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Executives

Stewart Bailey -

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

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

Johann Steyn - Citigroup Inc, Research Division

Allan J. Cooke - JP Morgan Chase & Co, Research Division

AngloGold Ashanti (AU) Q3 2011 Earnings Call November 9, 2011 3:00 AM ET

Stewart Bailey

Good morning, everybody, and welcome to the presentation by the AngloGold Ashanti Executive Team for our results for the quarter ended 30th of September. And before we begin, the meeting, as is customary, we'll go through the safety procedures. As usual, in the event of an emergency, a siren will sound and the information will be broadcast over the building's public address system. Please move quickly within an orderly way to the nearest exit points, which are behind me and to the right and gather in the open space on Miriam Makeba Street to the west of Turbine Hall where our safety wardens will advice on additional safety procedures.

Our agenda, the format will be as follows: Mark, to my left, will review the company's performance over the quarter; Venkat, on the far left, will walk through the financials before Mark will wrap up with a discussion on projects and exploration before taking your questions. Other members of our leadership team are present in the audience and will be available during Q&A and for discussion afterwards. We also have Frank Arisman, one of our nonexecutive directors, present as well.

And I'll just run through the disclaimer very briefly. 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 completion and commencement of commercial operations of certain of AngloGold Ashanti's exploration and production projects and the completion of announced mergers and acquisition transactions, AngloGold Ashanti's liquidity, capital resources and capital expenditure and the outcome and consequences of any litigation or regulatory proceedings or environmental issues, contain certain forward-looking statements regarding AngloGold Ashanti's operations, economic performance and financial condition. Although AngloGold Ashanti believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will 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 the 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 pricing, exchange rates and business and operational risk management. For a discussion of these and other factors, refer to AngloGold Ashanti's annual report for the year ended 31st of December 2010, distributed to shareholders on 29 March 2011 and the company's 2010 annual report on Form 20-F, which was filed with the SEC in the United States on May 31, 2011. These factors are not necessarily all the important factors that could cause AngloGold Ashanti's actual results to differ materially from those expressed in the forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results.

AngloGold Ashanti undertakes no obligation to update publicly or release any revisions these forward-looking statements to reflect events or circumstances after today's date or to reflect the occurrence of unanticipated events. All subsequent, written and oral forward-looking statements attributable to AngloGold Ashanti or any person acting on its behalf are qualified by the cautionary statements herein. This communication statement 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 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 important to investors on the main page of its website at www.anglogoldashanti.com, and under the Investors tab in the Main page. This information's updated regularly and investors should visit this website to obtain important information about AngloGold Ashanti.

Just before handing over to Mark, I'd just like to welcome our Chairman, Mr. Tito Mboweni, who's just arrived as well. Welcome.

Mark, all yours.

Mark Cutifani

Ladies and gentlemen, it is good to be here this morning. Before I actually start talking to the results, I think it's important to maybe reflect on the important event we've just seen. Unfortunately, I can't say much, many positive things about South Africa or Australia's performance in the World Cup but I know we do have at least 1 kiwi in the audience, so we should acknowledge New Zealand's win in the World Cup. And if I could say and I know I speak on behalf of most of the people in the room, I can only hope that the next 24 years are as rewarding as the last 24 years for New Zealand in terms of the World Cup. But congratulations.

Ladies and gentlemen, I am happy to report another record earnings result for the quarter against the backdrop of a record gold price. Bullion touched yet another new record during the quarter, driven by similar frames that have pushed it progressively higher this year. Lest we forget, we have the U.S. debt downgrade, and now we have a worsening sovereign debt crisis in Europe. The default by Greece or others may open Pandora's box for the global credit markets. Physical demand meanwhile has continued to give bullion a solid fundamental underpin. During the quarter, we continued to see strong demand from Central Banks with Russia, Tajikistan, Thailand and Bolivia are all adding to their gold reserves. ETFs have also provided another good source of demand, highlighting the broad-based demand for what remains the ultimate safe haven. And jury demand remains robust in key emerging markets despite record gold prices.

While we continue to see a high degree of volatility, the fundamental picture is bullish for the market to remain short new gold supply and coupled with macro picture, a macro picture full with structural uncertainty. The bullion market is intact and we believe the risk is to the upside.

