235
235
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT
Prof Wiseman Nkuhlu, Chairman of the audit and corporate governance committee, has been determined by our board to be
an audit committee financial expert within the meaning of the Sarbanes-Oxley Act, in accordance with the rules of the NYSE
and the SEC. Prof Wiseman Nkuhlu as well as each of the other members of the Audit and Corporate Governance Committee
(being Mr FB Arisman, Mr RP Edey and Mr JH Mensah) are independent directors. All members of the committee have
considerable financial knowledge and experience to help oversee and guide the board and the company in respect of the audit
and corporate governance disciplines.
On April 9, 2009, Prof Nkuhlu advised of his impending resignation from the board, given his standing for political office in the forthcoming general elections in South Africa. Prof Nkuhlu resigned from the board at the conclusion of the meeting held on May 5, 2009 to approve the filing with the SEC of this annual report on Form 20-F. A suitable candidate qualifying as an audit committee financial expert within the meaning of the Sarbanes-Oxley Act, in accordance with the rules of the NYSE and the SEC, will be sought in due course.
ITEM 16B: CODE OF ETHICS AND WHISTLE BLOWING POLICIES
In order to comply with the company's obligation in terms of the Sarbanes-Oxley Act and the South African King Code on
Corporate Governance, and in the interests of good governance, the company has systems and procedures to introduce,
monitor and enforce its ethical codes and has adopted a code of ethics for employees, a code of ethics for the chief executive
officer, principal financial officer and senior financial officers, and a whistle-blowing policy that encourages employees and
other stakeholders to confidentially and anonymously report acts of an unethical or illegal nature that affect the company's
interests. Senior management oversee compliance with the ethical code by means of several mechanisms including:
• Assessing the integrity of new appointees in the selection and promotion process;
• Adherence to the policy on the delegation of authority;
• Induction of directors and employees on the company's values, policies and procedures; and
• Compliance with a strict disciplinary code of conduct.
AngloGold Ashanti has a whistle-blowing policy that provides a channel for the reporting of practices that are in conflict with
AngloGold Ashanti's business principles, unlawful conduct, financial malpractice, or are dangerous to the public and the
environment. The process encourages reports to be made in good faith in a responsible and ethical manner. Employees are
encouraged to discuss issues with their direct managers first (if appropriate) and then, if not resolved, to report these through
the whistle-blowing line or directly to the internal audit or legal departments. The codes and the whistle-blowing policy are
available on the company's website at www.anglogoldashanti.co.za/About/Gov+Policies.htm. There are several mediums by
which reports can be made such as through the intranet, internet, telephone, fax and post. An initiative is being undertaken to
implement short messaging system (sms) as a medium for reporting as well. All reports made in terms of the whistle-blo wing
policy are fielded by a third party, Tip-Offs Anonymous, which ensures all reports are treated confidentially or anonymously
depending on the preference of the caller. The information is relayed to management and to internal audit for investigation. All
reports and the progress of the investigations are conveyed to the audit and corporate governance committee by the group
internal audit manager on a quarterly basis.
In addition, the company has adopted a Disclosures Policy, the object of which is to ensure compliance with the rules of the
various exchanges on which it is listed and provide timely, accurate and reliable information fairly to all stakeholders, including
investors (and potential investors), regulators and analysts.
Each code of ethics, whistle blowing and disclosure policy is available on the company’s website
http://www.anglogoldashanti.co.za/About/Gov+Policies.htm. Each code of ethics and disclosure policy is also available on
r equest from the company secretary.
ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Ernst & Young has served as AngloGold Ashanti’s independent public accountants for each of the financial years in the three-
year period ended December 31, 2008 for which audited financial statements appear in this annual report on Form 20-F.
236
The following table presents the aggregate fees for professional services and other services rendered by Ernst & Young to
AngloGold Ashanti in 2008 and 2007.
(in millions)
2008
$
2007
$
Audit Fees
(1)
5.67
7.73
Audit-related Fees
(2)
1.30
0.80
Tax Fees
(3)
0.45 0.05
Total
7.42 8.58
Rounding may result in computational differences.
(1)The Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services
that only the external auditor reasonably can provide, and include the Company audit; statutory audits; attest services; and
assistance with and review of documents filed with the SEC. Included in the Audit fees for 2008 and 2007 are fees paid to the
external auditors in respect of SOX, which was implemented in 2006.
(2) Audit-related Fees consist of fees billed for assurance and related services and include consultations concerning financial
accounting and reporting standards; and comfort letters; and consents.
(3) Tax Fees include fees billed for tax advice and tax compliance services.
Audit and Corporate Governance Committee Pre-approval Policies and Procedures
It is the policy of AngloGold Ashanti to maintain compliance with the requirements of the various applicable legislation and
good governance practices when appointing or assigning work to the Company’s external auditor. Non-audit services may not
be undertaken without an employee of AngloGold Ashanti obtaining the pre-approval of the Audit and Corporate Governance
Committee as is laid out in the procedures relating to the pre-approval process.
The audit committee has delegated the approval authority to the chairman of the Audit and Corporate Governance Committee,
Prof Wiseman Nkuhlu or his designated official. The approval may take the form of a written or oral instruction, and in the case
of an oral instruction this would be ratified at the next audit committee meeting. On a quarterly basis a summary of all approvals
and work to date is tabled at the audit committee.
All non-audit services provided to AngloGold Ashanti by the principal independent registered public accounting firm during
2008 were reviewed and approved according to the procedures above. None of the services provided during 2008 were
approved under the de minimis exception allowed under the Exchange Act.
No work was performed by persons other than the principal accountant’s employees in respect of the audit of AngloGold
Ashanti’s financial statements for 2008.
ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
Neither the issuer nor any affiliate of the issuer purchased any of the company’s shares during 2008.
ITEM 16F: CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
237
ITEM 16G: CORPORATE GOVERNANCE
The following is a summary of the significant ways in which AngloGold Ashanti’s corporate governance practices differ from
those followed by US domestic companies under the New York Stock Exchange’s corporate governance listing standards (the
“NYSE listing standards”).
The NYSE listing standards require the appointment of a Nominations Committee to oversee the appointment of new directors
to the board, and that such committee be comprised solely of independent directors. The JSE Listing Requirements also
require the appointment of such a committee, but require that it be comprised solely of non-executive directors, the majority of
whom must be independent. The company has appointed a Nominations Committee of the board. Since May 6, 2008, the
committee comprized of eight non-executive board members, six of whom were independent, as defined in the JSE Listing
Requi rements, and is chaired by the independent chairman of the board.
The NYSE listing standards require that a majority of the board to be comprised of independent directors, as such term is
defined in the NYSE listing standards, and that the remunerations committee of the board be fully independent. In previous
years, AngloGold Ashanti did not comply with these standards as the JSE Listing Requirements did not have similar standards.
However, since May 6, 2008, the board comprizes of a majority of independent directors, as defined in the JSE Listing
Requirements, and the remuneration committee of the board is fully independent.
238
PART III
ITEM 17: FINANCIAL STATEMENTS
Not applicable.
239
ITEM 18: FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
The board of directors and stockholders of AngloGold Ashanti Limited
We have audited the accompanying consolidated balance sheets of AngloGold Ashanti Limited (the “Company”) as of
December 31, 2008 and 2007 and the related consolidated statements of income, stockholders’ equity and cash flows for
each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
The financial statements of Société d'Exploitation des Mines d'Or de Sadiola S.A. (“Sadiola”), a corporation in which the
Company has a 38 percent interest, have been audited by other auditors for the years ended December 31, 2008 and 2006
and for the periods then ended, whose report has been furnished to us, and our opinion on the consolidated financial
statements, insofar as it relates to the amounts included for Sadiola, is based solely on the report of the other auditors. In the
consolidated financial statements, the Company’s investment in Sadiola is stated at $97 million and $66 million, respectively,
at December 31, 2008 and 2006, and the Company’s equity in net loss is stated at $52 million for the year ended December
31, 2008 and the Company’s equity in net income is stated at $33 million for the year ended December 31, 2006.
The financial statements of Société d'Exploitation des Mines d'Or de Yatela S.A. (“Yatela”), a corporation in which the
Company has a 40 percent interest, have been audited by other auditors for the year ended December 31, 2006 and for the
period then ended, whose report has been furnished to us, and our opinion on the consolidated financial statements, insofar
as it relates to the amounts included for Yat ela, is based solely on the report of the other auditors. In the consolidated financial
statements, the Company’s investment in Yatela is stated at $26 million at December 31, 2006, and the Company’s equity in
net income is stated at $34 million for the year then ended.
The financial statements of Société des Mines de Morila S.A. (“Morila”), a corporation in which the Company has a 40 percent
interest, have been audited by other auditors at December 31, 2008 and for the period then ended, whose report has been
furnished to us, and our opinion on the consolidated financial statements, insofar as it relates to the amounts included for
Morila, is based solely on the report of the other auditors. In the consolidated financial statements, the Company’s investment
in Morila is stated at $114 million at December 31, 2008, and the Company’s equity in net loss is stated at $69 million for the
year then ended.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AngloGold Ashanti Limited at December 31, 2008 and 2007, and
the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008
in conformity with U.S generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the effectiveness of AngloGold Ashanti Limited’s internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated May 4, 2009 expressed an unqualified opinion thereon.
As discussed in note 2 to the consolidated financial statements, in 2007 the Company adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, and accordingly has evaluated all
tax positions and has made sufficient provision and disclosure.
As discussed in note 2 to the consolidated financial statements, in 2006 the Company changed its method of accounting for
stock-based compensation in accordance with SFAS123(R) Share-Based Payment, its method of accounting for deferred
stripping costs in accordance with EITF Issue 04-6 Accounting for Stripping Costs Incurred during Production in the Mining
Industry, and its method of considering the effects of prior year misstatements in accordance with SAB 108 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.
As discussed in note 2 to the consolidated financial statements, in 2006 the Company changed its method of accounting for
employee benefit plans in accordance with SFAS158 Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).
Ernst & Young Inc.
Registered Auditor
Johannesburg, Republic of South Africa
May 4, 2009
F-1
ANGLOGOLD ASHANTI LIMITED
Consolidated statements of income
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In millions, except share and per share information)
Notes
2008
$
2007
$
2006
$
Sales and other income
3,730
3,095
2,715
Product sales
3,655
3,048
2,683
Interest, dividends and other
75
47
32
Costs and expenses
4,103
3,806
2,811
Production costs
2,159
1,917
1,539
Exploration costs
126
117
58
Related party transactions
6
(10)
(16)
(6)
General and administrative
136
130
140
Royalties
78
70
59
Market development costs
13
16
16
Depreciation, depletion and amortization
615
655
699
Impairment of assets
5
670
1
6
Interest expense
5
72
75
77
Accretion expense
5
22
20
13
Employment severance costs
5
9
19
22
(Profit)/loss on sale of assets, realization of loans, indirect taxes and other
5
(64)
10
(36)
Non-hedge derivative loss
5
258
808
208
Other operating items
5
19
(16)
16
Loss from continuing operations before income tax, equity income,
minority interests and cumulative effect of accounting change
(373) (711) (96)
Taxation expense
7 (22) (118) (122)
Minority interest
(42) (28) (29)
Equity (loss)/income in affiliates
(149)
41
99
Loss from continuing operations
(586) (816) (148)
Discontinued operations
8
23
2
6
Net loss – applicable to common stakeholders
(563) (814) (142)
(Loss)/earnings per share : (cents)
From continuing operations
9
Ordinary shares
(186)
(293)
(54)
E
Ordinary
shares
(93)
(146)
(91)
Ordinary shares - diluted
(186)
(293)
(54)
E Ordinary shares - diluted
(93)
(146)
(91)
Discontinued operations
9
Ordinary shares
7
1
2
E Ordinary shares
4
-
-
Ordinary shares - diluted
7
1
2
E Ordinary shares - diluted
4
-
-
Net loss
9
Ordinary shares
(179)
(292)
(52)
E
Ordinary shares
(89)
(146)
(91)
Ordinary shares - diluted
(179)
(292)
(52)
E Ordinary shares - diluted
(89)
(146)
(91)
Weighted average number of shares used in computation
9
Ordinary shares
313,157,584
277,337,292
272,613,263
E Ordinary shares - basic and diluted
4,046,364
4,117,815
194,954
Ordinary shares - diluted
313,157,584
277,337,292
272,613,263
Dividend paid per ordinary share (cents)
13
44
39
Dividend paid per E ordinary share (cents)
7
22
-
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-2
ANGLOGOLD ASHANTI LIMITED
Consolidated balance sheets
AT DECEMBER 31, 2008 AND 2007
(In millions, except share information)
Notes
2008
$
2007
$
ASSETS
Current Assets
2,947
2,113
Cash and cash equivalents
575
477
Restricted cash
10
44
37
Receivables
224
205
Trade
39
35
Recoverable taxes, rebates, levies and duties
64
77
Related parties
4
6
Other
11
117
87
Inventories
12
552
523
Materials on the leach pad
12
49
49
Derivatives
25
571
516
Deferred taxation assets
7
150
275
Assets held for sale
17
782
31
Property, plant and equipment, net
13
4,765
5,527
Acquired properties, net
14
814
1,280
Goodwill
15
132
569
Other intangibles, net
15
20
22
Other long-term inventory
12
40
84
Materials on the leach pad
12
261
190
Other long-term assets
16
421
559
Deferred taxation assets
7
51
37
Total assets
9,451
10,381
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
3,445
3,795
Trade accounts payable
314
396
Payroll and related benefits
92
106
Other current liabilities
18
144
132
Derivatives
25
1,758
2,782
Short-term debt
20
1,067
319
Tax payable
28
59
Liabilities held for sale
17
42
1
Other non-current liabilities
19
117
146
Long-term debt
20
873
1,564
Derivatives
25
130
297
Deferred taxation liabilities
7
1,008
1,345
Provision for environmental rehabilitation
5 / 21
302
394
Provision for labor, civil, compensation claims and settlements
31
45
Provision for pension and other post-retirement medical benefits
27
139
180
Minority interest
84
63
Commitments and contingencies
22
-
-
Stockholders’ equity
23
3,322
2,552
Common stock
400,000,000 (2007 – 400,000,000) authorized common stock of 25 ZAR cents each
Stock issued 2008 – 353,483,410 (2007 – 277,457,471)
12
10
Additional paid in capital
7,502
5,607
Accumulated deficit
(3,044) (2,440)
Accumulated other comprehensive income
(1,148)
(625)
Total liabilities and stockholders’ equity
9,451
10,381
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-3
ANGLOGOLD ASHANTI LIMITED
Consolidated statements of cash flows
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In millions, except share information)
Notes
2008
$
2007
$
2006
$
Net cash provided by operating activities
64
561
770
Net loss – applicable to common stockholders
(563)
(814)
(142)
Reconciled to net cash provided by operations:
(Profit)/loss on sale of assets, realization of loans, indirect taxes and other
(64)
14
6
Depreciation, depletion and amortization
615
655
699
Impairment of assets
670
1
6
Deferred
taxation
(72)
(73)
(34)
Movement in non-hedge derivatives
(602)
802
339
Equity loss/(income) in affiliates
149
(41)
(99)
Dividends received from affiliates
78
65
85
Other non cash items
69
34
5
Net increase/(decrease) in provision for environmental rehabilitation,
pension and other post-retirement medical benefits
24
90
(62)
Effect of changes in operating working capital items:
Receivables
(7)
(77) 11
Inventories
(131) (240) (165)
Accounts payable and other current liabilities
(101)
147
122
Net cash provided by continuing operations
65
563
771
Net cash used in discontinued operations
(1)
(2)
(1)
Net cash used in investing activities
(1,593) (1,031) (611)
Acquisition of assets
-
(40)
-
Increase in non-current investments
(93)
(27)
(20)
Proceeds on disposal of affiliate
48
-
-
Affiliates loans advanced
(4)
-
-
Affiliates loans repaid
4
-
-
Additions to property, plant and equipment
(1,194)
(1,015)
(811)
Proceeds on sale of mining assets
39
29
57
Proceeds on sale of discontinued assets
10
1
9
Proceeds on sale of available for sale investments
4
4
-
Proceeds on redemption of held to maturity investments
84
21 11
Dividends from available for sale investments
-
2
-
Cash outflows from derivatives purchased
(485)
-
-
Cash inflows from derivatives purchased
-
19
141
Loans receivable advanced
-
(1)
(1)
Loans receivable repaid
-
1
6
Change in restricted cash
(6)
(25)
(3)
Net cash generated by financing activities
1,715
462
119
Short-term debt repaid
(298)
(520)
(134)
Short-term debt raised
110
318
16
Issuance of stock
1,722
34
512
Share issue expenses
(54)
-
(5)
Long-term debt repaid
(316)
-
(418)
Long-term debt raised
743
525
142
Cash outflows from derivatives with financing
(134)
-
-
Cash inflows from derivatives with financing
-
249 138
Dividends paid
(58)
(144)
(132)
Net increase/(decrease) in cash and cash equivalents
186
(8)
278
Effect of exchange rate changes on cash
(88) 14
(3)
Cash and cash equivalents – January 1,
477
471
196
Cash and cash equivalents – December 31,
575
477
471
The accompanying notes are an integral part of these Consolidated Financial Statements.
ANGLOGOLD ASHANTI LIMITED
Consolidated statements of stockholders’ equity
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In millions, except share information)
Common
stock
Common
stock
$
Additional paid
in capital
$
Accumulated other
comprehensive
income*
$
Accumulated
deficit
$
Total
$
Balance – January 1, 2006
264,938,432 10
4,972
(676) (1,143)
3,163
Cumulative deferred stripping adjustment. Refer to Note 2.
(73)
(73)
Cumulative cut-off adjustment. Refer to Note 2.
(11)
(11)
Net loss
(142)
(142)
Translation loss
(108)
(108)
Net loss on cash flow hedges removed from other comprehensive income and reported in income, net of tax
97
97
Net loss on cash flow hedges, net of tax
(86)
(86)
Net gain on available-for-sale financial assets arising during the period, net of tax
8
8
Comprehensive loss
(315)
Stock issues as part of equity offering
9,970,732 -
498
498
Stock issues as part of Share Incentive Scheme
398,399
-
9
9
Stock based compensation expense
60
60
Dividends
(107)
(107)
Balance – December 31, 2006
275,307,563 10
5,539
(765) (1,476)
3,308
Cumulative FIN 48 adjustment. Refer to Note 2.
(25)
(25)
Net loss
(814)
(814)
Translation gain
93
93
Net loss on cash flow hedges removed from other comprehensive income and reported in income, net of tax
200
200
Net loss on cash flow hedges, net of tax
(166)
(166)
Hedge ineffectiveness on cash flow hedges, net of tax
10
10
Net gain on available-for-sale financial assets arising during the period, net of tax
3
3
Comprehensive loss
(699)
Stock issues as part of Share Incentive Scheme
1,181,882
-
37
37
Stock issues in exchange for E Ordinary shares cancelled
8,026
-
2
2
Stock issues transferred from Employee Share Ownership Plan to exiting employees
46,590
-
2
2
Stock based compensation expense
27
27
Dividends
(125)
(125)
Balance – December 31, 2007
276,544,061 10
5,607
(625) (2,440)
2,552
Net loss
(563)
(563)
Translation loss
(597)
(597)
Net loss on cash flow hedges removed from other comprehensive income and reported in income, net of tax
157
157
Net loss on cash flow hedges, net of tax
(61)
(61)
Hedge ineffectiveness on cash flow hedges, net of tax
8
8
Net loss on available-for-sale financial assets arising during the period, net of tax
(29)
(29)
Release on disposal of available-for-sale financial assets during the period, net of tax
(1)
(1)
Comprehensive loss
(1,086)
Stock issues as part of rights offer
69,470,442 2 1,664
1,666
Stock issues as part of Golden Cycle acquisition
3,181,198
-
118
118
Stock issues as part of São Bento acquisition
2,701,660
-
70
70
Stock issues as part of Share Incentive Scheme
672,545
-
14
14
Stock issues in exchange for E Ordinary shares cancelled
94
-
3
3
Stock issues transferred from Employee Share Ownership Plan to exiting employees
57,761
-
2
2
Stock based compensation expense
24
24
Dividends
(41)
(41)
F-4
Balance – December 31, 2008
352,627,761 12
7,502
(1,148) (3,044)
3,322
* The cumulative translation loss included in accumulated other comprehensive income amounted to $1,085 million (2007: $488 million). The translation loss has no tax effect. The cumulative charge, net of deferred
taxation of $68 million (2007: $96 million), included in accumulated other comprehensive income in respect of cash flow hedges amounted to $112 million (2007: $216 million). The cumulative loss, net of deferred
taxation of $1 million (2007: $2 million), included in accumulated other comprehensive income in respect of available for sale financial assets amounted to $15 million (2007: $15 million gain). The cumulative gain
included in accumulated other comprehensive income in respect of the hedge of a net investment in foreign entities amounted to $64 million (2007: $64 million). This gain is offset by $64 million (2007: $64 million)
arising from translation of net investments in foreign entities.
As at December 31, 2008 and 2007, $453 million and $402 million, respectively, of retained earnings arising from the Company’s equity accounted joint ventures and certain subsidiaries may not be remitted without
third-party shareholder consent.
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-5
ANGLOGOLD ASHANTI LIMITED
Notes to the consolidated financial statements
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In millions, except share and per share information)
1.
NATURE OF OPERATIONS
AngloGold Ashanti Limited (the "Company"), as it conducts business today, was formed on April 26, 2004 following
the Business Combination of AngloGold Limited (AngloGold) with Ashanti Goldfields Company Limited (Ashanti).
AngloGold, formerly Vaal Reefs Exploration and Mining Company Limited, was incorporated in South Africa on
May 29, 1944 and Ashanti was incorporated in Ghana on August 19, 1974. The Company conducts gold-mining
operations in Argentina, Australia, Brazil, Ghana, Guinea, Mali, Namibia, South Africa, Tanzania and the United States
of America (USA). The Company also produces by-product silver, uranium oxide and sulfuric acid.
2.
ACCOUNTING CHANGES
Post-retirement benefit plan assets
In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit
Plan Assets” (“FSP FAS 132(R)-1”), which amends FASB Statement No. 132 “Employers’ Disclosures about Pensions
and Other Post-Retirement Benefits” (“SFAS132”). FSP FAS 132(R)-1 provides guidance on an employer’s disclosures
about plan assets of a defined benefit pension or other post-retirement plan. The objective of FSP FAS 132(R)-1 is to
require more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major
categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair
value of plan assets.
The disclosures about plan assets requir ed by FSP FAS 132(R)-1 shall be provided for fiscal years ending after
December 15, 2009. Upon initial application, the provisions of FSP FAS 132(R)-1 are not required for earlier periods
that are presented for comparative purposes. Earlier application of the provisions of FSP FAS 132(R)-1 is permitted.
The Company has early adopted the provisions of FSP FAS 132(R)-1 as of December 31, 2008. The adoption of
FSP FAS 132(R)-1 did not have a material impact on the Company’s financial statements. Refer to Note 27.
