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Executives

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

Analysts

Martin Roher - MSR Capital Management

AngloGold Ashanti (AU) Q2 2011 Earnings Call August 4, 2011 9:00 AM ET

Operator

Good afternoon, and welcome to the AngloGold Ashanti Q2 2011 Earnings Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Stewart Bailey. Please go ahead.

Stewart Bailey

Thank you, Priya, and everybody, welcome to the presentation by the AngloGold Ashanti executive team of our results for the quarter ended 30 June 2011. The presentation will be as follows: Mark Cutifani our CEO, will review the company's performance over the quarter, Venkat, our CFO will walk through the financials. Mark will then talk to projects and exploration before taking questions.

And as customary I'll just read through a Safe Harbor statement before we commence. 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 another operating results, growth prospects and outlook of AngloGold Ashanti's operations, individually or in aggregate, including the completion and commencement of commercial operations of certain AngloGold Ashanti's exploration and production projects, the completion of announced mergers and acquisitions transaction, AngloGold Ashanti's liquidity and capital resources, the expenditure and outcome and consequences of any litigation proceedings and AngloGold Ashanti's Project ONE performance targets containing, certain forward-looking statements regarding AngloGold Ashanti's operations, economic performance and financial condition.

Although AngloGold Ashanti believe that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations could prove to have been correct. 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 prices and exchange rates, and business and operational risk management. For a discussion of certain of these factors, refer to AngloGold Ashanti's Annual Report for the year ended 31 December 2010, distributed to shareholders on 29 March 2011. The company's annual report on Form 20-F was filed with the SEC in the United States in May 31, 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 could be viewed in addition to and not on us an alternative for the reported operating results of cash flow from operations or any other measures of performance prepared in accordance with IFRS. In addition, the presentation of these measures may not be comparable to similarly titled measures other companies may use. AngloGold Ashanti posts information that is important to investors on the Main tab of its website at www.anglogoldashanti.com and under the Investors tab in the main page. This information is updated regularly. Investors should visit the website to obtain important information about AngloGold Ashanti. And with that let me hand over to Marc.

Mark Cutifani

Thanks very much, Stewart. Ladies and gentlemen, I'm happy to report a record earnings results for the quarter supported by a record gold price that we reported during the quarter. Buillion touched yet another near record in recent days against the back drop of worsening sovereign-debt picture in Europe, inflation received in Asia and in much of the developing world and a gloomy deficit and great picture in the U.S.

Physical offtake remains robust on the jewelry and investment front and continued buy by Central Banks, most recently South Korea. Providing additional impetus to the price decline. It appears gold is entering the perfect storm.

Now to deal with things that we manage in a more direct sense, today's earning results is underpinned by improved production, strong cost control and ultimately a strong gold price. This is despite some production headwinds [indiscernible] reflecting the first quarter prove more challenging than we initially thought, as well as seismicity at TauTona which resulted in the cease and desist mining in the VCR pillar. Nevertheless, the quality of the portfolio is improving, productivities are increasing, our operations are generating more cash and delivering the returns we've promised.

Despite the large number of public holidays around Easter in South Africa, our 3 largest regions registered strong production gains and demonstrated solid cost control. Production of 1.086 million ounces was broadly in line with guidance, and we delivered total cash costs of $705 an ounce, considerably better than our $760 an ounce forecast. Therefore, it's a pleasure to be the one to announce a record adjusted headline earnings of $342 million, an increase of 68% quarter-on-quarter, showing strong leverage to the rising gold price following the removal of the hedge book last year.

Venkat will talk to the cash flow in a few moments, but suffice it to say this was also a record in generation of cash flows at the operating level, with a robust $636 million reported in the quarter. Importantly, we've kicked the interim dividend up 38% from the first half of last year, keeping pace with the received gold price over the same period. We'll continue to keep a watchful eye on growing that payout as we grow our cash flow, while maintaining our ability to still fund our value generative growth projects.

