AngloGold Ashanti Limited
Q2 2012 Earnings Call Transcript

Published: 6 Aug 2012

[Stewart Bailey:]

All right, everyone. Welcome to AngloGold Ashanti's presentation for the results of the second quarter 3 months to the 30th of June. First of all, I would like to welcome several members of our executive team that are here to assist with any questions and members of the board present, including our Chairman, Mr. Tito Mboweni. First of all, our emergency procedures in the event -- unlikely event of any emergency, please move to the nearest exit points behind you and to my right and congregate at the carpark behind the building where we'll take over from there. As is customary, just to run through our agenda for today, Mark is going to give an overview of the result. Venkat will walk through the details of the financials. Mark will talk to technology exploration and projects, and then conclude to some wrap-up comments. And as is customary, just a quick run through our Safe Harbor statement. Certain statements made in this communication other than statements of historical fact, including without limitation those concerning the economic outlook for the gold mining industry, expectations regarding gold prices, production cash costs and other operating results, growth prospects and outlook of AngloGold Ashanti's operations individually or in their aggregate, including the achievements of project milestones, the completion and commencement of commercial operations of certain of AngloGold Ashanti's exploration and production project and the completion of acquisitions and dispositions, AngloGold Ashanti's liquidity and capital resources and capital expenditure and the outcome and consequence of any potential pending litigation or regulatory proceedings or environmental issues are forward-looking statements regarding AngloGold Ashanti's operations, economic performance and financial condition. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause AngloGold Ashanti's actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied in these forward-looking statements. Although AngloGold Ashanti believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that they will prove to be incorrect. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of amongst other factors, changes in the economic and market conditions, success of business and operating initiatives, changes in regulatory environment and other government actions, including environmental approvals and actions, fluctuations in gold prices and exchange rates and business and operational risk management. For a discussion of these factors and other factors, refer to AngloGold Ashanti's annual report for the year ending 31st of December 2011, distributed to shareholders in April 4, 2012 and the company's 2011 annual report on Form 20-F filed with the SEC in the United States in the 23rd of April 2012, and the prospective supplement to the company's prospectus dated July 27, 2012, filed with the SEC on July 25. These factors are not necessarily all of the important factors that could cause AngloGold Ashanti's actual results to differ materially from those expressed in any forward-looking statements. Other unknown or unpredictable factors could have material adverse effect on future results. Consequently, stakeholders are cautioned not to place undue reliance in forward-looking statements. AngloGold Ashanti undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after today's date or to reflect in the occurrence of unanticipated events except to the extent required by applicable law. All subsequent written or oral forward-looking statements attributable to AngloGold Ashanti or any person acting on its behalf are qualified by the cautionary statements herein. The communication may contain certain non-GAAP financial measures. AngloGold Ashanti uses non-GAAP performance measures and ratios in managing its business. Non-GAAP financial measures can be viewed in addition to and not as an alternative for the reported operating results or cash flow from operations or any other measures of performance prepared in accordance with IFRS. In addition, the presentation of these measures may not be comparable to similarly titled measures other companies may use. AngloGold Ashanti posts information important to investors on the main page of its website at www.anglogoldashanti.com, and under the Investors tab on the main page. The information is updated regularly. Investors should visit the website to obtain important information about AngloGold Ashanti. And with that, Mark?

[Mark Cutifani:]

