Report to Society

Economic performance

The year in review

Management systems and accountability

Following the comprehensive restructuring and asset review process undertaken at the end of 2007, 2008 was a year of further change and consolidation for AngloGold Ashanti.

Management restructuring continued to take place as a new strategy – focused on safety, improved productivity and enhanced shareholder value – was implemented. The executive team was restructured, and – among other appointments – an Executive Vice President, Sustainability, was appointed to oversee this strategic issue. The group moved towards a regional operating structure, with three operating heads, responsible for operations teams in Africa, the Americas and Australia, who report directly to the CEO. The Africa operations comprise two divisions, one based in Accra, Ghana, and one in Potchefstroom, South Africa. Further details on the company structure and strategy may be found in the Annual Financial Statements.

Performance in 2008

Turbulence in financial markets around the world had an effect on AngloGold Ashanti’s performance during 2008, with several factors standing out as having had the greatest impact. Among the most significant of these were the:

  • satisfactory performance of the gold market relative to that of other commodities, although gold’s ‘safe haven’ status was affected by the depth of the financial crisis, which resulted in de-leveraging and a flight to cash across a wide range of investments;
  • rapid decline in the value of the rand against the US dollar in the fourth quarter; and
  • restrictions placed on production during the first four months of the year by the South African power utility, Eskom, as a result of national power shortages.

Key elements of economic performance during 2008 included:

  • gold production of 4.98 million ounces, down by 9% on 2007;
  • average gold price received 23% lower at $485 per ounce as a consequence of the reduction in the hedge book;
  • rising input costs, resulting in total cash costs increasing by 24% to $444 per ounce; and
  • adjusted headline loss of $897 million.
Group overview – key economic data
  20082007% change
Gold produced (000oz)4,9825,477(9)
Average gold spot price ($/oz) 87269725
Average received gold price ($/oz)485629(23)
Total cash costs ($/oz)44435724
Total production costs ($/oz)56747619
Ore reserves (Moz)75733
Revenue 1 ($m)3,7433,11320
Gold income1 ($m)3,6193,00221
Gross profit (loss)1 ($m)594(248)340
Adjusted gross (loss) profit 1 2 ($m)(384)835(146)
Adjusted headline (loss) earnings 3 ($m)(897)278(423)
Adjusted headline (loss) earnings per share (US cents)(283)99(386)
Dividends paid per share (US cents)1345(71)
Average R/$ exchange rate  8.257.0317
Exchange rate at year-end  9.466.8139
Share price at year-end:     
JSE (R/share)252293(14)
NYSE ($/share)27.7142.81(35)
Market capitalisation at year-end ($m)9,79511,878(18)

1 The group changed its accounting policy regarding the accounting of incorporated joint ventures to the equity method to provide more relevant financial data as returns from these investments are limited to dividends which are more representative of the income flows. Incorporated joint ventures were previously accounted for using the proportionate consolidation method. Comparative figures have been restated to conform to the changes in accounting policy.

2 Adjusted for the gain (loss) on unrealised non-hedge derivatives and other commodity contracts.

3 Adjusted for the gain (loss) on unrealised non-hedge derivatives and other commodity contracts and fair value adjustment convertible the bond.

Good progress was made in strengthening the company’s balance sheet. The company undertook a rights offer, a reduction in its hedge book and completed a successful bond refinancing.

  • During July 2008, $1.7 billion was raised by way of a successful rights offer at a ratio of 24.6403 rights offer shares for every 100 AngloGold Ashanti shares held on 4 July 2008. As a result of this offer, 69,470,442 new ordinary shares of 25 SA cents each were issued at a subscription price of R194.00 a share. The rights offer proceeds were used primarily to reduce the hedge book.
  • In particular, the hedge commitments ended the 2008 financial year at 5.99 million ounces as compared with 11.3 million ounces at the end of December 2007, a reduction of 5.29 million ounces (47%) in the hedge book for the year. This was done at a total cost of $1.1 billion. The December 2008 hedge book represents 2% of resources compared to 5% in 2007). The reduced hedge commitments will help to significantly improve the company’s exposure to the spot price of gold during 2009, thus enabling AngloGold Ashanti to benefit from the relatively strong gold market currently prevailing.
  • Following the rights offer, AngloGold Ashanti’s net debt level was reduced to $1.28 billion as at the end of December 2008. The R2 billion South African corporate bond that matured in August was fully redeemed, giving AngloGold Ashanti a net debt to earnings ratio (before interest, taxation, depreciation and amortisation) of 1.26 as compared with a ratio of 1.08 in 2007.
  • In November 2008, AngloGold Ashanti secured a Term Facility with Standard Chartered Bank to refinance the $1 billion convertible bond due for redemption in February 2009. The Term Facility, which is extendible to November 2010, will give the company flexibility in the current straitened economic circumstances and time to secure longer-term, cost-effective financing.