South Africa's production was up 7% with strong showing from Mponeng, Moab Khotsong and TauTona. Cost control was once again impressive. The region also continued to show outstanding improvements in results from the uranium division. Also worth noting was the swift settlement of the strike by our South African workforce, which interrupted production for 5 days before settlement was reached. The final agreement, has a total impact on our South African payroll of about 8.3%, linked to which is an ongoing dialogue with the unions of the productivity improvements. And that for us is a very important breakthrough in that we believe the opportunities to work with the workforce to improve productivity is quite significant, and is a central part of their business improvement program and as part of their Project ONE implementation. So to get that locked into the process is a very important strategic step. And so we're very encouraged with the way those conversations ultimately turned out and certainly I think it positions us well to continue our improvement strategy across South Africa.

At the same time, it is important to remind everyone that our focus in South Africa has firmly been on cost control, and so we will remain focused and we will continue to drive the programs that have already delivered a 15% real cost reduction over the last 18 months.

Continental Africa was again a strong contributor, delivering a 14% improvement in operating costs on the back of good performances from Obuasi and Geita. In the Americas, costs came in flat, while production picked up slightly, helped by strong performance in the U.S and in particular Argentina. Our exploration teams continue to show promising signs in several jurisdictions, but most notably in Guinea, on the concessions of joining our Siguiri mine and at our Hutite discovery in Egypt. Our Brownfields results have been spectacular in Argentina, Brazil, Australia and Tanzania.

On the detail, starting with safety. Tragically, we lost 3 of our colleagues during the quarter in separate incidents. One, in South Africa, a person involved in a fall of ground and 2 non-mining related incidents, 1 in Brazil and 1 in Eritrea. We are committed to eliminating fatalities from the workplace and in continuing to improve our overall safety performance where we've seen a better than 60% performance in all accidents. And at the same time, an 80% improvement on our fatality rates from where we started 3 years ago.

The overall general downward trend has been maintained and we continue to improve, and we are certainly leading improvement across the South African mining industry. And we've also been the most significant improvements of any of the major businesses in terms of broad safety performance.

In South Africa, specifically, the overall improvement in safety has outstripped the rest of the gold industry by some 60%. The charts you'll see in our presentation shows that AngloGold is currently tracking mines department and union-related negotiated targets that were put together for that 6 years ago across the industry and we're the only major company that's actually tracking those targets. Which is, certainly from our point of view, a source of developing good relationships with the miners department and certainly set us apart from those -- from others in the industry.

I'm also pleased to announce the appointment of Michael Parker as our new Senior Vice President, Safety and Environment for the global business. Mike joins Tony O'Neill's team and has almost 25 years of global experience. Most recently as Global Environmental Health Safety and Security Manager for General Electric's Oil & Gas business. And for those that are wondering how we can attract that sort of caliber of person in this area, Michael has been most impressed with the gains we have made. He is very keen to make a real contribution in taking us to the next 3 steps in terms of the industry improvement. And we're very proud and very pleased to have him on board.

On the operating side, in the Americas, Ron Largent and his team in the Americas worked well to show a 6% increase in production over the quarter. Total cash costs were delivered at a steady $487 an ounce for the period, another impressive result despite a challenging inflationary environment in Brazil and Argentina.

At Cerro Vanguardia in Argentina, we came home with a wet sail, cementing its position as one of the industry's best and well-run operations. It was great to see more than a 7% increase in production and a full 39% drop in cost to $264 an ounce, showing the twin benefits of high grades and strong silver price. And you only have to reflect back a bit over 2.5 years ago when we were delivering gold around 160,000 or 170,000 ounces at a cash cost of $800 an ounce. We have almost taken 60% of cost out of the business. Obviously, the silver price has held, but overwhelmingly the operating improvements for cost reductions, the accessing of the underground operations at 10 grams a dollar have all contributed significantly in terms of what's been a major turnaround across the business. Still, we continue to keep a close eye on costs and the retention of skills in our remote site, given Argentina's well-publicized inflationary issues.

Cripple Creek, one of the key assets that will provide a production kicker as the year wears on, showed a 23% bump in production for Q1 as we forecast and as we continued to place ore on the newer portions of the pad closer to the liner. On the negative side, higher diesel and mining costs impact the costs around 11%. And we are seeing very little water during the periods. So we are virtually in drought conditions and so the efficiencies on the leach pad had dropped and whilst that does an impact on the long-term recovery of ounces from the leach pad, it will certainly likely impact our production over the next couple of quarters. But certainly from my broader point of view, we've seen a significant improvement in Cripple Creek and the operations is still tracking on the key fundamentals of that improvement progress.

