Dear Shareholder
The planned merger of AngloGold with Ghana’s Ashanti
Goldfields, which is expected to be concluded during April
2004, has been the most significant recent strategic event
for AngloGold. The merger will bring together AngloGold’s
technical and financial strength and Ashanti’s substantial
ore reserves, making possible the development of the Obuasi
Deeps project – one of the most prospective gold orebodies
in the world – and extending Obuasi’s life by
some 20 years.
In 2003, AngloGold’s performance was affected by a combination
of stronger local currencies in most of the company’s
operating regions, as well as lower ore grades in several
operations. As anticipated, gold production declined by 5%
to 5.62Moz, as a result of the lower grades at Morila, following
the extraordinary but unsustainable production levels of 2002,
and at Great Noligwa. In addition AngloGold sold its stake
in Jerritt Canyon in Nevada.
Total cash costs across the company were $68/oz higher, at
$229/oz, mainly as a result of translating local currency
costs to US Dollars at a significantly lower Dollar exchange
rate. Adjusted headline earnings in 2003 were 23% lower than
those for the previous year, at $282 million, or 127 US cents
per share.
In January we announced that AngloGold would pay a final dividend
for the year of $0.50 per ADS, giving a total dividend for
the year of $1.01 per ADS, thus continuing AngloGold’s
practice of paying to shareholders a high proportion of the
company’s earnings after providing for long-term growth.
The average spot price for gold in 2003, at $363/oz, was 17%
higher than the average for 2002 and AngloGold received the
full spot price for the year on its gold sales. Against this
background, AngloGold’s net delta hedge position of
8.59Moz was 16% lower at the end of 2003 than it had been
a year previously, illustrating the company’s continued
faith in the strength of the gold price.
Mine safety performance in South Africa for the year 2003
was disappointing, after a 14% improvement in the lost time
injury frequency rate (LTIFR) during the previous year. The
LTIFR for 2003 for the South African operations increased
by 4% and the fatal injury frequency rate (FIFR) was unchanged.
However, FIFR in the second half of 2003 improved by 40% compared
with the first half of the year. If we can continue this trend,
a step change in our safety performance seems possible.
On the subject of expansion, the company has a number of major,
well advanced capital projects in South Africa: at Mponeng,
Moab Khotsong and two at TauTona, which will yield some 12Moz
of gold over their lives, while future capital projects could
add a further 7.5Moz. Potential growth projects elsewhere
include the Cuiabá Expansion in Brazil, and the Sunrise
Dam underground project and Boddington mine in Australia,
which together could add a further 7Moz of attributable gold
production.
 |
| “The combination
of AngloGold and Ashanti will form a company which
is likely to cement Africa’s leading position
in the global gold industry.” |
|
 |
| Russell Edey, Chairman |
Bobby Godsell,
Chief Executive Officer |
In February this year, AngloGold successfully launched a convertible
bond, raising $1 billion. The five-year bond, which carries
a 2.375% coupon, has a conversion premium of 60% on the current
share price. The proceeds of the offering will be used to
replace existing debt of the greater group, including Ashanti
(assuming that the merger is completed). This was one of the
most successful public offerings ever by a South African company
and illustrates AngloGold’s capacity to raise money
at very competitive rates, effectively reducing its cost of
capital and ensuring that the growth projects, which the cash
will be used to fund, will bring enhanced value to shareholders.
On AngloGold’s South African mines, progress continues
to be made with the company’s campaign to effectively
manage HIV and AIDS. More than 3,000 voluntary counselling
and testing (VCT) sessions were conducted by trained counsellors
during 2003, almost double the number recorded in 2002 and
some 3,000 employees registered with the AngloGold Wellness
programme during 2003. The full-scale roll-out of the company’s
antiretroviral therapy (ART) programme began in 2003, and
by the end of the year, some 530 employees had begun the treatment.
Most patients receiving ART have returned to work.
Looking forward to the rest of 2004, and assuming the conclusion
of the merger with Ashanti in April, production from the enlarged
group is expected to be around 6.47Moz. Assuming an average
exchange rate of R7.00 to the Dollar, AngloGold is expecting
total cash costs to rise to $243/oz, with earnings being largely
dependent on exchange rates and the gold price. Capital expenditure
is expected to increase to $596 million.
We expect the gold price to continue to be supported by positive
investment sentiment and by the weak Dollar, but we are concerned
about the negative trend evident in the last few years in
the fall in demand for gold in jewellery. In the light of
this, we intend to continue and, indeed to expand our efforts
to re-invigorate all aspects of the gold jewellery value chain.
Finally, we must note that Julian Ogilvie Thompson and Nicky
Oppenheimer, both founding members of the Board, have indicated
that they will not be standing for re-election to the Board
at the forthcoming AGM. We take this opportunity to record
our sincere appreciation to both of them for their immense
contribution to AngloGold since its formation.
Russell Edey
Chairman |
|
Bobby Godsell
Chief Executive Officer |
