AngloGold Ashanti Management Discusses Q3 2012 Results - Earnings Call Transcript

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AngloGold Ashanti (NYSE:AU) Q3 2012 Earnings Call November 8, 2012 9:00 AM ET


Stewart Bailey

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

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

M. P. O'Hare - Executive Vice President of South Africa


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

Adrian Hammond - BNP Paribas, Research Division

Kane Slutzkin - UBS Investment Bank, Research Division

Stewart Bailey

All right. Good morning, everybody, and welcome to the presentation of our results for the third quarter. Quick safety announcement. In the unlikely event of any safety or any emergency, go off to the exits, gather around in the parking lot behind the building, and the safety marshals will take over from there.

As is customary, our flow of the presentation today, Mark will open up with a review of the quarter. He'll talk to the strike activity that we've seen this quarter, he'll hand over to Venkat, who'll talk through the balance sheet and financials. Mark will talk about our project review, then offer some concluding comments.

Before we proceed, just a quick look at the Safe Harbor statement. Certain statements made in this communication, other than the statements of historical fact, 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 outlook of AngloGold Ashanti's operations, individually or in the aggregate, including the achievement of project milestones, the completion and commencement of commercial operations of certain of AngloGold Ashanti's exploration and production projects, and the completion and acquisitions of dispositions, AngloGold Ashanti's liquidity and capital resources, capital expenditure and outcome and consequence of any potential or pending litigation or regulatory proceedings or environmental issues, are forward-looking statements regarding AngloGold Ashanti's operations, economic performance and financial condition.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause AngloGold Ashanti's actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied in these forward-looking statements.

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, social, political 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.

A discussion of these and other factors, refer to AngloGold Ashanti's annual report for the year ended December 31, 2011, distributed to shareholders on April 4, 2012, the company's 2011 annual report on Form 20-F filed with the SEC in the U.S. on the 23rd of April 2012, and the perspective supplement and company's prospectus dated July 17, 2012, filed with the SEC on July 25, 2012.

These factors are not necessarily all of the important factors that could cause AngloGold Ashanti's actual results to differ materially from those expressed in any forward-looking statements. Other unknown or unpredictable factors could have material adverse effect on future results. Consequently, AngloGold -- consequently, stakeholders are cautioned not to place undue reliance on forward-looking statements.

AngloGold Ashanti undertakes no obligation to update publicly or release revisions to these forward-looking statements to reflect events or circumstances after today's date or to reflect the occurrence of unanticipated events except to the extent required by applicable law. All subsequent written or oral forward-looking statements attributable to AngloGold Ashanti or persons acting on its behalf are qualified by the cautionary statements herein.

This communication may contain certain non-GAAP financial measures. AngloGold Ashanti uses these non-GAAP performance measures and ratios in managing its business. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the reported operating results or cash 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, and under the Investors tab on the main page. The information is updated regularly. Investors should visit this website to obtain important information about AngloGold Ashanti.

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

Mark Cutifani

Okay, yes. Thanks, very much Stewart. Ladies and gentlemen, in the last 5 years, AngloGold Ashanti's hit rate on quarterly guidance has been better than 80%. And I think Venkat worst miss in aggregate was around 2%. So we take our commitments very seriously and obviously, very disappointed today to report that we missed on our production costs in line. But overall, the real disappointment is the fact that we've had the situation in South Africa that we've had, which is concerning and is something we'll get through, but certainly from our point of view, has been a real challenge from all of our staff members, and I've got Mike O'Hare here today, who's done a tremendous job in leading the South African team, and we're very proud of the leadership and the challenges that they've been able to confront. And I think demonstrate real leadership something for all of us in the industry and we're proud to be associated with team and what they've been able to do given the circumstances.

It has been a tough quarter in South Africa, with Marikana and its unsettling aftermath. And in fact, the issues for us started post-Marikana because I think, quite frankly, the whole industry was unsettled conversation as absenteeism went up and a whole different set of conversations marked the nature of discourse through the industry. That followed with strikes and general labor unrest. Unfortunately, opportunists, not necessarily associated with the industry, encouraging people to leave work on the promise of things that could not be delivered. And in fact, if they were delivered, would be absolutely tragic for them as employees and I've have seen that -- I think we've seen some of that unfold. And certainly, from our point of view, the concern we have is the ramifications of the things that have occurred in the next 3 to 6 months will be serious for employees. And so, those that have encouraged these sort of things, I can only hope are held for account for the tragedy and for the grief that they will cause for members of the industry. Although again, I'm an optimist. I believe we'll get through if we work together. But certainly for those that have played a very negative role in what's happened, I hope they are called and held to account.

Third thing for the country and one of the unfortunate consequences for us as a country is the ratings downgrade. And many people I don't think understand how serious that is, first time since 1994. And again, those that were part and parcel of this issue, I do hope are called and held to account for the tragedy that they have helped rape upon the industry and ultimately, the country. And if it brings us together and changes the nature of the dollar for us as a country, well that will be a positive. I'm hoping that is the case. Certainly, us, as leaders will be promoting those issues and hopefully we can help make a difference.

As a consequence, we are 3% down on our quarter's production, costs are up slightly and we are looking at an even tougher quarter 4 given that this is where most of the strike issues actually did land. The good news is we have managed through the crisis. By and large, we've managed to avoid serious violence and injury to people, and for us, that was our most important objective and now we've been guiding through the troubled waters. The task ahead of us was our leadership to -- is to get all operations up safe -- to safe operating capacity, so that we're all delivering on our potential into the new year. So from our point of view, we believe we should have the business up and running through the course of this quarter, and we should be able to get ourselves a good start to the new year and really put 2012 behind us.