Disclosures about credit derivatives and certain guarantees
In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161” (“the FSP”). The FSP amends SFAS133, to require disclosures by sellers of
credit derivatives, includi ng credit derivatives embedded in a hybrid instrument to provide certain disclosures for each
credit derivative for each statement of financial position presented. The FSP also amends FIN45, to require an
additional disclosure about the current status of the payment/performance risk of a guarantee. Further, this FSP clarifies
that SFAS161, is effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The FSP is effective for reporting periods (annual or interim) ending after November 15, 2008. The
Company does not have any credit derivatives. The Company adopted the disclosure requirements of the FSP with
regards to guarantees as of December 31, 2008. Refer to Note 22.
Hierarchy of generally accepted accounting principles
In May 2008, the FASB issued FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles”
(“SFAS162”). SFAS162 improves financial rep orting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally
accepted accounting principles (GAAP) for nongovernmental entities. SFAS162 was effective November 15, 2008,
which was 60 days following the United States Securities and Exchange Commission (SEC's) approval of the Public
Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles”. The adoption of SFAS162 had no impact on the Company’s
financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-6
2.
ACCOUNTING CHANGES (continued)
Employee benefit plans
On September 29, 2006 the FASB issued SFAS158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS158”). SFAS158
requires an entity to:
• recognize in its statement of financial position an asset for a defined benefit post-retirement plan's overfunded
status or a liability for a plan's underfunded status;
• measure a defined benefit post-retirement plan's assets and obligations that determine its funded status as of the
same day of the employer's fiscal year-end (effective in fiscal years ending after December 15, 2008)
• recognize as a component of accumulated other comprehensive income, net of tax, amounts accumulated at the
date of adoption due to delayed recognition of actuarial gains and losses, prior service costs and credits, and
transition assets and obligations; and
• expand the disclosure requirements of SFAS132(R) to include additional information about certain effects on net
periodic benefit cost in the next fiscal year that arise from delayed recognition of actuarial gains or losses, prior
service costs or credits and unrecognized transition assets and obligations.
The adoption of the recognition and disclosure requirements of SFAS158 which are effective for fiscal years ending
after December 15, 2006, did not have a material impact on the Company’s earnings and financial position as the
Company changed its accounting policy during the second quarter of 2005, retroactive to January 1, 2005, with respect
to accounting for employee benefit plans to recognize the effects of actuarial gains and losses in income, rather than
amortizing over the expected average remaining service period. This change was made as the Company believes that
elimination of the permitted pension and post-retirement benefit corridor, as allowed by SFAS87 and SFAS106 results in
more accurate financial information.
The adoption of the SFAS158 requirement to measure the plan assets and benefit obligations as of December 31, 2008
did not have a material impact on the Company’s financial statements.
The Company’s employee benefit plans are described more fully in Note 27.
Fair value measurements
The Company adopted FASB Statement No. 157, “Fair Value Measurements” (“SFAS157”) for financial assets and
financial liabilities on January 1, 2008.
SFAS157 provides enhanced guidance for using fair value to measure assets and liabilities. Under SFAS157, fair value
refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants in the market in which the reporting entity transacts. SFAS157 clarifies the principle that fair value
should be based on the assumptions market participants would use when pricing the asset or liability and establishes a
fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS157 also requires that fair
value measurements be separately disclosed by level within the fair value hierarchy. Refer to Note 24. The credit risk
adjustment on adoption of SFAS157 is disclosed in Note 25.
In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective date of FASB Statement No. 157”
(“FSP FAS 157-2”). FSP FAS 157-2 provides a one year deferral until January 1, 2009 for the implementation of
SFAS157 for certain non-financial assets and non-financial liabilities, except for those items that are recognized or
disclosed at fair value on a recurring basis (at least annually). The provisions of FSP FAS 157-2 are not expected to
have a material impact on the Company’s financial statements.
In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of SFAS157
in determining the fair value of a financial asset when the market for that asset is not active. FSP FAS 157-3 is effective
as of the issuance date and has not affected the valuation of the Company’s financial assets.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-7
2.
ACCOUNTING CHANGES (continued)
Fair value option for financial assets and liabilities
In February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS159”). SFAS159 permits entities to choose to measure many financial instruments and certain other
items at fair value, with the objective of improving financial reporting by mitigating volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The
provisions of SFAS159 were adopted January 1, 2008. The Company did not elect the Fair Value Option for any of its
financial assets or liabilities, and therefore, the adoption of SFAS159 had no impact on the Company’s financial
statements.
Uncertain taxes
The Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes” (“FIN 48”) on January 1, 2007 and recorded an opening adjustment of $25 million against opening
retained income as a result of adopting FIN 48.
The Company operates in numerous countries and is subject to, and pays annual income taxes in terms of the various
income tax regimes in the countries in which it operates. Some of these tax regimes are defined by contractual
agreements with local government and others are defined by the general corporate income tax laws of the country. The
Company has historically filed, and continues to file, all required income tax returns and to pay the taxes reasonably
determined to be due. The tax rules and regulations in many countries are complex and subject to interpretation. From
time to time, the Company is subject to a review of its historic income tax filings. In connection w ith such reviews
disputes can arise with the taxing authorities over interpretation or application of certain rules to the Company's
business conducted within the country involved. Refer to Note 7.
Stock based compensation
On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based
Payment”, using the modified prospective transition method. As at December 31, 2008, the Company has five stock-
based employee compensation plans consisting of time-based awards, performance related awards and equity settled
compensation plans as described in Note 29.
Deferred stripping costs
On January 1, 2006, the Company adopted Emerging Issues Task Force (“EITF”) Issue 04-6, “Accounting for Stripping
Costs in the Mining Industry”. Issue No. 04-6 addresses the accounting for stripping costs incurred during the production
phase of a mine and that post production s tripping costs should be considered costs of the extracted minerals under a
full absorption costing system and recognized as a component of inventory to be recognized in cost of sales in the same
period as the revenue from the sale of the inventory. Additionally, capitalization of such costs would be appropriate only
to the extent inventory exists at the end of a reporting period.
The guidance required application through recognition of a cumulative effect adjustment to opening retained earnings in
the period of adoption, with no charge to current earnings for prior periods. The results for prior periods were not
restated. Upon adoption, the cumulative effect of the accounting change reduced opening retained earnings by
$73 million (net of Taxation), increased the value of inventory by $5 million, eliminated the capitalized deferred stripping
balance of $105 million, decreased Deferred taxation by $29 million, reduced Other long-term assets by $3 million and
decrease d Minority interest by $1 million. Adoption of the guidance had no impact on the Company’s cash position or
net cash from operations.
Cut-off adjustments
In prior years certain subsidiaries within the Company have consistently determined the year end close process in
respect of certain operating costs at dates immediately preceding the Christmas vacation period. Historically,
management concluded that any resulting adjustment was immaterial to operating results as all entities had twelve
reporting periods and used the same cut-off dates from year to year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-8
2.
ACCOUNTING CHANGES (continued)
The above errors arose as a combination of the cut-off process being linked to the mine production cycle as well as
utilizing a date not aligned to December 31, although the same dates were utilized from year to year.
On September 13, 2006, the SEC staff published Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108
(SAB Topic 1.N) addresses quantifying the financial statement effects of misstatements, specifically, how the effects of
prior year uncorrected errors must be considered in quantifying misstatements in the current year.
As part of the 2006 year end financial statement close process the Company quantified the balance sheet impact and
determined that it would only have a material effect in the reporting of “Payroll and related benefits”, which is separately
identified on the face of the balance sheet. The other accounts that were affected are Tangible Assets – Mine
development costs; Inventories – Gold in process; Deferred taxation; Cash and cash equivalents; Trade accounts
payable and Payroll and related benefits.
The Company previously considered the above to be immaterial under the rollover method and evaluated the
misstatement against the current year financial statements under both the rollover and iron curtain methods.
In accordance with the transition provisions provided in SAB 108 the cumulative effect of applying SAB 108 as an
adjustment to opening retained earnings is summarized below:
(in millions)
$
Assets
Tangible Assets – Mine development costs
3 (increase)
Inventories – Gold in process
1 (increase)
Deferred taxation
5 (increase)
Trade receivables
5 (decrease)
Liabilities
Trade accounts payable
3
(increase)
Payroll and related benefits
10 (increase)
Other creditors
2 (increase)
Retained earnings
11 (decrease)
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS
2008 acquisitions
The Company made the following acquisitions during the year:
Acquisition of minority interests in North America
Effective July 1, 2008, AngloGold Ashanti acquired the remaining 33 percent shareholding in the Cripple Creek & Victor
Gold Mining Company joint venture (CC&V) through the acquisition of 100 percent of Golden Cycle Gold Corporation
(GCGC). The Company issued 3,181,198 AngloGold Ashanti shares (total value $118 million) pursuant to this
transaction.
The Company completed the purchase price allocation of fixed assets during the third quarter of 2008. The transaction
was accounted for as a purchase business combination whereby identifiable assets acquired and liabilities assumed
were recorded at their fair market values as of the date of acquisition. The excess of the pu rchase price over such fair
value was recorded as goodwill and as such, the acquisition resulted in goodwill of $18 million being recorded, relating
mainly to the premium paid to obtain the remaining interest in CC&V. The goodwill related to the acquisition is non-
deductible for tax purposes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-9
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued)
Acquisition of São Bento mine
On December 15, 2008, AngloGold Ashanti announced that it had completed the purchase of São Bento Gold Company
Limited (SBG) and its wholly-owned subsidiary, São Bento Mineração S.A. (SBMSA) from Eldorado Gold Corporation
(Eldorado) for a consideration of $70 million through the issuance of 2,701,660 AngloGold Ashanti shares. The
transaction was accounted for as an asset acquisition. The purchase price was allocated to the underlying assets
acquired. The purchase of SBG and SBMSA gives AngloGold Ashanti access to the São Bento mine, a gold operation
situated in the immediate vicinity of AngloGold Ashanti's Córrego do Sítio mine, located in the municipality of Santa
Bárbara, Iron Quadrangle region of Minas Gerais State, Brazil.
2008 disposals
The Company’s disposals during the year included:
Disposal of exploration interests in Colombia
On February 14, 2008, AngloGold Ashanti announced that it had entered into a binding memorandum of agreement
(MOA) with B2Gold Corp. (B2Gold). The MOA provides for the existing Colombian joint venture agreements between
AngloGold Ashanti and B2Gold to be amended. B2Gold would also acquire from AngloGold Ashanti, additional interests
in certain mineral properties in Colombia. In exchange, B2Gold would issue to AngloGold Ashanti, 25 million common
shares and 21.4 million common share purchase warrants in B2Gold. On May 16, 2008, AngloGold Ashanti announced
that it had completed the transaction to acquire a 15.9 percent direct interest in B2Gold and increase B2Gold's interest
in certain Colombian properties, as stated.
Disposal of equity interest in Nufcor International Limited
During the quarter ended June 30, 2008, the Company disposed of its 50 percent interest held in Nufcor International
Limited, a London based uranium marketing, trading and advisory business, to Constellation Energy Commodities
Group for net proceeds of $48 million.
2007 acquisitions
The Company made the following acquisitions during the year:
In June 2007, the Company acquired certain assets from Trans-Siberian Gold plc (TSG) as further discussed in this
note under 2006 acquisitions “Strategic alliance in Russia with Polymetal and assets acquired from Trans-Siberian Gold
plc”.
•
Acquisition of minority interests in Ghana
AngloGold Ashanti completed the acquisition of the minority interests in the Iduapriem and Teberebie mine
previously held by the Government of Ghana (5 percent) and the International Finance Corporation (10 percent)
effective September 1, 2007 for a total cash consideration of $25 million. The Iduapriem and Teberebie mine is
now wholly-owned by the Company. The Company finalized the purchase price allocation of fixed assets during
the third quarter of 2008. The final purchase price allocation did not vary significantly from the preliminary
allocation.
2007 disposals
The Company’s disposals during the year included:
•
Sale of Ergo surface reclamation operation
On June 8, 2007, AngloGold Ashanti announced that it had sold, subject to certain conditions, most of the
remaining moveable and immovable assets of Ergo, the surface reclamation operation east of Johannesburg,
discontinued in March 2005, to a consortium of Mintails South Africa (Pty) Limited/DRD South African Operations
(Pty) Limited. The transaction was approved by the Competition Commissioner on May 5, 2008. An outstanding
resolutive condition to the sale agreement, is consent by the Minister of Minerals and Energy of the transfer of
mining rights.
•
Sale of Mwana Africa plc shares
During July 2007, AngloGold Ashanti disposed of its investment of 600,000 shares previously held in Mwana
Africa plc for $0.8 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-10
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued)
2006 acquisitions
The Company made the following acquisitions during the year:
•
Agreement signed with China explorer Dynasty Gold Corporation
On February 27, 2006, AngloGold Ashanti announced that it had signed an agreement with Dynasty Gold
Corporation, a Vancouver-based company, with exploration activities in China, to acquire an effective 8.7 percent
stake in that company through a purchase of 5.75 million Dynasty units at a price of C$0.40 each.
•
Agreement with International Tower Hill Mines Limited
On June 30, 2006, AngloGold Ashanti (U.S.A.) Exploration Inc. (AngloGold Ashanti), International Tower Hill
Mines Ltd (ITH) and Talon Gold Alaska, Inc. (Talon), a wholly-owned subsidiary of ITH, entered into an Asset
Purchase and Sale and Indemnity Agreement whereby AngloGold Ashanti sold to Talon a 100 percent interest in
six Alaska mineral exploration properties and associated databases in return for 5,997,295 common shares of
ITH stock, representing 19.99 percent interest in ITH (December 31, 2008: 14.55 percent held). AngloGold Ashanti
also granted to ITH the exclusive option to acquire a 60 percent interest in each of its LMS and Terra projects by
incurring $3 million of exploration expenditure on each project (total of $6 million) within four years of the grant
date of the options. As part of the two option agreements, Anglo Gold Ashanti will have the option to increase or
dilute its stake in these projects.
•
Strategic alliance in Russia with Polymetal and assets acquired from Trans-Siberian Gold plc
On September 21, 2006, AngloGold Ashanti announced that it had entered into a 50:50 strategic alliance (joint
venture) with Russian gold and silver producer, OAO Inter-Regional Research and Production Association
Polymetal (Polymetal) in terms of which, Polymetal and AngloGold Ashanti would cooperate in exploration,
acquisition and development of gold mining opportunities within the Russian Federation. At the same time,
AngloGold Ashanti announced that it had submitted an offer to the board of Trans-Siberian Gold plc (TSG) to
acquire all of TSG’s interest in its Krasnoyarsk based subsidiaries, OOO GRK Amikan (Amikan) and OOO Artel
Staratelei Angarskaya Proizvodstvennaya Kompania (AS APK) for a consideration of $40 million. In June 2007,
the Company concluded the purchase of TSG’s i nterests in Amikan and AS APK. These companies acquired from
TSG by AngloGold Ashanti, together with two greenfields exploration companies held by Polymetal, hold the initial
operating assets of the joint venture. Of the assets acquired from TSG, assets of $15 million were subsequently
sold by the joint venture during the quarter ended March 31, 2008.
•
Purchase of Central African Gold Plc (CAG) shares
Arising from the sale of Bibiani assets, AngloGold Ashanti applied $3 million of the partial proceeds to an
investment of 15,825,902 Central African Gold plc (CAG) shares. Subsequent to this decision, local regulators
required that the shares in CAG be sold within 90 days of December 28, 2006. On February 14, 2007, the
Company disposed of 7,000,000 CAG shares yielding total proceeds of £768,845 ($1.5 million) and during
April 2007, disposed of the remaining 8,825,902 CAG shares yielding total proceeds of £894,833 ($1.8 million).
2006 disposals
The Company’s disposals during the year included:
•
Sale of Western Tanami project
In February 2006, disposed of the entire investment in Tanami Gold with the sale of 19 million shares for a cash
consideration of A$3.9 million ($3.0 million).
•
Sale of Bibiani
On August 23, 2006, AngloGold Ashanti announced that it had entered into a conditional agreement with Central
African Gold plc (CAG) to sell the assets, related to Bibiani and Bibiani North prospecting permit to CAG for a
consideration of $40 million. The conditions precedent to the sale were satisfied effective December 28, 2006. The
Bibiani North prospecting license was assigned to CAG on May 17, 2007 by the Ghanaian Land Commission and
Registry.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-11
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued)
Fair value of acquisition of business
2008
Golden Cycle
acquisition
(1)
$
Property, plant and equipment
93
Goodwill
(1)
18
Current assets
7
Net value of assets acquired
118
Purchase price paid
(118)
- Issuance of common stock
(118)
Gross value
(118)
Share issue expenses
-
(1)
The Golden Cycle Gold Corporation business combination was completed effective July 1, 2008. Refer to: Acquisition of minority interests in North
America. The Company has recorded goodwill, relating to the portion of the purchase price which cannot be attributed to the fair value of assets and
liabilities acquired, of $18 million on acquisition.
4.
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The accompanying financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The Company presents its consolidated financial
statements in United States dollars. The functional currency of a significant portion of the group’s operations is the
South African rand. Other main subsidiaries have functional currencies of US dollars and Australian dollars. The
translation of amounts into US dollars was in accordance with the provisions of SFAS52, “Foreign Currency
Translation”.
Use of estimates: The preparation of the financial statements requires the Company’s management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. The determination of estimates requires the exercise of judgment based on various assumptions and
other factors such as historical experience, current and expected economic conditions, and in some cases actuarial
techniques. The Company regularly reviews estimates and assumptions that affect the annual financial statements,
however, actual results could differ from those estimates.
The more significant areas requiring the use of management estimates and assumptions include mineral reserves that
are the basis of future cash flow estimates and unit-of-production depreciation, depletion and amortization calculations;
environmental, reclamation and closure obligations; estimates of recoverable gold and other materials in heap leach
pads; asset impairments (including impairments of goodwill, long-lived assets, and investments); write-downs of
inventory to net realizable value; post employment, post retirement and other employee benefit liabilities; valuation
allowances for deferred taxation assets; reserves for contingencies and litigation; and the fair value and accounting
treatment of financial instruments.
The following are the accounting policies used by the Company which have been consistently applied except for the
adoption of FIN 48, “Accounting for Uncertainty in Income Taxes” on January 1, 2007.
4.1
Consolidation
The consolidated financial information includes the financial statements of the Company and its subsidiaries.
Where the Company has a direct or indirect controlling interest in an entity through a subsidiary, the entity is
classified as a subsidiary. Interests in incorporated mining joint ventures in which the Company has joint control
are accounted for by the equity method.
The financial statements of subsidiaries and the Environmental Trust Fund (a rehabilitation trust under the
Company’s control) are prepared for the same reporting period as the Company, using the same accounting
policies, except for Rand Refinery Limited (a subsidiary of the Company) which reports on a three-month time
lag. Adjustments are made to subsidiary financial results for material transactions and events in the intervening
period.
Subsidiaries are consolidated from the date on which control is transferred. They are de-consolidated from the
date on which control ceases.
All significant intercompany transactions and accounts are eliminated in consolidation.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-12
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.2
Investments in equity investees (associates and incorporated joint ventures)
An associate is an entity other than a subsidiary in which the Company has a material long-term interest and in
respect of which the Company has the ability to exercise significant influence over operational and financial
policies, normally owning between 20 percent and 50 percent of the voting equity.
A joint venture is an entity in which the Company holds a long-term interest and which is jointly controlled by the
Company and one or more external joint venture partners under a contractual arrangement that provides for
strategic, financial and operating policy decisions relating to the activities requiring unanimous consent.
Investments in associates and incorporated joint ventures are accounted for using the equity method.
Goodwill relating to associates and incorporated joint ventures is included i n the carrying value of the Company’s
investment. The total carrying value of equity accounted investments in associates and incorporated joint
ventures, including goodwill, is evaluated for impairment when conditions indicate that a decline in fair value
below the carrying amount is other than temporary or at least annually. When an indicated impairment exists, the
carrying value of the Company’s investment in those entities is written down to its fair value. The Company’s
share of results of equity accounted investees, that have financial years within three months of the fiscal year-
end of the Company, is included in the consolidated financial statements based on the results reported by those
investees for their financial years. There were no significant adjustments required to be made in respect of equity
accounted investees which have financial years that are different to those of the Company.
Profits realized in connection with transactions between the Company and associated companies are eliminated
in proportion to ownership.
4.3
Foreign currency translation
Items included in the financial statements of each of the Company’s entities are measured using the currency of
the primary economic environment in which the entity operates (the ‘functional currency’).
Transactions and balances
Transactions in foreign currencies are converted at the rates of exchange ruling at the date of these transactions.
Monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange ruling at
balance sheet date. Non-monetary items are translated at historic rates. Gains, losses and costs associated
with foreign currency transactions are recognized in the income statement in the period to which they relate,
except where hedge accounting is applied. These transactions are included in the determination of other income.
Group companies
The results and financial position of all group entities that have a functional currency different from the
presentation currency are translated into the presentation currency as follows:
•
equity items other than profit attributable to equity shareholders are translated at the closing rate;
•
assets and liabilities for each balance sheet presented are translated at the closing rate;
•
income and expenses for each income statement are translated at average exchange rates (unless this
average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the dates of the transactions);
and
•
all resulting exchange differences are recognized as a separate component of equity and included within
other comprehensive income.
Exchange differences arising from the translation of the net investment in foreign operations, and of borrowings
and other currency instruments designated as hedges of such investments, are taken to stockholders’ equity on
consolidation.
When a foreign operation is sold, cumulative exchange differences are recognized in the income statement as
part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and
liabilities of the foreign operation and translated at the closing rate at each balance sheet date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-13
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.4
Segment reporting
A segment is a group of assets and operations engaged in providing products or services that are subject to
risks and returns that are different from those of other segments and are reported on a reporting segment basis
using the management approach. This approach is based on the way management organizes segments within
the Company for making operating decisions and assessing performance. The Chief Operating Decision Maker
has determined that the Company operates primarily in the delivery of gold. A geographical segment is engaged
in providing products or services within a particular economic environment that is subject to risks and returns that
are different from those of segments operating in other economic environments.
4.5
Cash and cash equivalents and restricted cash
Cash and cash equivalents consist of cash balances and highly liquid investments with an original maturity of
three months or less. Due to the short maturity of cash equivalents, their carrying amounts approximate their fair
value. Restricted cash is reported separately in the consolidated balance sheets.
4.6
Non-marketable debt securities
Investments in non-marketable debt securities for which the Company does not control or exercise significant
influence are classified as held to maturity are subsequently measured at amortized cost. If there is evidence
that held to maturity financial assets are impaired the carrying amount is reduced and the loss recognized in the
income statement.
4.7
Marketable equity investments and debt securities
Marketable equity investments and debt securities which are considered available-for-sale, are carried at fair
value, and the net unrealized gains and losses computed in marking these securities to market are reported
within other comprehensive income in the period in which they arise. These amounts are removed from other
comprehensive income and reported in income when the asset is derecognized or when there is evidence that
the asset is impaired in accordance with the provisions of SFAS115, “Accounting for Certain Investments in Debt
and Equity Securities (“SFAS115”)”.
Marketable debt securities that are classified as held to maturity are subsequently measured at amortized cost.
4.8
Inventories
Inventories, including gold in process, gold on hand (doré/bullion), uranium oxide, sulfuric acid, ore stockpiles
and supplies, are stated at the lower of cost or market value. Gold in process is valued at the average total
production cost at the relevant stage of production as described below. The cost of gold, uranium oxide and
sulfuric acid is determined principally by the weighted average cost method using related production costs.