On the third quarter results, on the detail, today's record earning results of $457 was achieved despite some stiff headwinds from a strike, increased safety stoppages and high winter tariffs in South Africa, as well as annual payroll increases in both South Africa and Brazil. At the same time, we're recovering from flooding in Australia and a drought in Colorado.

Despite the operating challenges, we performed better than guidance on costs. Production of 1.1 million ounces was up on last quarter, but marginally below forecast. Continental Africa and the Americas turned in solid performances, with Cerro Vanguardia and Geita the stand outs. South Africa and Australia in particular, had difficult quarters, which when put together with the water shortages at Cripple Creek have prompted us to scale back out to full year production forecast. Given that some of these challenges will remain into the new year, we have advised that it's likely we will see flat production through 2012, which is what we have actually said in the last few months. And it'll be 2013 before we see the real kick in production which is underpinned by our new projects, which I will talk to a little bit later in our presentation. Venkat will also unpack the detail of the impressive cash flow growth in a few moments, but suffice to say, we saw record cash inflows at the operating level at $863 million for the quarter. On a year-on-year basis, that represents a gain of more than 100%, which again underlines our cash flow leverage to a rising gold price.

A look at the year-on-year picture shows the leverage that exists across all financial key metrics. Earnings have more than doubled as has free cash flow. And that's Venkat's favorite measure, has also tripled during the same period. And for those of you that have known Venkat to some time and are familiar with how he wrestled this balance sheet and the legacy hedge book for so many years, you know it's strange for him to complain about cash balances.

On the dividend side and reflecting on the underlying cash generation, we moved from twice yearly dividend payments to a quarterly schedule and consistent with our improved margin and cash generation, we've declared a maiden third quarter dividend of $0.90 per share. This is equal to the entire first half payment for 2011. We anticipate matching that in the fourth quarter, which would take us to an annual run rate of some $0.360 for the year. Depending on gold price movements in 2012, and after providing for value enhancing growth, we will review the payout each quarter with a view to potentially stepping it up where appropriate. In our business, we focus on cash generation as being the key determinant of what dividends we should be paying, and obviously, with the performance thus far, we've been able to step it up appreciably as we have consistently over the last 3 years.

On the detail on the operations and staffing with safety, tragically, we lost 3 colleagues during the quarter at separate incidents in South Africa. One each in Mponeng, Moab and Kopanang. While the year-to-date fatality injury frequency rate has improved compared to last year by a further 15%, we continue to press for further gains on this front, particularly if we rollout our Project ONE change model. The programs on this front is evident in the all-injury frequency rate, which dropped below the 10 million hours work incident per million man hours work for the first time in the company's history and represents a marked improvement over the 2010 results, again, some 15% better than we did last year.

Ron Largent and his team in the Americas worked well to show a 10% increase in production over the quarter. Total cash costs were up 8% to $524 per ounce for the period, reflecting continued inflationary pressures in both Argentina and Brazil where we saw our annual payroll increase impact costs for the quarter. At Cerro Vanguardia, where we've become accustomed to impressive operational performances from Jorge Palmes and the team. Project ONE helped the team deliver efficiencies on consumables which again helped offset the impact of the low byproduct credits and higher royalties during the quarter, and the high royalties being a function of the higher gold price. Production was up 8% and with total cash cost of less than $300 an ounce, this remains our highest cash margin operation.

As I mentioned, Cripple Creek continued to face what could potentially be the worst drought on record in the Colorado Basin. This has an ongoing impact on percolation rates through the heap leach which in turn has a direct impact on production. Now, what we would say is that it is the third production because that production might be lost, but it does take time for the water to extract those rates if we got lower flow rates. Still, our team, Ray DuBois and the team in U.S. maintained our output at around 69,000 ounces. Costs were well-contained at $561 an ounce, testament to one of the most efficiently run low-grade gold mines in the industry.

In Brazil, at Mineração, higher tonnages and grades helped a 20% increase in production to 101,000 ounces. Costs, as I mentioned earlier, saw the impact of higher wages, engine oil inflation. And at this point, I must also make a special mention of Helcio Guerra and his team as the team as they put in some very good work in turning around the performance at Cuiabá and certainly we've seen a significant recovery and very pleased with the results that are shown in the third quarter compared to where they were in the first 2 quarters of the year.