On the numbers, we are really disappointed, but not surprised. As a leadership team, we're using this crisis to focus on our next step to deliver on our pledge to be the leading mining company, and that's where we're going. Consistent with who we are as a leadership team, I think it's important to start off with the numbers in terms of our share price performance. You can see from around July that we've underperformed the market, and obviously, with our South African peers, around 20%. And for us, the challenge over the next 6 months is to restore confidence and pull back that underperformance as a consequence of the strategy that we have in place. And I think the most important point to make is that we have a strategy. Whilst we've hit a road bump, it is a road bump, the underlying strategy is strong, underlying business is strong, the underlying South African business is a very strong business, good margins, great potential. The acquisitions that we've made recently in particular, the Mine Waste Solutions acquisition has been a very good one. We're very pleased in terms what it does for us in both de-risking and providing improve returns in our business and we pull that difference back. We'll demonstrate that again, the strategy is right, that we've got the growth across the globe, and that we really are a company that is continuing to go forward in a very positive and strong way.

In terms of the actual numbers, as I said, the numbers reflect the South African challenges. Gold production was down slightly on the guidance. The costs were in line. Obviously, our earnings and returns took a hit. However, we continue to make good progress on our growth projects. And I think if look beyond these 2 quarters, you'll see that AngloGold Ashanti is continuing to position itself in terms of the industry, and we continue to lead the industry in terms of returns and I'll show you the numbers a little bit later. But despite the setbacks, we're clear that the progress we've made over the last 5 years is beyond anything anyone else has achieved in the industry. And we're going to keep making or improving the operations and taking the right steps going forward.

In terms of safety, challenging 3 fatalities in South Africa, obviously, a disappointment. Certainly the trends that have continued have approved of late. The encouraging figure for us is the ongoing improvement in our overall injury frequency rate. So I think that, that tells us we're working on the right things in terms of culture and the approach to safety. We have a major program in place at the moment, where we're developing a whole new range of standards that help guard us in our major hazards in the business. We've identified 22 major hazards. We'll complete the documentation and the input from all the key players by the end of the year, and we'll actually start rolling out the standards through the business over the next 12 months. And I have to say that, that approach is something that we've seen in other jurisdictions that has made a significant difference in terms of safety performance and we're learning from all of the jurisdictions in which we work, and we hope in particular, that will make a significant difference to our South African and African operations over the next 12 months.

And whilst we've made significant gains dropping our frequency rates by around 70%, we're now looking at what's the next 70% and beyond and certainly there's been some great work. And I'm very, very optimistic about where we'll go during the quarter, 2013 on the back of that hard work that we've done this year.

On the production front, obviously, South Africa were impacted, and as they said post-Marikana, what we saw was a different set of dialogues in the operations. Productivity was actually dropping off. Absenteeism increased. We actually lost a few days through the day of mourning post-Marikana. And there were a couple of other things bubbling around on a more global basis. So it's been a tough quarter been South Africa. And so it's obviously, impacted production and unit operating costs as a consequence. The good news is the acquisition we made with Mine West Solutions, we brought them into the fall, it fit very nicely. It looks like a good acquisition. It looks like it will help us do all the things we want to do including increasing our uranium production and gold production in terms of its contribution. So very happy with the acquisition, happy with the way it looks. And certainly very optimistic in terms of the way it will help support, us deliver on our business objectives going forward.

We've provided a short commentary on the strike activities. I've probably said enough in terms of my opening remarks without dwelling back on the numbers. I think the important one to point to there is that fact that we do expect the impact in Q4 to be around 250,000 ounces. Yes, we have one operation. We've got 6 of the 7 operations back at work. But I made a very clear statement this morning when I was interviewed, that safety is our first value. No one will be allowed to enter an AngloGold Ashanti site that has as their primary intent, violence or the intention of threatening another employee in this organization. And so we have stopped the Mponeng operations. From our point of view, people remain on strike if they have any intention of either threatening or threatening a person or actually damaging equipment, and so the operation is stopped. Now I do hope and I expect that in the next few days, we'll sort those differences out. But I want to make it clear no one will be allowed on one of our sites if their intention is to threaten, to do violence or damage equipment. That's a line in the sand that we won't allow anybody to step over. The message better be clear to everyone, and in particular, those few individuals that think they have a right to do damage or to threaten our people. That's not going to happen. And the message better be clear.

Now having said that, I am an optimist, and I continue to be an optimist with respect to South Africa and I think we will get through it. And I would like to point out the way we've been managing our business certainly in the 5 years, but even beyond, and if you look at our production back in 2004 from our 2 main regions: Malrok and West Wits on a combined basis, we were running up near 3 million ounces, EBITDA -- sorry, EBITDA at that same time in 2004 was around about $300 million.

As we focused on the quality of the assets, maintaining and improving our margins and improving productivities, our production has dropped obviously, to around 1.5 million ounces. But at the same time, our EBITDAS have almost improved by a factor of 4. And that's all about quality, it's all about margins, and it's all about the quality of the portfolio we have. And people know that we're heading towards around 1 million ounces as a long-term 30-year base.

The focus from our point of view is on margins, it's delivering EBITDA, it's delivering returns, it's about improving productivity. And our technology strategy, which is the horizontal boring on rift structures, we think gives us the next step where we can obviously, we do see at the time our production dropping to around that 1 million ounces over the next 3 to 4 years. But there is no reason why the earnings engine can't be sustained as a consequence of the different approaches we're bringing in to the business. So we still think South Africa and our South African business has a great future.

We're investing in that future, and whilst we are doing some reviews to make sure that we manage our cash and our balance sheet appropriately, we still think it's a great future. We're very optimistic. And we're going to keep going forward, and we're going to make sure that everybody is a partner in that success.

Continental -- in Continental Africa, a bit of a tougher quarter as well in that the saw some lower-grades from Geita, which is really planned. So the Geita then continues to track the 500,000 ounce annual targets. Iduapriem and Obuasi were impacted by short-term issues. Iduapriem where we didn't access the [indiscernible] pit, which is a high grade source. We accessed a little light. We're now seeing those ounces come through. So we'll push that a little bit harder over the next few quarters to get the issues balanced up.