Ore stockpiles are valued at the average moving cost of mining the ore. Supplies are valued at the lower of
weighted average cost or market value. Heap leach pad materials are measured on an average total production
cost basis.
The cost of inventory is determined using the full absorption costing method. Gold in process and ore stockpile
inventory include all costs attributable to the stage of completion. Costs capitalized to inventory include
amortization of property, plant and equipment and capitalized mining costs, direct and indirect materials, direct
labor, shaft overhead expenses, repairs and maintenance, utilities, metallurgy costs, attributable production
taxes and royalties, and directly attributable mine costs. Gold on hand (doré/bullion) includes all gold in process
and refining costs. Ore is recorded in inventory when blasted underground, or when placed on surface stockpiles
in the case of open-pit operations.
The costs of materials currently contained on the leach pad are reported as a separate line item. As at
December 31, 2008 and 2007, $49 million was classified as short-term as the Company expects the related gold
to be recovered within twelve months. The short-term portion of materials on the leach pad is determined by
multiplying the average cost per ounce in inventory by the expected production ounces for the next twelve
months. Short-term heap leach pad inventory occurs in two forms: (1) gold recoverable but yet to be dissolved
(i.e. gold still in the ore), and (2) gold recoverable from gold dissolved in solution within the leach pad (i.e. pore
water). This estimate was used in determining the short-term portion of materials on the leach pad as at
December 31, 2008. As at December 31, 2008, $261 million was classified as long-term compared with
$190 million as at December 31, 2007.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-14
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.9
Development costs and stripping costs
Development costs relating to major programs at existing mines are capitalized. Development costs consist
primarily of expenditures to initially establish a mine and to expand the capacity of operating mines.
On January 1, 2006, the Company adopted EITF Issue 04-6, “Accounting for Stripping Costs in the Mining
Industry”. In accordance with the guidance of Issue No. 04-6, post production stripping costs are considered
costs of the extracted minerals under a full absorption costing system and recognized as a component of
inventory to be recognized in cost of sales in the same period as the revenue from the sale of the inventory.
Additionally, capitalization of such costs are appropriate only to the extent inventory exists at the end of a
reporting period.
Costs associated with the opening of a new pit, are capitalized as mine development costs.
4.10 Depreciation, depletion and amortization
Mine development costs, mine plant facilities and other fixed assets
Mine development costs, mine plant facilities and other fixed assets are recorded at cost less accumulated
amortization and impairments. Cost includes pre-production expenditure incurred during the development of a
mine and the present value of future decommissioning costs. Cost also includes finance charges capitalized
during the construction period where such expenditure is financed by borrowings.
Capitalized mine development costs include expenditure incurred to develop new orebodies, to define further
mineralization in existing orebodies and to expand the capacity of a mine. Where funds have been borrowed
specifically to finance a project, the amount of interest capitalized represents the actual borrowing costs incurred.
Depreciation, depletion and amortization of mine development costs are computed principally by the units-of-
production method based on estimated proven and probable mineral reserves. Proven and probable mineral
reserves reflect estimated quantities of economically recoverable reserves which can be recovered in the future
from known mineral deposits.
Mine plant facilities are amortized using the lesser of their useful life or units-of-production method based on
estimated proven and probable mineral reserves. Main shafts are depleted using total proven and probable
reserves as the shaft will be used over the life of the mine. Other infrastructure costs including ramps, stopes,
laterals, etc and ore reserve development are depleted using proven and probable reserves applicable to that
specific area. When an area is vacated and there is no longer an intention to mine due to a change in mine
plans, all costs that have not been depleted are written off.
Other fixed assets comprising vehicles and computer equipment, are depreciated by the straight-line method
over their estimated useful lives as follows:
•
vehicles up to five years; and
•
computer equipment up to three years.
Acquired properties
Acquired properties are carried at amortized cost. Purchased undeveloped mineral interests are acquired
mineral rights and, in accordance with FSP FAS 141/142-1, “Interaction of FASB Statements No. 141 and
No. 142 and EITF Issue No. 04-2” are recorded as tangible assets as part of acquired properties. The amount
capitalized related to a mineral interest represents its fair value at the time it was acquired, either as an individual
asset purchase or as a part of a business combination. “Brownfield” stage mineral interests represent interests
in properties that are believed to potentially contain other mineralized material, such as measured, indicated or
inferred mineral resources with insufficient drill spacing to qualify as proven and probable mineral reserves, that
is in proximity to proven and probable mineral reserves and within an imm ediate mine structure. “Greenfield”
stage mineral interests represent interests in properties that are other mine-related or greenfields exploration
potential that are not part of measured or indicated resources and are comprised mainly of material outside of a
mine’s infrastructure. The Company’s mineral rights are enforceable regardless of whether proven and probable
mineral reserves have been established. The Company has the ability and intent to renew mineral rights where
the existing term is not sufficient to recover all identified and valued proven and probable mineral reserves and/or
undeveloped mineral interests.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-15
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.10 Depreciation, depletion and amortization (continued)
Brownfield properties are carried at acquired costs until such time as a mineral interest enters the production
stage and are amortized using the unit-of-production method based on estimated proven and probable mineral
reserves.
Greenfield mineral interests are carried at acquired costs until such time as a mineral interest enters the
production stage and are amortized using the unit-of-production method based on estimated proven and
probable mineral reserves.
Both Brownfield properties and Greenfield mineral interests are evaluated for impairment as held for use assets
in accordance with the Company’s asset impairment accounting policy. See Note 4.13.
4.11 Other mining costs
Other mining costs including repair and maintenance costs incurred in connection with major maintenance
activities are charged to operations as incurred.
4.12 Goodwill
Where an investment in a subsidiary, joint venture or an associate is made, any excess of the purchase price
over the fair value of the attributable mineral reserves including value beyond proven and probable, acquired
properties and other net assets is recognized as goodwill.
Goodwill relating to subsidiaries is tested for impairment at least annually or when indicators of impairment exist
and is carried at cost less accumulated impairment losses.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to reporting units for the purpose of impairment testing.
Goodwill in respect of subsidiaries is disclosed as goodwill. Goodwill relating to incorporated joint ventures and
associates is included within the carrying value of the investment in incorporated joint ventures and associates
and tested for impairment when indicators exist. See Note 4.2.
The allocation of goodwill to an individual operating mine will result in an eventual goodwill impairment due to the
wasting nature of the mine reporting unit. In accordance with the provisions of SFAS142, the Company performs
its annual impairment review of assigned goodwill during the fourth quarter of each year.
4.13 Asset impairment
The Company evaluates its held-for-use long lived assets for impairment when events or changes in
circumstances indicate that the related carrying amount may not be recoverable. If the sum of estimated future
cash flows on an undiscounted basis is less than the carrying amount of the related asset, including goodwill, if
any, an asset impairment is considered to exist. The related impairment loss is measured by comparing
estimated future cash flows on a discounted basis to the carrying amount of the asset. Management’s estimate
of future cash flows is subject to risk and uncertainties. It is therefore reasonably possible that changes could
occur which may affect the recoverability of the group’s mining assets. The Company records a reduction of a
group of assets to fair value as a charge to earnings if expected future cash flows are less than the carrying
amount. The Company estimates f air value by discounting the expected future cash flows using a discount factor
that reflects the risk-free rate of interest for a term consistent with the period of expected cash flows, adjusted for
asset specific and country risks. In addition, an asset impairment is considered to exist where the net selling
price of an asset held for sale is below its carrying amount. Once recognized an impairment loss is not reversed.
4.14 Borrowing costs
Interest on borrowings relating to the financing of major capital projects under construction is capitalized during
the construction phase as part of the cost of the project. Such borrowing costs are capitalized over the period
during which the asset is being acquired or constructed and borrowings have been incurred. Capitalization
ceases when construction is interrupted for an extended period or when the asset is substantially complete.
Other borrowing costs are expensed as incurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-16
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.15 Leased assets
Assets subject to finance leases are capitalized at the lower of fair value or present value of minimum lease
payments with the related lease obligation recognized at the same amount. Capitalized leased assets are
depreciated over the shorter of their estimated useful lives and the lease term. Finance lease payments are
allocated using the effective interest rate method, between the lease finance cost, which is included in finance
costs, and the capital repayment, which reduces the liability to the lessor.
Operating lease rentals are charged against operating profits in a systematic manner related to the period the
assets concerned will be used.
4.16Provisions
Provisions are recognized when the Company has a present obligation, whether legal or constructive, as a result
of a past event for which it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of management’s best estimate of the expenditure required to
settle the present obligation at the balance sheet date. The discount rate used to determine the present value
reflects current market assessments of the time value of money and the risks specific to the liability.
4.17Taxation
Current and deferred taxation is recognized as income or expense and included in the profit or loss for the
period, except to the extent that the tax arises from a transaction or event which is recognized, in the same or a
different period directly in equity; or a business combination that is an acquisition. See Note 4.22.
Current taxation is measured on taxable income at the applicable enacted statutory rates.
The Company’s operation involves dealing with uncertainties and judgments in the application of complex tax
regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations
with taxing authorities and resolution of disputes arising from federal, state, and international tax audits. The
Company recognizes tax liabilities for anticipated tax audit issues in tax jurisdictions based on its estimate of
whether, and the extent to which, additional taxes will be due. The Company recognizes interest and penalties,
if any, related to unrecognized tax benefits.
4.18Asset retirement obligations and rehabilitation costs
The Company accounts for asset retirement obligations in accordance with Statement of Financial Accounting
Standards No. 143, “Accounting for Asset Retirement Obligations (AROs)” (“SFAS143”).
AROs arise from the acquisition, development, construction and operation of mining property, plant and
equipment, due to government controls and regulations that protect the environment on the closure and
reclamation of mining properties. The asset is amortized over its estimated useful life. In accordance with the
provisions of SFAS143 the fair value of a liability for an asset retirement obligation is recorded in the period in
which it is incurred. When the liability is initially recorded, the cost is capitalized by increasing the carrying
amount of the related long-lived asset. Over time, the liability is increased to reflect an interest element
(accretion) considered in its initial measurement at fair value, and the capitalized cost is amortized over the
useful life of the related asset. Where the obligation arises from activities that are operational in nature and does
not give rise to futu re economic benefit, the capitalized cost is amortized in the period incurred. Upon settlement
of the liability, a gain or loss will be recorded if the actual cost incurred is different from the liability recorded.
Rehabilitation costs and related liabilities are based on the Company’s interpretation of current environmental
and regulatory requirements.
Based on current environmental regulations and known rehabilitation requirements, management has included
its best estimate of these obligations in its rehabilitation accrual. However, it is reasonably possible that the
Company’s estimates of its ultimate rehabilitation liabilities could change as a result of changes in regulations or
cost estimates.
Environmental liabilities other than rehabilitation costs which relate to liabilities from specific events are accrued
when they are known, probable and reasonably estimable.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-17
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.19 Product sales
Revenue from product sales is recognized when:
•
persuasive evidence of an arrangement exists;
•
delivery has occurred or services have been rendered;
•
the seller’s price to the buyer is fixed or determinable; and
•
collectability is reasonably assured.
The sales price, net of any taxes, is fixed on either the terms of gold sales contracts or the gold spot price.
4.20 Financial instruments
Financial instruments recognized on the balance sheet include investments, loans receivable, trade and other
receivables, cash and cash equivalents, borrowings, derivatives, and trade and other payables. Financial
instruments are initially measured at cost, including transaction costs, when the Company becomes a party to
the contractual arrangements. Subsequent measurement of derivative instruments is dealt with below.
Derivatives
The Company accounts for derivative contracts in accordance with Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS133") as amended.
SFAS133 requires all contracts that meet the definition of a derivative to be recognized on the balance sheet as
either assets or liabilities and recorded at fair value. Gains or losses arising from remeasuring derivatives to fair
value at each reporting period are to be accounted for either in the income statement or in other comprehensive
income, depending on the use and designation of the derivative and whether it qualifies for hedge accounting.
The key criterion which must be met in order to qualify for hedge accounting, is that the derivative must be highly
effective in offsetting the change in the fair value or cash flows of the hedged item.
Contracts that meet the criteria for hedge accounting are designated as the hedging instruments hedging the
variability of forecasted cash flows from capitalized expenditure and the sale of production into the spot market,
and are classified as cash flow hedges under SFAS133. Where a derivative qualifies as the hedging instrument
in a cash flow hedge under SFAS133, changes in fair value of the hedging instruments, to the extent effective,
are deferred in other comprehensive income and reclassified to earnings as product sales or as an adjustment to
depreciation expense pertaining to capital expenditure, when the hedged transaction occurs. The ineffective
portion of changes in fair value of the cash flow hedging instruments is reported in earnings as gains or losses
on non-hedge derivatives in the period in which they occur.
All other contracts not meeting the criteria for the normal purchases and sales or hedge accounting, as defined in
SFAS133, are recorded at their fair market value, with changes in value at each reporting period recorded in
earnings as gains or losses on non-hedge derivatives.
Cash flows from derivative instruments accounted for as cash flow hedges are included in net cash provided by
operating activities in the statements of consolidated cash flows. Contracts that contain ‘off-market’ terms that
result in the inflow of cash at inception are analogous to borrowing activities and, as such, are treated as
financing activities. All current and future cash flows associated with such instruments are classified as financing
activities within the consolidated cash flow statement. Contracts that contain ‘off-market’ terms that result in the
outflow of cash at inception are analogous to lending activities and, as such, are treated as investing activities.
All current and future cash flows associated with such instruments are classified within the investing activities of
the consolidated statement of cash flows.
The estimated fair values of derivatives are determined at discrete points in time based on relevant market
information. These estimates are calculated with reference to the market rates using industry standard valuation
techniques.
Certain derivative instruments are designated as hedges of foreign currency denominated borrowings and
investments in foreign entities. This designation is reviewed at least quarterly, or as borrowing and investment
levels change. The hedge amounts (to the extent effective) are recorded as an offset to the translation
gains/losses being hedged.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-18
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.21 Employee benefits
Pension obligations
Group companies operate various pension schemes. The schemes are funded through payments to insurance
companies or trustee administered funds, determined by annual actuarial calculations. The Company has both
defined benefit and defined contribution plans.
The current service cost in respect of defined benefit plans is recognized as an expense in the current year. Past
service costs, experience adjustments, the effect of changes in actuarial assumptions and the effects of plan
amendments in respect of existing employees are recognized as an expense or income as and when they arise.
This method is applied consistently in each period end to all gains and losses. See Note 2.
The asset/liability recognized in the balance sheet in respect of defined benefit pension plans is the present
value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined
benefit obligation is calculated annually by independent actuaries using the projected unit credit method.
The contributions on defined contribution plans are recognized as employee benefit expense when due. Prepaid
contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is
available.
Other post-employment benefit obligations
Some group companies provide post-retirement healthcare benefits. The expected costs of these benefits are
accrued over the period of employment using an accounting methodology on the same basis as that used for
defined benefit pension plans. These obligations are valued annually by independent qualified actuaries.
Actuarial gains and losses arising in the plan are recognized as income or expense as and when they arise. See
Note 2.
Termination benefits
The Company recognizes termination benefits when it is demonstrably committed to either: terminating the
employment of current employees according to a detailed formal plan; or providing termination benefits as a
result of an offer made to encourage voluntary redundancy based on the number of employees expected to
accept the offer. Benefits falling due more than twelve months after balance sheet date are discounted to present
value.
4.22 Deferred taxation
The Company follows the liability method of accounting for deferred taxation whereby the Company recognizes
the tax consequences of temporary differences by applying enacted tax rates applicable to future years to
differences between financial statement amounts and the tax bases of certain assets and liabilities. Changes in
deferred taxation assets and liabilities include the impact of any tax rate changes enacted during the year.
Principal temporary differences arise from depreciation on property, plant and equipment, derivatives, provisions
and tax losses carried forward. A valuation allowance is recorded to reduce the carrying amounts of deferred
taxation assets if it is more likely than not that such assets will not be realized.
4.23 Dividends
Dividends are recognized when declared by the board of directors. Dividends may be payable in Australian
dollars, South African rands, United Kingdom pounds or Ghanaian cedis. Dividends declared to foreign
stockholders are not subject to approval by the South African Reserve Bank in terms of South African foreign
exchange control regulations. Dividends are freely transferable to foreign stockholders from both trading and
non-trading profits earned in South Africa by publicly listed companies. Under South African law, the Company
may declare and pay dividends from any reserves included in total shareholders’ equity (including share capital
and premium) calculated in accordance with International Financial Reporting Standards (IFRS), subject to its
solvency and liquidity.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-19
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.24 Earnings per share
Earnings and diluted earnings per share have been calculated, for each class of common stock outstanding, in
accordance with SFAS128, “Earnings per Share”, using the two class method. Under the provisions of
SFAS128, basic net income (loss) per share is computed using the weighted average number of shares
outstanding during the period. Diluted net income (loss) per share is computed using the weighted average
number of Ordinary shares and, if dilutive, potential common shares outstanding during the period. The
computation of the diluted income (loss) per share of Ordinary shares assumes the conversion of E Ordinary
shares.
The rights, including the liquidation, voting and dividend rights, of holders of Ordinary shares and E Ordinary
shares are identical. As a result, and in accordance with EITF 03-6, “Participating Securities and the Two-Class
Method under FASB Statement No. 128”, the undistributed earnings for each year are allocated based on the
contractual participation rights of the Ordinary and E Ordinary shares as if the earnings for the year had been
distributed. As only 50 percent of dividends are paid to E ordinary share holders in cash (the remaining
50 percent reduces the exercise price of the E ordinary shares), the undistributed earnings are allocated
between E ordinary shares and ordinary shares based on this proportionate basis. Further, as the Company
assumes the conversion of E Ordinary shares in the computation of the diluted net income (loss) per share of
Ordinary shares, the undistr ibuted earnings are equal to net income (loss) for the computation.
4.25 Exploration and evaluation costs
The Company expenses all exploration costs until the directors conclude that a future economic benefit is more
likely than not of being realized. In evaluating if expenditures meet this criterion to be capitalized, the directors
utilize several different sources of information depending on the level of exploration. While the criteria for
concluding that expenditure should be capitalized is always probable, the information that the directors use to
make that determination depends on the level of exploration.
•
Costs on greenfields sites, being those where the Company does not have any mineral deposits which are
already being mined or developed, are expensed as incurred until the directors are able to demonstrate that
future economic benefits are probable, which generally will be the establishment of proved and probable
reserves at this location.
•
Costs on brownfields sites, being those adjacent to mineral deposits which are already being mined or
developed, are expensed as incurred until the directors are able to demonstrate that future economic
benefits are probable, which generally will be the establishment of increased proved and probable reserves
after which the expenditure is capitalized as a mine development cost.
•
Costs relating to extensions of mineral deposits, which are already being mined or developed, including
expenditure on the definition of mineralization of such mineral deposits, are capitalized as mine
development costs.
Costs relating to property acquisitions are capitalized within development costs.
Drilling and related costs incurred on sites without an existing mine and on areas outside the boundary of a
known mineral deposit that contain proven and probable reserves are recorded as exploration expenditures and
are expensed as incurred.
Drilling and related costs incurred to define and delineate a residual mineral deposit that has not been classified
as proven and probable reserves at a development stage or production stage mine are capitalized when
management determines that there is sufficient evidence that the expenditure will result in a future economic
benefit to the Company in the accounting period when the expenditure is made. Management evaluates whether
or not there is sufficient geologic and economic certainty of being able to convert a residual mineral deposit into
a proven and probable reserve at a development stage or production stage mine, based on the known geologic
and metallurgy, existing mining and processing facilities, operating permits and environmental programs.
Therefore prior to capitalizing such costs, management determines that the following conditions have been met:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-20
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.25 Exploration and evaluation costs (continued)
a. There is a probable future benefit;
b.
AngloGold Ashanti can obtain the benefit and control access to it; and
c.
The transaction or event giving rise to it has already occurred.
The Company understands that there is diversity in practice within the mining industry, in that some companies
expense the drilling and related costs incurred to define and delineate residual mineral deposits that have not
been classified as proven and probable reserves at a development stage or production stage mine. Had
AngloGold Ashanti expensed such costs as incurred, net income, earnings per share and retained earnings
would have been lower by approximately the following amounts:
2008 2007 2006
Net income ($ millions)
10
1
12
Earnings per share
(1)
(cents) 3
-
5
Retained income – January 1 ($ millions)
60
59
47
Retained income – December 31 ($ millions)
70
60
59
(1)
Impact per basic and diluted earnings per common share.
4.26 Stock-based compensation plans
The Company’s management awards certain employees stock options on a discretionary basis.
The fair value of the stock-based payments is calculated at grant date using an appropriate model. For equity
settled stock-based payments, the fair value is determined using a Black-Scholes method and expensed on a
straight-line basis over the vesting period based on the group’s estimate of shares that will eventually vest.
Option schemes which include non-market vesting conditions have been calculated using the Black-Scholes
model. For all other stock-based payments to employees the fair value is determined by reference to the market
value of the underlying stock at grant date adjusted for the effects of the relevant terms and conditions.
For schemes with non-market related vesting conditions, the likelihood of vesting has been taken into account
when determining the income stat ement charge. Vesting assumptions are reviewed during each reporting period.
Stock options are subject to a three year vesting condition and their fair value is recognized as an employee
benefit expense with a corresponding increase in Additional paid in capital over the vesting period. The proceeds
received, net of any directly attributable transaction costs are credited to common stock (nominal value) and
Additional paid in capital when the options are exercised.
On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS123(R), “Share-Based
Payment”, using the modified prospective transition method. See Note 2.
4.27 Recent pronouncements
Fair value determination when there is no active market
In April 2009, the FASB issued FSP FAS 157-4 “Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”
(“FSP FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with
FASB Statement No. 157, “Fair Value Measurements” (“SFAS157”), when the volume and level of activity for the
asset or liability have significantly decreased. FSP FAS 157-4 also includes guidance on identifying
circumstances that indicate a transaction is not orderly. FSP FAS 157-4 applies to all assets and liabilities within
the scope of accounting pronouncements that require or permit fair value measurements, except as discussed in
paragraphs 2 and 3 of SFAS157. FSP FA S 157-4 shall be effective for interim and annual reporting periods
ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending
after March 15, 2009. The Company is currently evaluating the potential impact of adopting FSP FAS 157-4 on
the Company’s financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-21
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.27 Recent pronouncements (continued)
Recognition and presentation of other-than-temporary impairments
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-
Temporary Impairments” (“FSP FAS 115-2 and FAS 124-2”). FSP FAS 115-2 and FAS 124-2 amends the other-
than-temporary impairment guidance in US GAAP for debt securities to make the guidance more operational and
to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. The recognition guidance in paragraphs 19–34 of FSP FAS 115-2 and FAS 124-2
applies to debt securities classified as available-for-sale and held-to-maturity that are subject to other-than
temporary impairment guidance within:
a. SFAS115;
b.
FSP FAS 115-1 and FAS 124-1;
c.
EITF Issue 99-20, as amended by FSP EITF 99-20-1; or
d.
AICPA Statement of Position 03-3.
