Economic performance

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 (000oz)

	2008	2007	2006	2005
Argentina	154	204	215	211
Australia	433	600	465	455
Brazil	407	408	339	346
Ghana	557	527	592	680
Guinea	333	280	256	246
Mali	409	441	537	528
Namibia	68	80	86	81
South Africa	2,099	2,328	2,554	2,676
Tanzania	264	327	308	613
United States	258	282	283	330
Total	4,982	5,477	5,635	6,166

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.

Rising costs of production

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 income	3,619		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 operations	2,069	55	1,814	65
Fair value gain on option component of convertible bond	25	1	47	2
Profit on disposal of assets	55	1	7	–
Dividends from investments and interest received	66	2	45	2
Government
Deferred taxation	289	8	88	3
Utilised in the group
Retained income	1,236	33	793	28
Total value added	3,740	100	2,794	100
Value distributed
Employees
Salaries, wages and other benefits	986	26	966	35
Government
– Current taxation	92	3	189	7
Providers of capital
– Finance costs and unwinding of obligations	114	3	120	4
– Dividends paid	41	1	125	5
– Minorities	40	1	32	1
Other
– Impairment of tangible and intangible assets	1,608	43	1	–
– Loss on non-hedge derivatives and other commodity contracts	297	8	792	28
Total value distributed	3,178	85	2,225	80
Reinvested in the group
– Amortisation and depreciation	562	15	569	20
	3,740	100	2,794	100

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	2008		2007 restated ¹
	($m)	(%)	($m)	(%)
Salaries, wages and other benefits	826	84%	797	83%
Health care and medical schemes, including defined post-retirement medical expenses	65	6%	69	7%
Contribution to pension and provident plans	46	5%	48	5%
Retrenchment costs	9	1%	19	2%
Share-based payment expense	40	4%	33	3%
Total included in cost of sales, other operating expenses operating special items and corporate administration and other expenses	986	100%	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.

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

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 government	888
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	–
Total	705

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 payments	0.6% on debits; 0.6% on credits.	0%	Did not exist when fiscal stability programme was awarded.
	Import duties	Varied, 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 tax	1%	0%	Mining companies are exempt from this tax.
Brazil:
Brasil Mineração	State VAT on exports (ICMS)	12% to 18%	Exempt	Statutory regulation
	Federal value added tax	5% to 25%	Exempt	Statutory regulation
	Drawback incentive	12% to 18%	Exempt	Statutory regulation
	Turnover taxes on exports	9.25%	Exempt	Statutory regulation
	State VAT on import of machinery and equipment	18%	Exempt	Company agreement
Serra Grande	State VAT on exports (ICMS)	12% to 18%	Exempt	Statutory regulation
	Federal value added tax	5% to 25%	Exempt	Statutory regulation
	Drawback incentive	12% to 18%	Exempt	Statutory regulation
	Turnover taxes on exports	9.25%	Exempt	Statutory regulation
Ghana:
Iduapriem and Obuasi	Import duty on Mining equipment	10%	0%	Act of Parliament
	Other	10%	5%	Act of Parliament
	Royalties	In 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 tax	Varies monthly	Exempt	Mining agreement signed on 20 March 1990 – valid for 30 years.
	VAT exemption on transactions with registered Mali business units	18%	Exempt	Started 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

Country	Value ($000)	Description
Argentina
Cerro Vanguardia	13,724	Subsidies/rebates
	3,320	Other financial benefits from government
Mali
Sadiola/Yatela	6,873	Tax 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

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.

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.

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)

	2008	2007
South Africa	1,370	1,039
North America	1,057	741
Australia	7	90
Asia	255	267
Europe	307	734
United Kingdom	809	409
	3,805	3,280
Equity accounted investments included above	(186)	(278)
Total	3,619	3,002