At Serra Grand, dilution impacted production, that's mining dilution impacted production dropping our process grades and recoveries. While at Brazil Mineracao, higher tonnage is resulting from improved development of the underground fleet offset lower grades. We are progressing our Project ONE implementation at both sites and we do see considerable improvement potential as we are targeting more consistent and reliable operations delivery. And under Helcio's lead, the team will continue to make improvements and we're very confident on a better performance in the second half and a very strong performance in 2012.

In Continental Africa, it's particularly gratifying to report a strong showing from Richard Duffy's team and where production rose 4% and cost improved by 14%. The other standout for Africa was Geita where production was up 14% and costs a full 46% lower, despite the extended maintenance shutdown of the SAG mill which we flagged last quarter. While the underlying improvements in Tanzania were substantive in their own right, this quarter's performance is also a testament to the ingenuity of the operations team who pulled high grade material from Geita Hill and Nyankanga directly through the ball mill, pulling back production that would have otherwise been deferred. And that might have been a 30,000-ounce difference in the performance of the quarters. So a significant contribution that was well done by the team.

The work and outcomes delivered under adverse conditions underlines an urgency, a strong desire to deliver on commitments. The feature I'm seeing more and more across our African operations.

In Mali, high grades boosted production from Sadiola by 10%, while Guinea had the benefit -- the benefit from a slightly higher production was eroded by a 19% increase in cash cost on the back of high royalties, rising fuel prices and the use of consumables. We continue to aggressively drill this ore body to better understand our ground, to achieve greater consistency out of the key assets that we see is operating well below its real potential.

Iduapriem's production was lower for the quarter, and that was according to the plan given scheduled maintenance undertaken on the plan. The good news is the team remains ahead of budget the first time for the operations since the Ashanti merger back in 2004.

Obuasi, encouragingly delivered a 19% increase in production and a 28% improvement in cash costs. It remains early days for the task force leading the change here, but this is an important milestone on the road to recovery.

More particularly about Obuasi, the improvement was not only related to high grades mine but also to fundamental, hard-won gains in underground fleet availability and more consistent plan operations, key focus points for Project ONE, which was recently launched. I visited the site twice already this year, and we'll visit twice again before the year is out. And I'm very encouraged in terms of what I'm seeing from Richard, the leadership he's providing to the team, Peter Anderson, the guys on site are doing some tremendous work. We still have a long way to go, but certainly very encouraged by what I'm seeing so far.

The control chart that we've included in the description pack demonstrates how improved work management, that is proportion of schedule work that is completed that, has helped us growing control over our mining operations, which has then in turn helped us deliver more consistently to the processing operations. Both the areas have new section managers overseeing the change. Improvements are reflected in the production numbers for the quarter, and we are working hard to hold these gains and build them going forward.

On Project ONE and the cash flow improvements in the business, it's been important for us to distinguish between the cash flow benefits we've gained from the gold price, the reduction and our own business interventions. If you look at Project ONE, you'll see that our run rate on an annual basis has moved from about $480 million to $650 million a year underscoring the sustainability of the improvements that we're introducing at Obuasi. While these improvements are playing second fiddle to the removal of the hedge book and the gold price leverage, they remain absolutely critical to how we assess ourselves. And if you take a step back and look at that $650 million cash flow contribution, and you look at the overall earnings performance, that contribution has almost doubled the returns on capital that we're showing and we'll see that at the end of the pack.

And so whilst that relative contribution is small compared to the gold price and hedge price improvements, it's that improvement at the margin that really leverages the cash flow generation that we make in the business, the capital returns and it's where the real incremental value lies in the way we're running the business. So we continue to improve on that number and get it north of $1 billion. I think that's the real measure of the success of the management team's work in creating real value for shareholders.

In Australia. Australia continued to face challenges in recovering from the flooding and related slip of the pit wall in Q1 which hampered production. Oil production at Sunrise Dam was 61,000 ounces, 15% lower than last quarter. There was a commensurate impact on operating costs, taking us over $1,500 an ounce. Production from the pit was suspended for much in the quarter, while the focus was placed on dewatering the underground mine and reestablishing the exit ramp to the open pit. In fact, the remediation work was more challenged than initially anticipated given the additional work needed to stabilize the new switchback required to access the pit of the main ramp. We expect the operation to recover through the current quarter and to return to more normalized run rate by the fourth quarter once the recovery work is complete.