The presentation and disclosure guidance in paragraphs 35–43 of FSP FAS 115-2 and FAS 124-2 applies to
debt and equity securities that are subject to the disclosure requirements of Statement 115 and FSP FAS 115-1
and FAS 124-1. FSP FAS 115-2 and FAS 124-2 shall be effective for interim and annual reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company
is currently evaluating the potential impact of adopting FSP FAS 115-2 and FAS 124-2 on the Company’s
financial statements.
Interim disclosures about fair value of financial instruments
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 “Interim Disclosures about Fair Value of Financial
Instruments” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amends FASB Statement No.
107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.
FSP FAS 107-1 and APB 28-1 also amends APB Opinion No. 28, Interim Financial Reporting, to require those
disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1
applies to all financial instruments within the scope of Statement 107 held by publicly traded companies, as
defined by Opinion 28. FSP FAS 107-1 and APB 28-1 shall be effective for interim reporting periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently
evaluating the potential impact of adopting FSP FAS 107-1 and APB 28-1 on the Company’s financial
statements.
Assets and liabilities from contingencies in business combinations
In April 2009, the FASB issued FSP FAS 141(R)–1 “Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies” (“FSP FAS 141(R)–1”). FSP FAS 141(R)–1 amends and
clarifies FASB Statement No. 141 (revised 2007), “Business Combinations” issues raised on initial recognition
and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. FSP FAS 141(R)–1 applies to all assets acquired and liabilities
assumed in a business combination that arise from contingencies that would be within the scope of Statement 5
if not acquired or assumed in a business combination, except for assets or liabilities arising from contingencies
that are subject to specific guidance in Statement 141(R). FSP FAS 141(R)–1 shall be effective for assets or
liabilities arising from contingencies in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008. FSP FAS 141(R)-1 will
impact how the Company accounts for future business combinations and the Company’s future financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-22
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.27 Recent pronouncements (continued)
Equity method investment
In November 2008, the EITF reached consensus on Issue No. 08-6, “Equity Method Investment Accounting
Considerations” (“EITF 08-6”), which clarifies the accounting for certain transactions and impairment
considerations involving equity method investments. The intent of EITF 08-6 is to provide guidance on
(i) determining the initial carrying value of an equity method investment, (ii) performing an impairment
assessment of an underlying indefinite-lived intangible asset of an equity method investment, (iii) accounting for
an equity method investee’s issuance of shares, and (iv) accounting for a change in an investment from the
equity method to the cost method. EITF 08-6 is effective in fiscal years beginning on or after December 15, 2008,
and interim periods. EITF 08-6 must be applied prospectively. The Company does not expect the adoption of
EITF 08-6 to have a material impact on the Company’s financial statements.
Instrument indexed to own stock
In June 2008, The Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 07-5, “Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). The
consensus was reached on the following three issues:
•
How an entity should evaluate whether an instrument (or embedded feature) is indexed to its own stock.
•
How the currency in which the strike price of an equity-linked financial instrument (or embedded equity-
linked feature) is denominated affects the determination of whether the instrument is indexed to an entity’s
own stock.
•
How an issuer should account for market-based employee stock option valuation instruments.
Consensus was also reached that EITF 07-5 should be effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods. Earlier application by an entity that has previously
adopted an alternative accounting policy is not permitted. The consensus must be applied to outstanding
instruments as of the beginning of the fiscal year in which EITF 07-5 is adopted as a cumulative-effect
adjustment to the opening balance of retained earnings for that fiscal year. The Company is currently evaluating
the potential impact of adopting EITF 07-5 on the Company’s financial statements.
Participating securities
In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in computing earnings per share under the two-class
method as described in SFAS No. 128, “Earnings per Share” (“SFAS 128”). Under the guidance in FSP EITF 03-
6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. FSP EITF 03-6-1 shall be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods. All prior-period EPS data
presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings and
selected financial data) to conform with the provisions of FSP EITF 03-6-1. Early application is not permitted.
The Company does not expect the adoption of FSP EITF 03-6-1 to have a material impact on the Company’s
financial statements.
Convertible debt instruments
In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”) which addresses the
accounting for convertible debt securities that may be settled in cash, (or other assets) upon conversion,
including partial cash settlement, unless the embedded conversion option is required to be separately accounted
for as a derivative under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS133”). FSP APB 14-1 does not change the accounting for more traditional types of convertible
debt securities that do not have a cash settlement feature. Also, FSP APB 14-1 does not apply if, under existing
US GAAP for derivatives, the embedded conversion feature must be accounted fo r separately from the rest of
the instrument. FSP APB 14-1 shall be effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods. Early adoption is not permitted. FSP APB 14-1 should be applied
retrospectively to all past periods presented — even if the instrument has matured, has been converted, or has
otherwise been extinguished as of the effective date of FSP APB 14-1. The Company is currently evaluating the
potential impact of adopting FSP APB 14-1 on the Company’s financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-23
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.27 Recent pronouncements (continued)
Useful life of intangible assets
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS142”). FSP FAS 142-3 removes
the requirement under paragraph 11 of SFAS142 to consider whether an intangible asset can be renewed
without substantial cost or material modifications to the existing terms and conditions and instead, requires an
entity to consider its own historical experience in renewing similar arrangements. FSP FAS 142-3 also requires
expanded disclosure related to the determination of intangible asset useful liv es. FSP FAS 142-3 is effective for
financial statements issued for fiscal years beginning after December 15, 2008, and interim periods. Early
adoption is not permitted. The guidance for determining the useful life of a recognized intangible asset shall be
applied prospectively to intangible assets acquired after the effective date. The disclosure requirements shall be
applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The
Company is currently evaluating the potential impact of adopting FSP FAS 142-3 on the Company’s financial
statements.
Derivative instruments
In March 2008, the FASB issued FASB statement No. 161, “Disclosures about Derivative Instruments and
Hedging Activities – an amendment of FASB statement No. 133” (“SFAS161”). SFAS161 applies to all derivative
instruments and nonderivative instruments that are designated and qualify as hedging instruments pursuant to
paragraphs 37 and 42 of SFAS133 and related hedged items accounted for under SFAS133. SFAS161 requires
enhanced disclosures about an entity’s derivative and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect an entity’s financial position, result s of operations
and cash flows. SFAS161 is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. Comparative disclosures for earlier
periods at initial adoption are encouraged but not required. The Company does not expect the adoption of
SFAS161 to have a material impact on the Company’s financial statements.
Noncontrolling interests
In December 2007, the FASB issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated
Financial Statements” (“SFAS160”). SFAS160 amends ARB 51 to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported
as equity in the consolidated financial statements. SFAS160 is effective for fiscal years, and interim periods
beginning on or after December 15, 2008. Earlier adoption is prohibited. It shall be applied prospectively as of
the beginning of the fiscal year in which this Statement is initially adopted, except for the presentation and
disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all
periods presented. The Company is currently evaluating the potential impact of adopting SFAS160 on the
Company’s financial statements.
Business combinations
In December 2007, the FASB issued FASB Statement No. 141 (R), “Business Combinations” (“SFAS141(R)”).
SFAS141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets
acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose
information on the nature and financial effect of the business combination. SFAS141(R) applies prospectively to
business combinations for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it before that date. SFAS141(R)
applies to all transactions or other events in which an entity (the acquirer) obtains control of one or more
businesses (the acquiree), including combinations achieved without the transfer of consideration. SFAS141(R)
will impact how the Company accounts for future business combinations and the Company’s future financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-24
5.
COSTS AND EXPENSES
Employment severance costs
Total employee severance costs amounted to $9 million for 2008 (2007: $19 million, 2006: $22 million). Employee
severance costs recorded in 2008, 2007 and 2006 included retrenchment costs of $9 million, $5 million and $7 million,
respectively, in the South African region and $nil million, $14 million and $15 million, respectively, in Ghana.
Interest expense
2008
$
2007
$
2006
$
Finance costs on bank loans and overdrafts
49
18
20
Finance costs on corporate bond
(1)
18
31
32
Finance costs on convertible bond
(2)
27
26
26
Capital lease charges
3
3
2
Discounting of non-current trade and other debtors
1
6
4
Other
4
1
3
102
85
87
Less : Amounts capitalized
(3)
(30) (10) (10)
72
75
77
(1)
On August 21, 2003 AngloGold issued an unsecured bond in the aggregate principal amount of R2 billion ($300 million). The bond was repaid on
August 28, 2008. Refer to Note 20.
(2)
On February 27, 2004, AngloGold Ashanti Holdings plc, a wholly-owned subsidiary of the Company, issued $1.0 billion 2.375 percent guaranteed
convertible bonds due 2009, convertible into ADSs and guaranteed by AngloGold Ashanti. Refer to Note 20.
(3)
Interest capitalized on qualifying assets. Refer to Note 13.
Impairment of assets
Impairments are made up as follows:
2008
$
2007
$
2006
$
Tanzania
(1)
Impairment of goodwill held in Geita mine
181
-
-
Impairment of Geita mining assets
299
-
-
Ghana
Impairment of goodwill held in Obuasi mine
(2)
104 - -
Impairment of abandoned shaft infrastructure and reserve power plant at Obuasi mine
(3)
15 - -
Impairment of goodwill held in Iduapriem mine
(4)
14 - -
Impairment of reserve power plant at Iduapriem mine
(3)
3 - -
Congo
Impairment of exploration assets
(5)
29 - -
South Africa
Below 120 level at TauTona
(6)
16 - -
Guinea
Impairment of obsolete heap leach plant infrastructure
7
-
-
Other
Impairment and write-off of various minor tangible assets and equipment
2
1
6
670 1 6
(1)
In 2008, annual impairment testing for goodwill pursuant to SFAS142 was performed for Geita and it was determined that its goodwill was fully
impaired. The impairment testing for mining assets pursuant to SFAS144 was performed and the estimated fair value of the mining assets did not
support the carrying values and as a result, an impairment of mining assets was recorded. The impairment at Geita mine is due to a combination of
factors such as the lower forward gold curve price, higher discount rates and a change in the mine plan revised mainly due to a reduction in
reserves resulting from resource model changes, grade factors and an increase in the cost of extraction. The reporting unit's fair value was
determined using a real pre-tax discount rate of 11.5 percent.
(2)
In 2008, annual impairment testing for goodwill pursuant to SFAS142 was performed for Obuasi and it was determined that its goodwill was fully
impaired. The goodwill impairment is the result of factors such as the lower forward gold curve price, higher discount rates and a revised mine plan
which incorporates changes in the cost of extraction due to the higher power costs recently experienced in Ghana. The reporting unit's fair value
was determined using a real pre-tax discount rate of 9 percent.
(3)
The reserve power plant has been placed on care and maintenance pending handover to the Volta Regional Authority in 2009. Both Obuasi mine
and Iduapriem mine contributions to the capital cost of the reserve power plant have been impaired as the mines will not derive further economic
benefit.
(4)
In 2008, annual impairment testing for goodwill pursuant to SFAS142 was performed for Iduapriem and it was determined that its goodwill was fully
impaired. The goodwill impairment is the result of factors such as the lower forward gold curve price, higher discount rates and a revised mine plan
which incorporates changes in the cost of extraction due to the higher power costs recently experienced in Ghana. The reporting unit's fair value
was determined using a real pre-tax discount rate of 8.8 percent.
(5)
In terms of the current volatile political situation commercial exploitation appears unlikely at this point and the mineral right value has as a result
been impaired.
(6)
Due to a change in the mine plan resulting from safety related concerns following seismic activity, a portion of the below 120 level development has
been abandoned and will not generate future cash flows.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-25
5.
COSTS AND EXPENSES (continued)
The Company evaluates its held-for-use long lived assets for impairment when events or changes in circumstances
indicate that the related carrying amount may not be recoverable. The carrying value of the related asset is compared to
its fair value based on discounted estimated future cash flows.
The following estimates and assumptions were used by management when reviewing long-lived assets for impairment:
•
the forward gold price curve for the first 10 years, where a forward gold market and quoted prices exist (starting
point based on a 30-day average during the fourth-quarter of 2008 - $783 per ounce; (2007 - $749 per ounce).
Thereafter, the estimated future gold price has been increased by 2.25 percent (2007: 2.25 percent) per annum
over the remaining life of the mines. Although the starting point of the forward gold price curve was higher in 2008
compared with 2007, the slope or rate of escalation of the price curve was lower in 2008. The forward gold price
curve if discounted at US CPI is $817 per ounce (2007: $887 per ounce). These prices have been adjusted for the
effects of including the normal sale forward contracts to arrive at an average received price;
•
Proven and Probable Ore Reserves as well as value beyond proven and probable reserves estimates. For these
purposes Proven and Probable Ore Reserves of approximately 73.5 million ounces (including joint ventures) as at
December 31, 2008 were determined assuming a three year historical average gold price of $730 per ounce,
A$880 per ounce in Australia and R168,984 per kilogram in South Africa;
•
the real pre-tax discount rate is derived from the Company’s weighted average cost of capital (WACC) and risk
factors which is consistent with the basis used in 2007. The WACC of 5.57 percent, which is around 100 basis
points higher than 2007 of 4.53 percent, is based on the average capital structure of the Company and three major
gold companies considered to be appropriate peers. The risk factors considered are country risk as well as project
risk for cash flows relating to mines that are not yet in production and deep level mining projects. The country risk
factor is based on the Company’s internal assessment of country risk relative to the issues experienced in the
countries in which it operates and explores, adjusted by country credit risk rating;
•
foreign currency cash flows are translated at estimated forward exchange rates and then discounted using
appropriate discount rates for that currency;
•
cash flows used in impairment calculations are based on life of mine plans; and
•
variable operating cash flows are increased at local Consumer Price Index (CPI) rates.
The real pre-tax discount rates applied in the 2008 impairment calculations on reporting units with significant assigned
goodwill are as follows:
Percentage
Australia
Sunrise Dam
11.0
Tanzania
Geita
11.5
The factors affecting the estimates include:
•
changes in Proven and Probable Ore Reserves as well as value beyond proven and probable reserves;
•
the grade of Ore Reserves as well as value beyond proven and probable reserves may vary significantly from time
to time;
•
differences between actual commodity prices and commodity price assumptions;
•
unforeseen operational issues; and
•
changes in capital, operating mining, processing and reclamation costs and foreign exchange rates.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-26
5.
COSTS AND EXPENSES (continued)
The carrying value and estimated fair values (on an undiscounted basis) of reporting units that are most sensitive to a
5 percent movement in gold price, ounces and cost assumptions, are:
Carrying amount
$
Estimated fair value
(undiscounted)
$
2008
Brazil
Serra Grande
104 358
Ghana
Iduapriem
326 378
2007
Brazil
Serra Grande
59 364
The carrying value and estimated fair values (on a discounted basis) of reporting units that have goodwill allocated to
them that are most sensitive to a 5 percent movement in gold price, ounces and cost assumptions, are:
Carrying amount
(including goodwill)
$
Estimated fair value
(discounted)
$
2008
Australia
Sunrise Dam
431 763
Namibia
Navachab
42 181
2007
Australia
Sunrise Dam
529 569
Namibia
Navachab
46 231
Ghana
Obuasi
1,713 1,769
Iduapriem
264 406
Tanzania
Geita
1,250 1,505
Asset retirement obligations
Long-term environmental obligations comprising decommissioning and restoration are based on the Company’s
environmental management plans, in compliance with the current environmental and regulatory requirements.
$ million
The following is a reconciliation of the total liabilities for asset retirement obligations:
Balance as at December 31, 2007
394
Additions to liabilities
6
Transfers to held for sale
(11)
Liabilities settled
(7)
Accretion expense
22
Change in assumptions
(46)
(1)
Translation
(56)
Balance as at December 31, 2008
302
(1)
Revisions relate to changes in laws and regulations governing the protection of the environment and factors relating to rehabilitation estimates and
a change in the quantities of material in reserves and a corresponding change in the life of mine plan. These liabilities are anticipated to unwind
beyond the end of the life of mine.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-27
5.
COSTS AND EXPENSES (continued)
These liabilities mainly relate to obligations at the Company’s active and inactive mines to perform reclamation and
remediation activities in order to meet applicable existing environmental laws and regulations.
Certain amounts have been contributed to a rehabilitation trust and environmental protection bond under the Company's
control. The monies in the trust and bond are invested primarily in interest bearing debt securities and are included in
Other long-term assets in the Company’s consolidated balance sheet. Cash balances held in the trust and bond are
classified as restricted cash in the Company’s consolidated balance sheets. As at December 31, 2008 and 2007 the
balances held in the trust and bond amounted to $64 million and $80 million, respectively.
Operating lease charges
Operating lease rentals are charged against income in a systematic manner related to the period the leased property
will be used. Lease charges relate mainly to the hire of plant and machinery and other land and buildings.
Operating leases for plant and machinery are for contracts entered into with mining contractors. The contracts are for
specified periods and include escalation clauses. Renewals are at the discretion of the respective operating mine and
allow a right of first refusal on the purchase of the mining equipment in the case of termination of the contract. Certain
contracts include the provision of penalties payable on early exiting or cancellation.
Rental expense
(1)
2008
$
2007
$
2006
$
Comprising of:
Minimum rentals
30 51 40
(1)
Included in production costs for each period presented.
Future minimum rental payments are:
2009
30
2010
18
2011
16
2012
16
2013
15
Thereafter
1
96
(Profit)/loss on sale of assets, realization of loans, indirect taxes and other
2008
$
2007
$
2006
$
Profit on disposal of certain exploration interests in Colombia to B2Gold Corporation
(33)
-
-
Certain royalty and production related payment interests in North America sold to Royal Gold Inc.
(14)
-
-
Profit on disposal of the Company’s 50 percent equity interest held in Nufcor International Limited
(2)
-
-
Deferred income on sale of La Rescatada exploration interest recognized in South America (Peru)
(8)
-
-
Costs relating to the issue of rights granted to E ordinary shareholders
(1)
9
-
-
Loss/(profit) on disposal and abandonment of land, mineral rights and exploration properties
(2)
2
(10) (48)
Reassessment of indirect taxes and royalties payable in Guinea
(3) 11
(3)
Reassessment of indirect taxes payable in Tanzania
(15)
7
20
Recovery of exploration costs previously expensed in South Africa and South America (Peru)
(4)
(6)
-
Contractor termination costs in Ghana
1
-
-
Impairment of investments
(3)
6
-
-
Contributions by other members to Nufcor Uranium Trust situated in South Africa
(3)
-
-
Non-recoverable value added state tax
(4)
-
5
9
Buildings destroyed by fire in Guinea
-
3
-
Recovery of loans previously written off
(5)
-
-
(14)
(64) 10
(36)
(1)
Rights offer was completed in early July 2008.
(2)
Refers to the disposal and abandonment of land, mineral rights and exploration properties situated in Brazil, Ghana, South Africa, North America and
Tanzania.
(3)
Impairment of Red 5 Limited shares of $4 million in Australia and Dynasty Gold Corporation shares of $2 million in China. Refer to Note 16.
(4)
Represents the write-off of value added state tax (at AngloGold Ashanti Brasil Mineração and Serra Grande) not expected to be recovered from the
Brazilian Government.
(5)
Related mainly to loans previously expensed as exploration costs as part of funding provided to the Yatela Joint Venture. The Yatela Joint Venture is
accounted for under the equity method. Refer to Note 16.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-28
5.
COSTS AND EXPENSES (continued)
Non-hedge derivative loss
A loss on non-hedge derivatives of $258 million was recorded in 2008 (2007: $808 million, 2006: $208 million) relating
to the use of non-hedging instruments, which represent derivatives not designated in formal hedge accounting
relationships. As such, the change in fair value of such derivatives is recorded each period in the income statement.
The loss primarily relates to changes in the prevailing spot gold price, exchange rates, interest rates, volatilities and
non-performance risk. Realized loss on accelerated settlement of non-hedge derivatives from the hedge close-outs
effected during 2008, amounted to $1,088 million.
In addition, the Company recognized a loss of $150 million during 2008 on forward gold contracts previously qualifying
for the normal sale exemption (which permits the Company to not record such amounts in its financial statements until
the maturity date of the contract) under which the Company had committed to deliver a specified quantity of gold at a
future date in exchange for an agreed price. However, due to the inability of a single counterpart to accept the physical
delivery of gold for the forward contracts expiring in April through June 2008, the Company cash settled such contracts
during the period. Accordingly, the remaining contracts with this counterpart scheduled to mature in later periods did
not meet all of the requirements necessary for them to continue to qualify for the normal sale exemption in future
periods and were accounted for as non-hedge derivatives at fair value on the balanc e sheet as from June 30, 2008, with
changes in fair value reflected in the income statement. During the third quarter of 2008, the Company early cash
settled contracts now designated as non-hedge derivative contracts, with the same counterpart, maturing in July 2008
through August 2009.
Other operating items
2008
$
2007
$
2006
$
Comprising of:
Realized loss on other commodity contracts
32
-
-
Provision (reversed)/raised on loss on future deliveries of other commodities
(5)
(13)
15
Unrealized (gain)/loss on other commodity physical borrowings
(8)
(3)
1
19
(16)
16
6.
RELATED PARTY TRANSACTIONS
During April 2006, Anglo American plc (AA plc) reduced its shareholding in the Company to less than 50 percent
interest held. As at December 31, 2008, AA plc and its subsidiaries held an effective 16.17 percent
(2007: 16.58 percent) interest in AngloGold Ashanti. On March 17, 2009, AA plc disposed of its entire remaining
shareholding in the Company. The Company had the following transactions with related parties during the years ended
December 31, 2008, 2007 and 2006:
December 31, 2008
December 31, 2007
December 31, 2006
(in millions)
Purchases
(by)/from
related party
$
Amounts
owed to/(by)
related party
$
Purchases
(by)/from
related party
$
Amounts
owed to/(by)
related party
$
Purchases
(by)/from
related party
$
Related party transactions with
significant shareholder AA plc
-
-
-
-
1
Related party transactions with
subsidiaries of AA plc
-
-
-
-
7
Related party transactions of equity
accounted joint ventures and
associates
AGA Polymetal Strategic Alliance
-
(3)
-
-
-
Margaret Water Company
1
-
-
-
-
Oro Group (Proprietary) Limited
-
(1)
-
(2)
-
Societe d'Exploitation des Mines d'Or
de Sadiola S.A.
(5) (2) (7) (2)
(4)
Societe d'Exploitation des Mines d'Or
de
Yatela
S.A.
(1)(1) (3) (1)
(6)
Societe des Mines de Morila S.A.
(5)
(1)
(5)
(2)
(4)
Trans-Siberian Gold plc
-
(1)
(1)
(11)
-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-29
6.
RELATED PARTY TRANSACTIONS (continued)
Amounts owed to/due by joint venture related parties and the loan balance due to Goldmed Medical Scheme of
$1 million (2007: $1 million), are unsecured, non-interest bearing and under terms that are no less favorable than those
with third parties.
The loan advanced to Trans-Siberian Gold plc amounted to $10 million as at December 31, 2007. In 2008, $4 million of
this loan was repaid and the balance of $6 million was converted into equity of Trans-Siberian Gold plc.
The AGA-Polymetal Strategic Alliance (joint venture) loan of $3 million advanced during 2008, is interest free and is
repayable on demand at any time after profits have been generated by the joint venture.