Thank you for the riveting introduction, Stewart. Ladies and gentlemen, I'm very happy to be here again this morning, and more importantly, very happy to see that you're here with us this morning. First, I'd like to acknowledge our Chairman, Mr. Tito Mboweni, who has joined us today. I'd also like to point out a couple of new colleagues we have with us today, Mr. David Noko, our Head of Social and Sustainable Development. David's been with us around 6 weeks. Mr. Mike MacFarlane, Head of Strategy, has been doing the work in South Africa on technology development with the team. He's now taken over our strategy role. And in fact, sitting next to Mr. Mboweni is Mr. Charles Carter, who has taken on the role as Executive Vice President, Colombia, which indicates how important we see Colombia, it's a new role, and indicates the resourcing and the leadership that we see the country demanding now that we have 3 major discoveries, one moving into a pre -- from prefeas to feasibility, one in -- moving from scoping to feasibility and with a new major discovery, becoming more important to the whole portfolio. So very exciting times, very good to share time with our colleagues and a few new faces in the audience as well. Ladies and gentlemen, I think from a results point of view, and if I could say in a much broader context in terms of the gold industry, I think the results that we'll be talking about today and I think even more importantly on a broader basis how we stand in the industry, I think there are 4 points I'd like to make before I start the presentation. Firstly, in the last almost 5 years, say 4.5 years, we focused on a number of things in terms of rebuilding the business. Operations delivering across the portfolio of more than 20 assets and with new potential opportunities certainly been a key focal point. And whilst we haven't finished all of that work and there are a couple of pieces of work still undone, we've made tremendous progress. And given that we've delivered more than $1 billion of new free cash flow from the improvements we've delivered, we've certainly made a lot of ground. And standing is in good stead as we speak today and as we go forward. Secondly, in terms of putting new project disciplines in place, we have already commissioned a couple of new projects that have gone exceptionally well on time and on budget, being Cripple Creek and Córrego do Sítio. And with the new -- 4 new projects that we've already got underway and one pending, to make that 5, I think the hard work we've done on the projects are the fact we've delivered our capital budgets 4 years running certainly again speaks to the hard work we've done within the engine room in developing the new projects. In terms of the conversations around mergers and acquisitions while those -- while some of our colleagues have gone out and made what has turned out to be disastrous acquisitions, we've actually stepped out 5 times relatively small acquisitions, but more importantly, high-value yielding acquisitions, starting from Golden Cycle, the CDS or the São Bento acquisition, the Moto acquisition and, more recently, the incremental purchase of the MSG share in Brazil and Mine Waste Solutions. If we take those in aggregate, we're adding something like 700,000 ounces of production at about 2/3 of the costs of what our competitors are currently building new assets at across the globe, and that's before I take the most recent capital blowouts into account. Then finally, and I'll leave this for Venkat to talk about, but I'd like to acknowledge his great work with Rob Hayes and the rest of the Finance team, along with the IR team and others in terms of the 2 new refinancing deals that have just been done. And that really adds to a list of major transactions over the last 5 years that has really transformed the company and in terms of the balance sheet and where we're going as a company. So lots of great work. We're working in all the hard areas, and whilst those around was that -- those around us have been falling away, we continue to improve and deliver industry-leading returns on capital, demonstrating what should be done with the portfolio but at the same time, fully understanding that we've not delivered everything we wanted to do. And so there's still a lot more work to be done. With that, if I go straight into the operations results, you'll see that headline earnings up 25% to record $682 million and EBITDA up to $1.47 billion for the first half. For us, that is a record despite some of the challenges we've had, particularly in the first quarter in South Africa. A number of other milestones. Continental Africa, Americas, South Africa certainly starting to recover in the last quarter. Growth projects remain on schedule and on budget. Tropicana looking very good and looking to pour first gold in Q4 2013. Refinancing, as I said, has been done. We'll let Venkat talk about that. Dividend consistent with what we've been talking to. If we get a bit of a