Information on the group’s financial performance is drawn from the company’s Annual Financial Statements 2008, which is published concurrently with the Report to Society 2008. AngloGold Ashanti also provides a comprehensive review of the operational activities of the group and its individual operations on a quarterly basis. See www.anglogoldashanti.com.

Benefits across the life cycle

AngloGold Ashanti’s core business is mining and exploration for gold. Silver, uranium and sulphuric acid are produced as by-products. While gold-bearing rock is a non-renewable resource with a finite lifespan during which it may be exploited, the metal, once mined, is potentially available in perpetuity as it is generally recycled. The volume of gold scrap recycled varies substantially from year to year and typically peaks when prices increase. In 2008, approximately 25% of gold consumed came from recycled sources. However, gold is rarely destroyed, and gold which is not recycled is held and treasured as a store of value or for sentimental reasons, or as a useful commodity.

While AngloGold Ashanti recognises the limited life of its operations, the company’s mission is to create value for a broad range of its stakeholders – shareholders, employees and business and social partners. A key imperative for the company is therefore the broader economic impact that accrues to these stakeholder groups during the lifetime of these operations and, once mining has ceased, from the skills and economic opportunities that have been established during a mine’s life. Thus, while the financial performance of the business is an important indicator of the extent to which AngloGold Ashanti has succeeded in this, the value that accrues to the countries and communities in which the company operates is equally important. (See a depiction of aspects of the life cycle in which AngloGold Ashanti participates and the sustainability challenges presented.)

Ensuring benefits in the long term

AngloGold Ashanti’s performance in adding value to the communities and countries in which it operates is often difficult to judge over a short period of time (such as a financial year) and should be seen rather in the context of the life of the operation. At the heart of the dilemma of assessing the economic contribution to the broader community is the very real requirement that shareholders’ money be spent wisely and that real returns be delivered to them, without other stakeholders being disadvantaged.

Mining projects are often very capital intensive, with long lead times, from the commitment of resources (people and capital) to the delivery of returns. For such an investment to be made, the company (on behalf of its shareholders) must assess at the outset the degree of risk that it will tolerate with regard to, among other things, the risk of an exploration project actually delivering a mine; construction and staffing risks; social, political and currency risks; and the medium- to long-term view of the market. Similar assessments are also made on an ongoing basis for existing operations. An important factor regarding the degree of risk attributed to a specific country or operation is the level of certainty provided by that country’s fiscal and regulatory regime.

The recent spike in commodity prices (which in some commodities has receded rapidly in recent months) has led to increased debate internationally on the contribution that companies in the resource sector can and should make to economic and social development in their host countries. As commodity prices have increased, so pressure on governments, from their own constituents, from non-governmental organisations (NGOs) and from lending institutions (such as the World Bank) to ensure that their electorates benefit fully from resource industry revenues, has intensified. The role of the resource sector in development has been a subject of debate since the 1980s when the concept of the ‘resource curse’ or ‘paradox of plenty’ was first put forward.

AngloGold Ashanti recognises that the global resources industry across a range of commodities has not always contributed positively to the development and well-being of the countries and communities in which it has operated. The resources industry – comprising as it does a wide range of small, medium and large players – is typically tarred with a single brush and is itself constrained by the limitations imposed by a cyclical market. In reality, there are a number of characteristics which are unique to the resource sector and which ensure that the industry will always be subject to the scrutiny of governments and their electorates. This issue is discussed in some detail in the case study: Converting mineral wealth to national treasure : the challenges of mining and development.

The group endeavours to approach this issue in an holistic way, looking at the economic contribution to the national fiscus as only one measure of several. Others include the provision of jobs (and frequently skills development and training to fill those jobs), infrastructural development (both as part of the mine’s development, which may be of use to communities, and specifically for the community), formal and informal local economic development and corporate social investment initiatives. See the case study: New road paves the way for economic development in the DRC.

Another illustration of the way in which mutual benefit may be achieved is the renegotiation of the water contract at CC&V.

Also, the group is able to manage its significant procurement expenditure so that it has a positive impact on local and regional economic activity. The total amount spent on the purchase of goods and services required to operate mines and produce refined metal (including market development costs net of other income) was $1,550 million in 2008 (2007: $1,188 million). It is group policy that, as far as it is possible and practical to do so, goods and services should be procured locally and regionally. In South Africa, there are specific programmes in place to transform the company’s procurement base to include black economic empowerment (BEE) imperatives.