Richard Duffy's team in Continental Africa have turned in another solid quarter, with production up 9%. Costs were up 5% after last quarter's 14% reductions. So net-net, we're still almost 10% better than we were early in the year.

Again, the highlight for the region and for the company as a whole was Geita, the poster child for Project ONE. This operation has gone from strength to strength, hardly skipping a beat after last quarter's protracted mill shut down. All credit to Gary Davies and his team on site for delivering the largest production contribution for the group at 149,000 ounces at extremely competitive cash cost of around $473 per ounce.

Remember, this is an operation that not too long ago was producing a little over half the current rate at more than double the cost and we actually popped over $1,000 an ounce at 1 stage.

We remain broadly in line for this year's target at Geita despite the SAG mill repairs conducted in Q2 and with some ongoing issues with gearbox vibration which are being attended to. We have allocated capital to replace the mill shell towards the end of next year after 13 years of service, and we're now focused on maintenance of the associated infrastructure ahead of that project.

Obuasi had a solid quarter and recorded a modest slippage in production to 78,000 ounces on lower grades and equipment availability underground. Although the overall trend of the operation remains positive and the mine is still tracking its recovery plan. We continue to invest moneys on preventive maintenance of key equipment across the operation to develop the consistency that we need and remain confident that this will show in our future operating results. We will also give our friends in the analyst community a clearer insight into where we're going with Obuasi when we do our analyst presentation in a few weeks time.

At Sadiola, the mining teams didn't have the benefit of as much high grade oxide this quarter as was available last quarter. The lower production, combined with an increase of almost 30% in digital[ph] prices, contribute to the rising cost to $792 an ounce. Though the overall impact was somewhat mitigated by the high tonnages processed through the mill.

There is additional focus at Siguiri, where lower than anticipated grades in the Sintroko pit have again caused a disappointing operating performance. An accelerated Brownfields drilling program is underway to improve our knowledge of the ore body and exercise which should be ongoing at accelerated rate so as we go into the next year. If you recall, a couple of quarters ago, we announced a $19 million exploration program in Guinea.

In the meantime, we are pushing back against 3 headwinds. With Project ONE interventions helping us increase tonnage to record levels to offset the production decline and to help us stabilize production. In addition to improving the quality of the grade control work, we have also made an exciting new discovery about 2 kilometers from the main processing plant, which I'll talk to in our exploration section. And that's certainly from our point of view over the next 18 months will help us manage a recovery in the grades that we've seen over the last few periods.

In Australia, once again, some challenges faced due to the recovery from the flooding and the related slip of the pit wall in Q1, with the impact evident in both the cost and production line. Production from the pit remains suspended. Excavation of a new ramp was completed at the end of October and production has now resumed. Dewatering and refurbishment of the underground was completed during the quarter and normal production levels were achieved towards the end of the quarter. Head grade was low due to the lower proportion of underground further diluted by the increase in oil prices from low-grade open pit stocks.

Reported cash costs were particularly high given that the $235 and that's related to underground remedial works and the new ramp and $120 per ounce related to noncash interest impacting the cost lines. It's almost more than $350 an ounce in those items. I'll talk to the ongoing success of our Brownfield exploration program at Sunrise Dam in our exploration discussion, but suffice to say that the drilling of the underground extensions to the ore body in the new Vogue discovery continue to provide thick and high-grade sections that really do encourage us in terms of what we can look forward to in Sunrise Dam over the next few years.

South Africa took the brunt of a 5-day strike through the annual wage increases, winter power tariffs and resurgence of safety stoppages imposed by the state mines inspector. Together, these issues combined to deliver a 9% hit to production and a commensurate impact on cash costs. All of the core operations were down quarter-on-quarter in what was a difficult period for our operations, although the 3 operations in Naval River region bore the brunt of the disruption. And just to confirm, the number we lost on the strike was about 45,000 ounces in the quarter.

The good news is that given the normalized work environment in the current quarter, with no public holidays and no strike action foreseen at this stage, our recovery in volumes will result in considerably lower cost this quarter. This of course will also be added by the prevailing weaker exchange rate that we've seen in the rand.

Uranium production is 361,000 pounds was ahead of plan, notwithstanding the production challenges faced in South Africa. So another good effort by the team working on the uranium side. The improving recoveries with technology developed by our metallurgical teams in South Africa continued to contribute to the ongoing success we're seeing in the business. We remain bullish on the long-term fundamentals for this important fuel source and continue to look at ways to expand production to further consolidate our position as South Africa's largest producer.