run on the gold price, we'll review that during the course of the second half, but certainly very happy to again declare another 100 SA cents per share. And from our point of view, the business is well positioned in terms of its growth and in performance improvement objectives going forward. On safety, whilst we continue to make ground on the key cultural measure, that's the all accident frequency rate, it was nevertheless a very tough quarter with 5 fatalities reported for the quarter. We certainly think in the last couple of months, we've improved. And certainly, the trends are heading in the right way in terms of serious incidents. But still a lot a lot of work to be done. Most importantly, though, we see the cultural work is continuing to improve. And in particular, the work around the accelerated implementation of Project ONE we believe will help us continue to improve on the series incident front, and we certainly are expecting a much better quarter. In terms of the operation side. In Continental Africa, been a good quarter. Production strong at 407,000 ounces, cost around $827. Geita is going very well, continuing the performance turnaround we've seen over the last 3 years. Obuasi, steady production, still a lot of work to do. We are focusing now very heavily on the work we're doing on development with our contractor, and certainly there are some tough conversations going on in the area in the next month. The next quarter will be very important to take that next step in that improvement program, which pushes us up towards that target 500,000 ounces. An important 6 months for us in Obuasi in navigating the next steps of change across the organization. Iduapriem continuing to improve and deliver against its budget targets, has done for the last 6 quarters so very encouraging performance. Siguiri going well. Sadiola been through a tough period in Mali, and we have seen some challenges keeping people, but we are keeping a core team on the ground. We've certainly not seen any impact on the operation on a direct basis, and so we're watching things fairly closely, and things are quiet at the moment. Navachab, again good performance, good turnaround over the last 3 quarters, so we've been very satisfied with the work there. We've also got some good work on potential development opportunities in Navachab. And so Navachab turning to be a real good story on the go-forward basis. In the Americas, another good result, 233,000 ounces at $670-odd an ounce. Cripple Creek sees a planned decline year-on-year production, you won't really see that kick up again until we get to the next phase of development, which is the new mill and the extended ore pads, but certainly good result. And Ron and the team are delivering on plan, and we're certainly doing much better at the leach pad compared to where we were around 18 months ago. In Brazil, good operating performances and very happy to see that we picked up Serra Grande and Cerro Vanguardia in Argentina. Despite some of the challenges politically in the country, we're still doing very well at the operation. Silver down a little bit, but it will pick back up again, and the costs were impacted by the lower silver by-product contribution. Don't forget we're about a 3 million to 4 million ounce silver contributor -- producer out of Argentina as well. In Australia, the team delivered on target, continuing to improve. Costs are a bit better. The really exciting thing about Australia, around Sunrise Dam in particular, is as we drill the deeper Vogue ore body, things are starting to look very, very exciting in the operation. And certainly from our point of view, points to a great future. And again I'll talk about that when I deal with growth. But very happy with what the team's done. They've delivered to their commitments, and so from our point of view, certainly giving us something to work with and to bank on, on a go-forward basis. In South Africa, well, tough year-on-year obviously, coming off a very poor first quarter. We've seen an 18% improvement impacted by -- still impacted by seismicity, some great challenges in the Vaal River region and some lack of working spaces, which we're working on through our implementation of the Project ONE program. Number of challenges, good news is we've improved 18% [ph]. The operation should improve through the balance of the year, but I will say that we're focusing very much on increasing development, pit room and flexibility so that we continue that performance improvement so that's on a sustainable basis. At the same time, you should know grades have been declining in South Africa, so that's added to the challenge. But the guys have done a good job in the second quarter, and we'd expect to see performance continuing over the next couple of quarters. I can then hand on to Venkat that will give us a financial overview, and then I'll pick the ball up on our growth projects after Venkat's dealt with the balance sheet and other important initiatives.