Obuasi, we've made some tough calls there as well. We've -- we're in the process of changing out and removing the current development contract. Yes, they have been there for 85 years. But as I said, we've been working this one through over the last 2 years and quite frankly, we are determined to turn Obuasi around. We've made some tremendous strides in the operation, and if I go to the next chart, you'll see that we actually took over the asset as part of the merger with Ashanti back in 2004. The gray bars here actually represent EBITDA, up for the operation over the next 5 years literally. And the cash flow from the operations in that same period.

Now when we came in, the team actually presented to us in September 2007 a strategy to actually invest $1.5 billion into the operation over the following 5 years. And in fact, it was my 2nd day on doing on the job and I said "Guys, based on this track record, we are not going to invest $1.5 million into the business until you demonstrate that we've actually got a productive and competitive operation and that people at all levels are committed to turning this into a success. We had to make some tough calls. We did. In 2008, we actually reduced workforce numbers by 20% and nobody takes that lightly. People know, in particular, how I feel that dong that sort of thing. But they have to be done and this is what we'll do.

We actually renegotiated power rates. We actually changed the number of elements and we reduced their operating cost on a quarterly basis by around 15%. As a consequence, we had $120 million turnaround and what we said to the team is we will support the correction of legacy issues, in so far as you confront them from the operation. So you'll see that our EBITDA has continued to improve, but our cash flow was around breakeven on the basis and based on the principle of they would have to sell fund the improvement of legacy issues. Now people know that we focus our turnaround to 10% at Geita and the other operations, which we saw as burning certainly much quicker turnarounds. And our EBITDA from Continental Africa went from $200 million to $1.1 billion. So the overall Continental Africa strategy as an absolute roaring success. But this has taken too long. We've taken a year longer to get to a position where we're ready to launch the next phase of our strategy. And obviously, with the change conversation with the contract, that's part of the new strategy, we're 12 months later than we should have been. But that's where we are now, ready to take the next step.

So what we'll be doing is we're starting the development or starting to rebuild the development strategy and we will start in the new year a new decline development pushing the operation and effectively building a new operation around the old operation while clipping the 2 contributing. So that we deliver 500,000 ounces by 2015. And from our point of view, we're looking to try and hit all things being equal, go from $180 million EBITDA to $350 billion, the operation should be delivering free cash flow in excess of $200 million a year and that how we've designed the approach.

Now it's not a $1.5 billion major commitment. We will progressively fund the program again, from cash flow from the operations. And whilst it won't be an absolutely net 0 sum game, there will be some additional funds have to be put in, but we've got to see the commitment and the delivery of the development targets, and we'll continue to support that we believe the team has got the right strategy

And in fact, if you go back over the last 3 years, that money has been going into and the self-funding has been going into the creation of a new surface footprint, cleaning up environmental issues a whole range of other things, so that we contracting the actual physical footprint of the operation against the disbursement through the local community. So that's been very important. And the second key element and obviously, the thing that will drive the future will be the development of the decline from surface will be a development of a decline from surface and the blue indicates the main decline and we'll actually do this in 3 parts. We'll have a jumbo operate from the surface, a second jumbo from this point and a third jumbo from this point. So we'll have 3 jumbos developings and producing all of those decline position as we develop. So the strategy is pay as you go, and that we think is the right strategy for an operation like Obuasi. And so that's why we've decided to take over the development and look at an entirely different strategy in terms of the way we develop the mine.

And so whilst we're developing in each of these 3 key areas, we'll be extracting all plus, so we'll continue to extract all from the existing operation utilizing the infrastructure that's already in place. The beauty of this sort of strategy is incremental, that you can continue to build and improve as you go. You're using your existing infrastructure, and you're also putting development at this level where we can start to drill the detail of the deeper areas of the ore body, so we make sure our resources and our tech points on the ore body are in the right places, so we're hitting the 500,000 ounces target by 2015.

So it's a very brief description of actually what we're trying to do. The team has done a lot the work over the next 12 months, and we will be inviting people to come up and have a look at the site next year as we start to unfold and people can see how the strategy is actually playing out on the ground.

And so, it has been longer than it should have been, but certainly I'm very happy with the team we've got in place and the strategy that's being developed and is absolutely consistent with the approach we've been talking to for some time. And I certainly believe we're in a position to deliver, and if I can say from [indiscernible] perspective, people understand pretty clearly that if we decide to make a move and we've made a tough call in removing a contractor after 85 years, we'll do what has to be done to make this a long-term success.

In the Americas, again, a tough quarter across the board. Costs, certainly, more than they should have been in the area in the Americas. Ron and the team are actually working hard to pull some costs back. But we did have some grade issues out of Cuiabá following some [indiscernible] areas. So we've been hit with cost there. We have seen some escalation following pay rise, the annual pay rise is across the unit. But Ron and the team are working the costs through pretty hard and I expect that to improve over the next couple of quarters. So lot of work to be done. But certainly, the underlying trends are right. Production was pretty solid. But we've got to do more on the cost front.

In Australia, the team actually hit all their targets. We had some good news where we've got some recovery funds back post the big flooding and wall slip that we had in the Sunrise Dam. Pits, certainly, helped prop up the numbers for the quarter. But they've been doing some good work, and I expect that they'll improve again next year with these strategies we put in place. The exploration work at Vogue has been great. And when I started, we had 5 years. We've still got 5 years. And in fact, with the new ore bodies at Vogue, it looks like 15 to 20. So very excited with what's actually happening in terms of the Australian operations.

With that, I'll hand the cross to Venkat to talk through the financial numbers and the balance sheet.