I'll now hand over to Venkat to take you through the financials before taking you through our projects and exploration activities. Venkat?

Srinivasan Venkatakrishnan

Thank you, Mark. Good morning, ladies and gentlemen. I'll be covering the following 3 areas in today's presentation. Third quarter's financial results, free cash flow and balance sheet, and outlook for the fourth quarter and full year 2011.

As Mark mentioned, we posted a new record in terms of adjusted headline earnings of $457 million, which represents $1.18 per share or ZAR 8.57 cents per share. The quarter-on-quarter increase of 34% was on the back of a 13% rise in the gold price receipt and a deferred tax credit of $70 million.

Looking at the total unit cash costs, our market guidance, using stronger local currency assumption, was around $775 per ounce for the quarter. If this were to be revised for the actual average exchange rates that prevailed during the quarter, the equal number will have been approximately $745 an ounce. And our third quarter cash cost of $737 an ounce came in better by around $8 an ounce.

The quarter-on-quarter increase in groups total cash operating cost of $32 an ounce is made up as follows: Annual wage increases in South African winter power tariffs of $15 an ounce, higher royalties on the back of stronger gold prices, $8 an ounce. These were partially mitigated by weaker local currencies of $17 an ounce. However, as flagged in August, the second quarter's cash cost included the benefit of high-grade feed to compensate for Geita's SAG mill downtime, which accounted for a quarter-on-quarter swing of $24 an ounce.

We've had a challenging third quarter in South Africa, which has had an adverse impact on our rand-denominated cash cost for the region, although it will not be apparent on a U.S. dollar basis. The quarter on quarter increase of 15.7% or ZAR 23,000 a kilogram in the South African regions cash cost is due to the following 4 factors. Impact of 9% lower production due to industrial action and safety stoppages of ZAR 13,000 a kilogram, wage increases and winter power tariffs of around ZAR 6,000 a kilogram. Higher royalties of ZAR 2,000 a kilograms, lower byproduct credit on the back of lower uranium prices and sales amounting to ZAR 2,000 per kilogram. We expect our fourth quarter South African rand-denominated cash cost to recover due to improved production levels.

Notwithstanding the challenges faced during the third quarter, our margins remain strong. Our margins on a total cash cost basis were 57% and on a fully costed basis, i.e., including all capital expenditure was around 36%, helping the group continue to deliver on its targeted returns on capital and equity of more than 15% per annum.

Turning to cash flow. Strong cash generation continued into the third quarter, with the cash inflow from operating activities that is after tax, but before capital expenditure and finance charges of $863 million, up $228 million or 36% on the previous quarter. The group's free cash flow that is after all outflows, excluding dividends, amounted to approximately $300 million for the quarter. Healthy cash generation helped the group reduce net debt quarter on quarter by 29% or $246 million from $866 million to $620 million. We however expect net debt to increase during the fourth quarter, in line with our capital expenditure profile and increased dividends.

Looking at the outlook for the fourth quarter and full-year 2011, with increased safety stoppages in South Africa, continued water shortages at CC&V and slower post flood ramp-up at Sunrise Dam, 2011 goal production is now estimated at 4.33 million ounces. Total cash cost are estimated at between $735 an ounce and $745 an ounce assuming average exchange rates for the year of $710 for the rand, $1.03 for the Australian dollar, $1.66 for the Brazilian real, and $4.12 for Argentinean peso, and Brent crude at $111 a barrel for the year.

Turning to the fourth quarter, gold production is therefore estimated at around 1.11 million ounces, total cash cost are estimated at $790 an ounce assuming exchange rates of $750 for the rand, $1 for the Australian dollar, $1.75 for the real and $4.25 for the Argentinian peso and Brent crude $105. We currently are seeing weaker exchange rates than the exchange rates quoted, so the cash costs should see benefits from weakening exchange rates. The quarter-on-quarter increase in total cash cost is mainly driven by the flat stripping and inventory charges.

As in previous years, the fourth quarter numbers will be distorted by year-end accounting adjustments such as reassessment of useful lives, environmental, rehabilitation, directed and indirect taxes, and inventory provisions.

I will now hand you back to Mark.