[Srinivasan Venkatakrishnan:]

Thank you, Mark. Good morning, ladies and gentlemen. I'd like to cover the following 4 areas in today's presentation

[Mark Cutifani:]

Thanks, Venkat. Can I take over the controller? Thanks, Renée. Thanks, Mike. First thing I'd like to say, ladies and gentlemen, is as we have done over the last 3 or 4 years, we've worked very hard in making sure we've got the right people in the right roles, and a lot of that change management processes have been about developing -- putting people in place, developing succession planning. And we're going through another phase of change as we set ourselves up for the new organization, the new operations and the new businesses. Most importantly, and I don't say this in terms of individuals but in terms of work and how we see things from a strategic point of view, the importance of social and sustainable development not only in South Africa but right across the globe I think is central to mining companies putting their best foot forward, working with local communities and making sure they've got developments going forward in a way where their communities that create partnerships for long-term success both ways. And so David Noko, a great career with De Beers and quite a varied career in terms of engineering and involvement in sustainable type of activities, has joined us. Very excited in terms of the future and what we have and what we can offer in terms of working with our communities in terms of special partnerships, and in particular some of the great experience he brings from De Beers in terms of that space will certainly help us, I think, take another giant leap forward in terms of what we're doing in South Africa and across the globe. And David has global responsibility for that work supporting the Executive Vice President to the key areas. Charles Carter's appointment to the EVP role, Colombia is a very important one. It says what we think of Colombia or in terms of its importance. It is a new role. We've upgraded that position reflecting the significance of its potential contribution in the future. At the same time, I've also got to acknowledge Ron Largent and Rafael Herz and King [indiscernible] for doing a great job in getting us positioned where we are today. But given we've got 3 major projects that look like they have the potential to be developed over the next 3 to 5 years in terms of staffing, it really does become a game changer for us as AngloGold Ashanti and could easily add 30% in terms of overall production before I take depletion into account. So significant game changer for us as a business and again, supports the great work that's been done by the exploration and the development teams. And finally, Mike MacFarlane in strategy. Given Charles' role in the Colombia, Mike has been working with us over the last 18 months in terms of technology development in South Africa, with Michael here and the rest of the team. And so you'll see a little bit of his work later in the presentation. But again, significant position, very important to us and very important in terms of the way we think about the way we develop the business across the organization. And finally, in terms of the board. We continue to add strength in the board. Michael Kirkwood financial background in particular, quite unique, quite global, adds a very different perspective for our board conversation, which is what we're after in terms of that global perspective on the board, another very important addition to the board. And going forward, wanted to focus on growth and not only we are putting in the people in place, we've got the prospects, the projects, the people and the new developments that'll support that growth at -- as part of the work we're doing now in Colosa. We've seen another significant intersection. The resource is looking like currently around 25 million ounces. We believe it has the potential to grow to an excess of 40 million ounces. So a central play for us, very important. Also whilst we're working on the exploration front in Tanzania, some great results out of Geita. And whilst we have good future with the open cut operation, it looks like we have a rapidly emerging high-grade underground development potential that's certainly all the drilling is proving up, and that, we believe, will be a project that will be moving toward certainly the next 12 to 18 months, which will carry on the life beyond the open cut life in terms of the 500,000 ounce contribution. So very excited with what we're seeing there in Tanzania. In Kibali, making good progress. Mark Bristow and the team doing a great job forecasting, commissioning in the fourth quarter of next year. Mark and I have got a good bottle of wine on it, and quite frankly, I'm starting to look for the right bottle. Certainly, they've made good progress. A couple of areas where we've seen a few hiccups, but nothing more than you would expect. Some have said to me that we look to be a little bit conservative, given our half of the costs are higher than theirs. Don't forget we include escalation and we make additional provisions for things that can't be planned for as part of the process. And I guess that comes with 35 years experience and having the most experienced operations and management team in the gold industry. If we've been a little bit conservative, so well and good. We haven't hit our budgets for 4 years without having the disciplines and an understanding of where contingencies might hit projects. But having said all of that, Mark and the team are doing a great job, very proud to be partners on the project, and I'm very pleased. And this is an important project for the DRC as well, and so we haven't missed how important it is for the country. And so it's a great project, very important one. I'm very proud of the work that's being done for more perspectives. Mongbwalu, we can argue that this is actual mining. We're actually constructing main roads and access to the key areas in the plant. But again, very happy, approved last quarter. Fine-tuning the estimates, the engineering is progressing and starting to make real ground in terms of the physical access to the site starting the project work. Doing some work with our contractors. At the moment, it's just reviewing the final execution strategies. So making good progress, and again, more likely to commission very late in that fourth quarter, maybe into early first quarter 2014. But either way, making good progress. And don't forget, coming back from a fairway behind the other projects, but making good progress. Not a big project, but in terms of potential, very important one for us again in our DRC position. At Cripple Creek, this is a great panoramic of the site. You can see one of the current benches, and behind that you can see the deeper areas of the mine, being one of the world's great gold assets. We're looking at a life now beyond 2025. And given that we've got additional areas now being defined, we certainly believe this could be a 2035 to 2040 asset. And given that we're mining a head grade of around 0.4 grams a ton, with cash cost around the $600 to $700 an ounce. So pretty competitive asset and, quite frankly, demonstrates what we can do in open cut -- open pit operations. It's got a of 4

[Mark Cutifani:]

Alan, and then, is that 2 questions or 1? Are you trying to sneak in 2 or 3? Okay, Stu.