Exploration, DRC

Withdrawal of exploration teams from the DRC

Following the outbreak of fighting between the military and ‘rebels’ in remote areas of the eastern Democratic Republic of Congo (DRC) in November 2008, AngloGold Ashanti withdrew all personnel from three isolated exploration camps as a precautionary measure. Given reduced levels of exploration activity, the personnel from these camps, together with some personnel at the main base camp at Mongbwalu were encouraged to begin their annual end-of-year leave early. The exploration camps were repopulated, though in smaller numbers, during January 2009 as the security situation improved. With the focus of exploration activities being on desktop studies at this stage, the camps had, at the time of writing, not been brought up to full complement.

AngloGold Ashanti is represented in the DRC by its subsidiary, Ashanti Goldfields Kilo, which has its head office in the capital, Kinshasa. The company’s exploration activities take place within the 10,000km² properties known as Concession 40 in the Ituri region of the Orientale Province and are concentrated around the city of Mongbwalu.


Beauty Mazibuko

Beauty Mazibuko

Project Manager, Corporate Office, South Africa

“I manage projects from the feasibility stage to the commissioning stage. Projects need to meet requirements, be on time, and within budget. I believe that AngloGold Ashanti’s corporate values highlight, to both an internal and external audience, what is important to us.”

Eugene Codjoe

Eugene Codjoe

Control Room Operator, Iduapriem, Ghana

“The statement ‘business is people; people are our business’ demonstrates AngloGold Ashanti’s commitment to providing a favourable work environment for our employees. I think it attracts potential employees too.”

Rhonda Hrack

Rhonda Hrack

Haul truck driver, CC&V, USA

“Employees and management can work together, hand-in-hand, by sharing ideas to improve not only production and safety, but to also better our surrounding communities.”

Jos? Gregorio Ferreira da Mata Filho

Josť Gregorio Ferreira da Mata Filho

Production Co-ordinator, Brazil

“During the two years I have been employed at AngloGold Ashanti, I have been exposed to a number of exciting professional highlights such as my involvement in the Cuiab? Mine expansion project. My biggest challenge is managing people on a daily basis but I am learning new people skills every day.”

Operating performance

Total attributable gold production for 2008 (that is, attributable to AngloGold Ashanti as a result of the ownership structure and not total production by operations) declined by 9% to 4.98 million ounces (2007: 5.48 million ounces), making the company the third largest producer of gold in the world. This decline in production, was largely a result of reduced volumes and lower grades mined at the South Africa operations owing to safety- and power-related stoppages; reduced production in Argentina as a result of poor grades and intermittent plant breakdowns, and in Tanzania, where poor plant availability and delays in accessing higher grades affected output negatively. Among the best performing operations were Moab Khotsong, which is in ramp-up phase, and Mponeng in South Africa, Iduapriem in Ghana and Siguiri in Guinea.

In South Africa, the effect on production of restrictions imposed on the company by the national power utility, Eskom, was less severe than initially expected. The expected shortfall was mitigated to some extent by improvements achieved in energy efficiency and by an earlier-than-expected restoration of optimal power. While power shortages may have an impact on future production, the company has been working with Eskom and government through the Chamber of Mines of South Africa and Business Unity SA (BUSA), the employer federation, to minimise any such occurrences. See the case study: AngloGold Ashanti’s response to the power crisis.

In late 2008, AngloGold Ashanti launched the Business Improvement Project (BIP), a company-wide change management process to secure the future of the organisation as a global gold producer. The BIP is a response to declining production levels, falling returns and increasing costs of production – and it signals the need for a change in the current strategy in order for AngloGold Ashanti to grow and thrive. It will be implemented over the next three to five years, starting with pilot sites and then across the company’s global operations, with the aim of improving productivity. See case study AngloGold Ashanti introduces Business Improvement Project.

Attributable gold production by operation 2008 (000oz)
Attributable gold production (000oz)
 2008 200720062005
Argentina154204215211
Australia433600465455
Brazil407408339346
Ghana557527592680
Guinea333280256246
Mali409441537528
Namibia68808681
South Africa2,0992,3282,5542,676
Tanzania264327308613
United States258282283330
Total4,9825,4775,6356,166
Gold production (000oz) attributable
Gold production
(000oz) attributable
Average gold price received ($/oz)
Average gold price received
($/oz)

The gold market

The average gold price received of $485 per ounce for the year, was 23% lower than in 2007, due to significant restructuring of the hedge book during the year. Total revenue from gold production amounted to $3,619 million, while revenue from each of the group’s three major by-products – uranium, silver and sulphuric acid – was $15 million, $23 million and $18 million, respectively.