The Oro Group (Proprietary) Limited loan of $1 million (2007: $2 million) bears interest at a rate determined by the Oro
Group (Proprietary) Limited’s board of directors and is repayable at their discretion.
The Company, which holds an equity interest of 29.7 percent in Trans-Siberian Gold plc (TSG), entered into a
transaction during the quarter ended June 30, 2007 with TSG in which two companies were acquired from TSG for a
consideration of $40 million. The companies acquired consist of Amikan and AS APK.
In connection with the relocation of Roberto Carvalho Silva, a former executive director of the Company who retired in
2007, to Nova Lima, Brazil, in 2000, Mr. Carvalho Silva commenced renting a house in Nova Lima from a Brazilian
subsidiary of the Company. Mr. Carvalho Silva purchased the house from the Company’s subsidiary in January 2005.
The total purchase price of the house was BRL1,150,000 ($429,923). Mr. Carvalho agreed to pay the purchase price of
the house in 60 installments, the first being BRL19,167.70 and 59 installments of BRL19,166.65 each, starting on
January 28, 2005. Such monthly instal lments were adjusted annually by the cumulative INPC (a Consumer Price Index
in Brazil) in lieu of interest. As at December 31, 2006, BRL728,580 ($340,458) of the purchase price remained to be
paid to the Company’s subsidiary, with BRL657,717 ($341,352) remaining to be paid as at June 20, 2007. The
remaining balance was repaid on or about August 31, 2007.
A Brazilian subsidiary of the Company received marketing, communications and corporate affairs services from a
Brazilian company in which a son of Roberto Carvalho Silva owns a one-third interest. The amounts paid by the
Company’s subsidiary to this company in respect of such services during the years were: 2007: BRL634,023 ($329,055)
and in 2006: BRL903,465 ($414,433). The Company terminated the agreement with the Brazilian marketing,
communications and corporate affairs services company effective July 2007.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-30
7.
TAXATION
2008
$
2007
$
2006
$
Income/(loss) from continuing operations before income tax, equity income, minority interests
and cumulative effect of accounting change was derived from the following jurisdictions:
South Africa
251
(44)
79
Argentina
(13)
56
40
Australia
(69)
81
106
Brazil
86
21
114
Ghana
(222) 207) (128)
Guinea
55
(106)
(53)
Mali
1
5
6
Namibia
(2)
9
18
Tanzania
(546)(383) (213)
USA
127(93) (23)
Other, including Corporate and Non-gold producing subsidiaries
(41)
(50)
(42)
(373) (711) (96)
(Charge)/benefit for income taxes attributable to continuing operations is as follows:
Current:
South Africa
(1)
(20)(92) (66)
Argentina
(1) (10) (13)
Australia
(2)
3
(37)
(25)
Brazil
(33)(38) (38)
Ghana
(5)-
(5)
Guinea
(3)
(24)
-
-
Mali
(1) (2) (2)
Namibia
(6)(7) (4)
Tanzania
4
(3)
(1)
USA
-
(1)
-
Other
(11) (1) (2)
Total current
(94) (191)(156)
(1)
The reduction in the tax charge in 2008 mainly relates to losses on the early settlement of the hedges.
The increase in the taxation charge in 2007 and 2006 partly relates to the higher gold price and utilization
of unredeemed capital expenditure.
(2)
Sunrise Dam’s taxable income has reduced considerably following the completion of the mining in the
megapit during the year.
(3)
Siguiri has utilized the historic assessed losses and unredeemed capital allowances brought forward
assisted by the improved grade and plant utilization which resulted in taxable income.
Deferred:
South Africa
(1)
(40)
52
(16)
Argentina
6
(1)(2)
Australia
(4)
10
(4)
Brazil
(22)
(20) 4
Ghana
(2)
10
32
39
Guinea
(9)
(2) (2)
Mali
-
-
-
Namibia
(1)
1
(3)
Tanzania
(3)
122
7
20
USA
-
-
-
Other
10
(6)(2)
Total deferred
72
73
34
Total income and mining tax expense
(22) (118)(122)
(1)
Mining tax on mining income in South Africa is determined according to a formula which adjusts the tax
rate in accordance with the ratio of profit to revenue from operations. This formula also allows an initial
portion of mining income to be free of tax. Non-mining income is taxed at a standard rate. Estimated
deferred taxation rates reflect the future anticipated taxation rates at the time temporary differences
reverse.
During 2008, 2007 and 2006, deferred taxation was provided at a future anticipated taxation rate ranging
between 36 percent and 38 percent for 2008, 39 percent and 37 percent for 2007, and in 2006 at
37 percent and 38 percent, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-31
7.
TAXATION (continued)
The effect of the change in estimates on the results for 2008, 2007 and 2006 were as follows:
Year ended December 31
2008 20072006
Impact
$
Per basic
and diluted
common share
(a)(b)
cents
Impact
$
Per basic
and diluted
common share
(a)(b)
cents
Impact
$
Per basic
and diluted
common share
(a)(b)
cents
Net income
4
1
23
8
65
24
(a)
Per basic and diluted ordinary and E ordinary shares.
(b)
The calculation of diluted earnings per common share for 2008, 2007 and 2006 did not assume the effect
of 15,384,615 shares issuable upon exercise of Convertible Bonds and 872,373, 575,316 and
854,643 shares, respectively, issuable upon the exercise of stock incentive options as their effects are
anti-dilutive for these periods.
(2)
The 2008 benefit is due to the continuing net increase in the capital allowances at Obuasi as a result of the
high capital expenditure. The deferred tax benefit in 2007 included $28 million arising from the deferred
tax asset recognized on the increase in unredeemed capital expenditure allowances. The deferred tax
benefit in 2006 included $21 million resulting from an extension of tax losses granted by the Ghanaian
Taxation Authorities which would have been forfeited during that year.
(3)
The deferred tax benefit in 2008 relates to the impairment of mining assets at Geita.
The unutilized tax losses of the North American operations which are available for offset against
future profits earned in the United States, amount to $339 million (2007: $248 million,
2006: $277 million).
The unutilized tax losses of the Australian operation which are available for offset against future
capital gains amounts to $184 million.
2008
$
Analysis of unrecognized tax losses
Assessed losses utilized during the year
-
Unutilized tax losses remaining to be used against future profits requires utilization in the
following periods:
Within one year
-
Within one and two years
127
Within two and five years
4
In excess of five years
392
523
20082007 2006
$$ $
Reconciliation between corporate income tax and statutory income tax is as follows:
Corporate income tax at statutory rates
(131)
(263)
(36)
Formula variation in mining taxation rate
(1)
(3)
(2)
Disallowable expenditure
(1)
47
388
135
Effect of income tax rates of other countries
118
(9)
(38)
Impact of change in estimated deferred taxation rate
4
23
65
Other
(15) (18) (2)
Total income and mining tax expense
22
118
122
(1)
Disallowable expenditure includes the impact of hedge losses in non-taxable jurisdictions and share expense costs.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-32
7.
TAXATION (continued)
2008
$
2007
$
Deferred taxation liabilities and assets on the balance sheet as of December 31, 2008 and 2007,
relate to the following:
Deferred taxation liabilities:
Depreciation, depletion and amortization
1,309
1,778
Product inventory not taxed
15
23
Derivatives
-
72
Other comprehensive income deferred taxation
54
18
Other
3
4
Total
1,381
1,895
Deferred taxation assets:
Provisions, including rehabilitation accruals
(181)
(210)
Derivatives
(43) (97)
Other comprehensive income deferred taxation
(161)
(273)
Other
(9) (10)
Tax loss carry forwards
(382) (366)
Total
(776) (956)
Less: Valuation allowances
226
99
Total
550
857
Disclosed as follows:
Long-term portion deferred taxation assets
51
37
Short-term portion classified as other current assets
150
275
Long-term portion deferred taxation liabilities
1,008
1,345
Short-term portion classified as other current liabilities. Refer to Note 18.
24
5
The classification of deferred taxation assets is based on the related asset or liability
creating the deferred taxation. Deferred taxes not related to a specific asset or liability
are classified based on the estimated period of reversal. As at December 31, 2008,
the Company had non-mining losses in South Africa of $103 million
(2007: $nil million), on which deferred tax had been provided at the future anticipated
tax rate of 35 percent.
Unremitted earnings of foreign subsidiaries and foreign incorporated joint
ventures
Dividends from incorporated joint ventures may be remitted to the Company without
being subject to income or withholding taxes. No provision is made for the income
tax effect that may arise on the remittance of unremitted earnings by certain foreign
subsidiaries. It is management’s intention that these earnings will be permanently re-
invested. The amounts of these unremitted earnings as at December 31, 2008 totaled
$1,104 million (2007: $1,155 million). In the event that the Company repatriated these
earnings, income taxes and withholding taxes may be incurred. The determination of
such taxes is subject to various complex calculations and accordingly, the Company
has determined that it is impractical to estimate the amount of the deferred tax liability
on such unremitted earnings.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-33
7.
TAXATION (continued)
Analysis of valuation allowances
The movement in valuation allowances for the three years in the period ended December 31, is summarized as follows:
Balance at beginning
of period
$
Provision/ (benefit)
expenses
$
Balance at end
of period
$
Year ended December 31, 2008
- Valuation allowance
98
128
226
Year ended December 31, 2007
- Valuation allowance
97
1
98
Year ended December 31, 2006
- Valuation allowance
112
(15)
97
The deferred tax assets for the respective periods were assessed for recoverability
and, where applicable, a valuation allowance recorded to reduce the total deferred tax
asset to an amount that will, more likely than not, be realized. The valuation
allowance relates primarily to certain net operating loss carryforwards, tax credit
carryforwards and deductible temporary differences for which it is more likely than not
that these items will not be realized.
Although realization is not assured, we have concluded that it is more-likely-than-not
that the deferred tax assets for which a valuation allowance was determined to be
unnecessary will be realized based on the available evidence, including scheduling of
deferred tax liabilities and projected income from operating activities. The amount of
the net deferred tax assets considered realizable, however, could change in the near
term if actual future income or income tax rates differ from that estimated, or if there
are differences in the timing or amount of future reversals of existing taxable or
deductible temporary differences.
Uncertain tax positions
As at December 31, 2008 and 2007, the Company had $106 million and $134 million, respectively, of total unrecognized
tax benefits which, if recognized, would affect the Company’s effective income tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2008
$
2007
$
Balance at January 1,
134
109
Additions for tax positions of prior years
9
22
Translation
(37) 3
Balance at December 31,
106
134
The Company’s continuing practice is to recognize interest and penalties related to unrecognized tax benefits as part of
its income tax expense. During the years ended December 31, 2008, 2007 and 2006, the Company recognized
approximately $6 million, $9 million and $4 million, respectively, in interest. The Company had approximately
$34 million and $38 million for the payment of interest accrued as at December 31, 2008 and 2007, respectively.
As at December 31, 2008, the Company's South African tax assessment for the years 2001 - 2003 remain open to
scrutiny by the South African Revenue Service. As at December 31, 2008, in South Africa, the Company's assessments
due from the tax authorities for 2004 and all subsequent years have yet to be received. It is possible that the Company
will receive assessments during the next twelve months, which may have an effect on uncertain tax positions.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-34
7.
TAXATION (continued)
In other jurisdictions, the revenue system is based on a self-assessment process, all tax filings due by
December 31, 2008 have been filed, and the self-assessed position recorded in the consolidated financial statements.
The legislation of individual jurisdictions provides for different periods for the authorities to review the filings with
specified expiry dates. The Company is disputing assessments received in some jurisdictions where it operates and
these arguments are under consideration by the authorities. Based on current legal advice, the Company does not
expect the resolution will significantly affect the Company's consolidated financial statements.
8.
DISCONTINUED OPERATIONS
The Ergo reclamation surface operation, which forms part of the South African
operations, has been discontinued. After a detailed investigation of several options
mining operations at Ergo ceased in 2005. Site restoration activities continued after
the mining operation was discontinued. The pre-tax gain on disposal of $27 million
recorded in 2008 relates to the remaining moveable and immovable assets of Ergo,
that were sold by the Company to ERGO Mining (Pty) Limited a joint venture between
Mintails South Africa (Pty) Limited and DRD South African Operations (Pty) Limited.
The transaction was approved by the Competition Commissioner on May 5, 2008 and
ERGO Mining (Pty) Limited will operate, in terms of an agreement for its own account,
under the AngloGold Ashanti mineral authorizations until the mining rights have been
approved by the Minister of Minerals and Energy for transfer to ERGO Mining (Pty)
Limited. The environmental rehabilitation liability remains with the Company until all
the resolutive sale conditions have been met.
The Company reclassified the income statement results from the historical
presentation to profit/(loss) from discontinued operations in the consolidated income
statement. The consolidated cash flow statement has been reclassified for
discontinued operations. The results of Ergo for the years ended December 31, 2008,
2007 and 2006, are summarized as follows:
Year ended December 31,
2008 2007 2006
$ (cents)
(1)(3)
(cents)
(2)(3)
$ (cents)
(1)(3)
(cents)
(2)(3)
$
(cents)
(1)(3)
(cents)
(2)(3)
Revenue
-
-
-
1
-
-
4
1
-
Costs, expenses and recoveries
1
-
-
5
2
1
2
1
-
Gain on disposal
27
8
5
-
-
-
-
-
-
Pre-tax profit
28
8
5
6
2
1
6
2
-
Taxation (5)
(1)
(1)
(4)
(1)
(1)
-
-
-
Net profit attributable to discontinued
operations
23
7
4
2
1
-
6
2
-
(1)
Per basic and diluted ordinary shares.
(2)
Per basic and diluted E ordinary shares.
(3)
Basic and diluted earnings/(loss) per common share. The calculation of diluted earnings/(loss) per common share for 2008, 2007 and 2006 did not
assume the effect of 15,384,615 shares, issuable upon the exercise of Convertible Bond as their effects are anti-dilutive for these periods. The
calculation of diluted earnings/(loss) per common share for 2008, 2007 and 2006 did not assume the effect of 872,373, 575,316 and 854,643
shares, respectively, issuable upon the exercise of stock incentive options as their effects are anti-dilutive for these periods. The calculation of
diluted earnings/(loss) per common share for 2008, 2007 and 2006 did not assume the effect of conversion of E Ordinary shares as the Company
recorded a loss from continuing operations during these periods.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-35
9.
LOSS PER COMMON SHARE
2008
$
2007
$
2006
$
The following table sets forth the computation of basic and diluted loss per share
(in millions, except per share data):
Numerator
Loss from continuing operations
(586)(816) (148)
Discontinued operations
23
2
6
Net
loss
(563)(814) (142)
Less
Dividends:
Ordinary shares
41
124
107
E Ordinary shares
-
1
-
Undistributed
losses
(604) (939) (249)
Ordinary shares undistributed losses
(600)
(932)
(249)
E Ordinary shares undistributed losses
(1)
(4)
(7)
-
Total undistributed losses
(604)
(939)
(249)
Denominator for basic loss per ordinary share
Ordinary shares
312,610,124
276,805,309
272,214,937
Fully vested options
(2)
547,460
531,983
398,326
Weighted average number of ordinary shares
313,157,584
277,337,292
272,613,263
Effect of dilutive potential ordinary shares
Dilutive potential of stock incentive options
(3)
-
-
-
Dilutive potential of convertible bonds
(4)
-
-
-
Dilutive potential of E Ordinary shares
(5)
-
-
-
Denominator for diluted loss per share – adjusted weighted average number
of ordinary shares and assumed conversions
313,157,584
277,337,292
272,613,263
Weighted average number of E Ordinary shares used in calculation of basic
and diluted loss per E Ordinary share
4,046,364
4,117,815
194,954
Loss per share (cents)
From continuing operations
Ordinary shares
(186)
(293)
(54)
E
Ordinary
shares
(93)
(146)
(91)
Ordinary shares – diluted
(186)
(293)
(54)
E Ordinary shares – diluted
(93)
(146)
(91)
Discontinued operations
Ordinary shares
7
1
2
E Ordinary shares
4
-
-
Ordinary shares – diluted
7
1
2
E Ordinary shares – diluted
4
-
-
Net loss
Ordinary shares
(179)
(292)
(52)
E
Ordinary
shares
(89)
(146)
(91)
Ordinary shares – diluted
(179)
(292)
(52)
E Ordinary shares – diluted
(89)
(146)
(91)
(1)
Less than $1 million in 2006.
(2)
Compensation awards are included in the calculation of basic loss per common share from when the necessary conditions have been met, and it is
virtually certain that shares will be issued as a result of employees exercising their options.
(3)
The calculation of diluted loss per common share for 2008, 2007 and 2006 did not assume the effect of 872,373, 575,316 and 854,643 shares,
respectively, issuable upon the exercise of stock incentive options as their effects are anti-dilutive for these periods.
(4)
The calculation of diluted loss per common share for 2008, 2007 and 2006 did not assume the effect of 15,384,615 shares issuable upon the exercise
of Convertible Bonds as their effects are anti-dilutive for these periods.
(5)
The calculation of diluted loss per common share for 2008, 2007 and 2006 did not assume the effect of conversion of E Ordinary shares as the
Company recorded a loss from continuing operations during these periods.
10.
RESTRICTED CASH
2008
$
2007
$
Cash classified as restricted for use comprise of the following:
Cash restricted by prudential solvency requirements
9
7
Cash balances held by the Environmental Rehabilitation Trust Funds
34
24
Other
1
1
Cash balances held by the Boddington expansion
-
5
44
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-36
11.
OTHER RECEIVABLES
2008
$
2007
$
Prepayments and accrued income
107 72
Interest receivable
1 2
Other debtors
9 13
117 87
12.
INVENTORIES
Short-term:
Gold in process
118
133
Gold on hand (doré/bullion)
37
35
Ore stockpiles
182
166
Uranium oxide and sulfuric acid
24
13
Supplies
240
225
601
572
Less: Heap leach inventory
(1)
(49) (49)
552
523
(1)
Short-term portion relating to heap leach inventory classified separate, as materials on the leach pad.
Long-term:
Gold in process
261
190
Ore stockpiles
39
83
Supplies
1
1
301
274
Less: Heap leach inventory
(1)
(261) (190)
40
84
(1)
Long-term portion relating to heap leach inventory classified separate, as materials on the leach pad.
The Company recorded aggregate write-downs of $35 million, $29 million and
$2 million for the years ended December 31, 2008, 2007 and 2006, respectively, to
reduce the carrying value of inventories to net realizable value. Inventory write-downs
are included in production costs.
13.
PROPERTY, PLANT AND EQUIPMENT, NET
Mine development
(1)
4,642
5,388
Buildings and mine infrastructure
2,627
2,729
Mineral rights and other
1,032
1,071
Land
25
28
8,326
9,216
Accumulated depreciation, depletion and amortization
(3,561)
(3,689)
Net book value December 31,
4,765
5,527
(1)
Includes interest capitalized of $30 million (2007: $10 million). Refer to Note 5.
Mining assets with a net book value of $27 million (2007: $39 million) are encumbered
by capital leases. Refer to Note 20.
14.
ACQUIRED PROPERTIES, NET
Acquired properties, at cost
1,868
2,174
Accumulated amortization
(1,054) (894)
Net book value December 31,
814
1,280
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-37
15.
GOODWILL AND OTHER INTANGIBLES
Goodwill
The carrying amount of goodwill by reporting unit as of December 31, 2008 and 2007 and changes in the carrying
amount of goodwill are summarized as follows:
USA
$
Australia
$
Ghana
$
Guinea
$
Namibia
$
Tanzania
$
Total
$
Balance at January 1, 2007
-
232
118
10
1
181
542
Translation
-
27
-
-
-
-
27
Balance at December 31, 2007
-
259
118
10
1
181
569
Golden Cycle Gold Corporation acquisition
(1)
18
-
-
-
-
-
18
Transfers to assets held for sale
(2)
-
(103)
-
-
-
-
(103)
Impairment losses
(3)
-
-
(118)
-
-
(181)
(299)
Translation
-
(53)
-
-
-
-
(53)
Balance at December 31, 2008
18
103
-
10
1
-
132
(1)
Purchase price allocation for acquisition of remaining 33 percent shareholding in Cripple Creek & Victor Gold Mining Company, effective July 1, 2008.
(2)
Goodwill of Boddington mine reclassified as held for sale. Refer to Note 17.
(3)
During 2008, the Company recorded goodwill impairment losses for Obuasi ($104 million), Iduapriem ($14 million) and Geita ($181 million),
respectively. Refer to Note 5 – Impairment of assets.
2008
$
2007
$
Other intangibles, net:
Royalty rate concession agreement
(1)
Gross carrying value
29
29
Accumulated amortization
(9) (7)
20
22
(1)
The government of Ghana agreed to a concession on royalty payments at a fixed rate of 3 percent per
year for a period of fifteen years from 2004. The fair value of the royalty rate concession is amortized on a
straight line basis with nil residual value.
Amortization expense included in the consolidated statements of income amounted to $2 million for 2008
(2007: $2 million, 2006: $2 million).
2008
$
Based on carrying value at December 31, 2008, the estimated aggregate amortization expense
for each of the next five years is as follows:
2009
2
2010
2
2011
2
2012
2
2013
2
16.
OTHER LONG-TERM ASSETS
2008
$
2007
$
Investments in affiliates – unlisted
4 6
Investments in affiliates – listed
5 15
Investments in equity accounted joint ventures
272
337
Carrying value of equity method investments
281 358
Investment in marketable equity securities – available for sale
26 34
Investment in marketable debt securities – held to maturity
11 15
Investment in non-marketable assets – held to maturity
3 2
Investment in non-marketable debt securities – held to maturity
35 52
Other non-current assets
65 98
421 559
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-38
16.
OTHER LONG-TERM ASSETS (continued)
Investments in affiliates
Unlisted
The Company holds a 25 percent (2007: 25.0 percent) interest in Oro Group
(Proprietary) Limited which is involved in the manufacture and wholesale of jewellery.
The year end of Oro Group (Proprietary) Limited is March. Results are included for the
twelve months ended September 30, 2008, adjusted for material transactions. On
September 21, 2006, Oro Group (Proprietary) Limited repaid a shareholders loan of
$1 million originally granted in 2000. The loan granted to Oro Group (Proprietary)
Limited of $1 million (2007: $2 million) bears interest at a rate determined by the Oro
Group (Proprietary) Limited’s board of directors and is repayable at their discretion.
Listed
The Company holds a 29.7 percent (2007: 29.8 percent) interest in Trans-Siberian
Gold plc which is involved in the exploration and development of gold mines. The
Company’s initial 17.5 percent equity interest was increased to 29.9 percent on
May 31, 2005. The year end of Trans-Siberian Gold plc is December. Results are
included for the twelve months ended September 30, 2008, adjusted for material
transactions. On June 27, 2006, the Company advanced a loan of $10 million to
Trans-Siberian Gold plc at LIBOR plus 4 percent of which $4 million has been repaid
during 2008 and the balance of $6 million was converted into equity. The market
value of the Company’s share of the listed affiliate as at December 31, 2008 is
$5 million. During the years ended December 31, 2008, 2007 and 2006, the
Company recorded impairment losses of $8 million, $14 million and $7 million on it s
investment.