[Steve A. Shepherd:]

I have to work with this guy everyday. Steve Shepherd, JPMorgan. Mark, do you see any assets in the huge portfolio that you've got that are not core and perhaps occupy more management time than they justify? I mean, do you have any mines that you can't do much with and what can you do about that?

[Mark Cutifani:]

I think I kind of suspect you're speaking with a perspective in mind when you say huge portfolios. But look, we operate within 4 regions. We are also of the view maybe not like others who sort of say 100, 100, 100 or 200, 200, 200 or then 300, 300, 300, which to me is a bit simplistic. I think it's important to understand what geological potential you have in regions, and being able to hang in there, create value, the big deposits quite often come from the small deposits that you didn't quite recognize. It's all about understanding the geology. With that caveat, there are probably 2 or 3 assets in the portfolio that we're keeping a very close eye on. People know that in the past, we've been open to discussions, for example, in Mali. The good news is there we didn't sell when we had an opportunity because the price was too low, and the good news is in terms of free cash flow, we've -- I think it's more than quadrupled the cash flow that we're offering. So we make the right call, but we keep that -- those sorts of things on the radar. Question is, is Navachab big enough for us. Well, it's 100,000 ounce producer. We've now got a strategy where we believe we can take it to 200,000 ounces. And pending the political discussions and what we think we can do with the region, that may remain as part of the conversation around potential. And literally, every asset gets the rule over it on an annual basis. So yes, there's a couple of things we're looking at. Yes, we'll protect our balance sheet. Yes, we'll protect our high returning assets and look to leverage our capital in those assets. So it's an ongoing conversation, one that we're watching fairly carefully. And as you would expect, even a conversation around the commitment, it gets extra attention.

[Steve A. Shepherd:]

Just could you update us on your view of the business environment in South Africa and the way that's going?

[Mark Cutifani:]

I'm cautiously optimistic. I didn't read the outcomes from the ANC conferences. Some -- I thought our Chairman wrote a very good piece on why we should be optimistic about the ANC and, in particular, the future for South Africa. And I think he got it right. What we have to do as the management team that is turn that into actions that works. So for us, the key message out of the conference, key issues on use, unemployment, challenges, they're all things that we have to take on board. But having said that, nationalization was kicked for touch. Yes, there'll always be some conversations around that. It is now a conversation around what's the right structure for our industry. And I think in the next 6 months, that conversation will be had in a constructive and an open way. And one thing I'll guarantee, you won't end up with it in Australia where the government doesn't listen to its industry. The good news here in South Africa, we've got a government that does take our point of view into account, as they've done with the royalties, as they did with the mining charter, as I'm absolutely certain they will in the conversations over the next 6 months. So for me, I'm cautious, but I am optimistic that we'll work out a pathway for the industry to go forward that is constructive and encourages investment, encourages creation of new jobs because quite frankly, anything else would be a disaster for the country and I don't think we'll go there. And certainly, in my 5 years here, we've not taken those decisions so I'm certainly optimistic. On a broader basis, the world stuff, Europe, the U.S., I think the climate is right for a reasonable gold price second half. I expect to see it right above 700, 800 based on continuing demand in Russia, in China. And Russia has been buying gold, as well, I've got to say. So I think the macro economic environment suits gold, but it's going to be tough for most people.

[Steve A. Shepherd:]

Do you have any comments to make at all on the labor relations climate here, AMCU, or indeed, what labors approach to your technology drive is?