Srinivasan Venkatakrishnan

Thank you, Mark. Good morning, ladies and gentlemen. I'd like to cover the following 3 areas in today's presentation: Third quarter 2012 financial results, cash flow and balance sheet, dividends and fourth quarter 2012 update.

Starting with the third quarter financial results. As you know, from our release last month, third quarter delivered lower gold production of 1.03 million ounces as compared to last quarter and unit cash cost of around $866 an ounce.

Gold production was down when you compare it to the previous quarter by about 4%, mainly due to the lower grades and limited mining flexibility at Obuasi, which accounted for about 23,000 ounces. But relatively higher grades mined at Geita in the second quarter around 13,000 ounces and lower grades and equipment availability at Brasil Mineração around 8,000 ounces. And when you compare it against our market guidance, it was 4% below again, due to the strike impact in South Africa, lower production at Obuasi and in Brazil.

This resulted in AngloGold Ashanti posting adjusted headline earnings of $235 million or USD 0.61 per share. This level of adjusted headline earnings was lower when compared to both the previous quarter and the third quarter of 2011.

When compared to the $253 million adjusted headline earnings recorded in the second quarter of 2012, the third quarter earnings were positively impacted by insurance recovery of $21 million, post-tax at Sunrise Dam, which related to the pit wall failure, which compensated the loss of the Boddington royalty and a deferred tax credit of $58 million from the restructuring at Serra Grande in Brazil.

However, the 7% reduction in the third quarter earnings were due to the following principal reasons: A 4% drop in production and as Mark mentioned, increase in wages, winter [indiscernible] in South African region and lower by-products impacting unit cash cost in line with our guidance and higher exploration, steady costs and finance charges.

Now turning to cash flow and balance sheet. The net debt increased during the quarter from $879 million to $1,569 million to higher capital expenditure levels of $545 million as compared to $451 million in the second quarter, and the $335 million, which was paid as purchase consideration for the acquisition of Mine Waste Solutions.

It should be noted that the third quarter net debt level of USD 1,569 million is after meeting acquisition cost of $555 million for the year relating to the acquisitions of both Serra Grande and Mine Waste Solutions. So in other words, 1/3 of our net debt related to acquisitions, which are currently cash generative.

During the third quarter of 2012, cash flow metrics were as follows: EBITDA, $597 million; cash inflow from operating activities, $304 million. And free cash flow also of $303 million due to higher capital expenditure and lower operating cash flow.

Moving now to dividends and the fourth quarter 2012 update, the company remains committed to focusing on the cash returns to shareholders whilst as previously stated, considering cash flow investment needs and financial strength of the business in the context of delivering its business plan and strategic objectives.

The unprotected strength of the South African operations, which started late in the third quarter and continued through much of the fourth quarter to-date has had an adverse impact on the Q3 results as we have outlined and as Mark mentioned, will significantly impact the fourth quarter results.

Furthermore, on 17th of October, following the downgrade of the South African sovereign ratings, Standard & Poor's announced that the company, along with a number of other companies in South Africa, is being placed on credit watch negative, which may result in the downgrading of the company's credit rating below investment grade.

On the basis of these developments and management efforts to effect cuts and expenditures whilst retaining confidence in the longer-term outlook of the company, the Board has reduced the third quarter dividend to ZAR 0.50 per share. The dividend is expected to be at a similar level in the fourth quarter assuming that the unprotected strike action is speedily resolved before moving back in line with the long-term operating and financial performance in 2013.

Whilst we normally issue quarterly guidance, given the continued work stoppage at Mponeng mine and the uncertainty around timing of a resolution and also the impact of consequent ramp up in production, AngloGold Ashanti believes it is prudent to withhold quarterly and cost production guidance for the fourth quarter at this time. Once a resolution is reached, normal work patterns have resumed and there is greater visibility on future production, the company will review this position. As in prior years, the fourth quarter earnings will be distorted by year-end accounting adjustments such as reassessment of useful life of assets, reset of environmental and rehabilitation provisions, direct and indirect tax and inventory provisions. In addition, the fourth quarter 2012 will also include the adverse impact of the South African strikes and the cost of changeover of the Obuasi mining contract.

I'll now hand you back to Mark Cutifani.

Mark Cutifani

Thanks, Venkat. Ladies and gentlemen, obviously, the impact of the South African situation has hit some of our financial metrics but the one thing I would say is that with the purchase of the 2 assets, we're happy actually with both acquisitions. For those that have watched us carefully, we've made 5 major acquisitions in the last 5 years, plus we've divested some assets. And when I look at all of those transactions and the investment either in or out, which is north of $3 billion, those investments or decisions are worth more than $9 billion in our hands today. So we've got a track record of delivering on those key strategic moves. And certainly, with both the Serra Grande acquisition and Mine Waste Solution, we're very happy with what we've seen. We're happy that, that $500-and-something million that you saw committed during the quarter, has been money well spent and will continue to enhance value. And by the way, they're both cash accretive as we speak. So I'm very happy that we've made the right calls, and certainly, continues a track record of making the right calls in terms of capital allocation within the business.