Mark Cutifani

Thanks, Venkat. Notwithstanding some of the challenges we've had this year, we've continued to generate robust cash flows. We continue to make good headway on project development as we push to our 5.5 million-ounce target by 2014. And the affordability of our blend of green and Brownfields growth opportunity remains a key competitive advantage for the group. Looking to our project pipeline, you'll know we've worked hard to build capacity in our project team over the past year. And certainly, the talent we've been able to recruit, put into the teams on the ground have certainly made a difference in terms of project development and performance. This has been crucial given that our balance sheet constraints for the past years impeded our ability to meaningfully invest in growth. Already now, we're seeing the benefits of an improved execution capability. Looking back to 2007, we missed, and this is on major capital projects, we missed our capital schedules on projects by more than 17%, and the budget miss was 49%. Those numbers are now 7% and 14% respectively, and improving all the time.

At the same time, or in the last 3 years, we have hit our capital forecast each year over the last 3 years. And so I think the turnaround, in terms of hitting the numbers, improving our performance and continuing to improve as we have more improvement and initiatives in place, I think it's demonstrating that we've got the capacity, that we've introduced the management processes and we've improved our operating disciplines such that we're well-positioned to deliver on the growth strategies that we've been talking to. And whilst the industry is certainly being challenged and we've seen massive capital blowouts across the industry, I think it's another area of performance that we've demonstrated an ability to turn the business around and deliver solid performance and we have room to improve. And certainly, from our point of view, it's going to be critical for us over the next 3 years as we move into that significant project execution phase. And already, with Córrego do Sítio, we've seen pretty solid performance.

Now dealing first with Tropicana, our slate of projects are beginning to gain traction with good headway made on both green and Brownfield sites. Tropicana remains on budget and on track to pour our first gold in Q4 2013. Engineering design work is progressing well. All long lead equipment items have been ordered, construction of the 220-kilometer access road is more than 70% complete, key tenders have been awarded to build the main site camp, which will house some 660 people, and crucially, the Brownfields drilling work at Boston Shaker and Havana Deeps since the approval of the initial feasibility study a year ago continues to provide encouraging evidence of continuity along strike and a depth to the east of the Main Tropicana deposit.

At this stage, we expect the original pit to increase in size before proceeding underground. But there is still work to be done on that front in the years ahead. This gives us increased confidence in our ability to maintain the elevated production levels of above 300,000 ounces, and that's our share of production from the site beyond the first 3 years as originally forecast. in the DRC at Kibali, the project is keeping it's schedule, with open pit development expected to commence next year and with first production in early 2014 at the latest. Now our partners have forecast commissioning in Q4 2013. The project is on track to deliver on that, we have been a little more prudent in forecasting the 2014, but we do fully support Randgold's efforts and the team's objective of hitting a 2013 commissioning date.

Our long lead timed items are secured, and we have the necessary regularly approvals to start construction, pending what we are, sure will be a positive outcome from the presentation of the finalized feasibility study at our generating board. Crucially, our partners at Randgold have expertly managed the resettlement of the first 13 villages, with the second scheduled for later this month. Our business and technical development teams, meanwhile, reviewing the underground mine design and adjudication of the tenders for the Open Pit Civiles and other contracts are underway. We are still waiting for Randgold to voice on the final capital forecasts and we expect that'll come over the next few months, and we'll obviously be communicated as we're informed at the appropriate times.

There's also a cause for significant optimism regarding the upside based on the work, and this is on the physicals upside, based on the work that Randgold's exploration teams have done on the main deposit and the adjoining Zambula and Kalimba targets. All of this continues to reinforce its status as a T1 asset by any measure across the global gold industry.

Elsewhere in the DRC, at our Mongbwalu project, we are also in the final throes of optimizing our feasibility study before presenting this to the board for approval at the same board meeting early next year. We've completed refurbishment of the first phase of the original hydropower plant and have funded reconstruction of Bullion's [ph] main road, a crucial artery for the area which was completed by the local government. While this will be a smaller operation in Kibali, we're looking at a high-grade operation with a smaller initial footprint, with production at a targeted 130,000 ounces for the year before increasing the contribution from what is proving an extremely prospective district. This project too remains on track for first production around 2014, and as you would expect, the 2 project teams have a healthy competitive spirit, and certainly we will encourage them to make sure they do all the right things but at the same time, aggressively chase the production targets. Given that we started from literally a standing start with Mongbwalu, we didn't have the same amount of information. The progress from the team has been outstanding. I'm very pleased with the way both projects are being taken forward.