[Mark Cutifani:]

Well, don't forget we sat down with the union in our last negotiation and we agreed to think about ways and means of working differently in the future. And that has been a positive and constructive set of conversations. So firstly, constructive, good relationship, we have our moments, very happy with that relationship with NUM, Solidarity and the other unions. It's been very constructive, that's the first point I would make, very important. Secondly, the other unions that have obviously got a fair bit of airplay in the platinum sector. I think the platinum sector's probably a little bit different in that we negotiate and consolidate our view in gold and we work together I think as an industry and in our negotiation with the union. So we've not seen any major moves. We are aware that people are trying to solicit membership, and I won't say who or what but certainly it's at the edges and we don't see it as a major issue. Others may see a bit more of that. It is a concern. We respect the unions that are represented and the members, and so I won't get in the middle of those sorts of conversation. But we respect the relationship, it's been a positive. And I think, on a go-forward basis, we need to work on the right structures and with the government I think we've got the right conversations in place, particularly through the Migdett processes as well for the industry.

[Allan J. Cooke:]

It's Allan Cooke, JPMorgan. Just 2 quick ones. On your guidance for the year, which remains unchanged, is that not lower guidance because you have Serra Grande contributing for the second half of the year? What do you expect the contribution there and should we read into that anything untoward? Are you expecting to lose ounces elsewhere that will be made up by Serra Grande? And then just lastly, on your quarterly dividend guidance, with the net debt climbing, is -- are you maintaining your quarterly dividend guidance or you continue to pay ZAR 1 a quarter?

[Mark Cutifani:]

On production guidance, we're very tight. Obviously, you can't lose more than 100,000 ounces in your first quarter from your South African operations and not at the top end of your guidance. But certainly from our point of view, we've seen an encouraging improvement in South Africa. We've seen the other 3 regions actually deliver over their budgets. So we still think we're a show, Allan. It is tighter. We're assuming a contribution from the acquisitions, and it's mainly from Serra Grande, of around 50,000 to 70,000 ounces. So it's there, it helps us. And maybe we'd like to think we can get a little bit above the bottom end, but I don't want to say we can until we see how South Africa goes. So we're tight but certainly, there may be a little bit of opportunity there to do a bit better, but I wouldn't say that given the questions on South Africa at the moment. So that's my main risk I think or our main risk is how the team comes together. And don't forget, we've also said something important, and I said Billy Mawasha here and I feel the South African guys would much prefer to get the working places set up properly, give us the flexibility, there is no need to take shortcuts or we don't want to encourage anybody to take shortcuts, make sure the safety is right and the production will flow as a consequence. And the guys are doing a lot of good work on getting the working phases right. And as I said at Kopanang, with Billy and Francois and the team, they're up 15% on. So that is what the trends -- or the right trends that should impact the second half. But if not, I don't want to take shortcuts. So that's where the risk is. We probably should let others. Yes?

[Johann Steyn:]

Johann Steyn from Citigroup. Just with regards to the CapEx guidance. And as in early days, but for 2013 obviously, there are a lot of projects now coming through the pipeline. Do you expect that, Mark, to increase compared to where we stand for 2012? Then secondly, also for Obuasi, just to get a bit more clarity about the guidance for the next 2 to 3 years, what do you expect there? And then thirdly, one of your peers recently gave quite a bearish presentation on the gold industry and how they assess what has happened, a lot of value destruction, how do you see that and how do you see that change going forward?