And in terms of responding to the pressures that we see, on a broader basis, the gold price has been a little flat. We do certainly believe that gold price has the potential to kick a little bit obviously, with recent years out of the U.S. and the continuing pressures across the board, but you can't bank those numbers. And we're making sure that we're prudent and we're managing all parts of the business to keep our balance sheet in good shape, keep our financial flexibility and keep ourselves in the position where we can make the right calls on a long-term basis. So what we've done is we've actually, in the first instance, kept those capital expenditures that we deem being able to be actually deferred. So $200 million out of this year's capital spend, we thought were prudent moves given the changes and given the ratings issues in South Africa. Along with that, we've been conducting and in the process of analyzing the capital expenditure patterns and what we need to do in particular over the next 18 months. And so there is absolutely no doubt, we're happy with what we're seeing in Mongbwalu in terms of potential. It looks like we have at least 3 additional ore bodies to add to the mix and from our point of view, that's causing us to review a part 2 possibility much quicker. So the review with Mongbwalu is actually more about the new potential that we've identified from an exploration perspective. And being very careful in terms of what we commit to in development because we may suboptimize. So the messaging is about one, making sure we've got the development strategy right, and two, making sure we manage the balance sheet over the next 12 to 18 months. And so those 2 pieces come together. On Sadiola Deeps, an important project for us, we're still working through the approvals. But again, in our portfolio, it's a good project, good returns but given the options and the range of projects we have, it's still not at the top of our list. So prudence requires us to consider the actual timing of that. And at Moab and Mponeng in South Africa, in the next couple of months, we've got to revisit all of our operating strategies in South Africa and that includes the 2 expansions. In my view, both expansions or both extensions are actually robust projects. But Mike and the team have identified some opportunities to improve the development strategies at both Moab and Kopanang as part of the Zaaiplaats project. And the Mponeng, we're having a very hard look at all the working areas that we have across the operation and in addition to that, the extension strategy. So again, it's about prudence. It's about making sure that we manage our cash flows to keep our balance sheet strong and flexible as we've had. And to demonstrate to everybody that we certainly are investment grade and we're going to continue to improve the business as we go forward.

In South Africa, very strong, very focused on a review of the working conditions. We started the process back in the last negotiation of looking at working conditions encouraging the consideration of going from 270 days working a year to 340. That doesn't mean people work more hours. They work differently and it's also a part of our strategy to improve the social connections we make with our workforce. And that's going to be a very important conversation for us in the next 6 months. We're looking for a 15% productivity improvement across the business, and we'll look at all the ways we need to achieve that to make sure that we've got a strong South African business. And the next 6 months is going to be very intense in terms of the conversations we have and what we do within the business. At the end of the day, I'd much prefer to see quality of ounces than quantity of ounces. And that is about returns and making sure that we're developing a way generating the cash to invest in the right things in South Africa as we go forward. We're also looking at our corporate cost. As we've developed and grown, we built new projects, we put in place new operating models, we do see with the regionalization of the business that's some opportunities to carry our corporate cost, so that's being extensively reviewed as we speak. We're working with Deloittes. And as we come into the New Year, we will have some, we think, opportunities to look at seeing if we can reduce our corporate cost in the range of $50 million. And finally, and most importantly, whilst we talk about reviews and making sure we're keeping the balance sheet tight, with all of that, we are committed and very pleased to report the progress on Tropicana continuing to go well. And in fact, they're tracking a little bit ahead of schedule very pleased with the work Randgold has done at Kibali, we're a great partner and we think the project is doing very well. At Cripple Creek again, project's going very well. CVSA [ph], Sunrise Dam, Colombia, making good progress across all of those fronts and we're one of the few organizations that can say in terms of these major projects that we're on track, on budget and certainly expecting to start to see some contributions towards the end of next year. And 2014 will be a very strong year considering these contributions or the contributions that will come from these projects. But at the same time, we've got to manage within our means, we've got to cut our cost to suit and as a leadership team, we've never waited to be told by anybody that we need to take action to make sure we keep the business in good shape. And as a leadership team, that's what we're doing. At Tropicana, as I said, good progress, great work. We had a number of visits over the last quarter, and had great feedback from many members of the community and in particular the analyst community out of Australia, or with [indiscernible] this is a real project, very impressive. The guys have done a great job. So good progress and certainly expecting to or we are probably 2 months ahead of our Q4 tag commissioning. But I do always caution that towards the end of the project, it gets a little bit tougher but certainly with 2 months up our sleeve at the moment, the prognosis for the Australian development looks pretty good. At Kibali again, we think Mark and the team at Randgold are doing a great job. There were some conversations around the costs that Mark answered I thought pretty well. He's happy with the progress of the project. The one point I'll make is we did add some additional contingencies and we're using an escalated cost compared to the Randgold numbers. So I think we look pretty robust in terms of our numbers, and so we are happy with what we've seen and certainly believe that the project will come in within the financial numbers or the capital numbers that we've actually put out in the marketplace. In the Americas, Cripple Creek, still pretty early. But again, the Cripple Creek team has got a track record for delivering ahead of time on cost but they're making very good project and certainly excited about what's happening there. And with those developments, we add another 7 or 8 years life to the assets. So I'm very pleased with the progress that's being made.

Our exploration team continues to do well and set the benchmark in terms of industry performance and delivery. Geita, very important intersection 16 meters of 8 grams. We're doing a lot of work on a potential underground development at Geita. I expect that to get some more real momentum in the next 6 months. We're pushing the guys to get an early start on it so that we can give you some extra options intensity there in terms of the development around Geita and make sure that we've got continuity, better continuity around 6 or 7 years time as the open cut starts to drop in terms of its contributions and in terms of satellite contributions. Kibali continue to every hole we drill we find something new, so that's gone great. Sunrise Dam, 77 meters almost 3.5 grams. Again, continuing the great run of success we've had there. And certainly looking at underpinning, long term life extensions at Sunrise Dam. La Colosa, 310 meters at 1.98 grams from 20 meters. That's a director's special. So from our point of view, we still think Colosa has the potential to be more than 40 million ounces and all of our recent drilling in the last 6 months have shown Gold at widths shallow up the ridge line continuing to improve the economics of the deposit and if we look at where we potentially start, the early ounces that we could produce from that deposit look to be very exciting. And we'll give some regular updates next year as we work on La Colosa through Charles Carter as our dedicated EVP in Colombia. Tropicana continuing to deliver additional results and what we'd like to be thinking through or what we are currently thinking through is a potential underground development within the first 3 to 4 years of the open cap development. So we're certainly thinking about how we leverage our position continue to improve and demonstrate that it really is a quality long term asset for the project.