Vaal River, South Africa

Uranium, an important by-product

Uranium is produced at three of AngloGold Ashanti’s mines in the Vaal River area in South Africa. It is extracted from gold-bearing ore as a by-product. Uranium grades achieved are much lower than those achieved at dedicated uranium mines in other uranium-producing countries. The average recovered grade of uranium processed at AngloGold Ashanti’s uranium plant is around 0.25kg/t. If it were not processed as a by-product, this uranium would be disposed of in the residue of the gold-bearing ore onto the tailings dams, along with other waste from the mining and processing operations.

Monitoring of tailings for radioactivity is not necessary as any remaining unrecovered uranium is in a diluted form, and below environmentally acceptable levels of radiation. The processing of uranium is done in line with strictly enforced international legislation.

In 2008, the group produced 1.3 million pounds of uranium, which generated revenue of $15 million, representing a contribution to group revenue of 0.4%. The group has stated it intends to continue to benefit from the growing demand for uranium and it is likely that uranium production will increase during the year ahead. At the same time, the company has restructured its long-term uranium contracts to create greater exposure to spot prices.

Rising costs of production

Total cash costs - group
($/oz)

Rising production costs was one of the most significant features of the year, particularly in South Africa, where inflation rose to 11.3% for the 12 months to December 2008. Also in South Africa, the rise in dollar production costs was offset to some degree by the rapid weakening of the South African rand in the fourth quarter of the year.

Consequently, the group’s total cash costs rose by 24% year-on-year to $444 per ounce, from $357 per ounce in 2007.

 
Value added statement for the year ended 31 December
 2008%2007%
$ million contributed contributed
Gold income3,619 3,002 
Purchases of goods and services in order to operate
mines and produce refined metal, including market
development costs net of other income
(1,550) (1,188) 
Value added by operations2,069551,81465
Fair value gain on option component of convertible bond251472
Profit on disposal of assets5517
Dividends from investments and interest received662452
Government    
Deferred taxation2898883
Utilised in the group    
Retained income1,2363379328
Total value added3,7401002,794100
Value distributed    
Employees    
Salaries, wages and other benefits9862696635
Government    
– Current taxation9231897
Providers of capital    
– Finance costs and unwinding of obligations11431204
– Dividends paid4111255
– Minorities401321
Other    
– Impairment of tangible and intangible assets1,608431
– Loss on non-hedge derivatives and other commodity contracts297879228
Total value distributed3,178852,22580
Reinvested in the group    
– Amortisation and depreciation5621556920
 3,7401002,794100
Distribution of wealth – 2008
Distribution of wealth – 2007

Distributing value to employees

In total, 62,895 people were employed by AngloGold Ashanti in 2008, 2% more than in 2007. This was largely a result of an increase in staffing levels at the Australia and United States operations. For more details on the group’s employment profile in 2008, see the Employment section of this report. By far the greatest percentage of economic distributions made during the year, at 84%, was to employees (including executive directors) – an amount of $986 million. Total distributions to employees (excluding executive directors) amounted to $983 million.

Employee benefits 20082007 restated ¹
 ($m) (%)($m) (%)
Salaries, wages and other benefits82684%79783%
Health care and medical schemes,
including defined post-retirement
medical expenses
656%697%
Contribution to pension and provident plans465%485%
Retrenchment costs91%192%
Share-based payment expense404%333%
Total included in cost of sales, other operating expenses operating special items and corporate administration and other expenses986100%966 100%

1 The 2007 numbers have been restated to equity account joint ventures.

All permanent employees participate in some form of retirement funding scheme to which the company makes a contribution. In some cases this is the legislated contribution to the country’s social security scheme, while in others it is a contribution to a private or company-run scheme. The specific nature of the benefits and contributions varies from region to region. These benefits are funded primarily on a defined contribution basis, with a very small percentage of employees on defined benefit schemes. (Defined benefit schemes are closed to new members, with new employees participating in defined contribution schemes.) Funding for the liabilities resulting from the defined benefit schemes is provided for by the company on an ongoing basis.

Around 24% of employees, largely in South Africa, participate in the group’s share option scheme and an additional 48%, all in South Africa, are members of the Bokamoso Employee Share Ownership Plan (ESOP). The Bokamoso ESOP was implemented as part of the group’s BEE programme. The first vesting date (in which employees become able to exercise their rights to trade their shares or exercise their options) is in November 2009. In advance of this, a research project into employee debt levels was undertaken, and an education programme, developed by the Bokamoso ESOP Trust with the company’s participation, will assist employees in planning for the best use of their ‘dividends’ from vesting.