On the upside, brownfield drilling on the Vogue discovery has continued, which is under the existing underground operations, yield exciting results that I will talk to in the exploration discovery.

In South Africa, we delivered a strong quarter with a 7% increase in overall production. We saw good containment of costs which were up 8% despite absorbing the stronger rand, winter power tariffs, the annual electricity price increase of 25% and higher royalty payments as a consequence of the high gold price. It's the performance which highlights not only the quality of our assets but also the strength of the South African management team.

In recognition of the success in doing much of the heavy lifting over the last 18 months, as Robbie was second in charge, we promoted Michael O'Hare to Executive Vice President of the South Africa region. This is part of our succession planning and will allow Mike an extended period to work alongside Robbie, as the transition is made. Robbie remains an EVP in South Africa reporting directly to me. But his responsibilities, including the refinement of our sustainability and social engagements strategy, while we're driving hard and look at how we can build on longer-term growth strategy in South Africa, improve our operating costs and look at new mining methods as part of our technical innovation work that we believe has the potential to create a new future over the next 20 to 50 years.

Our partners in this work, and we have 30 of them, include the likes of General Electric, 3M, Schlumberger and Sandvik in a group of more than 30 companies and universities from across the globe. The work is gaining traction and we anticipate a prototype testing on deep working areas to commence within the next 2 years at our Kopanang operations. This is an ambitious endeavor which encompasses all aspects of mining, and we believe has a good chance of unlocking a deep gold resource in excess of 70 million ounces. It's an enormous prize in a world short of new gold supply. And the way we think about this work in South Africa, we look at the greenfields and the brownfields exploration work we're doing around the world, our equivalent in South Africa is to work at how to get at that 70 million ounces because in of itself, we know the gold's there, the key question is how do we extract it economically. So it is our equivalent exploration effort in the South African business. We're very excited with what we've seen.

The second quarter saw very strong performances from Great Noligwa, which benefited from fewer safety stoppages and resolution of the ore pass blockages that impacted the first quarter. The safety performance also helped Kopanang to a 4% production gain. Also in the Vaal River region, Moab delivered a 10% increase in production as temperature-related challenges we've had in the first quarter were resolved.

The West Wits mine showed good production growth and did a better job of managing costs. Mponeng, our largest mine was a standout performer with an 8% gain in production on the back of improved cooling work areas -- of cooling the work areas and fewer interruptions linked to safety stoppages. TauTona received a double benefit increase volumes and better yields from material mine in the VCR shaft area.

Another highlight for us with uranium production of 338,000 pounds ahead of our plan, given the continued success we've had on improving recoveries in the business. This is an area which we've done extensive work in the past 24 months, and we feel we have a handle on a more consistent higher recovery from our existing uranium reserves, which is an integral part of our local gold business by product character. As I said before we remain South Africa's largest uranium producer, with production this year expected around somewhere near 1.4 million pounds. We have decades of experience in this business, from metallurgy to refining, to the marketing of U308. We had a good understanding of the market and long-established relationships with the utilities in Europe and North America, which give us the belief that long-term fundamentals remain very good.

It's against this backdrop that we made an opportunistic $28 million investment in First Uranium, putting our foot on just under 20% of the company. This is a portfolio investment made as the major stakeholder was selling out, and we will review this investment from time to time. I must also point out that AngloGold Ashanti ran the largest tailings retreatment facility in the world with its Ergo operations. So we have the uranium experience, the tailings retreatment experience, the credibility in South Africa and we saw an opportunity.

While our major peers made big-ticket acquisitions at historically high prices, it should be no surprise for those that have followed us for a long period of time, that we would take an investment in an unloved business that has some interesting potential. It fits with our gold and uranium strategy in South Africa. Where we take it from here will be based on the work we do in the next few months assessing what potential there is. But I will also add that we've purchased the asset of the business or the shareholding in the business at 70% below its peak price.

In South Africa, when I talk about the quality of our management team, it's also an opportune time to talk to the relative quality of our asset base in the South African context. As you can see, if you're looking at the presentations on the charts, the margins and underlying profitability of South African business is clearly ahead and shoulders above our local peer group, testament to the hard work undertaken by our South African operating team, particularly as they have a hard driven improvement over the last 18 months.

