| Chairman and Deputy Chairman's
Letter to Shareholders |
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During 2001, AngloGold's headline earnings
(before unrealised hedging activities) increased by 13% to $286m or
US267 cents per share (cps). Gold production declined by 4%, largely as
a result of the sale of the Elandsrand and Deelkraal mines. However,
improvements in cost control and productivity and the devaluation of the
rand led to a 16% improvement in total cash costs from $213/oz to
$178/oz, lifting operating profit by 12% to $522m.
The company declared interim and final dividends totalling $1.81 per share (R18 per share) for the year. This is consistent with AngloGold's established practice of paying most of the company's earnings back to shareholders, after allowing for organic growth. A significant feature of the year was our unsuccessful bid for Normandy. Our disappointment at the outcome of this bid is strongly tempered by a total commitment to only doing deals which grow rather than dilute both the present and future value of AngloGold. AngloGold carries out its business in a way that reflects awareness of and concern for our employees, their communities and the environment in which we live and work. The company's continuing focus on workplace safety has again led to improvements, illustrated by the further reduction in 2001 of the lost time injury frequency rate. We remain committed to our long-term target of eliminating all fatal accidents at work. At the end of 2001 we were pleased to learn that AngloGold was recognised as the sustainability leader in the precious metals sector by the Dow Jones Sustainability World Index. Focused strategy The objective of the board and management is to grow this company into the global gold equity of choice, and an investment that offers its shareholders competitive returns. In pursuit of this objective, we will continue to seek growing value through a focused six-part strategy.
Through a combination of changes to the asset base, productivity improvements and the benefits of currency movements, the cash cost of production has reduced from $250/oz in the March quarter of 1998 (the first quarter in which we reported as AngloGold) to $159/oz for the December quarter 2001. The sale of the Free State assets, announced in November 2001, will see a further reduction in our costs. In South Africa, we are 80% complete with our literacy programme and about 50% complete with our multi-skilled production team programme. Both of these initiatives are aimed at ensuring that all production workers have the ability to perform a set of diverse tasks appropriate to a 21st century mining workplace. We are also well advanced with testing incremental new production technologies. All of these should contribute to lower costs, improved safety and better margins, thereby growing earnings.
AngloGold continues to enhance the value of the company through organic growth. The company currently has five major capital projects in development in South Africa, Australia and the United States. These will be coming into production over the next three years, and will produce around 15Moz of gold over the life of mine (LOM) at an average cash cost of approximately $150/oz. In addition there are two potential projects ? the Cuiab? Deepening Project in Brazil and the Boddington Expansion Project in Australia ? which together have the capacity to add some 5Moz.
Over the last two years we have generated some five million new reserve ounces from brownfields exploration at a discovery cost of below $9/oz, thereby growing our existing operations. There are exploration projects under way at present in Mali, Tanzania, the USA, Brazil and in Australia.
From our now highly focused greenfields exploration activities we are targeting some 13 million new production ounces between now and 2015, at a discovery cost of below $30/oz from projects in southern Mali, Canada and Peru.
Since the creation of AngloGold in its present form in
1998, the company has acquired assets which last year produced 2.3
million low-cost ounces, and contributed 37% of the company's operating
profit and 49% of EBITDA. We will continue to pursue acquisitions of
both orebodies and companies, where these acquisitions add value to
AngloGold.
Lepula Ramapulane (Driller) at the rockdrill trial area on 59 level at AngloGold's Kopanang mine. This world-first electric rockdrill developed specifically for use in the mining industry is being tested in a collaborative effort between AngloGold and Hilti Corporation. The electric rockdrill uses a cheaper source of energy and is more environmentally and worker-friendly than traditional pneumatic drills, and has the potential to revolutionise the mining industry worldwide. AngloGold and Hilti have agreed to test the product extensively before its release on a wider front. In all, 45 rockdrills are being deployed at Kopanang, 45 at TauTona and ten at Moab Khotsong during 2002 to test the product under rigorous conditions underground.
As important as value-adding consolidation is in the mining of gold, so too is consolidation downstream of the smelthouse gate. The gold jewellery industry, from refining through to retail, is fragmented, under-capitalised and, in many areas, inefficient. AngloGold has made two modest investments downstream, from which we have learnt a great deal about bullion trading, manufacturing and retailing. We will continue to examine investment opportunities of scale where these present a compelling commercial case. Well-supported gold price After an eventful and volatile year in the gold market, the gold price remained well-supported in the closing months of 2001, with firm prices for the metal into the new year. The spot price, having averaged around $271/oz for the year, briefly traded above $290/oz during the final quarter, following on the attacks on the USA in September. The average price of $278/oz for the last quarter was the highest quarterly average spot price in the past 18 months and, while we continue to exercise caution in our price assumptions for planning purposes, we are optimistic about the short-term prospects for the price of our product, particularly following the stronger price levels achieved since the end of January 2002. The final quarter of the year was also marked by the rapid and unanticipated decline in the value of the South African currency, with substantial consequences for the gold industry locally. At its weakest point in December, the rand fell to R13.81 against the US dollar. The local currency subsequently steadied, closing the year at around R12.00 to the dollar. This produced record high South African spot gold prices of just under R123,000/kg on 21 December 2001. Over the years of maintaining forward price cover,
AngloGold has always actively managed its hedge. The need for active
management is inevitably greatest in times of major market change, such
as the very sharp loss of value in the rand. In at least some respects,
the immediate results of active management can be seen in AngloGold's
received prices during the year where we are pleased to report that we
continue to show improving prices in a changing environment. During the
year, our changing production profile and the strengthening price
permitted the reduction of net hedge commitments by some 105t or 3.4Moz.
Going forward in this price environment, we will continue to reduce the
level of rand-priced cover by restructuring our hedge.
Share price ? JSE Securities Exchange Outlook for 2002 For the year 2002, we forecast gold production of 5.8Moz at a total cash cost of $154/oz and capital expenditure of $268m.
20 February 2002 |
Bobby Godsell
Russell Edey
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