[Mark Cutifani:]

Well, I should have answered Allan's second question. I didn't mean to be rude, Allan, on dividends. Look, given the -- given what we see, given how well the -- most of the operations are going, we see that the guidance on the 100 cents per share per quarter looks to be pretty solid. If we do better, the gold price runs a bit, then we'll look at that with the board. But certainly from a board perspective, in our conversation very comfortable with what's being done. Yes, tough first quarter. But certainly, we'd left ourselves enough headroom and we're in pretty good shape. So we're comfortable that we're in the right place and certainly given the way the operations are generally performing. Johann, firstly on capital. Johann, we're forecasting around 2.2, 2.3. It might nudge itself towards 2.5, but we're going to have to wait and see what spends we actually get up to at the end of this year and how much of a rollover because you've got Kibali, Mongbwalu, Tropicana and Cripple Creek and then potentially Sadiola Deeps. So it certainly would be in that range, but it's not a forecast. It's what we're looking at. And given the inflation numbers across the industry, that wouldn't be surprising. And quite frankly, I'm hoping it's a little bit higher simply because it means the projects should be all on schedule and delivering ounces. So you sort of -- the good news and the bad news. The good news is you get more production. The bad news is it might be a little bit high capital. But -- so we're watching that carefully. So it'll be in that range, I would think, and we will watch it fairly carefully. We're very protective of our balance sheet, as you know. We want to keep our investment grade and our flexibility. So if we've got to push 1 or 2 things to make sure that -- push back 1 or 2 things to make sure we're in the right place, we're going to do it. Obuasi, our target is 500,000 ounces. We've got -- I think we've got a good 6 -- or hard 6 months coming up in sorting the development contract. We've flagged that the last couple of quarters. We're in the tough end of those conversations as we speak. I don't want to preempt the outcome. I expect that in the next month or 2. But I'll tell you what, if it means we're going to take the big steps or the tougher steps, we'll take those steps as an organization. If we had to make some changes structurally within the business to make sure it gets its 500,000 ounces by 2015, that's what we'll do. And that's the number, and that's the number I think we talked about 1 or 2 quarters ago with other people that were asking the same sorts of questions. In terms of the industry, I saw 1 or 2 of those reports. I would have wished they'd said this is about the gold industry except 1 or 2 of our colleagues that have been fixing the operations that have demonstrated project execution capability, that have got their balance sheet in shape, that have been delivering margins and that have delivered the highest return on capitals across industry for the last 3 years. They're obviously talking about themselves and others. But I'm happy that they didn't exclude us from that crew, because we have created demonstrable value. But it is true across the broader industry there's been lots of value destruction. If you remember in my first quarterly here, in the first quarter of -- in fact, it was most second quarterly, I said we think the gold model is broken. We said that in early 2008. We said the model's broken. You can't keep going and asking for equity every 2 or 3 years because you've run out of money. You've got to run a real business, with real margins and real returns. And that's why we did the hedge book. That's why we've rebuilt the balance sheet, that's why we attack the operations, that's why we put the project disciplines in place and that's why we've got the best returns in the industry. I hope that answers the question.

[Unknown Analyst:]

[indiscernible] Mark, firstly, could you comment on the extent of the mine interventions over the last 6 months? How has the situation change there? Secondly, if we go to Sunrise Dam, it's had its problems. Have we seen the best that has in the past or what's the production outlook for the next year in Sunrise Dam?

[Mark Cutifani:]

Okay. Firstly, on the DMI in the first quarter, we saw gold loss as a consequence of stoppages around 76,000 ounces. In the second quarter, direct stoppages were down to 15,000 ounces. However, we did have an overlay from Q1, which is the start-up -- the reef start-ups that we saw early in the quarter that cost us another 15,000 ounces. So net-net, 76 has gone to 60 -- sorry, 30, with 15 of that 30 being a consequence of the tough time we had in Q1. So a substantial improvement. I think the relationship's much better. I think we're much more proactive in the key areas. And guys like Billy, Chris, Mike have been leading lots of change, focused on what we're doing. And as a consequence of those changes and a different type of engagement, I think we're doing much better with the DMI. So we're doing much better, but that work has to continue. Second point, is that okay, is that -- okay. In terms of Sunrise Dam, we're at a point now where we're transitioning from an open cut, and we're producing 600,000 ounces in its heyday. In fact, in my last quarter of 2007, which was my first quarter, Sunrise Dam was the highest producer in the organization. And for those that understand, we've seen Yatela, Sunrise Dam has dropped from 600 to less than 300, 250-odd. So we've had to deal with a lot of production dropping out of the portfolio. So that's why we've had to drive to build new production. I think Sunrise Dam can get back to 400,000 with this new underground operation. If you look at the exploration successes we've had, 130 meters, 140 meters, 3, 3.5, some grades are over 10 grams and, in fact, another 1,000 meters below where we are at the Kirishi, we're seeing 50 grams in one hole. So we think there's the potential to develop a sub-level cave or bulk mining operation that could push somewhere between 300,000 and 400,000 ounces. There's a strategic review that's been done of the asset that the team is working on now that will define a scope that will be open to talk about by year end. But we think we've got another 15 to 20 years life and a whole new mine that's going to be developed. I will talk a little bit more about that next Thursday in my presentation, which will be to our Kalboli audience. So I'm saving the best for that conversation in that forum. But certainly, we're very excited in terms of what we think the potential is between Tropicana and Sunrise. We think we have a 700,000 ounce base for Australia. And our exploration team is trying to look for another 300,000 ounce a year operation to take us around the 1 million ounces. So we're very optimistic about what's happening there.