At Córrego do Sítio, as I mentioned earlier, Helcio Guerra and his team have done an outstanding job on this project. The asset was bought for $85 million and we have spent a further $170 million to refurbish the Alsobento plant to bring this 140,000 ounce-a-year mine into operation. Coaled commissioning of the plant is complete and the ramp-up will be underway from later this month. We're now looking to Phase II and beyond to ramp production up to 137,000 ounces, with potential to kick it to up to more than 200,000 ounces, given the recent success in finding new ounces in a previously undiscovered oxide zone, as well as in the larger-than-anticipated sulfide ore body.

Drilling last month delivered a result in the underground of 4 meters of 21.6 grams per ton from a downhole depth of 88 meters. This is an addition to the big oxide showing of more than 16 grams we spoke to last quarter. We're stringing more than a few of these results together now, and all told this is looking more and more like a 5 million-ounce deposit. Now if you go back to the original purchase price of $85 million at the capital, either you're still one of the lowest cost acquisitions and developments across the global gold industry. And that's why we continue to improve our relatively total -- our relative total cost position in the industry, and we will continue to improve over the next 3 to 5 years as we bring our new projects into play.

But from an exploration point of view, we wouldn't have those projects at all if it wasn't for the good ongoing work done by our greenfield and Brownfields exploration teams. As I've mentioned in the past, we have an extraordinary track record of adding ounces to the portfolio at the time at less than $35 an ounce. This is an achievement and really underpins our long-term growth and earnings growth ambitions.

Among the highlights for the quarter was the significant intersection of what we're calling the Silokoro area at Siguiri, only 2 Columbus from the main processing plant. The intersection, 9.77 grams across a width of 20 meters from a downhole depth of 6 meters, almost as tall as Venkat. We're doing more analysis of this intersection, but it's an extraordinary result from an area with an average grade of less than 1 gram per ton. Elsewhere, in-fill drilling up the coast in central West area has also returned significant intersections, one of 4.36 grams per ton, almost 13 meters and another of 1.79 grams over 29 meters. These speak for themselves in terms of the potential, and I think as we accelerate the exploration work, get the balance back, Siguiri will recover and start to show the real potential we see at deposit over the next couple years.

At Sunrise Dam, we continue to work to better understand the Vogue extension to the underground ore bodies. We're getting regular long intercepts of relatively high-grade material. Some of the notable results last month include 113 meters at 2.8 grams per ton, 2.89 grams per ton, and 75 meters at 3.62 grams per ton. Again, it's early days, but the picture emerging from this work is that this ore body is likely to lend itself to bulk underground mining, which will have a positive -- a more than positive impact on long-term cost. And for those that have watched us carefully in building our team, you'll know that we have recruited very well, and we have 4 individuals that have actually helped develop the most productive underground bulk operation in the world, and they currently are part of the AngloGold Ashanti team. And as I've said, we've recruited with a long term in mind and certainly we look to be well positioned to support the Sunrise Dam operations team, again Mike Ericsson and the rest of the crew.

On exploration, the real price for us over the past quarter though has been La Colosa in Colombia, which continues to surprise on the upside. The results show grades well in excess of the current average and several of them are the considerable widths from a hole drilled on the northern part of the concession. So the area we're now drilling is open to the north off the current known areas in the ore body. The intersection returned a grade of 3.14 grams over 240 meters. Within that was a 70-meter width grading of 14.49 grams per ton.

We've built an impressive capability in Colombia and the team is working through a complex set of tasks, ranging from the topography and to an evolving regulatory regime in the country. And we have a good relationship the current government and they're working through with us on how to bring the project through the processes. And while we will never underestimate the complexities that this opportunity presents, the fact remains that we have our arms around an astonishing orebody in a highly-prospective water concession. And make no mistake, these results in our view are further demonstration of the potential, and potentially game-changing again for us in the ratings. So I'm very pleased with the progress that's being made. And you have to remember as well that we're in Colombia almost a net nil cost, given how we entered, how we've joined venture -- various prospects and how we funded the overall project. We almost have a net -- almost a nil carrying value across the portfolio. So again, exceptional value in terms of shareholders and the resources that we're creating.