When people talk about the South African gold industry, don't group us with the rest. We have an entirely different business and margins are significantly better and our track record for delivery has been consistent over many quarters. We've seen a real 15% operating improvement in costs over the last 18 months, and that's what is necessary to continue to maintain our position as the gold business in South Africa. And it's comparable to any set of assets across the globe, and we're very proud of what the team has achieved.

We've also arrested the steep trajectory of costs in recent quarters given our focus on generating strong cash flows and our overview of the position of having a manageable capital profile because the grade infrastructure that we have in-store, these comparisons make it clear that we are in a class of our own.

In addition to Mike O'Hare's appointment to the executive team, we do bid farewell to Thero Setiloane, our EVP Sustainability who leaves to take up a role as CEO of Business Leadership South Africa, an important role for Thero and obviously one for the country. And he goes with our best wishes. At the same time, we welcome Maria Sanz as our new General Counsel. Maria comes to AngloGold Ashanti with a wealth of legal and commercial experience, including her post as General Counsel and Company Secretary at Afrox, and most recently was Head of the Group Legal and Sustainability at Sappi.

I'll now hand over to Venkat to talk to the financial. Venkat?

Srinivasan Venkatakrishnan

Thank you, Mark. Good morning, ladies and gentlemen. I'll be covering the following 3 areas in today's presentation: Second quarter financial results, free cash flow and balance sheet, outlook for the third quarter and full year 2011. Adjusted headline earnings of $342 million represents a record quarter earnings for AngloGold Ashanti. This comes from the back of a 4.5% increase in production as well as another quarter where we enjoyed full exposure to the spot price and tight cost management.

Earnings were positively impacted by improved performances from our key assets, in Continental Africa, the Americas and South Africa. We also realized $30 million after tax from the sale of our Ayanfuri royalty to Franco Nevada during this period. But this was partially negated by an increase in our South American rehabilitation provisions amounting to $25 million. Adjusted headline earnings per share was up at $0.89 and ZAR 0.601 for the quarter.

Earlier in the presentation, Mar, outlined how the hedge takeouts, improved prices and most importantly operational improvements have played an important part improving our earnings and cash flow. Continuing on that theme, our second quarter 2011 earnings is a good demonstration of the earnings leverage AngloGold Ashanti now commands in a rising gold price environment.

Ladies and gentlemen, I'm going to walk you through this slowly. Second quarter of 2010, i.e., last year, saw adjusted headline earnings of $129 million. If we adjust for the 8.6% discount to spot due to the legacy hedge, which we then had, the adjusted headline earnings would've amounted to $229 million had we enjoyed full spot price exposures there. This compares to the adjusted headline earnings of $342 million for the current quarter and represents a 49%, I repeat, 49% increase on this basis. It is worth pointing out that during this period, gold price only rose by 26% from $1,198 an ounce to $1,510 an ounce. The conclusion here, our adjusted headline earnings has outperformed bullion twice over during this period.

The total unit cash cost of $705 an ounce were largely unchanged quarter-on-quarter. Richard Duffy and the Continental African region team deserves a special mention in reducing its total cash cost to $705 an ounce, a full 14% lower than the previous quarter. As Mark mentioned, Mike O'Hare and the South African regional team also did well to contain costs amidst a challenging inflationary backdrop. The $55 an ounce reduction as compared to guidance can be attributed to 2 primary factors: Higher byproduct credits of $28 an ounce, and stockpile credits of $24 an ounce as Geita continued to mine and stockpile all during the period of the plant shutdown.

AngloGold Ashanti's margins were strong for the second quarter on a cash cost basis at 53.3%, and a fully costed basis, including all capital expenditure at 32.8%, helping the group continue to deliver on its targeted returns on capital north of 15% per annum.

The second quarter also saw strong cash generation by the group. Cash input from operating activities after-tax but before capital expenditure and finance charges was 24% higher at $635 million. The group's free cash flow, i.e., after all outflows, amounted to $207 million for the quarter. These numbers do not include the $35 million consideration received on the sale of the Ayanfuri royalties, including which the cash generation will be $670 million and $242 million, respectively.