AngloGold Ashanti share price performance – R and $
AngloGold Ashanti share price performance – R and $ (2008)

The group’s share price performance reflected trends in international markets and the global economic outlook and, consequently, employees did not benefit from share price appreciation. The AngloGold Ashanti share price opened the year at R293 on the JSE. It closed the year at R252, with a year high and a low of R349 and R150, respectively.

Distributions to shareholders

Geographical distribution of
combined total shares
identified 31 December 2008
(%)

AngloGold Ashanti is a publicly listed company and is traded on stock exchanges in South Africa (share code on the JSE – ANG), the United States (NYSE – AU), Australia (ASX – AGG), the United Kingdom (LSE – AGD), Ghana (AGA and AAD), France (Euronext, Paris – VA) and Belgium (Euronext, Brussels – ANG BB).

The company’s shares are highly liquid with around 80.6% of the group’s shares being held in free float.

The graph above depicts the geographical location of the company’s shareholders. The largest percentage shareholding (excluding the shareholdings of Anglo American plc as at 31 December 2008 (16.1%) and the Government of Ghana (3.2%), that is, of the free float) is in the Americas (44.9%), followed by South Africa (37%) and the United Kingdom (7.3%).

Dividends declared for 2008 amounted to $41 million (2007: $125 million).

Payments to government

Governments (or their provincial representatives) are shareholders in a number of operations or in the company itself:

  • In Argentina, the Province of Santa Cruz has a 7.5% interest in Cerro Vanguardia.
  • The Government of Guinea holds a 15% stake in the Siguiri mine.
  • The Government of Mali holds an interest of 20% in each of the Morila, Sadiola and Yatela mines.
  • The Government of Ghana holds a 3% interest in AngloGold Ashanti.

AngloGold Ashanti is a member of the Extractive Industries Transparency Initiative (EITI) and supports the EITI’s request for transparency in the disclosure of payments to government and receipts from governments.

The following payments were made to governments (on a country basis) by AngloGold Ashanti, or its subsidiaries or the joint ventures that the company manages, during the year under review:

Payments to government:

Argentina($000)
Dividends paid to government888
Taxation paid in 2008*4,368
Provision for taxation* 1,130
Withholding tax (STC, royalties, etc) 13,536
Other indirect taxes and duties 1,599
VAT paid 20,067
VAT refunded (16,698)
Employee taxes and other contributions** 2,869
Property tax 3
Other*** 8,186
Total 35,948
 
Australia($000)
Dividends paid to government
Taxation paid in 2008* 43,229
Provision for taxation*(23,928)
Withholding tax (STC, royalties, etc) 12,860
Other indirect taxes and duties
VAT paid 136
VAT refunded (28,057)
Employee taxes and other contributions** 9,556
Property tax
Other
Total 13,796
 
Brazil($000)
Dividends paid to government
Taxation paid in 2008* 44,751
Provision for taxation* 31,833
Withholding tax (STC, royalties, etc)
Other indirect taxes and duties 4,461
VAT paid 6,509
VAT refunded
Employee taxes and other contributions** 22,397
Property tax 313
Other (financial contribution on mining exploration) 2,991
Other (tax over vehicles ownership) 199
Total 113,454
 
Colombia ($000)
Dividends paid to government
Taxation paid in 2008* 277
Provision for taxation* 58
Withholding tax (STC, royalties, etc)* 1,171
Other indirect taxes and duties 239
VAT paid 327
VAT refunded -
Employee taxes and other contributions** 708
Property tax 332
Other (tenement fees) 2,934
Total 6,046
 
DRC ($000)
Dividends paid to government
Taxation paid in 2008*
Provision for taxation*
Withholding tax (STC, royalties, etc)
Other indirect taxes and duties 218
VAT paid
VAT refunded
Employee taxes and other contributions** 487
Property tax
Other
Total705
 
Ghana ($000)
Dividends paid to government
Taxation paid in 2008* 1,912
Provision for taxation* 8,316
Withholding tax (STC, royalties, etc) 17,504
Other indirect taxes and duties 9,266
VAT paid 230
VAT refunded (5,075)
Employee taxes and other contributions** 11,570
Property tax 49
Other 399
Total 45,550
 
Guinea ($000)
Dividends paid to government 1,500
Taxation paid in 2008*
Provision for taxation* 23,728
Withholding tax (STC, royalties, etc) 40,145
Other indirect taxes and duties 1,490
VAT paid
VAT refunded
Employee taxes and other contributions** 3,332
Property tax  
Other 1,230
Total 71,425
 