[Unknown Analyst:]

[indiscernible] from Renaissance Capital. Could you just update us please on the South African projects, Moab Khotsong and Mponeng mine extension projects?

[Mark Cutifani:]

Yes, both -- no major issues were developing. We've been implementing a number of new technology, probably now it's the drilling -- the deeper drilling or the longer haul drilling development. Both are tracking okay. We did a project review in the last 3 weeks with the board, so no big surprises there. And with Moab looking at how we manage that geological variability with these longer hauls, we're getting more forward information in developing those sort of strategies. And by the way, some of the new technologies could transfer very nicely to those new areas. But so far, no big surprises. Is Mike here in the room? No, I didn't see Mike. Billy, do you want to say anything about Moab? Billy Mawasha is our SVP, Vaal River. He's doing a lot of the great change work in the region, so I'll give him a chance to say a few words.

[Billy Mawasha:]

As Mike said, I'm Billy, I ran Vaal River. In terms of the work we're doing at Moab, the drilling has happened and we are on track in terms of that really. We are getting information about that early blocking web portal and would be able then to build that into the planning we're doing on the project. The execution in terms of the study of the project is also on track, we are tracking well. And in terms of the early development on the project, we actually have got a contractor mobilizing now and will be taking first blast on the 15th of August on mechanized. So all good then.

[Mark Cutifani:]

Yes. And that's one of those projects where the high grades will offset some of the declining grades and some of the other operations. And Billy's swimming against that tide at Kopanang, but what he's trying to do is open up phase 2 [ph] to improve his productivity. So some good work going on in Vaal River. A lot for work to go, some tough safety stuff recently, but the guys have dealt with it and taken it on and taken good steps forward. Mponeng, same story, no major issues. We cut out a lot of development time with the decline strategies. So that's tracking pretty well, as well. Okay. Ladies and gentlemen, just as a wrap. I think from our point of view, a solid quarter, encouraging given we had a rough start to the start of the year. The first half despite some of those first quarter challenges was a record for the group, and both a record in terms of earnings and EBITDA, or if you like, mostly cash flow. So very important milestone, another important milestone for us. The returns are still very strong. We're positioned well with all our management projects running on track. And with the new discoveries, not only have we got a great pack of projects that are coming forward on a very economic and certainly very good margin basis, we've got a great raft of opportunities that are coming up behind us. The continuing shift to the internationalization of AngloGold Ashanti is continuing. And whilst we have challenges in South Africa, we are thinking out of the box in terms of ways and means of creating great resources into reserves. And I think that's the great challenge for us in South Africa, to see what we can create from the resources that are here within the ground. So we've got strategies in each part of the portfolio. We've navigated most of those issues pretty well. We've steered clear of some the major bus stop you've seen across the industry. If we can keep our hedge down and our bums up, we'll continue to improve the business. And within the next 2 or 3 years, I think really demonstrate the benefits of all the hard work we've put in, in the last 4 or 5 years. Thank you.