This healthy cash generation helped the group reduce net debt quarter-on-quarter by more than 20% from USD $1.1 billion to just under $900 million. You should however bear in mind that as in the previous years, just under 2/3 of our plant capital expenditure is incurred in the second half of the year. And you should, therefore, expect to see a commensurate impact on net debt for the remainder of the year.

Turning now to the outlook, after allowing for loss production on account of wage strike in South Africa, the estimated third quarter production of 1.11 million ounces with total cash cost of approximately $775 an ounce. The total cash cost estimate takes account of winter power tariff, wage increase in South Africa, lower by-product credits and the lost production due to the South African labor strike.

As in the previous years, on the production front, we are expecting a stronger second half this year with continued increases in South Africa Geita and Cripple Creek and Victor. Nevertheless we have faced several headwinds during the first half which would, in their own rights, have steered us towards the lower end of our guided production range of 4.55 million ounces to 4.75 million ounces. These factors include the flooding at Sunrise Dam, where more than one in a hundred years rain event took place in a matter of days, impacting both the open pit and the underground mine, and it was subsequently further impacted by a ramp failure in the pit.

A decision to seize mining, VCR pillar at TauTona on safety grounds, following a seismic event during the first quarter. Grade issues at Siguiri, and a drought at CC&V, which has impeded the optimal functioning of the heap leach pad. The recent strike at the South African operations, however, along with the lead time it takes to restart this deep underground mines given our safety focus, has had a further impact on output. While our teams remain committed to growing back as much of the lost ground as possible through the remainder of the year, it is necessary for us to exercise caution and adjust annual guidance to around 4.45 million ounces.

Given the lower output, stronger local currencies and higher fuel price, total cash costs are now estimated to be between $725 an ounce to $740 an ounce assuming an exchange rate of 6.83 for the rand dollar and oil price of $114 per barrel. I'll now hand you back to Mark.

Mark Cutifani

Thanks very much, Venkat. As we pointed out in February, the $850 an ounce we used to calculate reserves and the $1,100 an ounce for resources, we believe we're somewhat conservative relative to many of our North American peers. Consequently, we run the numbers at $1,100 an ounce for reserves and $1,600 an ounce for resources. The result of the new assumptions, as well as incremental exploration success has delivered 6% increase in our resource base to 232.6 million ounces. Obuasi and Geita, the biggest contributors are adding 5.9 million ounces and 1.9 million ounces, respectively.

At La Colosa drilling has added another 3.8 million ounces taking the deposit to more than 16 million ounces and at higher grade, by the way, and reaffirmed the scale of the opportunity we have with this operation. At the same time, reserves have grown by more than 4% to 74 million ounces with gains at Geita, Cripple Creek and Obuasi. Our mineral endowment remains the bedrock of our growth ambitions and a key focus along with generating annual returns as we continue to grow shareholder value.

We continue to make good headway on project development as we push towards our 5.5 million-ounce target. And the affordability of our blend of green- and brownfields growth options remains a key competitive advantage, and for those of you that we've talked to in detail, we often point out that it costs us about a $2,500 an ounce across the portfolio to bring in new production ounce of gold against the North American average of around $4,000. That average has not been adjusted for the most recent capital cost increases we've seen announced over the last few days. So we believe our competitive position continues to improve and so we're very proud of what the guys have done. And whilst we'll obviously be subject to inflationary pressures, the work we're doing in improving the business, which includes our capital approach, has certainly helped us keep a lid on those costs. But again, it's something that we have to watch very carefully.

Tropicana remains on track with the EPCM contract recently agreed and the access road progressing well. At Kibali, you would have seen from recent releases by our partner Randgold, the relocation of 14 villages to the new site at Kokiza started in July and is progressing well. We remain on track for first gold in 2014, and we're very pleased with the work that our partners are doing in managing the project and certainly from our point of view, things are looking very good indeed.

Mongbwalu project optimization is continuing and the final proposal will go to the board likely later this year. And finally, Corrego do Sitio, commissioning of key areas of the plant has already begun. The refurbishment on the remaining equipment is proceeding to plan and mining continues to ramp up, so we do expect to make announced contribution in the fourth quarter of this year.

