Economic performance

It is a truism that mining companies must search for and exploit their minerals in those regions and countries where the orebodies have been deposited.

Says Gordon Wylie, executive officer responsible for the global exploration programme at AngloGold Ashanti, "Back in 2001 we took a long hard look at the world and noted that our global production profile would drop substantially after 2006 as our existing operations come closer to maturity. This was not unique to AngloGold Ashanti, but common to the industry as a whole.

"On top of that, our exploration projects had become distinctly mature. We asked ourselves the question: How do we fill the gap? Where should we be exploring or looking to acquire new assets which are of a sufficiently high quality to meet AngloGold Ashanti's economic criteria? It became obvious that new ounces must come from new areas with potentially higher risk profiles, and hence, our 'New Frontiers Strategy' was born."

Geologically speaking, the world of gold is divided into two distinct areas - the ancient (Archaean or Proterozoic) terrains, which host orebodies such as those found in the Wits Basin, at Morila, and Sunrise Dam mines, and the younger plate margins where orebodies such as those mined at the Cerro Vanguardia and Cripple Creek operations are found (see map below). Generally, AngloGold Ashanti has been exploiting the Archaean terrains and is seeking to expand into the younger plate margin areas through its activities in the Andes, Alaska and South East Asia.

"Given that we know in broad terms where these regions are, the next step is to identify target areas that are likely to produce major long-life orebodies with reserves of at least five million ounces. During the process of looking for these so-called 'elephants' we will also identify smaller orebodies which will be mined if they promise good returns. Importantly, we are also looking at the junior exploration sector for opportunities which could meet these criteria," says Wylie.

"The next step in our process was to start identifying the potential risks involved with various prospective regions, countries and projects. While we are cautious of risk, we are not put off by it: once we have identified risks we then ask ourselves the question of whether we can manage them.

"There are four general areas of risk that the company looks at. These are included in a detailed risk analysis undertaken regionally, using local knowledge, and an external view. This is managed by Tomasz Nadrowski, our political analyst based in New York, who, using the relevant expertise, has expanded our methodology to become more comprehensive and more systematic. The key issue with 'risk' is that people's views are in the 'eye of the beholder'. Getting views from reliable, trusted and knowledgeable sources locally is important because these may in fact be quite different to an external view. Then, using a matrix, the relative risks associated with each country or part thereof are analysed and compared. Finally, a discount factor is calculated for risk which is added to the cost of capital to obtain an overall discount factor for discounted cash flow calculations to obtain value on existing projects in risky areas that we may be interested in acquiring."

"Even once we have decided on a particular area, we can go quite a long way down the road on an exploration project before we start spending too much capital - significant capital injection usually occurs as we move from the feasability study to the development phase. Another aspect which is in our favour is our policy to utilise locals, both as employees and contractors, and as recognised local experts. We firmly believe that it is important to involve the community from the start to understand what we can best put in place that will ensure some form of livelihood and sustainability once we have left again. An important part of the process however, is the management of their initial expectations because, statistically, most exploration projects do not develop into operating mines.

"An example of early stage involvement is sponsoring fêtes to raise funds for village schools or buying soccer jerseys for the school kids in Colombia where we have dedicated staff whose full time job is to interact with the community.

Our general policy is to use old drillholes as water boreholes; roads built for drill access are also of great value to the community. As the project advances we would encourage sustainable small industries such as vegetable farming or clothes-making. As the project moves through feasibility into production, in addition to supplying work and skills through our workforce, local industries will grow, which we hope will still be viable after our departure."

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