Investments in equity accounted joint ventures
The Company holds the following interests in incorporated mining joint ventures, of
which the significant financial operating policies are, by contractual arrangement,
jointly controlled:
December 31,
2008
percentage held
December 31,
2007
percentage held
Nufcor International Limited
(1)
- 50.00
Sadiola
38.00 38.00
Morila
40.00 40.00
Yatela
40.00 40.00
AGA – Polymetal Strategic Alliance
(2)
50.00 -
(1)
The Company disposed of its 50 percent equity interest, held in Nufcor International Limited during 2008.
(2)
The Company holds a 50.0 percent interest in AGA-Polymetal Strategic Alliance (joint venture) which is
involved in the exploration and development of gold mines. In 2008 the Company advanced an interest
free loan of $3 million to the joint venture. The loan is repayable on demand, only once profits have been
generated. The year end of AGA-Polymetal Strategic Alliance is December. Results are included for the
twelve months ended September 30, 2008, adjusted for material transactions. The joint venture
agreement was finalized during 2008.
During 2008, the Company recorded an impairment of $48 million relating to its interest held in Morila, based on the
investment’s future cash flows. The impairment is reflected in equity (loss)/income in affiliates for 2008.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-39
16.
OTHER LONG-TERM ASSETS (continued)
2008
$
2007
$
Investment in marketable equity securities – available for sale
26
(1)
34
Available for sale investments in marketable equity securities consists of investments
in ordinary shares.
Total gains, net of related taxation, on marketable equity securities included in other
comprehensive income during the year amount to $2 million (2007: $4 million). Total
losses, net of related taxation, on marketable equity securities included in other
comprehensive income during the year amount to $29 million (2007: $4 million) which
includes $21 million relating to the Company’s B2Gold investment as at
December 31, 2008. The Company has considered the effect of the current market
conditions evaluating its intent and ability to hold B2Gold until these losses are
recovered. The Company’s purpose in effecting the B2Gold transaction in 2008 was
to build on its Colombian strategy of continuing to leverage its advantage through
developing its exploration projects, both in its own right and together with partners like
B2Gold. B2Gold has consistently been reporting increases in exploration results of
various undeveloped properties. The Company has sufficient resources to continue to
finance and support its strategic goal and will be able to do so in the foreseeable
future. In addition to the investment in B2Gold, the Company holds various equities
as strategic investments in gold exploration companies. Three of the strategic
investments are in an unrealized loss position and the Company has the intent and
ability to hold these investments until the losses are recovered.
Less than
12 months
$
More than
12 months
$
Total
$
2008
Aggregate fair value of investments with
unrealized losses
9
8
17
Aggregate unrealized losses
(21)
(10)
(31)
2007
Aggregate fair value of investments with
unrealized losses
-
11
11
Aggregate unrealized losses
-
(6)
(6)
Investment in marketable debt securities – held to maturity
11
15
Investments in marketable securities represent held to maturity government and
corporate bonds.
Investment in non-marketable assets – held to maturity
3
2
Investments in non-marketable assets represent secured loans and receivables
secured by pledge of assets.
Investment in non-marketable debt securities – held to maturity
35
52
Investments in non-marketable securities represent the held to maturity fixed-term
deposits required by legislation for the Environmental Rehabilitation Trust Fund and
Nufcor Uranium Trust Fund.
(1)
Impairments of Red 5 Limited shares of $4 million in Australia and Dynasty Gold Corporation shares of
$2 million in China during 2008. Investments were impaired due to a decline in value and is not expected
to recover the full cost of the investment over the near term. The quoted market prices of these
investments have dropped significantly and there is no evidence to indicate that they will recover in the
near term. The impairment resulted in a transfer of fair value adjustments previously included in other
comprehensive income to the income statement in 2008.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-40
16.
OTHER LONG-TERM ASSETS (continued)
2008
$
2007
$
As of December 31, 2008 the contractual maturities of debt securities were as follows:
Marketable debt securities
Up to three years
5
Three to seven years
1
Seven to twelve years
5
11
Non-marketable debt securities
Less than one year
35
Fair values of the held to maturity debt securities at December 31, 2008 and 2007
approximate cost.
Other non-current assets
Unsecured
Other loans and assets
(1)
3
41
Non-current debtors
Prepayments and accrued income
11
8
Recoverable tax, rebates, levies and duties
35
47
Other debtors
16
-
Other trade debtor
-
2
65
98
(1)
Other comprises loans and receivables of $1 million (2007: $2 million) measured at amortized cost and
post retirement assets of $2 million (2007: $39 million) measured according to the employee benefits
accounting policy.
Equity accounted joint ventures
Summarized financial statements of the joint ventures which have been equity
accounted are as follows (100 percent shown):
2008
$
2007
$
2006
$
Statements of income for the period
Sales and other income
464
716
817
Costs and expenses
(727)
(465)
(465)
Taxation
(97) (115) (90)
Net (loss)/income
(360)
136
262
Balance sheets at December 31,
Non-current assets
496
697
Current assets
472
506
968
1,203
Long-term liabilities
(66) (102)
Loans from shareholders
(7)
(9)
Current liabilities
(219) (257)
Net assets
676
835
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-41
17.
ASSETS AND LIABILITIES HELD FOR SALE
2008
$
2007
$
Effective December 31, 2008, the 33.33 percent interest in the unincorporated joint
venture in Boddington Gold Mine in Australia was classified as held for sale. The
interest in Boddington Gold Mine was previously recognized as a combination of
tangible assets, goodwill, current assets and current and long-term liabilities. The
33.33 percent unincorporated joint venture interest in the Boddington Gold Mine was
sold, subject to conditions precedent, to Newmont Mining Corporation.
In terms of the sale agreement the purchase consideration consists of three
components: an initial cash payment upon the fulfillment of all conditions precedent to
the transaction; a further combination of Newmont shares; and/or a cash payment and
future royalty payments.
Completion is subject to conditions precedent in terms of the sale agreement
including: finalization of Newmont’s financing; the receipt, to the extent required, of
Ministerial consents and/or other Government agency approvals in Australia; the
approval of the South African Reserve Bank and the Australian Foreign Investment
Review Board; the execution by certain third parties of agreements with respect to the
assignment of material tenements and land as related to the Boddington Gold Mine;
and the receipt of certain other applicable third party approvals and consent. At
December 31, 2007 net assets for Boddington Gold Mine amounted to $458 million.
739
-
Effective December 2007, Rand Refinery Limited in South Africa (a subsidiary of the
Company) allocated parts of its premises that were no longer utilized (previously
recognized as a tangible asset), to held for sale. On April 1, 2008, a sale agreement
was concluded subject to achievement of the suspensive condition regarding rezoning
of the land and transfer of title deeds.
1
1
Effective June 30, 2005, the investment in the Weltevreden mining rights, located in
South Africa was classified as held for sale. During the quarter ended June 30, 2008
the investment in the Weltevreden mining rights was reclassified from held for sale to
Property, plant and equipment because the conditions precedent in the sale
agreement with Aflease Gold and Uranium Resources Limited were not fulfilled and
the Company has no current prospective buyers to complete negotiations within a
twelve month period. The reclassification of the Weltevreden mining rights from held
for sale to held for use, resulted in a charge of $5 million which is included in loss from
continuing operations for the year ended December 31, 2008.
-
14
Effective June 30, 2007, exploration properties acquired from Trans-Siberian Gold plc
in Russia were classified as held for sale. The cash sale of these exploration
properties formed part of the joint venture between Polymetal and AngloGold Ashanti,
which was concluded during the quarter ended March 31, 2008.
-
15
The remaining moveable and immovable assets of Ergo, the surface dump
reclamation operation east of Johannesburg, which ceased mining operations in
March 2005, was sold by the Company to ERGO Mining (Pty) Limited a joint venture
between Mintails South Africa (Pty) Limited and DRD South African Operations (Pty)
Limited during the quarter ended June 30, 2008.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-42
17.
ASSETS AND LIABILITIES HELD FOR SALE (continued)
2008
$
2007
$
As at December 31, 2008 and 2007 the carrying amounts of major classes of assets
and liabilities classified as held for sale, included:
Cash and cash equivalents
2
-
Trade and other receivables
10
-
Inventories
2
-
Property, plant and equipment
651
16
Acquired properties
14
15
Goodwill
103
-
Trade and other payables
(31)
-
Deferred taxation
-
(1)
Provision for environmental rehabilitation
(11)
-
Net assets
740
30
18.
OTHER CURRENT LIABILITIES
Deferred income
5 20
Deferred taxation. Refer to Note 7.
24 5
Accrual for power
24 17
Unearned premiums
27 43
$1.0 billion term loan facility fee accrual
21
-
Other (including accrued liabilities)
43
47
144 132
19.
OTHER NON-CURRENT LIABILITIES
Deferred income
7 11
Taxation
106 134
Other creditors
4 -
Related parties
- 1
117 146
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-43
20.
LONG-TERM DEBT
2008
$
2007
$
Unsecured
Convertible bond
(1)
1,008 1,008
Fixed semi-annual coupon of 2.375 percent per annum. The bond is convertible, at
the holders’ option, into ADSs up to February 2009 and is US dollar-based. The bond
is convertible at a price of $65.00 per ADS.
Syndicated loan facility ($1,150million)-Drawn down in US and
Australian dollars
(2)
842 526
Interest charged at LIBOR plus 0.4 percent per annum. Loan is repayable in
December 2010 and is US dollar-based. The loan is subject to debt covenant
arrangements for which no default event occurred.
Standard Bank Argentina S.A.
23
-
Interest is charged at an average rate of 8.83 percent per annum. Loans are
repayable in January, February and April 2009 and are US dollar-based.
Santander Banespa
11 -
Interest is charged at LIBOR plus 1.45 percent per annum. Loan is repayable in
monthly installments terminating in September 2011 and is Brazilian real-based.
Santander Rio S.A.
6
-
Interest is charged at an average rate of 6.75 percent per annum. Loans are
repayable in January and March 2009 and are US dollar-based.
Banco Itaú S.A.
5 -
Interest is charged at a rate of 6.38 percent per annum. Loan is repayable in
February 2009 and is US dollar-based.
Banco Itaú Buen Ayre S.A.
4
-
Interest is charged at a rate of 8.75 percent per annum. Loan is repayable in
March 2009 and is US dollar-based.
Banco Bradesco S.A.
4 -
Interest is charged at an average rate of 7.49 percent per annum. Loans are
repayable in April and June 2009 and are US dollar-based.
Unibanco S.A.
3 -
Interest is charged at a rate of 6.3 percent per annum. Loan is repayable in
February 2009 and is US dollar-based.
JP Morgan Chase Bank, N.A.
3
-
Interest is charged at a rate of 3.72 percent per annum. Loan is repayable in
January 2009 and is US dollar-based.
Corporate bond
(3)
-
304
Fixed semi-annual coupon of 10.5 percent per annum. The bond was repaid on
August 28, 2008 and was ZAR-based.
Total unsecured borrowings
1,909 1,838
Secured
Capital leases
Turbine Square Two (Proprietary) Limited
(4)
27
37
The leases are capitalized at an implied interest rate of 9.8 percent per annum. Lease
payments are due in monthly installments terminating in March 2022 and are ZAR-
based. The buildings financed are used as security for these loans. Refer to Note 13.
Senstar Capital Corporation
(5)
3
5
Interest charged at a weighted average rate of 6.6 percent per annum. Loans are
repayable in monthly installments terminating in November 2009 and are US dollar-
based. The equipment financed is used as security for these loans. Refer to Note 13.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-44
20.
LONG-TERM DEBT(continued)
2008
$
2007
$
CSI Latina Arrendamento Mercantil S.A.
(6)
1
1
Interest charged at a rate of 11.7 percent per annum. Loan is repayable in monthly
installments terminating in May 2011 and is Brazilian real-based. The equipment
financed is used as security for this loan. Refer to Note 13.
Terex Africa (Proprietary) Limited
-
2
Interest charged at a rate of 9.0 percent per annum. Loan was repaid in January 2008
and was US dollar-based. The equipment financed was used as security for this loan.
Refer to Note 13.
Total debt
1,940 1,883
Current maturities included in short-term debt.
1,067
319
Total long-term debt
873
1,564
Scheduled minimum long-term debt repayments are:
2009
1,067
2010
846
2011
6
2012
3
2013
3
Thereafter
15
1,940
The currencies in which the borrowings are denominated are as follows:
United States dollars
1,380 1,391
South African rands
27
341
Australian dollars
521 150
Brazilian real
12 1
1,940 1,883
Undrawn borrowing facilities as at December 31, 2008 are as follows:
Syndicated loan ($1,150 million) – US dollar
327
627
FirstRand Bank Limited – US dollar
50
50
Absa Bank Limited – US dollar
42
42
Nedbank Limited – US dollar
2
2
Standard Bank of South Africa Limited – rands
20
38
FirstRand Bank Limited – rands
23
32
Nedbank Limited – rands
5
7
Absa Bank Limited – rands
3
4
Commerzbank AG – rands
-
3
ABN Amro Bank N.V. – rands
-
1
ABN Amro Bank N.V. – euros
-
7
472 813
(1)
Convertible Bond
Senior unsecured fixed rate bond
1,000 1,000
Add: Accrued interest
8 8
1,008 1,008
On February 27, 2004, AngloGold Ashanti Holdings plc, a wholly-owned subsidiary of the
Company, issued $1.0 billion 2.375 percent guaranteed convertible bonds due 2009,
convertible into ADSs and guaranteed by AngloGold Ashanti.
Holders of convertible bonds are entitled to convert each convertible bond into an AngloGold
Ashanti ADS at the then applicable conversion price at any time from April 8, 2004 to
February 20, 2009, or, if the convertible bonds are called for redemption earlier than
February 27, 2009, the seventh business day prior to the date of early redemption.
If the bonds have not been converted by February 20, 2009, they will be redeemed at par on
February 27, 2009. AngloGold Ashanti Holdings plc has the option of calling an early
redemption of all the bonds 3 years after their issuance, if the price of the ADSs exceeds
130 percent of the conversion price for more than 20 days during any period of 30 consecutive
trading days.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-45
20.
LONG-TERM DEBT(continued)
2008
$
2007
$
The initial conversion price for the convertible bonds was $65.00 per ADS. The conversion
premium to the reference volume weighted average price of the ADSs on the New York stock
exchange of $40.625 on February 19, 2004, when the issue of the convertible bonds was
announced, was 60 percent. If all bond holders exercise their option to convert their bonds
into ADSs and assuming no adjustments are made to the initial conversion price, up to
15,384,615 new ADSs will be issued.
The calculation of diluted loss per common share for 2008, 2007 and 2006 did not assume the
effect of 15,384,615 shares issuable upon the exercise of Convertible Bonds as their effects
are anti-dilutive. Refer to Note 9.
$1.0 billion term loan facility
On November 20, 2008, AngloGold Ashanti Holdings plc, a wholly-owned subsidiary of
AngloGold Ashanti Limited, entered into a $1.0 billion term loan facility agreement (the “Term
Facility”). $1.0 billion on the Term Facility was drawn on February 26, 2009 to redeem the
$1.0 billion convertible bond due February 27, 2009 upon its maturity.
The Term Facility is for an initial one year period from the date of first drawdown and is
extendible, if required, at the option of AngloGold Ashanti Holdings plc until
November 30, 2010. The amounts drawn under the Term Facility will bear an interest margin
over the lenders’ cost of funds (subject to a cap of 1.75 times applicable LIBOR) of
4.25 percent until six months after the date of first drawdown and 5.25 percent thereafter.
AngloGold Ashanti Limited, AngloGold Ashanti USA Incorporated and AngloGold Ashanti
Australia Limited have each guaranteed all payments and other obligations of AngloGold
Ashanti Holdings plc under the Term Facility.
AngloGold Ashanti’s interest expense will increase substantially as a result of the higher
interest rates and fees associated with the Term Facility. Fees payable amounted to
$42.5 million plus commitment fees of 2.125 percent per annum on the undrawn portion of the
Term Facility. As at December 31, 2008, $21 million is included in other current liabilities.
Refer to Note 18. These fees will be amortized over the expected term of the Term Facility.
Based on an assumed cost of funds of 100 basis points and assuming that the Term Facility is
fully drawn, the effective borrowing cost (including fees and applicable margin) on the Term
Facility is estimated at approximately 10 percent per annum. The actual interest expense in
2009, will depend upon the amount actually drawn under the Term Facility, the lenders’ actual
costs of funds and prevailing LIBOR rates.
Amounts outstanding under the Term Facility may be prepaid at any time prior to the maturity
date. AngloGold Ashanti intends to refinance the Term Facility through one or more of the
following: the proceeds of asset sales (which may include the sale of significant assets), long-
term debt financing and/or the issuance of an equity linked instrument. The nature and timing
of refinancing the Term Facility will depend upon market conditions.
An amendment to the Term Facility was made subsequent to year-end. Refer to Note 30.
(2)
Syndicated loan facility ($1,150 million)
Drawn down in US and Australian dollars
838
525
Add: Accrued interest
4 1
842 526
In December 2007, the Company entered into a new three year $1,150 million unsecured
syndicated borrowing facility, at a margin of 0.4 percent over LIBOR. A commitment fee of
0.12 percent per annum is payable on the undrawn portion of the facility. The three year
$1,150 million syndicated facility was used to repay a maturing facility of $700 million (repaid
on December 14, 2007) and is available for general corporate purposes. During the year
ended December 31, 2008, the Company drew down $743 million and repaid $316 million,
respectively, under the $1,150 million syndicated facility. The Company, AngloGold Ashanti
Holdings plc, AngloGold Ashanti USA Incorporated and AngloGold Ashanti Australia Limited
have guaranteed all payments and other obligations regarding the $1,150 million syndicated
loan facility.
(3)
Corporate Bond
Senior unsecured fixed rate bond
-
293
Add: Accrued interest
-
11
-
304
On August 21, 2003, AngloGold issued an unsecured bond in the aggregate principal amount
of R2 billion ($300 million) at a fixed semi-annual coupon of 10.5 percent per annum. The
bond was repaid on August 28, 2008.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-46
20.
LONG-TERM DEBT(continued)
2008
$
Capital leases
(4)
Turbine Square Two (Proprietary) Limited
Capital leases are for specific periods, with terms of renewal but no purchase options.
Renewals are at the discretion of the entity that holds the lease. As of December 31, 2008 and
2007, Property, plant and equipment, allocated to Buildings and mine infrastructure, includes
$26 million and $36 million of assets under capital leases and $3 million and $2 million of
related accumulated depreciation, respectively. Amortization charges relating to capital leases
are included in Depreciation, depletion and amortization expense for the years ended
December 31, 2008 and 2007. The weighted average interest rate on the leases existing at
December 31, 2008 is 9.8 percent. Payments are made monthly, including interest, through
2022.
(5)
Senstar Capital Corporation
Capital leases are for specific periods, with terms of renewal but no purchase options.
Renewals are at the discretion of the entity that holds the lease. As of December 31, 2008 and
2007, Property, plant and equipment, allocated to Buildings and mine infrastructure, includes
$11 million and $16 million of assets under capital leases and $8 million and $12 million of
related accumulated depreciation, respectively. Amortization charges relating to capital leases
are included in Depreciation, depletion and amortization expense for all periods presented.
The weighted average interest rate on the leases existing at December 31, 2008 is
6.6 percent. Payments are made monthly, including interest, through 2009.
(6)
CSI Latina Arrendamento Mercantil S.A.
Capital lease is for specific periods, with terms of renewal and purchase options. Renewals
are at the discretion of the entity that holds the lease. As of December 31, 2008 and 2007,
Property, plant and equipment, allocated to Buildings and mine infrastructure, includes
$1 million and $1 million of assets under capital leases and $nil million and $nil million of
related accumulated depreciation, respectively. Amortization charges relating to capital leases
are included in Depreciation, depletion and amortization expense for the years ended
December 31, 2008 and 2007. The average interest rate on the leases existing at
December 31, 2008 is 11.7 percent. Payments are made monthly, including interest, through
2011.
Future minimum lease payments under all the above capital leases together with the present
value of minimum lease payments as of December 31, 2008 are:
2009
6
2010
3
2011
3
2012
3
2013
3
Thereafter
40
Total minimum lease payments
58
Less interest
27
Present value of net minimum lease payments
31
Less current portion
3
Long-term capital lease obligation
28
21.
PROVISION FOR ENVIRONMENTAL REHABILITATION
2008
$
2007
$
Accrued environmental rehabilitation costs
302
394
Long-term environmental obligations comprising decommissioning and restoration are
based on the Company’s environmental management plans, in compliance with the
current environmental and regulatory requirements.
Decommissioning costs
The provision for decommissioning represents the cost that will arise from rectifying
damage caused from establishing mining operations.
Decommissioning costs, representing obligations associated with the retirement of
long-lived assets that result from the acquisition, construction or normal operations of
long-lived assets, are accounted for in accordance with the provisions of SFAS143.
Decommissioning costs are further described in Note 5 – Asset retirement obligations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-47
21.
PROVISION FOR ENVIRONMENTAL REHABILITATION (continued)
Restoration costs
While the ultimate amount of rehabilitation is uncertain, the Company has estimated
that the total cost for mine rehabilitation and closure, on an undiscounted basis, will
be $1,049 million which includes a total estimated liability of $84 million in respect of
equity accounted joint ventures. Refer to Note 16. AngloGold Ashanti USA has
posted reclamation bonds with various federal and governmental agencies to cover
environmental rehabilitation obligations. Refer to Note 22.
The Company intends to finance the ultimate rehabilitation costs from the monies
invested with the rehabilitation trust fund, the environmental protection bond as well
as the proceeds on sale of assets and gold from plant clean-up at the time of mine
closure.
22.
COMMITMENTS AND CONTINGENCIES
2008
$
2007
$
Capital expenditure commitments
(1)
Contracts for capital expenditure
82
436
Authorized by the directors but not yet contracted for
632
809
714
1,245
Allocated for:
Project expenditure
- within one year
252 422
- thereafter
70 311
322 733
Stay in business expenditure
- within one year
349 471
- thereafter
43 41
392 512
(1)
Including commitments of $11 million (2007: $17 million) through contractual arrangements by equity
accounted joint ventures.
Other contractual purchase obligations
(2)
- within one year
289 363
- thereafter
396 293
685 656
(2)
Other purchase obligations represent contractual obligations for the purchase of mining contract services,
power, supplies, consumables, inventories, explosives and activated carbon. Amounts exclude purchase
obligations of equity accounted joint ventures.
Summary of contracted uranium sales as at December 31, 2008
The Company had the following forward pricing uranium commitments:
Year
Ibs (‘000)
(1)
Average contracted
price ($/lbs)
2009
494 33.45
2010
988 33.46
2011 – 2013
1,482 35.94
(1)
Certain contracts allow the buyer to adjust the purchase quantity within a specified range.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-48
22.
COMMITMENTS AND CONTINGENCIES(continued)
2008
$
2007
$
Contingencies
Ground water pollution – South Africa
The Company has identified a number of groundwater pollution sites at its operations
in South Africa and has investigated a number of different technologies and
methodologies that could possibly be used to remediate the pollution plumes.
Numerous scientific, technical and legal reports have been produced and remediation
of the polluted soil and groundwater is the subject of continued research. Subject to
the technology being developed as a proven remediation technique, no reliable
estimate can be made for the obligation.