Finally, I've got 2 final points to make. Again, I refer to the industry's Jerry Maguire moment where numerous leaders in the industry came clean that they'd been overspending on projects and acquisitions and doing a whole range of things in the last 3 or 4 years, and I'd like to point to everybody back to our 2008 conversations where we talked about the gold industry model being unsustainable, that you needed to deliver real returns and for us as people know through the cycle, we're looking to deliver returns at better than 15%. I'd just like to again, reflect on where we are. And obviously, Q3, Q4 is going to give us a big bump. But we're still delivering pretty well. The forecast returns for the year is still pretty robust in spite of those challenges. Our year-to-date EBITDA, strong relative to 2010 in good shape. Obviously, Q4 is going to be tough. And so we're not putting a forecast on that. But certainly, we think the returns will be strong year-end and with our strategy, there's no reason to change the strategy. We had this discussion in the marketplace 4 years ago, and we've been delivering and that's why we are one of the top if not the top deliverer in the industry in terms of return on capital, return on capital employed and return on equity. And that focus won't change. And that's why we're acting to make sure we manage the balance sheet as part of that process.

Finally, and thinking about 2013, obviously we'll unpack the strategy and talk about our forecast at the next set of results. But I thought it was important to give you an early heads-up on how we're thinking about the key thing for us in 2013. Obviously, the delivery of our key improvement projects or our growth projects in Tropicana, Kibali, both scheduled towards the end of 2013 and CC&V through the course of 2014 will be important to us in helping us grow beyond 5 million ounces. In South Africa, very much subject to some tough reviews. There will be some course corrections, but the underlying strength of the assets are unquestionable. And certainly from our point of view, there's some great opportunities in terms of productivity, that's where we're going to go. Focus on quality, not quantity, and from a technology point of view, we've now got the drilling of a hole to less than 7 days. We believe that in the next few months, we could get that down to even low as 3 days and I would expect we will have dedicated crews next year, Mike. By 2014 or thereabouts, we'd like to think that we'll all have -- I think it's 10 crews by 2015 and then doubling year-on-year beyond that. That changes the game in South Africa wherein the progress we've made has been quite impressive. We're very excited with what that work is showing expense. The next 6 months will be very important. So 2013, we think will be a pivotal year in terms of the future of our South African operations. Obuasi pushing into the new year strategy. We literally take over the development operations tomorrow. And so our move into the new year will be very important in tracking our improvements. And we expect to see continuous improvement. We need to get it from 1,300 meters a month to 700, 800 meters a month, and I expect the team will be there by midyear, next year.

Colombia remains a game changer for us. And in terms of returns, we haven't changed our focus. We'll deliver on our potential, and that will be how we underpin the growth strategy on a go-forward basis. This is the new AngloGold Ashanti. The strategy so far, has proven to be robust. We've hit a couple of road bumps in the last quarter into this quarter, but we'll get through that, and 2013 will prove to be, in our eyes, a pivotal year of which we demonstrate the foundations of their net 20% underperformance that I started this conversation with will turn that around as we demonstrate the quality of the portfolio as a measure of the quality of the leadership that this company has. So with that, very happy to take questions.

Question-and-Answer Session

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

Two questions if I may. It's Allan Cooke from JPMorgan. Your production target for 2014, the 5 million ounce, is that under threat as you review your operations and your projects and has your strategy not changed? Are you not looking at options in the group structure and looking at things a little broader than just individual project and asset returns and optimizing those? That's the one question and then the other question is around the wedge negotiations coming up early in 2013, will those include worker representatives in AMCU? Do you have AMCU members at your mines? And the productivity improvements in South Africa that you spoke of, will those form part of the negotiations with the unions and other members at the chamber next year, please, Mark?

Mark Cutifani

Okay. Allan, we're obviously, with the Sadiola was 12 months behind the original schedule as a consequence of the coup. So that would be the first point. There's about 200,000 ounces obviously impact, but we'll see what that looks like because we found some other smaller deposits that might help mitigate that issue in the 2014 context. Obviously, we're a bit slower on Mongbwalu because of the scope that will have an impact and the South African absolute contribution is the other area that's subject to critical focus at the moment. So they're the 3 areas that would impact the 2014 numbers. What we'll do at the end of the Q4 in terms of ourselves in February, we'll make that very clear and we'll set out what we think the final numbers should look like in terms of those targets. But the underlying strategy doesn't change. Those operations, we're still going towards those expansions. Does it push the numbers back? Could do obviously, but we'll be very clear in the next quarter once we've done the full review. And in particular, South Africa, I think, needs to be addressed in that context and so we'll be very clear about that. But again, no big change in the overall strategy but certainly it will have an impact on 2014 numbers. And I'm just trying to give you a sense of what that impact would be with those 3 points of departure, okay? From a strategy options point of view, we continue to keep open portfolio options. No big shift at this stage we again, when I was asked this morning, a strike is a strike. If we shifted the strategy on the basis of the strike or if in the industry, we shifted strategies on the basis of strikes then every company working in the world in every destination would likely to be shifting their strategy every 1 or 2 years. The good news in South Africa is we've had 2 strikes in 25 years. So let's not lose a sense of perspective about a strike. The tragedy of this year's event is Marikana. We've had a strike. We've got to make sure that we define a different relationship going forward. But in the context of strikes across the world and I'm being involved in literally 25 countries. South Africa is one of the best records in the last 25 years. So we shouldn't lose that perspective. And in talking to employees that have come to work, they basically said, "We remember the 1987 strike." These events were as burned as deeply as those events. So I can only hope that we all learned lessons, and that it's at least another 25 years before we have these sort of things happen and I hope forever in terms of Marikana we don't go there ever again. And I think that's an important thing we need to learn. Third, in terms of wage negotiation, I'm making it very clear that, that change in working conditions absolutely critical despite of the conversation. I think it's a must do for all of this. And quite frankly, if it's not on the agenda, if we're not talking about productivity improvements, there will be major reductions in employment in the mining history in this country. 50% of the country's platinum mines are losing cash today. We have a maturing gold industry that's working at depth. These are the conversations we have to be in if we want to preserve jobs in our industry. And if that means we're the leader in those conversations, that's the next way we'll go, so be it. We were the leader last year in putting this on the agenda. That's what we're going to do this year and in my role as President of the Chamber of Mines, I've got to take a leadership position in terms of the industry and the country and that's what I'm going to do without fear or favor. We've got to take these issues on. We've got to create a competitive mining industry and that's -- if that's what it takes then that's what we'll do and we'll be part of those conversations. Back to AngloGold Ashanti, in terms of AMCU we've had a few people pop up and say that we've got some AMCU membership. What we've said is that consistent with our Constitution, the democracy, if you've got members, there is a process that you follow. We will respect anyone that indicates that they're part of a different group and they can be part of the conversations as we have processes that have to be followed. Our requirement is you follow the rules and you will be fully respected. Operating outside the rules, there is no place for you in terms of a conversation in AngloGold Ashanti. Follow the rules and you will be fully respected in terms of rights and the processes and so we'll see that unfold in the next couple of months. And as I said, productivity will be a central theme through all of those conversations with whoever we end up talking to.