Mali ($000)
Dividends paid to government 38,000
Taxation paid in 2008* 42,075
Provision for taxation* 53,997
Withholding tax (STC, royalties, etc) 21,750
Other indirect taxes and duties 2,359
VAT paid 2,422
VAT refunded (2,986)
Employee taxes and other contributions** 9,382
Property tax
Other 4,579
Total 171,578
 
Namibia ($000)
Dividends paid to government
Taxation paid in 2008* 5,042
Provision for taxation* 5,693
Withholding tax (STC, royalties, etc) 1,789
Other indirect taxes and duties
VAT paid 2,055
VAT refunded (5,354)
Employee taxes and other contributions** 2,013
Property tax
Other*** 392
Total 11,630
 
South Africa ($000)
Dividends paid to government
Taxation paid in 2008* 6,468
Provision for taxation* 11,584
Withholding tax (STC, royalties, etc)
Other indirect taxes and duties
VAT paid
VAT refunded (90,713)
Employee taxes and other contributions** 170,098
Property tax 1,870
Other
Total 99,307
 
Tanzania ($000)
Dividends paid to government
Taxation paid in 2008* 715
Provision for taxation* (3,861)
Withholding tax (STC, royalties, etc) 6,966
Other indirect taxes and duties 18,251
VAT paid 5,428
VAT refunded (3,785)
Employee taxes and other contributions** 12,165
Property tax
Other**** 369
Total 36,248
 
United States ($000)
Dividends paid to government
Taxation paid in 2008* 300
Provision for taxation* (12)
Withholding tax (STC, royalties, etc)
Other indirect taxes and duties
VAT paid
VAT refunded
Employee taxes and other contributions** 3,795
Property tax 840
Other (production mine tax)1,450
Other (severance tax) 1,328
Total 7,701

*Includes capital gains tax

**Includes remittance made to government but borne by employees as individual taxation, eg PAYE, UIF.

***Tax on exports

****Comprises annual road levy to the Geita district, forest clearance fees and airport taxes.

The following instances of tax exemptions or reduced taxation rates are reported:

Operation Description of tax
Standard
rate
Rate paid by
business unit
Legal basis for
tax concession
Argentina:    
Cerro Vanguardia Income tax rate for corporations 35%30%At the time that CVSA was allocated a tax rate (as part of the fiscal stability programme which is valid for 30 years),
the corporate tax rate was 30%.
Tax on financial payments0.6% on debits;
0.6% on credits.
0% Did not exist when fiscal
stability programme was awarded.
Import dutiesVaried, dependent  on type of goods imported.0%In line with Argentinian
Mining Investment Law (24196),
mining companies registered under this
special fiscal regime are exempt.
Presumed minimum  income tax1%0%Mining companies are exempt from this tax.
Brazil:    
Brasil MineraçãoState VAT on exports (ICMS)12% to 18%ExemptStatutory regulation
Federal value added tax5% to 25%ExemptStatutory regulation
Drawback incentive12% to 18%ExemptStatutory regulation
Turnover taxes on exports9.25%ExemptStatutory regulation
State VAT on import of machinery and equipment18%ExemptCompany agreement
Serra GrandeState VAT on exports (ICMS)12% to 18%ExemptStatutory regulation
Federal value added tax5% to 25%ExemptStatutory regulation
Drawback incentive12% to 18%ExemptStatutory regulation
Turnover taxes on exports9.25%ExemptStatutory regulation
Ghana:     
Iduapriem and ObuasiImport duty on Mining equipment10%0%Act of Parliament
Other 10% 5%Act of Parliament
RoyaltiesIn excess of 3%3%Stability agreement signed 18 February 2004, valid for 15 years
Mali:    
Morila  VAT on local purchases 18%Exempt with effect from 1 July 2008 Legislation
Sadiola/Yatela Fuel taxVaries monthlyExemptMining agreement signed on 20 March 1990 – valid for 30 years.
VAT exemption on transactions with registered Mali business units18%ExemptStarted on 1 July 2006.
Renewable on demand.
Approved by the Minister of Finance.

Assistance from government

No significant financial assistance was received by the company or the operations from government in any of the jurisdictions in which the company operates. Any assistance received is detailed below.

Assistance from government
CountryValue ($000)Description
Argentina
Cerro Vanguardia13,724Subsidies/rebates
 3,320Other financial benefits from government
Mali
Sadiola/Yatela6,873Tax relief (see details above).

Investing in the future

AngloGold Ashanti recognises that much needs to be done today to sustain its operations into the future. As the market for gold is the fundamental driver of the business, the company has for many years been involved in the active development of the gold market. Looking internally, the need to discover and develop future mines, both in new areas and around existing operations, drives the group’s exploration programme. At the same time, significant capital is expended every year to sustain current infrastructure and to extend current operations, and to develop new projects.