Deep ground water pollution – South Africa
The Company has identified a flooding and future pollution risk posed by deep
groundwater, due to the interconnected nature of operations in the West Wits and
Vaal River operations in South Africa. The Company is involved in task teams and
other structures to find long-term sustainable solutions for this risk, together with
industry partners and government. As there is too little information for the accurate
estimate of a liability, no reliable estimate can be made for the obligation.
Soil and sediment pollution – South Africa
The Company identified offsite pollution impacts in the West Wits area, resulting from
a long period of gold and uranium mining activity by a number of mining companies
as well as millennia of weathering of natural reef outcrops in the catchment areas.
Investigations are being conducted but no reliable estimate can be made for the
obligation.
Serra Grande sales tax on gold deliveries
55 63
Mineração Serra Grande S.A. (MSG), the operator of the Crixas mine in Brazil, has
received two tax assessments from the State of Goiás related to payments of sales
taxes on gold deliveries for export, including one assessment for the period between
February 2004 and June 2005 and the other for the period between July 2005 and
May 2006. The tax authorities maintain that whenever a taxpayer exports gold mined
in the State of Goiás through a branch located in a different Brazilian state, it must
obtain an authorization from the Goiás State Treasury by means of a Special Regime
Agreement (Termo de Acordo re Regime Especial – TARE). The Company’s
attributable share of the first assessment is approximately $34 million. Although MSG
requested the TARE in early 2004, the TARE, which authorized the remittance of gold
to the Company’s branch in Minas Gerais specifically for export purposes, was only
granted and executed in May 2006. In November 2006 the administrative council’s
second chamber ruled in favor of MSG and fully canceled the tax liability related to
the first period. The State of Goiás has appealed to the full board of the State of
Goiás tax administrative council. The second assessment was issued by the State of
Goiás in October 2006 on the same grounds as the first assessment, and the
Company’s attributable share of the assessment is approximately $21 million. The
Company believes both assessments are in violation of federal legislation on sales
taxes.
Tax disputes at MSG, Morro Velho and AngloGold Ashanti Brasil Mineração
12 8
MSG, Morro Velho and AngloGold Ashanti Brasil Mineração are involved in disputes
with the Brazilian tax authorities. These disputes involve federal tax assessments
including income tax, social contributions and annual property tax based on
ownership of properties outside of urban perimeters.
VAT dispute at MSG
6 8
MSG received a tax assessment in October 2003 from the State of Minas Gerais
related to sales taxes on gold
allegedly returned from the branch in Minas Gerais to
the company head office in the State of Goiás. The tax administrators rejected the
Company’s appeal against the assessment. The Company is now appealing the
dismissal of the case.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-49
22.
COMMITMENTS AND CONTINGENCIES(continued)
2008
$
2007
$
Financial guarantees
Oro Group surety
11 15
The Company has provided surety in favor of the lender in respect of gold loan
facilities to wholly-owned subsidiaries of Oro Group (Proprietary) Limited, an affiliate
of the Company. The Company has a total maximum liability, in terms of the
suretyships, of R100 million ($11 million). The probability of the non-performance
under the suretyships is considered minimal.
AngloGold Ashanti USA reclamation bonds
85 48
Pursuant to US environmental and mining requirements, gold mining companies are
obligated to close their operations and rehabilitate the lands that they mine in
accordance with these requirements. AngloGold Ashanti USA has posted reclamation
bonds with various federal and state governmental agencies to cover potential
rehabilitation obligations.
The Company has provided a guarantee for these obligations which would be payable
in the event of AngloGold Ashanti USA is not able to meet its rehabilitation
obligations. As at December 31, 2008, the carrying value of these obligations
amounted to $36 million and is included in the Provision for environmental
rehabilitation in the Company's consolidated balance sheet. The obligations will
expire upon completion of such rehabilitation and release of such areas by the
applicable federal and/or state agency. AngloGold Ashanti is not indemnified by third
parties for any of the amounts that may be paid by AngloGold Ashanti under its
guarantee.
Guarantee provided for convertible bond
1,000 1,000
The Company has guaranteed all payments and other obligations of AngloGold
Ashanti Holdings plc regarding the issued $1.0 billion 2.375 percent convertible bond
due February 27, 2009. Refer to Note 20. The Company’s obligations regarding the
guarantee are direct, unconditional and unsubordinated.
Guarantee provided for term loan facility
AngloGold Ashanti Limited, AngloGold Ashanti USA Incorporated and AngloGold
Ashanti Australia Limited, as guarantors, have each guaranteed all payments and
other obligations of AngloGold Ashanti Holdings plc and the other guarantors under
the $1.0 billion Term Facility. $1.0 billion on the Term Facility was drawn on February
26, 2009 to redeem the $1.0 billion convertible bond due February 27, 2009 upon its
maturity. Refer to Note 20.
Guarantee provided for syndicated loan facility
842 526
AngloGold Ashanti Limited, AngloGold Ashanti Holdings plc, AngloGold Ashanti USA
Incorporated and AngloGold Ashanti Australia Limited, as guarantors, have each
guaranteed all payments and other obligations of the borrowers and the other
guarantors under the $1.15 billion syndicated loan facility dated December 13, 2007.
Refer to Note 20.
Hedging guarantees
325 683
The Company has issued gold delivery guarantees to several counterpart banks in
which it guarantees the due performance of its subsidiaries AngloGold (USA) Trading
Company, AngloGold South America Limited and Cerro Vanguardia S.A. under their
respective gold hedging agreements.
Ashanti Treasury Services Limited (ATS) hedging guarantees
987
1,494
The Company together with its wholly-owned subsidiary AngloGold Ashanti Holdings
plc has provided guarantees to several counterpart banks for the hedging
commitments of its wholly-owned subsidiary ATS. The maximum potential amount of
future payments is all moneys due, owing or incurred by ATS under or pursuant to the
hedging agreements. At December 31, 2008 the marked-to-market valuation of the
ATS hedge book was negative $987 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-50
22.
COMMITMENTS AND CONTINGENCIES(continued)
2008
$
2007
$
Geita Management Company Limited (GMC) hedging guarantees
331
520
The Company and its wholly-owned subsidiary AngloGold Ashanti Holdings plc have
issued hedging guarantees to several counterpart banks in which they have
guaranteed the due performance by GMC of its obligations under or pursuant to the
hedging agreements entered into by GMC, and to the payment of all money owing or
incurred by GMC as and when due. The maximum potential amount of future
payments is all moneys due, owing or incurred by GMC under or pursuant to the
hedging agreements. At December 31, 2008 the marked-to-market valuation of the
GMC hedge book was negative $331 million.
The Company assesses the credit quality of counterparts on a quarterly basis. As of
December 31, 2008, the probability of non-performance is considered minimal.
Vulnerability from concentrations
The majority of AngloGold Ashanti’s 62,895 employees (2007: 61,522, 2006: 61,453)
are subject to collective bargaining agreements. These agreements are established in
negotiations between the Chamber of Mines, the body that represents the gold mining
industry in South Africa, and representative groups of labor. The agreements have a
two-year validity period. The most recent settlement negotiation was completed in
August 2007, when the parties reached an agreement covering the period from
July 1, 2007 to June 30, 2009.
There is a concentration of risk in respect of recoverable value added tax and fuel
duties from the Malian government to the Company’s equity accounted affiliates.
Recoverable value added tax due from the Malian government to the equity
accounted affiliates of the Company amounts to an attributable $27 million at
December 31, 2008 (December 31, 2007: attributable $42 million).
Recoverable fuel duties from the Malian government to the equity accounted affiliates
of the Company amounts to an attributable $5 million at December 31, 2008
(December 31, 2007: attributable $7 million). Fuel duty refund claims are required to
be submitted before January 31 of the following year and are subject to authorization
by, firstly, the Department of Mining, and secondly, the Customs and Excise
authorities. With effect from February 2006, fuel duties are no longer payable to the
Malian government.
The Government of Mali is a shareholder in all of the Company’s equity accounted
affiliates in Mali. Management is in negotiations with the Government of Mali to agree
a protocol for the repayment of amounts due to Sadiola and Yatela. The amounts
outstanding at Sadiola and Yatela have been discounted at a rate of 18 percent
based on the provisions of the protocol. The amounts outstanding at Morila have
been discounted to their present value at a rate of 6.0 percent.
There is a concentration of risk in respect of recoverable value added tax and fuel
duties from the Tanzanian government. Recoverable value added tax due from the
Tanzanian government to the Company amounts to $16 million at December 31, 2008
(December 31, 2007: $16 million). The amounts outstanding have been discounted
to their present value at a rate of 7.8 percent.
Recoverable fuel duties from the Tanzanian government to the Company amount to
$37 million at December 31, 2008 (December 31, 2007: $37 million). Fuel duty claims
are required to be submitted after consumption of the related fuel and are subject to
authorization by the Customs and Excise authorities. The amounts outstanding have
been discounted to their present value at a rate of 7.8 percent.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-51
23.
STOCKHOLDERS’ EQUITY
The authorized common stock of the Company is 400,000,000 shares of common stock of 25 ZAR cents each.
During 2006, AngloGold Ashanti approved the Employee Share Ownership Plan for the employees in the South African
operations and a Black Economic Empowerment transaction (BEE transaction) for which 4,280,000 E shares of
common stock of 25 ZAR cents and 960,000 shares of common stock of 25 ZAR cents were authorized. In addition,
1,760,000 shares of common stock of 25 ZAR cents each were authorised for issue, at the discretion of the directors, to
employee share schemes to be implemented in countries other than South Africa, where the Company has its
operations. In the event that these shares are not issued by December 31, 2009, the authority will lapse.
During 2008, 76,025,939 shares of common stock were issued and 17 3,289 E shares of common stock were cancelled.
These issues and cancellations resulted in the movement year-on-year of 76,083,700 shares of common stock and
E shares as follows:
• 69,470,442 shares of common stock in the Company were issued as part of the rights offer completed on|
July 11, 2008, amounting to $1,666 million, which funds were applied primarily to reduce the hedge book;
• 3,181,198 shares of common stock in the Company were issued to acquire the remaining 33 percent shareholding
in the Cripple Creek & Victor Gold mine from Golden Cycle Gold Corporation effective July 1, 2008, amounting to
$118 million;
• 2,701,660 shares of common stock in the Company were issued to purchase São Bento Gold Company Limited inDecember
2008, amounting to $70 million;
• 672,545 shares of common stock were issued on the exercise of options/awards granted in terms of the share
incentive scheme for a consideration of $14 million;
• 94 shares of common stock were issued with a subscription value of $3 million in exchange for 173,289 E shares
of common stock which were cancelled in accordance with the cancellation formula pertaining to the Employee
Share Ownership Plan; and
• 57,761 shares of common stock with a subscription value of $2 million were transferred from the Employee Share
Ownership Plan to exiting employees pursuant to the rules of the scheme.
During 2007, 1,221,318 shares of common stock and 94,230 E shares of common stock were issued while
139,770 E shares of common stock were cancelled. These issues and cancellations resulted in the movement year-on-
year of 1,236,498 shares of common stock and the net cancellation of 45,540 E shares of common stock as follows:
• 1,181,882 shares of common stock were issued as part of the share incentive scheme for a consideration of
$37 million;
• 8,026 shares of common stock were issued with a subscription value of $2 million in exchange for
139,770 E shares of common stock which were cancelled in accordance with the cancellation formula pertaining to
the Employee Share Ownership Plan;
• 46,590 shares of common stock with a subscription value of $2 million were transferred from the Employee Share
Ownership Plan to exiting employees pursuant to the rules of the scheme;
• 31,410 shares of common stock were issued as part of the Employee Share Ownership Plan for a consideration of
$1 million;
(1)
and
• 94,230 E shares of common stock were issued as part of the Employee Share Ownership Plan for a considerationof $2 million.
(1)
(1)
Shares of common stock and E shares of common stock issued in respect of the Employee Share Ownership Plan are eliminated as shares held
within the Company.
During 2006, 11,297,721 shares of common stock and 4,185,770 E shares of common stock were issued as follows:
• 398,399 shares of common stock were issued as part of the share incentive scheme for a consideration of
$9 million;
• 4,185,770 E shares of common stock and 928,590 shares of common stock in the Company were issued as part
of the Employee Share Ownership Plan and the BEE transaction for a consideration of $93 million, which are
eliminated as shares held within the Company; and
• 9,970,732 shares of common stock in the Company were issued as part of the public offering which was
completed on April 20, 2006, amounting to $498 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-52
23.
STOCKHOLDERS’ EQUITY(continued)
A public offering to raise $500 million was completed on April 20, 2006 and resulted in the issue of 9,970,732 ordinary
shares, along with the simultaneous sale of 19,685,170 AngloGold Ashanti shares held by Anglo American plc (AA plc),
reducing AA plc’s holding in the Company to 41.8 percent. As at December 31, 2008, AA plc held a 16.17 percent
interest in the Company. On March 17, 2009, AA plc disposed of its entire remaining shareholding in the Company.
At a general meeting of shareholders held on May 6, 2008, shareholders approved, as a general authority, authorization
to the board of directors to allot and issue, in their discretion, and for such purposes as they may determine, up to
5 percent of the total number of common stock of 25 ZAR cents each in the issued share capital of the Company from
time to time. This authori ty expires if not renewed, at the forthcoming annual general meeting to be held on
May 15, 2009.
Redeemable preference shares
A and B redeemable preference shares issued of 2,000,000 and 778,896 shares, respectively, all of which are held by a
wholly-owned subsidiary Eastvaal Gold Holdings Limited, may not be transferred and are redeemable from the
realization of the assets relating to the Moab Lease area after cessation of mining operations in the area. The shares
carry the right to receive dividends equivalent to the profits (net of royalty, ongoing capital expenditure and taxation)
from operations in the area. No further A and B redeemable preference shares will be issued.
24.FAIR VALUE MEASUREMENTS
The Company adopted SFAS157 as of January 1, 2008, with the exception of the application of the statement to non-
recurring non-financial assets and non-financial liabilities as allowed by FSP FAS 157-2. The Company does not have
non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.
SFAS157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that
may be used to measure fair value:
Level 1
- Quoted prices in active markets for identical assets or liabilities.
Level 2
- Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level 3-Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market
approach uses prices and other relevant information generated by market transactions involving identical or comparable
assets or liabilities.
The following table sets out the Company’s financial assets and (liabilities) measured at fair value by level within the fair
value hierarchy as at December 31, 2008 (in US Dollars, millions):
Description
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
575
575
Marketable equity securities
31
31
Derivatives, net
(1,317)
(1,317)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-53
24. FAIR VALUE MEASUREMENTS(continued)
The Company’s cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using
quoted market prices. The cash instruments that are valued based on quoted market prices in active markets are
primarily money market securities. Due to the short maturity of cash, carrying amounts approximate fair values.
The Company’s marketable equity securities including listed affiliates are included in Other long-term assets in the
Company’s consolidated balance sheet. They consist of investments in ordinary shares and are valued using quoted
market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the
marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the
quantity of shares held by the Company.
The Company’ s derivative instruments are valued using pricing models and the Company generally uses similar models
to value similar instruments. Options associated with marketable equity securities are included as derivatives on the
balance sheet. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves,
credit spreads, measures of volatility, and correlations of such inputs. The Company’s derivatives trade in liquid
markets, and as such, model inputs are observable. Such instruments are typically classified within Level 2 of the fair
value hierarchy.
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES
In the normal course of its operations, the Company is exposed to gold and other commodity price, currency, interest
rate, liquidity and non-performance risk, which includes credit risk. In order to manage these risks, the Company enters
into derivative transactions. The Company does not acquire, hold or issue derivatives for trading purposes. The
Company has developed a risk management process to facilitate, control and monitor these risks. The board has
approved and monitors this risk management process, inclusive of documented treasury policies, counterpart limits,
controlling and reporting structures.
The financial risk management activities objectives of the Company are as follows:
•
Safeguarding the Company’s core earnings stream through the effective control and management of gold and
other commodity price risk, foreign exchange risk and interest rate risk;
•
Effective and efficient usage of credit facilities through the adoption of liquidity planning procedures;
•
Ensuring that investment and hedging transactions are undertaken with creditworthy counterparts; and
•
Ensuring that contracts and agreements related to risk management activities are coordinated, consistent
throughout the Company and comply where necessary with relevant regulatory and statutory requirements.
A number of products, including derivatives are used to satisfy these objectives. Contracts that meet the criteria for
hedge accounting are designated as the hedging instruments hedging the variability of forecasted cash flows from the
sale of production into the spot market and capital expenditure and are classified as cash flow hedges under SFAS133.
The ineffective portion of matured and existing cash flow hedges recognized in loss on non-hedge derivatives in the
income statement during the year was $8 million (2007: $10 million; 2006: $nil million). Of the contracts accounted for
as cash flow hedges, contracts with a fair value of $123 million, a liability at December 31, 2008 are expected to be
reclassified from other comprehensive income and recognized as a reduction in product sales during 2009 or as an
adjustment to depreciation expense pertaining to capital expenditure.
Loss on non-hedge derivatives of $258 million (2007: $808 million; 2006: $208 million), being derivatives not designated
in formal hedge accounting relationships is included in the current year income statement. See Note 5 – Non-hedge
derivative loss.
Gold price and currency risk management activities
Gold and currency derivative instruments are denominated in South African rands, US dollars, Australian dollars and
Brazilian real. The derivative instruments utilized are forward sale and purchase contracts, purchased and sold put
options, and purchased and sold call options. The mix of derivative instruments, the volume of production hedged and
the tenor of the hedge book is continuously reviewed in light of changes in operational forecasts, market conditions and
the Company’s hedging policy as set by the board of directors. The Company’s reserve and financial strength has
allowed it to arrange unmargined credit lines with counterparts. The Compa ny’s also exposed to certain by-product
commodity price risk.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-54
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
Some of the instruments described above are designated and accounted for as cash flow hedges. The cash flow
hedged forecast transactions are expected to occur over the next 2 years, in line with the maturity dates of the hedging
instruments.
Forward sales contracts establish the price of future gold sales at a specified price. A number of these contracts are
intended by AngloGold Ashanti for delivery against production in a future period. The volume of net outstanding forward
sales type contracts at the end of 2008 was 39,990kg (2007: 108,403kg). The volume of outstanding net call options
sold was 146,542kg (2007: 242,373kg) and the volume of outstanding net put options sold was 16,963kg
(2007: 46,585kg).
A put option gives the put buyer the right, but not the obligation, to sell the underlying to the put seller at a
predetermined price on a predetermined date. A call option gives the call buyer the right, but not the obligation, to buy
the underlying from the call seller at a predetermined price on a predetermined date. The Company’s risk in selling gold
call options is unlimited but mitigated by the fact that the Company produces the commodity required by the option and
can partially offset any loss resulting from sold call options via the sale of production in the open market.
Rights offer and reduction in derivatives position
The principal purpose of the rights offer concluded during July 2008 was to provide additional financial resources to
improve the Company’s financial flexibility. In particular, the net proceeds allowed AngloGold Ashanti to significantly
restructure and reduce the Company’s gold derivatives position, which has adversely affected financial performance in
recent years, while also being able to continue to fund the Company 217;s principal development projects and exploration
growth initiatives. The Company capitalized on a weaker gold market during the year in executing a combination of
delivery into and early cash settlement of a portion of its non-hedge derivative contracts (which have been fair valued in
the Company’s financial statements, with changes in such fair value recorded in the income statement), the latter
maturing in years 2008 to 2010.
The Company has therefore been able to make substantial progress in the reduction of its derivatives position, and
although the received gold price for 2008 was adversely impacted given the early cash settlement of certain non-hedge
derivatives with low contracted sales prices, committed ounces have been reduced to 5.99 million ounces as at
December 31, 2008 (December 31, 2007: 11.28 million committed ounces). This allowed the Company to benefit from
improved participation in the spot gold price in future periods, earlier than antic ipated.
Net delta open hedge position as at December 31, 2008
The Company has an established practice of actively managing its hedged commitments under changing market
circumstances.
As of December 31, 2008, the hedge book reflected a net delta tonnage position of 5.22 million ounces (162 tonnes).
As of December 31, 2007, the hedge book reflected a net delta tonnage position of 10.39 million ounces (323 tonnes).
The marked-to-market values of all hedge transactions, irrespective of accounting designation, making up the hedge
positions was a liability of $2,455 million as at December 31, 2008 (as at December 31, 2007: a liability of
$4,273 million). These values were based on a gold price of $872 per ounce, exchange rates of $1 = R9.4550 and
A$ = $0.6947 and the prevailing market interest rates and volatilities at December 31, 2008. The values as at
December 31, 2007 were based on a gold price of $836 per ounce, exchange rates of $1 = R6. 8104 and A$ = $0.8798
and the prevailing market interest rates and volatilities at that date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-55
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
The Company had the following net forward pricing commitments outstanding against future production as at
December 31, 2008.
Year
2009
2010
2011
2012
2013
2014-2016
Total
DOLLAR GOLD
Forward contracts
Amount (kg)
(5,960)
(*)
8,354
11,765
11,944
9,518
2,845
38,466
$ per oz
$1,199
$204
$383
$404
$408
$510
$467
Put options sold
Amount (kg)
4,043
4,226
3,048
1,882
1,882
1,882
16,963
$ per oz
$671
$708
$533
$430
$440
$450
$579
Call options sold
Amount (kg)
14,805
33,394
38,312
24,461
17,857
22,067
150,896
$ per oz
$442
$537
$530
$622
$601
$606
$557
RAND GOLD
Forward contracts
Amount (kg)
(1,866)
(*)
(1,866)
(*)
Rand per kg
R157,213
R157,213
AUD DOLLAR GOLD
Forward contracts
Amount (kg)
280
3,110
3,390
A$ per oz
A$852
A$652
A$669
Call options purchased
Amount (kg)
1,244
3,110
4,354
A$ per oz
A$694
A$712
A$707
Delta (kg)
(4,501)
(36,523)
(44,466)
(31,629) (24,106) (20,998) (162,223)
**Total net gold:
Delta (oz)
(144,720)
(1,174,250)
(1,429,620)
(1,016,910)
(775,040)
(675,070)
(5,215,610)
Hedge delta as a percentage of current
production levels (%)***
12% 29% 31%3%
30%24%
22%29%
10% 18%20%
16%
5%
*
Indicates a long position from forward purchase contracts. The group enters into forward purchase contracts as part of its strategy to actively
manage and reduce the size of the hedge book.
**
The Delta of the hedge position indicated above, is the equivalent gold position that would have the same marked-to-market sensitivity for a small
change in the gold price. This is calculated using the Black-Scholes option formula with the ruling market prices, interest rates and volatilities as at
December 31, 2005. The Delta positions indicated above includes the attributable portions of equity accounted joint ventures.2008.
Gold lease rate swaps***
YearWeighted average percentage based on 2008 full year production of 4,982,000 ounces.