Unknown Analyst

I have 3 questions, 1 for you and 2 for Venkat. Firstly, just if we go back at Obuasi and Obuasi is an old mine, you've got aging infrastructure, you're getting deeper, you're getting mechanized and to me it sounds like the marginal of operating this ounces will be more expensive. What is the business case really behind this and do you have other options you could put your mining elsewhere sort of not cropping up? What is the business case?

Mark Cutifani

The business case in terms of Obuasi is a 30 million-ounce resource. We believe from a productivity point of view that there's a 30% to 40% productivity improvement need be had that the decline gives us incremental infrastructure that increases the productive capacity and asset like that delivering $200 million the $200 million free cash flow a year is worth somewhere between at least $3 billion to $5 billion. That's the size of the price. That's why we're there and as you see, we've been breakeven the last 3 years. What we have to do is turn that opportunity in $200 million to $300 million free cash flow generator over the next 20 to 30 years and you've got one hell of an asset.

Adrian Hammond - BNP Paribas, Research Division

And just for Venkat. Venkat there's been some talk of changes in the mining law happening in the DLC. One is increase in state ownership and the other is royalties, what's the impact for your 2 projects and then secondly, the CapEx downgrade of $200 million from which operation are you reducing that capital?

Srinivasan Venkatakrishnan

Adrian, if I can answer the second question first. If you look at the amount, which is unspent as compared to our original forecast it's around 845 million for the fourth quarter, and this is based on historical trends of expenditure. Quite a lot of the CapEx, which goes in from the original loss doesn't get spent it gets revised downwards, et cetera. This CapEx cuts of 200 million comes across all of the projects, based on the review of the stay-in business capital expenditure we have not touched all reserve development. We haven't touched anything to do with health and safety environment, legal compliance asset integrities regarding the others. And also per Mark mentioned about some of the projects, which have been pulled back slowed down in relation to that as well. So it comes from a whole range of projects based on the spent to-date and as part of our portfolio review. With regard to the DRC question you raised, just bear in mind that this is a comment which has been made by the ministry of mines. He's also said that it has got to go through a negotiation process. It's not been something which the Parliament of the DRC has actually said, that's aspect #1. Secondly, when we obtained -- when we bought into Kibali, you've got to bear in mind that we had -- the government originally had to Okimo [ph], which is now Sokimo [ph] a 30% ownership. And post-the deal, the joint venture company between us and Randgold bought out the 20% in an absolute opened transparent manner which was approved by the minister of portfolio and the cabinets. So we've been through that debate. And similarly, in terms of the ownership which we have in our own Mongbwalu project where the garment through Sokimo has I think close to about 14% ownership. That again, went through an extensive negotiation process. And it's quite recent. And Victor in terms of royalties, et cetera, it's been captured by the agreement. But we are waiting to see the details. It's just one comment which he has made in terms of the news interview. And we've got to see how it pans out but at least in our case, the negotiations have been pretty recent and the garments has had an original ownership where we've actually bought it back.

Mark Cutifani

Adrian, I'm going to have a second crack at you, not at you personally. I think the overarching question I might just step back. 4 years ago, we had a conversation with others around Geita. And it was losing $120 million a year and the same question was put to me, why don't you sell Geita? And I said, "Look, we believe that we can turn that around and improve and generate at least $100 million free cash flow". Venkat, this year, $350-ish? And that includes paying the government $180 odd million tax. I can have that conversation regarding Siguiri and the 25% throughput improvement there, the Iduapriem turnaround, the CVSA turnaround, the Cripple Creek changes going from the $500 million asset to a $2.5 billion asset now in our books. Obuasi is the one that we haven't cracked. Of the 21 assets, we've seen significant improvements amounting to $1 billion free cash improvement across the portfolio. Obuasi's time has come. And we did say that we had Obuasi is the last cat in the pack in terms of the resource allocation. It's now got the full project 1 team working with Peter, Mark Malcom who's now actually on site on a dedicated basis. We'll deliver a $200 million free cash flow improvement in my view over the next 3 to 4 years. And we'll demonstrate that it is a vital long term asset that will contribute real value. The good news for our shareholders or the bad news for our shareholders is it's not valued in the portfolio. The good news is in 3 to 4 years time, it'll make a significant difference and in my view it should be in there somewhere between $3 billion and $5 billion. That's per the challenge for us as a team. We've hit every one of the other assets and made significant improvements. Obuasi's time has come.

Unknown Analyst

It's Darren Walter [ph] from Renaissance Capital. Just wanted to get a feel for what the situation is like in terms of motivation of the workforce in these operation on the ground. And what are you guys doing from a management perspective to contain these flair ups of instability at the various sites?