Gold market development

Since its inception AngloGold Ashanti has been committed to growing the market for its product. The company’s marketing programmes aim to increase the desirability of gold to sustain and grow demand.

AngloGold Ashanti is an active member of the World Gold Council (WGC), and AngloGold Ashanti’s subscription to the WGC accounts for the bulk of the company’s marketing spend. The company remains involved in independent projects to grow jewellery demand in partnership with companies such as Tanishq (a subsidiary of the Tata Group) in India. It has also supported the development of gold concept stores in China, under the ‘Just Gold’ brand. AuDITIONS, the company’s own global gold jewellery design competition brand, continues to grow and has become a powerful corporate marketing tool.

For further information on the group’s gold market development initiatives see the website or the Annual Financial Statements.

Exploration and development

Total exploration expenditure amounted to $183 million in 2008, of which $77 million was spent on greenfield exploration, $86 million on brownfield exploration and the balance of $20 million on pre-feasibility studies. The primary aim of both the greenfields and brownfields exploration programmes is to identify new attributable resource ounces of gold.

Greenfields exploration was conducted in six countries – Australia, China, Colombia, the DRC, the Philippines and Russia. Approximately 304,000 metres of various types of drilling was completed during the year, together with the drill testing of existing priority targets and the delineation of new targets in Australia, Colombia, Russia, the DRC and China. The most prospective of these were Tropicana in Australia and La Colosa in Colombia, where a combined total of 13 million attributable Measured, Inferred and Indicated Mineral Resource ounces of gold were defined by AngloGold Ashanti’s greenfields exploration teams during the year to 31 December 2008.

Another $36 million of expensed brownfields exploration and capital expenditure of $50 million aimed at identifying replacement ounces was undertaken in and around most of AngloGold Ashanti’s existing operations. In 2008, most success was achieved at the South African, Australian, Ghanaian and Guinean operations, and as a result of the brownfields exploration programme 14.6 million ounces were successfully added to the company’s total Mineral Resource.

For further information on the exploration programme see the website or the Annual Financial Statements 2008.

Capital expenditure

Annual capital expenditure
($m)

A great deal of emphasis is placed by the company on capital investment both to sustain operations and to develop operations and margins. In 2008, the group capital expenditure was $1,201 million (2007: $1,059 million). Stay-in-business expenditure, including that spent on ore reserve development, amounted to $547 million, while new project development amounted to $654 million.

For further information on the exploration programme see the website or the Annual Financial Statements.

Capital expenditure by operation ($000): 2008

Black economic empowerment

AngloGold Ashanti is largely supportive of the legislation and regulations that encourage the transformation of South African society to fully enable the participation of all South Africans. The group recognises that there is a need for proactive transformation programmes. In addition to the many programmes in place at an operational level, AngloGold Ashanti’s contribution to transformation can be reported as follows:

  • transferring of assets to and facilitating ownership by historically disadvantaged South Africans (HDSAs);
  • transforming the group’s procurement base in line with the Mining Charter; and
  • employment equity programmes that promote the recruitment, development and retention of HDSAs, particularly in supervisory and management roles, and in core mining disciplines. This is discussed in greater detail, in the Employment section of this report, and in the Social and Labour Plan Reports for the West Wits (PDF - 357KB) and Vaal River (PDF - 470KB) regions.

BEE ownership of AngloGold Ashanti

AngloGold Ashanti achieved the conversion of its mining rights for all of its South African operations in 2005. One of the key factors taken into consideration by the Department of Minerals and Energy (DME) in awarding these conversions was the transfer of equity ownership of more than 26% of the company’s South African assets to BEE/HDSA companies or HDSAs.

AngloGold Ashanti achieved this through three different types of transactions as discussed below.

