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BACKGROUND
AngloGold is the world?s largest gold producer, at approximately
7 million ounces a year. It also has the largest reserves and resources
(126 million ounces and 173 million ounces respectively).
AngloGold was formed in June 1998 through a merger of the gold
operations, mineral rights and exploration activities of the then Anglo
American Corporation (AAC). The rationale for this consolidation
centred on the need to offer investors a focused gold company with
global growth potential and a simplified ownership structure.
Additional benefits included the diversification of operational risk, a
reduction in costs through reducing operational overheads and
sharing common services across operations, and a fully dedicated
management team, independent of AAC.
In December 1998, AngloGold bought the gold interests of Minorco
for US$492 million, thus gaining significant footholds in both North
and South America. Minorco?s low cost open-pit and shallow
underground operations added 865,000 ounces of annual production
to AngloGold, based on its performance in 1998. As a result of the
acquisition, non-South African production ounces increased from 3%
to 15%, while ounces mined shallower than 2,000 metres increased
from 34% to 43% of total ounces produced.
The successful completion of the Minorco transaction further
diversified AngloGold?s operational and country risk profile, reduced
its cost profile, and broadened its management base.
OUR STRATEGY
Our strategy includes:
- growth in shareholder returns;
- the development and expansion of global gold markets;
increased profit margins through the reduction of production
costs and improved productivity;
generating new mine production through exploration and
acquisition;extending future reserves and resources through a global
exploration programme;
a research and development focus on new technology, including
breaking rock in new ways, taking people away from mining risk,
and innovation in gold metallurgy; and
- reducing exposure to risks that dilute shareholder returns.
OUR FINANCIAL PERFORMANCE
Central to our formation and structuring in 1998 was the setting of
stringent financial return targets for each business unit. South African
operations that could not achieve margin and cash cost targets within
a reasonable time frame were sold or closed.
As a result of this restructuring, in 1998 compared with 1997:
For the 1999 financial year AngloGold is forecasting a 22% increase in headline
earnings before deferred tax rate adjustments to US$338
million and cash operating costs are expected to decrease by 9% to
US$209 per ounce.
OUR SHARE PRICE PERFORMANCE
Illustrative of our success in growing shareholder value since we
re-structured in June 1998, our shares have outperformed the
ASX and Standard & Poor?s gold indices and the Standard & Poor?s
500 Index.
OUR OPERATIONS
We have 21 operations in six countries, on three continents.
Of these, 16 are wholly owned and operated; five are joint
ventures that we operate by agreement with our JV partners.
In Africa we have 16 operations. Of these, 14 are in South Africa -13
deep-level gold mines and a metallurgical operation, called
Ergo, that retreats tailings dams for residual gold. We have one
open-pit operation in Namibia, called Navachab, and in Mali we are 38% JV
partners with Iamgold in another called Sadiola.
Following acquisition of the Minorco assets in December 1998, AngloGold now has
significant footholds in both North and South America. In Colorado we have a 66.7%
stake in the Cripple Creek and Victor JV and in Nevada, 70% in the Jerritt Canyon JV.
In Brazil, we now own Morro Velho, together with 50% of Serra
Grande; and in Argentina, 46.25% of Cerro Vanguardia. AngloGold
now has some of the lowest total production costs globally and has
steadily reduced its cash operating costs to competitive international
levels
OUR EXPLORATION AND ACQUISITION ACTIVITIES
We are actively involved in exploring for cost-effective replacement ounces
to ensure that we continue to be a significant gold producer well into the
future. These replacement ounces will be found through in-house exploration
programmes, exploration joint ventures, the acquisition of late-stage
exploration prospects and the outright acquisition of companies or existing
operations. Importantly, we seek to acquire only those ounces that will add
economic value to the company. Guidelines for acquisitions and projects
arising from exploration include:
- double-digit real rates of return;
- 200,000 ounces of annual production;
- reserves of 2 million ounces; and
- cash costs below US$200 per
ounce.
We also take into account the need to balance technical and country risk.