At Gramalote, also in Colombia, we've drilled more than 26,000 meters this year. We continue to be encouraged by the results not only at the heart of the project here at Serra-Gramalote, but also in several nearby satellite areas. We're on track to drill another 30,000 meters for the year and we'll do about the same again next year to get the best possible view of what looks to be a significant orebody with a good growth potential, with good growth potential, both in the size of the resource and potentially the production contribution that this deposit will ultimately deliver.

The pre-feasibility is moving ahead according to schedule, and we're pleased that the metallurgy looks very straightforward, as does the overall project execution parameters. If you consider that we only took over control on the operatorship of this project a little more than a year ago, this is another very good win for us. It demonstrates the capacity of the people that we've put in the ground in the project space.

On cash flows, I'd refer you again to record earnings and cash flows we've generated despite the wrath of challenges that we faced this year. Many out of our control, but some of our own making, and so whilst we've got lots of opportunities to improve, whilst we have a gold price and a market scenario that we're looking at, we think the future looks very strong. We continue to look at improving the underlying health of the business, and we are focused on operating and safety improvements and bringing new ounces to account and improve the character of our portfolio at the right price.

Now look at the chart you can see on the overheads, demonstrates very clearly the strides we've made in improving the underlying health of the business since launching our new strategy 3 years ago. These cash flow gains have been helped in roughly equal measure by a rising gold price. Our decision to remove the hedge book and critically our ongoing business improvement work. And as they say, if you want to see and want to look at the health of business, just go and look at the bank balance at the end of the quarter. That's where you seeing where the improvements are. They're real and they're accreting in terms of the balance sheet.

And finally in conclusion, while we have faced some challenges in 2011, in terms of our production performance, we remain in a corner of the market which is faring exceptionally well relative to several of our commodity peers. We're looking to generate record EBITDA and operating cash flows at around $3 billion for the full year. And over the past 9 months, we've generated free cash flow of around $750 million and earnings close to $1 billion. We have a strong balance sheet, robust earnings leverage, a solid project and exploration project and we've got the team to continue to deliver real value over the longer term. As a company we've never looked stronger.

With that, we'll be very happy to take your questions.

Question-and-Answer Session

Stewart Bailey

First we've got Johann Steyn from Citibank.

Johann Steyn - Citigroup Inc, Research Division

Just a quick question on the dividend and the CapEx outlook. Yes, justifiably the absolute number of the dividend of the covenant has gone down quite a bit. And I would assume this is because of high CapEx outlook for next year, et cetera. So please can you just give us a bit of guidance on the capital budget for 2012, and maybe even the capital years after it as well.

Mark Cutifani

We haven't formally -- we're not formally guiding yet on the capital number, Johann. But if you look at this year, we'll be around $1.6 billion. If you take some overruns into next year from this -- not overruns, timing, scheduling issues, you add some inflation numbers. Certainly we'd expect to see the capital north of $2 billion, but again, we haven't formerly guided. We'll do that in the next set of results, but the profile looks good. We're not seeing major blowouts in our capital numbers. So when you adjust for year-on-year inflation and some timing issues, we're going to be, maybe a little bit north of that number. And you'd certainly expect to see that again in the following year. Then we start to sort of tail off because we hit the 5.5 million-ounce production level. The next capital set will be around the big new projects, the Kibali really starting to kick in, the Colombia propositions, but given where we are and given that we'll be at 5.5 million ounces when those cash cost start to hit, our underlying cash generation will be 24%, 25% better than it is today, all things being equal. So we're pretty well-positioned we think. And in that context I think out of the dividend question, we've looked at the dividend very closely. We used free cash flow as the appropriate metric to gauge what the dividends should be. As a point of principle, we won't borrow to fund the dividend and we do look beyond the quarter in making those decisions. But we've doubled the dividend -- we've almost doubled the dividend this year. If we see continuing strength in the gold price, if we continue to improve the operations at the underlying level, we should improve our underlying free cash flows and we will try and return a material amount of that free cash flow back to our shareholders in the forms of dividends. So without giving you a hard metric, if I could make one point, our view would be that we should be returning a material component of our free cash flow to our shareholders in the form of dividends, contingent on making sure that we keep the balance sheet in shape and that we don't threaten our investment grade rating. And Venkat, if you want to give that a little more shape?

