity and capital investment show that we're focused on real measures of shareholder value. We'll continue to take to discipline as we push forward on our growth path. We have an improving suite of operating assets delivering real cash flows with significant potential, and we have a plan to continue to improve.

Finally, we have developed the best opportunity profile in the gold sector. The good news is that we've created it substantially based on the use of intellectual capital, not shareholder capital. You see what kind of returns we can generate with one hand tied behind our backs. Now it's time to see what we're capable of with the hedge gone and our operations working toward their potential. And I think the last quarter of last year was a first insight into what's possibly in terms of the business.

In terms of generating additional cash flows, we thought very carefully about where we apply those funds in terms of creating value in both the short, medium and long term. First order of priority is to continue to feed that opportunity pipeline with capital increasing 50% as we develop those new prospects and drive to 5.5 million ounces over the next four years. We're also positioning ourselves with that pipeline of opportunity to continue value growth in those following five years through Colombia, the DRC and as we look at those new exploration opportunities we've created. At the same time, we will still be reducing our debt to improve our balance sheet flexibility so we can organically fund growing the business as we promised we would. And certainly again for fourth quarter and in fact the second half of last year, giving you a glimpse of what's possible in terms of the business and where we come from. And finally and most importantly, we continue to sensibly increase dividend flows to our shareholders, and we will continue to increase those flows as we improve free cash flow and performance of the underlying business.

With that, we'd be more than happy to take questions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from Dan [ph] Kiskcuss from Morgan Stanley.

Unidentified Analyst

I was surprised to read in the press last week that you were considering spinning off your South African assets. Could you comment on that a little bit more?

Mark Cutifani

Yes, we were surprised to read it as well, Dan. I was asked a question by a Bloomberg journalist regarding a rumor that we'd been planning to split our assets. In fact, in the last 12 months, that's been a conversation. We look at a whole range of options in terms of creating value. And that conversation has been one that's been around for quite a while, and I was asked the question point-blank, and I made it very clear. We are not considering, at this point in time, splitting the assets. We have the world's best development profile in terms of the business. We've outperformed all of our major competitors in terms of share price over the last two and half years, and we believe we can continue to outperform given the results and given the cash flows we're generating. So I want to make it clear, we have no immediate plans. We continue to keep a whole range of possibilities on the table in terms of creating value, and we'll continue to look at all options. But we have no plans, and I repeat, no plans, to split the company.


[Operator Instructions] We have no further questions from the conference call.

Stewart Bailey

Thank you very much. Ladies and gentlemen, thank you very much for joining the call. Please do get in touch with us if there are any follow-ups. And we'll chat to you again in May for our Q1 results. Thank you.

Mark Cutifani

Thanks, everyone.


On behalf of AngloGold Ashanti, that concludes this afternoon's conference. Thank you for dialing in. You may now disconnect your lines.

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