  • The sale of assets to HDSA companies: In January 1998 and July 1998, the then AngloGold sold to ARMgold, an HDSA company, Vaal Reefs 1 to 7 shafts, Western Holdings 1, 2, 3, 4, 6 and 7 shafts and the Welkom gold plant. In January 2002, AngloGold sold the remainder of its assets in the Free State to a combined Armgold and Harmony Joint Venture company. These were the Bambanani, Joel, Matjhabeng and Tshepong mines, and shares in the Jeanette project as well as surface infrastructure. AngloGold Ashanti and the DME recognised the HDSA participation relating to these transaction at 20.8%
  • The formation of an Employee Share Ownership Plan (ESOP): In October 2006, AngloGold announced the formation of the Bokamoso ESOP in which all employees at AngloGold Ashanti’s South African operations, including the corporate office, who were not participants in any current share incentive scheme, would qualify as beneficiaries. Just over 30,000 employees participate in the Bokamoso ESOP, with 91.5% of eligible employees being HDSAs. A trust was established to acquire and administer the shares issued by the company (2,880,000 E ordinary shares and 980,000 ordinary shares, representing approximately 1.4% of AngloGold Ashanti’s issued share capital at that time). The shares will vest annually in five equal tranches to each eligible employee, with the first tranche vesting on the third anniversary of the Bokamoso ESOP’s launch (that is, in 2009), and the last on the seventh anniversary (in 2016).
  • Acquisition of equity by BEE company: In a third transaction, also in October 2006, Izingwe Holdings Limited, a BEE investment company, acquired 1,400,000 E ordinary shares (a 0.5% equity interest in AngloGold Ashanti at that time). Izingwe Holdings Chairman, Sipho Pityana, was appointed to the AngloGold Ashanti Board of Directors in February 2007.

The combined ESOP and Izingwe transactions represent the transfer of an additional 6% to HDSA ownership, bringing total HDSA ownership to just over the 26% target required in terms of the Mining Charter.

Local procurement

AngloGold Ashanti endeavours to support the communities and countries in which it operates through its procurement practices. As far as it is possible, and taking quality and cost into account, all operations have plans in place to increase local procurement. Procurement practices in South Africa, as required by the Mining Charter, are discussed in this report and the Social and Labour Plan Reports for the West Wits (PDF - 357KB) and Vaal River (PDF - 470KB) regions. Details for other operations may be found in the Country and Operational reports. In many cases, and particularly in developing countries, these procurement opportunities are linked to the local economic development initiatives discussed in the Community section of this report.

Transforming the procurement base

In South Africa, the company is currently aligning its procurement policies with the Department of Trade and Industry’s Codes of Good Practice, and will complete this process by 2009. This code is an integral part of the country’s transformation process and is aimed at encouraging new and small suppliers, particularly from historically disadvantaged communities. See case study: New codes of practice shape BEE procurement in 2008.

AngloGold Ashanti regards BEE companies as preferred suppliers. What this means in practice is that BEE companies which comply with AngloGold Ashanti’s criteria are placed on the vendor list and receive preferred status in winning contracts, should they be commercially competitive.

Targets have also been set for levels of BEE expenditure over a 10-year period. At the end of December 2008, BEE procurement was 35%, against a target of 41%.

Of total procurement spend in 2008 of R4,223 billion, R1,472 billion was spent through BEE companies. Of this R258 million was spent on the procurement of capital goods, R788 million on consumables and R425 million on that of services, all from BEE-related companies. For further detail, see the Social and Labour Plan Reports for the West Wits (PDF - 357KB) and Vaal River (PDF - 470KB) regions.

BEE spend as a percentage of total spend (%)
BEE spend as a percentage
of total spend (%)
Key
BEE spend as a percentage of capital spend (%)
BEE spend as a percentage
of capital spend (%)
Key
BEE spend as a percentage of consumables spend (%)
BEE spend as a percentage
of consumables spend (%)
Key
BEE spend as a percentage of services spend (%)
BEE spend as a percentage
of services spend (%)
Key

Taking responsibility for gold

Gold as a product is benign and does not in itself have a significant impact on our health and safety. However, the activities involved in the mining and processing of gold, and some of the by-products generated, have the potential to negatively affect the safety and health of employees and communities, and their environment. When evaluating the associated sustainable development risks and impacts, and in developing plans to mitigate these risks and the impacts of our business, the group looks at the full life cycle of the product, including its production.

No issues of non-compliance with regulations concerning the health and safety effects of products were alleged in 2008. Products are labelled according to internationally accepted norms, regulations and standards. In respect of gold bullion, such labelling typically indicates the name of the refinery and the purity of the bar. No incidents related to product labelling occurred in 2008.

The bulk of the group’s gold is sold through well-established and long-term channels. The graphs above, illustrate the delivery destinations, by country, for AngloGold Ashanti’s gold. Further details may be found in the Annual Financial Statements 2008.

Geographical analysis of gold income by destination ($ million)
 20082007
South Africa1,3701,039
North America1,057741
Australia790
Asia255267
Europe307734
United Kingdom809409
 3,8053,280
Equity accounted investments included above(186)(278)
Total3,6193,002
Rand Refinery, South Africa
Rand Refinery, South Africa

Rand Refinery, South Africa

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ANGLOGOLD ASHANTI Report to Society 2008