Srinivasan Venkatakrishnan

No, that's fine.

Johann Steyn - Citigroup Inc, Research Division

And maybe just one last question, is in terms of the 5.5 million ounces that you've mentioned, historically, what we've seen in the gold sector is a lot of these projects do come online, but people underestimate the decline of the baseline. So how do you guys factor that into your planning, which mines will reach end of their lives and then how do you see the baseline declining?

Mark Cutifani

Well, let me acknowledge the observation you make. You do make an astute observation that many companies underestimate the decline in the baseline. And if you go back to our operations back in 2007 and when we did our forward-looking assessments, we underestimated the grade decline. And we've seen about a 20% grade decline. Now we're mining and we we're mining above reserve grade at that time, I'm not high-grading, but we had a high proportion of high-grade assets that we're mining. And we've seen about a 20% decline. We are now mining just under reserve grade. So we've actually got the operations now, I think, in a much better balance. We have in the 5.5 estimate assumed a baseline decline somewhere between 3 to 600,000 ounces over time. So I think we've done a much better job in understanding the business, forecasting a decline in the base to come up with that 5.5 number. So it's something we watch closely. In fact, our operating range was 5.4 to 5.6. And you know that the internal target for the team is 5.5. So I think we've done a much better job, but we continue to watch that closely and our business improvement worked that we're focusing on in the next 12 months is to make sure we hardwire and nail the key elements to make sure we deliver that number in 2014. And for us, it's a very important number to get to in terms of all the hard work we've been doing in terms of the future.

Stewart Bailey

Allan Cooke, JPMorgan.

Allan J. Cooke - JP Morgan Chase & Co, Research Division

Mark, Venkat. Just on the SA ops and your guidance for the fourth quarter, it seems a little conservative because we had a really tough quarter in the September quarter from a production perspective. Could you just talk to the guidance specifically and the status of this and perhaps outline what you've lost in terms of safety stoppages year-to-date in the quarter and what you factored now in the December quarter with your guidance. And then, Venkat, if you will, if you could just give us some detail in that deferred tax credit, the $70 million, that's around ZAR 500 million, I think. Should we be taking about ZAR 130 out of that ZAR 857 adjusted headline in earnings per share to adjust the adjusted headline in earnings per share to normalize the core earnings, if you like?

Srinivasan Venkatakrishnan

If I can pick up the second point -- the second question, you're absolutely right. The deferred tax arose because CC&V carried the hedges in their accounts. And it did have accumulated losses, but there was a valuation allowance against it. Once it's got a track record of generating 12 months worth of profits and the shareholder reserves goes into positive, the valuation allowance has to come out. That creates the deferred tax asset. On a normalized basis, the effective tax rate around 33% to 35% has to be maintained for the group. But what we do have is a very good schedule showing the effective tax rate for cancellation between the various quarters which I'll get John to e-mail to you later on. Now, if I can cover the South African operations. In terms of the safety stoppages for the full year, we have had safety stoppages amounting to around 69,000 ounces versus for the 3 quarters. In the third quarter alone, we have had 34,000 ounces impacted out of the safety stoppages. And it's around 50% BMR import, 50% has been mine import safety stoppages. And in terms of the South African production numbers, we've had production at around 394,000 ounces for the quarter. We are looking at getting a production level of around 415,000 to 420,000 ounces for the fourth quarter.

Mark Cutifani

Allan, I might add to that, you suggested that maybe our forecast for Q4 is, let's say, prudent. We have had 1 fatality this quarter already. So in that context, we have taken proper account of that. It is prudent. We've missed our last 2 quarter guidance by around 1.5%. For us, that's a personal issue because it's a personal integrity issue in terms of our shareholders, so we're very sensitive to it. And each of the EVPs has taken a long hard look at their forecast for the quarter and our commitment is to deliver on that guidance, so there is some sensitivity. There is, we believe, a prudent approach being taken. But I think it's appropriate, given that we've bumped around a bit this year and we got to demonstrate that we got the operations back in the control. So one could say we've been a little too prudent. But at this stage, I think it's important to get that control and that credibility back.

Stewart Bailey

All right, any further questions? All right, I think that's about it. As always, thank you very much for coming, and we'll see you again in February. Thank you.

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