On brownfields exploration, our competitive pipeline is fed by an extensive exploration program. This is where we've had our most significant recent exploration successes. We spoke last quarter about the step out hole at Cerro Vanguardia which intersected significant grade well below the 200 meter level previously thought to be the base of mineralization. At around 310 meters, we've hit another intersection of this narrow vein ore body with grades of 35 grams of gold and 670 grams of silver. That's all in one hole and at 226 meters we've hit 86 grams of gold and 264 grams of silver.

We're now working up a conceptual study over the coming months to relook at the long-term strategy for this operation at higher production levels. And the look of where they come from in terms of production, in terms of our cost profile and now with these recent successes along with the development of the new underground operation, the future is looking very strong for Cerro Vanguardia.

We're also excited by an emerging oxide resource at the São Bento Sao portion of the Corrego do Sitio deposit in Brazil. While our focus there had been on getting at the sulphide resort we bought from El Dorado in 2008, we're now looking at a significant oxide opportunity along a more than 1 kilometer strike length. The [indiscernible] service would in turn grades of 16 grams over 6.5 meters. Remember that the plant we bought in that deal has an oxide circle as well, which we could easily refurbish and upgrade to handle that fleet.

While our original plan remains to get to ultimately around 170,000 ounces you can get from Corrego do Sitio, we're now looking at the potential for oxides to take as well over 200,000 ounces. And for those that can remember the purchase, we bought the assets, we focused on about a million ounce resource and we had a different concept in geology we thought could be a real opportunity. And we're now talking about a 5 million-ounce target and we're certainly seeing continuing success. And I think that 60% of the holes we drilled have come up with good grades. So we're certainly very pleased with where we're going.

In Tanzania, drilling at Geita has increased confidence. In the high grades, we're expecting to cut 6 of the Nyankanga pit. Importantly, we've also seen improving grade down dips in cuts 7 and 8. The best results include 13 grams over 10 meters and almost 10 grams over 28 meters.

On Vogue, as I said before, in Australia drilling between 600 meters and 800 meters below the surface has made it clear that the Vogue discovery beneath our current Sunrise Dam workings is turning into a significant mineralized structure, with characteristics similar to the previously mined Dolly and Cosmo ore bodies. The best results of the north dam dip extensions include values of 4.7 grams over 166 meters and 229 meters of 5.1 grams to the south. The good news here is we have another intersection 400 meters below these intersections adjacent to the carry sheer of higher grade material which has very similar looking rocks in these intersections. So we're very excited by what we may have.

Looking at the extent of the ore body potential in the slide as we've shown in the presentation and comparing it to the Dolly and GQ workings of the existing Sunrise Dam operation depicted in purple, I don't think it's an overstatement to say that we have tiger by the tail. Understanding how best to exploit it is a priority for Graham Ehm and his team. As I said, even more exciting is the fact that we have similar grade intersections although not of the same widths, 400 meters below these intersections.

On exploration and looking at the engine room that brings new ounces into the portfolio, you'll be familiar with this map that shows the extent of our global exploration footprint. The territories we have accessed and the new frontiers we're exploring that will further strengthen our long-term future. This was again an active quarter for us on greenfields exploration with work undertaken in 6 broad regions in Egypt, potential on the Hutite concession is looking more increasingly positive as we improve our understanding of the geological setting. Our focus is on a northwest trending corridor with a 700 meter strike, which has parallel loads of steeply dipping mineralization up into the north and south as well as down dip. Our best assay results to-date returned values of 11 grams and 18 grams per ton. It's early days, but this is one we're keeping a very close eye on.

Elsewhere in the Continental Africa region, Blocks 2, 3 and 4 in Guinea are joining the Siguiri has produced the most exciting results. The Saraya target returned promising grades, including one in excess of 5 grams over a width of 8 meters. Elsewhere within the area, our work is showing a potential emerging that we've been hoping for, reaffirming that we control an extensive mineralized area with the capacity to become a more significant contributor to the group in time.

We're also moving steadily forward in Colombia, with good success at Colosa. Overall, we're making strides to improve the average grade of the deposit above its initial 1 gram per ton level. We're very encouraged by recent drilling into the heart of the ore body, which has returned grades in excess of 1.2 grams per ton along significant widths. And we've had intersections over 2 grams of areas or widths in excess of 200 meters.