Mark Cutifani

If I could make 1 or 2 observations. I might ask Mike if you'd be ready to say a couple of things, firstly, the return -- I asked Mike that same question by the way, about 3 days ago and I think the encouraging thing and what we've seen so far is people have come back to work and have actually got into the work with them pretty quickly. We're taking things very carefully, very slowly to make sure safety is the key focus. And my experience in all of these things, and unfortunately I've been there before is that if you focus on safety and looking after people in that first 2 or 3 days and make sure that it's not about production that you get into the right conversation pretty quickly. And people want to do their best and we're finding that in Vaal River. I think we’re seeing that in Tautona and Savuka. At Mponeng, we had a small group of people that decided that they would take the law into their own hands, threaten people, damage equipment and started threatening people. That's not going to happen. And so we've had lots of communication and people on the ground wanting to come back to work and get back into a normal swing of things. So our focus is going to be on sorting out those people that are creating the problems for everyone. And that will be done in an appropriate way. But it is making sure that we get everybody back to work. And so Mike, do you want to just talk about what you're seeing on the ground?

M. P. O'Hare

Mark, I think you've described it really well. The residual tension at Mponeng is fairly obvious and our stance is that Mponeng's a 50-year old body. One of the things we have to do in the productivity process for Mponeng is to make sure we get the labor relations climate right. And that includes everybody that works at that mine. So the process that's unfolding at Mponeng at the moment is talking to all the unions and that includes AMCU and talking to all the representatives to get to a space where as we as management feel that it is appropriate to send people back on the ground. The bulk of the workforce really wants to go back to work. They're really motivated to go back to work. There is however, a splinter group, which still has quite a lot of tension in it that we're dealing with now.

Kane Slutzkin - UBS Investment Bank, Research Division

It's Kane Slutzkin here from UBS. You've spoken about the impact to Q4 but to what extent do you think was sort of ongoing productivity loss as a result of the snowball that was sort of going to creep into Q1 because we have seen a lot of companies sort of struggle to get back to normal levels of production so to what extent does Q1 become a problem which will obviously be compounded by the sort of seasonally slow start to the year?

Mark Cutifani

I think our thinking at the moment, is that if we do our recovery work in the right way this quarter and try and make sure that we get all things cleaned up that we need to get cleaned up, we come into Christmas with our faces secured and properly set, then the January ramp-up should be now worse than the ramp-ups that we would see under normal circumstances. So that's the logic. Mike, did you want to add to that?

M. P. O'Hare

I think Mark, the effects of the geotechnical effects appear to be about 5% to 10% face length loss due to the month stoppage and that percentage depends on the depth of the mine. We've had no real geotechnical issues that have happened in the month that put us back significantly. We will have a normal slow ramp up after Christmas, New Year and I think Mark has talked to looking at the asset base and having a look at what's appropriate in terms of the margin to be mining. But we'll get into that process into Q4.

Mark Cutifani

And I think that the point Mike makes an important that what we have seen is a 5% to 10% face loss or deterioration. So that will obviously, impact the way we think about the business going forward, making sure that we are productive. And we've got to do what we've got to do. But again, it's too early to call and that's what we'll do when we have our first run early next year. But that's a sort of issue we're working with at the moment. But the idea here is to do it safely and get back in the swing of things come January.

Kane Slutzkin - UBS Investment Bank, Research Division

Just one last question. Just on technology you said it's progressing quite well. Is there not perhaps an opportunity to sort of speed it up quicker in terms of perhaps using an asset that's maybe not really moving the needle and sort of using it as a peer test case, as opposed to sort of just on the side?

Mark Cutifani

Look, there is an opportunity to speed up. The good news is we've gone from the first target of 24 days. Mike I think the last one 7 days. The team now has a target to do it in 3 and they're making the technologies available off-the-shelf. We've started drilling and even in a very short period of time they made massive improvements and so based on that, I think there's a good chance, they will definitely have working faces next year. And the ramp up -- I think, Mark's ramp-up strategy is a very good one and if there's an opportunity to get that going early he will. And I think it will be key in managing some of the shortcomings that might happen if you got some face lengths risk. I think this is a great opportunity and an incremental way of automating and mechanizing that is very different to the way mechanization stories have been handled in the past in South Africa. This is a no-brainer in my view, Mike?

M. P. O'Hare

I just like to link that to something you said earlier, Mark. The wage negotiations includes the extra shifts we want to work. One of the primary reasons for that is to enable our technology piece. So those 2 will work hand-in-hand. I think what we don't mention is the back fill strategy that needs to go with the repouring strategy and we also now up to back fill, which is over 120 mpi, which we've managed to produce. And we're actually working with goldfields now because that will benefit both of us from a high-strength back fill point of view either with technology or without technology.

Mark Cutifani

Yes, look, thanks, everyone for being here. It's been a tough quarter. We think that we're 90% of the way through some of the tough things we've had to deal with. If I can say that in my 35 years in the industry, I've seen challenges of this nature before. Although I would say that the violence associated with Marikana is the worst I've seen. However, as an organization, it's up to us to learn and to make changes in the way we're managing and leading so that we learn and become a better company as a consequence. So I'd extend that conversation to us being a better industry and ultimately a better country as a result. And I think the fact that we've got the President and everybody else engaged in these conversations, we've got the mines minister, we've got a broad section of society, I think if it helps get us in better conversations about the future of the country, the future of the mining industry, whether it's the sims [ph] debate or other debates. And I think there's an opportunity for us to turn this to a positive in terms of the longer-term but at the same time, we should never forget the 50 people that lost their lives and certainly as an industry, we'll continue to reflect on that loss. I should say something about the families, our thoughts are with them and certainly, we hope that we go forward in a much more constructive way and create a new industry, new opportunities and create a better South Africa. Thank you.

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