Currently, we are exploring in 10 countries - South Africa, Mali, Tanzania,
Senegal, the Democratic Republic of the Congo, the United States, Brazil,
Argentina, Peru and Ecuador.
OUR RESERVES AND RESOURCES
A summary of AngloGold?s share of reserves and resources as at 31 December 1998
is set out below:
OUR DIVIDEND POLICY
Our policy is to pay the majority of free cash flow to shareholders as
dividends, after providing for the long term growth of the company.
The company pays dividends semi-annually. In the 18 months of its
existence, AngloGold has paid three dividends. Prior to their
consolidation into AngloGold, the South African subsidiary companies
regularly paid semi-annual dividends. For further information, see
section 1.16 of the Part A Statement.
AngloGold shareholders who register their shares in uncertificated
form under the Australian electronic transfer system (known as CUFS
- see section 3.11 of this booklet for further information) will be paid
dividends in Australian dollars, and the dividends will not be subject
to South African withholding tax. Shareholders may, however, be liable
to pay income tax on the dividends in Australia. You should consult
your tax adviser for further advice.
OUR HEDGING POLICY
Recently, there has been publicity and speculation about the hedging position
of gold producers around the world. The AngloGold hedging policy is to price
forward a conservative amount of production in order to obtain a measure of
revenue certainty. AngloGold also manages interest rate exposure through
hedging instruments.
At 30 September 1999 AngloGold reported forward sales
of 13.8 million ounces spread over a number of years, but equal to less than
40% of production over the next five years. As at 27 October 1999, the net
present value of AngloGold?s hedge book was SAR840 million (US$140 million),
based on a gold price of US$292.10 per ounce, an exchange rate of
SAR6.15=US$1.00 and the prevailing market interest rates and volatilities at
the time.
The company will continue to manage its forward position actively
into the future, in a manner that is responsible and conservative in the
context of its overall financial position. For further information, see
section 1.17 of the Part A Statement.
LOOKING AHEAD
In 2000, we expect to further reduce our unit costs through improved
productivity and cost management. We will continue to target an acceptable
return on capital, and assuming there are no further acquisitions or disposals,
we expect to maintain gold production at around 7.5 million ounces per year
(inclusive of Acacia?s production).
We have a two-part strategy to ensure growth of both earnings and
market share:
Growing value
We will focus shareholders? capital on value-creating activities, while
at the same time seeking to reduce exposure to risks that could dilute
shareholder returns.
This will involve:
driving down operating costs, primarily through work redesign,
worker education and the development of appropriate mining
technology;
expanding our market share by seeking new profitable reserves
wherever they may be; and
diversifying the production base to achieve a better spread of
country and orebody risk.
Market development
We have adopted a unique market development programme aimed at
increasing certainty in the official sector of the gold market, the
deregulation of the gold market in key economies, and innovative
marketing of the product.
Constructive engagement between the central banks and
AngloGold, both by itself and in collaboration with other
producers and the World Gold Council, has yielded positive
results.
Continuing dialogue with banks and government agencies in
Asian countries with heavily regulated gold markets could lead to
a liberalising of the markets, with positive consequences for
demand for the metal in those economies.
AngloGold, both alone and in strategic alliances with partners,
has actively begun promoting gold in order to increase demand.
In all three of these areas, increased market share in world
production will enhance the ability of our world-wide marketing efforts
to impact the health of the gold market.
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WHAT WE BRING TO ACACIA AND ITS SHAREHOLDERS
AngloGold appeals to growth, value and income investors. Acacia
shareholders are therefore offered the opportunity to participate in
a company which appeals to a broader investor base.
AngloGold brings to Acacia a global presence that diversifies
operational and country risk, introduces significant gold marketing
and management expertise and provides a sound balance sheet
with strong cash flow.
AngloGold has demonstrated a track record of enhancing
shareholder wealth, including consistent growth in earnings and
dividends per share, and double digit returns on equity, despite low
gold prices.
Our offer provides Acacia shareholders with an early opportunity to
participate in the global consolidation of the gold industry whilst
receiving a significant premium for their shares.
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