At the Quebradona joint venture with B2Gold, also in Colombia, we have also intersected a promising copper-gold anomaly with an intersection that averages 0.42% copper and 0.19 grams per ton over 127 meters. Those numbers speak for themselves and we'll update that as we go along. But this is still very early days and we're again very excited of what we picked up here.

In terms of cash flows from operating activities, we're the current performance leaders. In the last couple of years we've not skimped on investing in new opportunities in the business. In fact we've consistently been top of the pile in terms of spending on exploration across the globe. We have a stack development pipeline, one of the best in the industry with an extremely competitive cost per ounce to bring the production in at lower risk delivery than our peer group, especially on our brownfield expansions. But most importantly, and even while we're moving those programs ahead, we're now generating free cash flows at the top echelon of the global gold industry.

On earnings leverage, we're very proud of what we've achieved and Venkat gave you a good exciter in terms of the progress we made even against the gold price, which we believe represents the DNA of the new AngloGold Ashanti. The rollout of Project ONE, the improved margins and generate real returns of capital investors, along with a real plan to grow to 5.5 million ounces is a combination that will produce strong, high-quality earnings and allow us to outperform the gold price.

With that in mind we have declared a dividend of ZAR 0.90 a share, an increase of 38% over last year's payment. In dollar terms, the USD $0.13 a share dividend, represents a 44% year-on-year improvement. This keeps pace with a 37% improvement we received in the gold price over the same period and is in keeping with our approach of first providing for value growth in the business given the project development pipeline whilst retaining an element of flexibility on the balance sheet.

In conclusion, we continue to make strides in rolling out our operating model and people strategy as part of Project ONE. The improving results this quarter speak to the success of this endeavor. We are bringing our projects through on budget and in time. We are focused on improving the return profile of the business, already well above our weighted average cost of capital.

We have an outstanding exploration team and an invaluable set of prospects across the globe, and we continue to open up new discoveries well ahead of our competition. This integrated strategy and the kind of results that you're seeing today, speak to a new investment character for the company, while quite different to our competitors, the one that fundamentally challenges the disillusion that some investors have with the sector at the moment. And with that, happy to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Martin Roher of MSR Capital Management.

Martin Roher - MSR Capital Management

You threw out some interesting longer-term numbers, if I heard you correctly. On cost reduction, did I hear that the $650 million that you've already achieved could possibly grow to $1 billion over some period of time and on production the 5.5 million ounce target, what time frame are those numbers realistic for?

Mark Cutifani

Marty, on the $650 million, the $650 million free cash flow improvement that we've generated is a combination of increasing tonnages through de-bottlenecking of the operations, reduced costs within the business, improving grades as a function of changing mining methods and also as a function of improved recoveries of both gold and silver. And they are replicable audited results that carry our cash flow going forward. What we've set for the team, we set an initial $500 million target for 5 years. We've delivered that target within 3. What we've set for the team in the next 3 years is to try and get that number to $1 billion as part of that Project ONE rollout. So that's in the next 3 years. So it's a combination of continuing improvements in our production, as well as cost reductions and grade improvements as a consequence of changing mining methods. It's interesting to note, that across our operations, we've made adjustments to the mining methodologies to 50% of our operations to squeeze more value. So that's part of that $650 million. And we think we're only about 30% of the way through the program. I know a few of your colleagues have been through the wall rooms here and have seen the depth and breadth of our changed models, and I think it will be fair to say that we're pretty confident we'll get that additional $350 million in terms of fundamental operating improvement over the next 3 years. An example would be the 15% real cost reduction that we've delivered across our South African operations over the last 18 months. It's been a very good example of what we've been doing as we've implemented Project ONE over that same 18 months. So we're very pleased with that. In terms of your second question, Marty, we believe that we'll hit the 5.5 million-ounce production target in the 2014, 2015 range. We've got an aggressive target for the team to try and get there in 2014. And certainly on the numbers we see today, we can get there. But bearing in mind, there's always some potential for risk. We certainly see that we'll get it in the 2014, 2015 period.

Stewart Bailey

Priya, if there are no further questions, we can certainly wrap up.

Operator

We don't have any more questions. Would you like to make any closing comments?

Mark Cutifani

Thank you, Priya. We're very happy to present, and thanks for the opportunity.

Srinivasan Venkatakrishnan

Thank you very much.

Operator

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

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