2006 2007 2008
Year
2009 20102011
2011-20152012-2016
Amount (‘000oz)GOLD LEASE RATE SWAPS
250
270
100
130
100
-
Gold borrowing cost associated with forward
forward contracts
(1)
Amount (‘000oz)
130,000
100,000
Interest rate %
0.3%1.82
0.6%1.96
0.8%
1.0%
1.7%
-
Amount (‘000oz)
708 1,334 1,168 898 641
423
Gold lease rate swaps
(2)
Interest rate %Amount
1.2% 1.8% 1.8% 1.8% 1.8%(‘000oz) 898,000 641,000 423,000 205,000
1.8%
Amount (‘000oz)
320 280 240 200 160
120
Interest rate %
2.0% 2.0% 2.0% 2.0% 2.0%1.81
2.0%1.83
Gold lease rate swap1.83
(3)1.84
$ per ounce
302 302 302 302 302
302
(1)
Gold borrowing costscost relating to Australian dollar gold forwards:
The Australian dollar denominated gold forward contract prices are shownpresented on a net basis where the final price of the contract is determined by
the cost of
borrowing gold over the full duration of the contract. The net prices shown in the table above have been adjusted to take account of the total
expected future
cost of all accumulated costs incurred to date and the expected future borrowing cost based on ruling market prices at the financial statement date.prices. The amount
amount shown under “Gold borrowing cost associated with forward contracts” in the table above is the face value of the borrowing amount and the period in
which it matures. The interest rates shown are the future market rates prevailing at the time of the financial statement.statements.
(2)
The gold lease rate swaps are contracts where the companyCompany receives a fixed percentage of the outstanding amount in gold and pays a floating market
determined percentage in gold, quarterly in arrears. The amount shown in the table above is the number of ounces outstanding at the beginning of each
period. The interest rate shown is the weighted average fixed rate that the company will receive for that period.
(3) The gold lease rate swap is a contract where the company receives a fixed percentage of the outstanding amount at a fixed US dollar gold price and pays a
floating market determined percentage in gold, quarterly in arrears. The amount shown in the table above is the number of ounces outstanding at the
beginning of each period. The interest rate shown is the weighted average fixed rate that the companyCompany will receive duringfor that period. The US$ price is the average rate
at which the fixed interest amount in gold is converted to US dollars.
216
Year 2006 2007 2008 2009 2010
2011-2015
Total
DOLLAR SILVER
Put options purchased
Amount ($)
43,545
43,545
43,545
130,635
$
per
oz
$7.11
$7.40
$7.66
$7.39
Put options sold
Amount ($)
43,545
43,545
43,545
130,635
$
per
oz
$6.02
$5.93
$6.19
$6.05
Call options sold
Amount ($)
43,545
43,545
43,545
130,635
$
per
oz
$8.11
$8.40
$8.64
$8.39
Certain of the hedging positions reported in the above tables are governed by early termination options in favor of certain
counterparts.
Foreign exchange price risk protection agreements
The group periodicallyCompany enters into currency forward exchange and currency option contracts to hedge certain anticipated transactions,
firm commitments and other anticipated transactions denominated in foreign currencies. The objective of the group’sCompany’s foreign
currency hedging activities is to
protect the groupCompany from the risk that the eventual cash flows resulting from transactions
denominated in US dollars
will be adversely affected by changes in exchange rates.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-56
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
The following table indicates the group’sCompany’s currency hedge position at December 31, 20052008.
Year 2006 2007 2008 2009 2010
2011-2015 2009 2010 2011 2012 2013
2014-2016 Total
RAND DOLLAR (000)
Put options purchased
Amount ($)
60,00030,000
60,00030,000
Rand
per
$
R6.89R11.56
R6.89
R11.56
Put options sold
Amount ($)
60,00050,000
60,00050,000
Rand
per
$
R6.56R9.52
R6.56
R9.52
Call options sold
options
sold Amount
($)
60,00050,000
60,000
50,000
Rand
per
$
R7.28R11.61
R7.28
R11.61
AUD DOLLAR (000)
Forward
contracts
Amount
($)
59,149450,000
59,149
450,000
$
per
A$ $0.75
$0.750.65
$0.65
Put options purchased
Amount ($)
80,00010,000
80,00010,000
$
per
A A$
$ $0.730.69
$0.730.69
Put options sold
Amount ($)
80,00010,000
80,00010,000
$
per
A A$
$ $0.760.76
$0.76
Call options sold
options
sold Amount
($)
130,00010,000
130,000
10,000
$
per
A$ $0.72
$0.720.64
$0.64
BRAZILIAN REAL
DOLLAR (000)
Forward
contracts
Amount
($)
24,00062,340
4,000
28,000
62,340
BRL
per
$
BRL3.18
BRL3.31
BRL3.20
Call
options
sold Amount
($)
20,000
20,000BRL1.86
BRL
per
$
BRL3.29
BRL3.29BRL1.86
As at December 31, 2005 certain2008 a limited number of the hedging positionsdollar gold hedge contracts reported in the above tables were governed byincluded
optional early termination
options provisions pursuant to which the hedge counterpart can elect to terminate the relevant
hedging contracts on specified dates. The early termination provision which applies can be exercised in favorthe first five
business days of certain counterparts.
For a more detailed presentationJanuary 2010. These contracts form part of the investmentAshanti hedge that was in place prior to the Business
Combination between AngloGold and Ashanti completed in April 2004.
No termination options were exercised in 2008, 2007 and 2006.
Interest rate and liquidity risk
Fluctuations in interest rates impacts interest paid and received on the short-term cash investments and financing
activities, giving rise to interest rate risk.
In the ordinary course of business, the Company receives cash from the proceeds of its gold sale s and is required to
fund working capital requirements. This cash is managed to ensure surplus funds are invested in a manner to achieve
market related returns while minimizing risks. The Company is able to actively source financing at competitive rates.
The counterparts are financial and banking institutions of good credit standing.
Cash and loans advanced maturity profile borrowings
2008 2007
Maturity date
Currency
Fixed rate
investment
amount
(million)
Effective
rate
%
Floating
rate
investment
amount
(million)
Effective
rate
%
Fixed rate
investment
amount
(million)
Effective
rate
%
Floating
rate
investment
amount
(million)
Effective
rate
%
All less than one year
USD
166
2.48
121
1.95
32
4.3
66
4.0
ZAR
930
11.50
668
10.84
525
11.0
888
10.1
AUD
-
-
-
-
-
-
34
6.5
HKD
-
-
1
2.25
-
-
1
4.0
BRL
-
-
144
13.52
-
-
67
8.9
ARS
-
-
5
12.50
-
-
9
11.1
NAD
155
11.58
96
9.40
139
9.7
58
9.5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-57
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
Borrowings maturity profile
Within one year
Between
one and interesttwo years
Between
two and five years
After five years
Currency
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Total
Borrowings
amount
(million)
$
1,060
2.6
320
2.5 -
- -
-
1,380
ZAR 2
9.8 26
9.8 81
9.2 145
9.6 254
AUD 5
6.1
745
6.1 -
- -
-
750
BRL 8
3.6 11
3.6 8
3.6 -
- 27
Interest rate risk profile of
these agreements, see note 26 to the consolidated financial statements “FinancialFixed for less than one year
Fixed for between one and three
years
Fixed for greater than
three years
Currency
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Total
Borrowings
amount
(million)
$ 1,060
2.6 320 2.5
-
-
1,380
ZAR 2 9.8 107 9.8 145
9.6
254
AUD 5
6.1
745
6.1 -
-
750
BRL 8
3.6 19
3.6 -
-
27
Non-performance risk management activities”.
Credit risk
Realization of all these contracts is dependent upon the counterparts performing in accordance with the terms of the
contracts.
AngloGold Ashanti The Company generally does not obtain collateral or other security to support financial instruments subject to credit
non-performance risk,
but monitors the credit standing of counterparts. AngloGold AshantiThe Company spreads its business over a
number of predominantly
international,financial and banking institutions of good credit worthy counterpartsquality and believes that no concentration of creditnon-
performance risk exists. Limits for each counterpart are
based on the assessed credit quality of each counterpart. The
AngloGold Ashanti Treasury Committee makes recommendations for board
approval of all counterparts and the limits to
be applied against each counterpart. Where possible, management tries to
ensure thatputs ISDA netting agreements are in place.
217
The combined maximum credit exposure at the balance sheet date amounts to $713$571 million on a contract by contract basis.(2007: $516 million). Credit
Credit risk exposure netted by counterpartcounterparts amounts to $18 million.$207 million (2007: $123 million). No set-off is applied to the balance
sheet due to the different
maturity profiles of assets and liabilities.
The fair value of derivative assets and liabilities reflects non-performance risk relating to the counterparts and the
Company, respectively as at December 31, 2008.
The table below provides a summary of the number, type and credit quality of AngloGold Ashanti’s hedge counterparts.
Number of CounterpartsPART II
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
232
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
TypeUSE OF PROCEEDS
None.
233
ITEM 15: CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures: As of December 31, 2008 (the “Evaluation Date”), the company, under the
supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer
has evaluated the effectiveness of the company’s disclosure controls and procedures (as defined in Rules 13a – 15(e)
and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”). Based on such
evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the
company’s disclosure controls and procedures are effective, and are reasonably designed to ensure that information
required to be disclosed by the company in reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange
Commission. These disclosure controls and procedures include without limitation, controls and procedures designed to
ensure that information required to be disclosed by the company in reports that it files or submits under the Exchange Act
is accumulated and communicated to the company’s management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding disclosure.
(b) Management’s Annual Report on Internal Control over Financial Reporting: Management is responsible for establishing
and maintaining adequate internal control over financial reporting for the company, as defined in the Exchange Act Rule
13a – 15(f) and 15d -15(f). The company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of the company’s financial
statements for external purposes in accordance with generally accepted accounting principles in the United States of
America.
The company’s internal control over financial reporting includes those policies and procedures that:
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and
dispositions of the assets of the company;
•
Provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and the Directors of the company;
and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
The company’s management assessed the effectiveness of the company’s internal control over financial reporting as of
the Evaluation Date. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on this
assessment, and using those criteria, management concluded that the company’s internal control over financial reporting
was effective as of the Evaluation Date.
(c) Changes in Internal Control over Financial Reporting: There has been no changes in the company’s internal control over
financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a – 15
during the year ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the
company’s internal control over financial reporting.
(d) Attestation Report of the Registered Public Accounting Firm: The company’s independent registered accounting firm,
Ernst & Young Inc., has issued an audit report on the effectiveness of the company’s internal control over financial
reporting. This report appears below.
/s/
M
Cutifani
/s/
SVenkatakrishnan
Mark
Cutifani Srinivasan
Venkatakrishnan
Chief Executive Officer
Chief Financial Officer
234
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The board of directors and stockholders of AngloGold Ashanti Limited
We have audited AngloGold Ashanti Limited’s internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). AngloGold Ashanti Limited’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying management certification. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance ab out whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accura tely and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedur es may deteriorate.
In our opinion, AngloGold Ashanti Limited maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the 2008 consolidated financial statements of AngloGold Ashanti Limited and our report dated May 4, 2009 expressed an
unqualified opinion thereon.
Ernst & Young Inc.
Registered Auditor
Johannesburg, Republic of South Africa
May 4, 2009
235
235
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT
Prof Wiseman Nkuhlu, Chairman of the audit and corporate governance committee, has been determined by our board to be
an audit committee financial expert within the meaning of the Sarbanes-Oxley Act, in accordance with the rules of the NYSE
and the SEC. Prof Wiseman Nkuhlu as well as each of the other members of the Audit and Corporate Governance Committee
(being Mr FB Arisman, Mr RP Edey and Mr JH Mensah) are independent directors. All members of the committee have
considerable financial knowledge and experience to help oversee and guide the board and the company in respect of the audit
and corporate governance disciplines.
On April 9, 2009, Prof Nkuhlu advised of his impending resignation from the board, given his standing for political office in the forthcoming general elections in South Africa. Prof Nkuhlu resigned from the board at the conclusion of the meeting held on May 5, 2009 to approve the filing with the SEC of this annual report on Form 20-F. A suitable candidate qualifying as an audit committee financial expert within the meaning of the Sarbanes-Oxley Act, in accordance with the rules of the NYSE and the SEC, will be sought in due course.
ITEM 16B: CODE OF ETHICS AND WHISTLE BLOWING POLICIES
In order to comply with the company's obligation in terms of the Sarbanes-Oxley Act and the South African King Code on
Corporate Governance, and in the interests of good governance, the company has systems and procedures to introduce,
monitor and enforce its ethical codes and has adopted a code of ethics for employees, a code of ethics for the chief executive
officer, principal financial officer and senior financial officers, and a whistle-blowing policy that encourages employees and
other stakeholders to confidentially and anonymously report acts of an unethical or illegal nature that affect the company's
interests. Senior management oversee compliance with the ethical code by means of several mechanisms including:
• Assessing the integrity of new appointees in the selection and promotion process;
• Adherence to the policy on the delegation of authority;
• Induction of directors and employees on the company's values, policies and procedures; and
• Compliance with a strict disciplinary code of conduct.
AngloGold Ashanti has a whistle-blowing policy that provides a channel for the reporting of practices that are in conflict with
AngloGold Ashanti's business principles, unlawful conduct, financial malpractice, or are dangerous to the public and the
environment. The process encourages reports to be made in good faith in a responsible and ethical manner. Employees are
encouraged to discuss issues with their direct managers first (if appropriate) and then, if not resolved, to report these through
the whistle-blowing line or directly to the internal audit or legal departments. The codes and the whistle-blowing policy are
available on the company's website at www.anglogoldashanti.co.za/About/Gov+Policies.htm. There are several mediums by
which reports can be made such as through the intranet, internet, telephone, fax and post. An initiative is being undertaken to
implement short messaging system (sms) as a medium for reporting as well. All reports made in terms of the whistle-blo wing
policy are fielded by a third party, Tip-Offs Anonymous, which ensures all reports are treated confidentially or anonymously
depending on the preference of the caller. The information is relayed to management and to internal audit for investigation. All
reports and the progress of the investigations are conveyed to the audit and corporate governance committee by the group
internal audit manager on a quarterly basis.
In addition, the company has adopted a Disclosures Policy, the object of which is to ensure compliance with the rules of the
various exchanges on which it is listed and provide timely, accurate and reliable information fairly to all stakeholders, including
investors (and potential investors), regulators and analysts.
Each code of ethics, whistle blowing and disclosure policy is available on the company’s website
http://www.anglogoldashanti.co.za/About/Gov+Policies.htm. Each code of ethics and disclosure policy is also available on
r equest from the company secretary.
ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Ernst & Young has served as AngloGold Ashanti’s independent public accountants for each of the financial years in the three-
year period ended December 31, 2008 for which audited financial statements appear in this annual report on Form 20-F.
236
The following table presents the aggregate fees for professional services and other services rendered by Ernst & Young to
AngloGold Ashanti in 2008 and 2007.
(in millions)
2008
$
2007
$
Audit Fees
(1)
5.67
7.73
Audit-related Fees
(2)
1.30
0.80
Tax Fees
(3)
0.45 0.05
Total
7.42 8.58
Rounding may result in computational differences.
(1)The Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services
that only the external auditor reasonably can provide, and include the Company audit; statutory audits; attest services; and
assistance with and review of documents filed with the SEC. Included in the Audit fees for 2008 and 2007 are fees paid to the
external auditors in respect of SOX, which was implemented in 2006.
(2) Audit-related Fees consist of fees billed for assurance and related services and include consultations concerning financial
accounting and reporting standards; and comfort letters; and consents.
(3) Tax Fees include fees billed for tax advice and tax compliance services.
Audit and Corporate Governance Committee Pre-approval Policies and Procedures
It is the policy of AngloGold Ashanti to maintain compliance with the requirements of the various applicable legislation and
good governance practices when appointing or assigning work to the Company’s external auditor. Non-audit services may not
be undertaken without an employee of AngloGold Ashanti obtaining the pre-approval of the Audit and Corporate Governance
Committee as is laid out in the procedures relating to the pre-approval process.
The audit committee has delegated the approval authority to the chairman of the Audit and Corporate Governance Committee,
Prof Wiseman Nkuhlu or his designated official. The approval may take the form of a written or oral instruction, and in the case
of an oral instruction this would be ratified at the next audit committee meeting. On a quarterly basis a summary of all approvals
and work to date is tabled at the audit committee.
All non-audit services provided to AngloGold Ashanti by the principal independent registered public accounting firm during
2008 were reviewed and approved according to the procedures above. None of the services provided during 2008 were
approved under the de minimis exception allowed under the Exchange Act.
No work was performed by persons other than the principal accountant’s employees in respect of the audit of AngloGold
Ashanti’s financial statements for 2008.
ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
Neither the issuer nor any affiliate of the issuer purchased any of the company’s shares during 2008.
ITEM 16F: CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
237
ITEM 16G: CORPORATE GOVERNANCE
The following is a summary of the significant ways in which AngloGold Ashanti’s corporate governance practices differ from
those followed by US domestic companies under the New York Stock Exchange’s corporate governance listing standards (the
“NYSE listing standards”).
The NYSE listing standards require the appointment of a Nominations Committee to oversee the appointment of new directors
to the board, and that such committee be comprised solely of independent directors. The JSE Listing Requirements also
require the appointment of such a committee, but require that it be comprised solely of non-executive directors, the majority of
whom must be independent. The company has appointed a Nominations Committee of the board. Since May 6, 2008, the
committee comprized of eight non-executive board members, six of whom were independent, as defined in the JSE Listing
Requi rements, and is chaired by the independent chairman of the board.
The NYSE listing standards require that a majority of the board to be comprised of independent directors, as such term is
defined in the NYSE listing standards, and that the remunerations committee of the board be fully independent. In previous
years, AngloGold Ashanti did not comply with these standards as the JSE Listing Requirements did not have similar standards.
However, since May 6, 2008, the board comprizes of a majority of independent directors, as defined in the JSE Listing
Requirements, and the remuneration committee of the board is fully independent.
238
PART III
ITEM 17: FINANCIAL STATEMENTS
Not applicable.
239
ITEM 18: FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
The board of directors and stockholders of AngloGold Ashanti Limited
We have audited the accompanying consolidated balance sheets of AngloGold Ashanti Limited (the “Company”) as of
December 31, 2008 and 2007 and the related consolidated statements of income, stockholders’ equity and cash flows for
each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
The financial statements of Société d'Exploitation des Mines d'Or de Sadiola S.A. (“Sadiola”), a corporation in which the
Company has a 38 percent interest, have been audited by other auditors for the years ended December 31, 2008 and 2006
and for the periods then ended, whose report has been furnished to us, and our opinion on the consolidated financial
statements, insofar as it relates to the amounts included for Sadiola, is based solely on the report of the other auditors. In the
consolidated financial statements, the Company’s investment in Sadiola is stated at $97 million and $66 million, respectively,
at December 31, 2008 and 2006, and the Company’s equity in net loss is stated at $52 million for the year ended December
31, 2008 and the Company’s equity in net income is stated at $33 million for the year ended December 31, 2006.
The financial statements of Société d'Exploitation des Mines d'Or de Yatela S.A. (“Yatela”), a corporation in which the
Company has a 40 percent interest, have been audited by other auditors for the year ended December 31, 2006 and for the
period then ended, whose report has been furnished to us, and our opinion on the consolidated financial statements, insofar
as it relates to the amounts included for Yat ela, is based solely on the report of the other auditors. In the consolidated financial
statements, the Company’s investment in Yatela is stated at $26 million at December 31, 2006, and the Company’s equity in
net income is stated at $34 million for the year then ended.
The financial statements of Société des Mines de Morila S.A. (“Morila”), a corporation in which the Company has a 40 percent
interest, have been audited by other auditors at December 31, 2008 and for the period then ended, whose report has been
furnished to us, and our opinion on the consolidated financial statements, insofar as it relates to the amounts included for
Morila, is based solely on the report of the other auditors. In the consolidated financial statements, the Company’s investment
in Morila is stated at $114 million at December 31, 2008, and the Company’s equity in net loss is stated at $69 million for the
year then ended.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AngloGold Ashanti Limited at December 31, 2008 and 2007, and
the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008
in conformity with U.S generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the effectiveness of AngloGold Ashanti Limited’s internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated May 4, 2009 expressed an unqualified opinion thereon.
As discussed in note 2 to the consolidated financial statements, in 2007 the Company adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, and accordingly has evaluated all
tax positions and has made sufficient provision and disclosure.
As discussed in note 2 to the consolidated financial statements, in 2006 the Company changed its method of accounting for
stock-based compensation in accordance with SFAS123(R) Share-Based Payment, its method of accounting for deferred
stripping costs in accordance with EITF Issue 04-6 Accounting for Stripping Costs Incurred during Production in the Mining
Industry, and its method of considering the effects of prior year misstatements in accordance with SAB 108 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.
As discussed in note 2 to the consolidated financial statements, in 2006 the Company changed its method of accounting for
employee benefit plans in accordance with SFAS158 Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).
Ernst & Young Inc.
Registered Auditor
Johannesburg, Republic of South Africa
May 4, 2009
F-1
ANGLOGOLD ASHANTI LIMITED
Consolidated statements of income
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In millions, except share and per share information)
Notes
2008
$
2007
$
2006
$
Sales and other income
3,730
3,095
2,715
Product sales
3,655
3,048
2,683
Interest, dividends and other
75
47
32
Costs and expenses
4,103
3,806
2,811
Production costs
2,159
1,917
1,539
Exploration costs
126
117
58
Related party transactions
6
(10)
(16)
(6)
General and administrative
136
130
140
Royalties
78
70
59
Market development costs
13
16
16
Depreciation, depletion and amortization
615
655
699
Impairment of assets
5
670
1
6
Interest expense
5
72
75
77
Accretion expense
5
22
20
13
Employment severance costs
5
9
19
22
(Profit)/loss on sale of assets, realization of loans, indirect taxes and other
5
(64)
10
(36)
Non-hedge derivative loss
5
258
808
208
Other operating items
5
19
(16)
16
Loss from continuing operations before income tax, equity income,
minority interests and cumulative effect of accounting change
(373) (711) (96)
Taxation expense
7 (22) (118) (122)
Minority interest
(42) (28) (29)
Equity (loss)/income in affiliates
(149)
41
99
Loss from continuing operations
(586) (816) (148)
Discontinued operations
8
23
2
6
Net loss – applicable to common stakeholders
(563) (814) (142)
(Loss)/earnings per share : (cents)
From continuing operations
9
Ordinary shares
(186)
(293)
(54)
E
Ordinary
shares
(93)
(146)
(91)
Ordinary shares - diluted
(186)
(293)
(54)
E Ordinary shares - diluted
(93)
(146)
(91)
Discontinued operations
9
Ordinary shares
7
1
2
E Ordinary shares
4
-
-
Ordinary shares - diluted
7
1
2
E Ordinary shares - diluted
4
-
-
Net loss
9
Ordinary shares
(179)
(292)
(52)
E
Ordinary shares
(89)
(146)
(91)
Ordinary shares - diluted
(179)
(292)
(52)
E Ordinary shares - diluted
(89)
(146)
(91)
Weighted average number of shares used in computation
9
Ordinary shares
313,157,584
277,337,292
272,613,263
E Ordinary shares - basic and diluted
4,046,364
4,117,815
194,954
Ordinary shares - diluted
313,157,584
277,337,292
272,613,263
Dividend paid per ordinary share (cents)
13
44
39
Dividend paid per E ordinary share (cents)
7
22
-
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-2
ANGLOGOLD ASHANTI LIMITED
Consolidated balance sheets
AT DECEMBER 31, 2008 AND 2007
(In millions, except share information)
Notes
2008
$
2007
$
ASSETS
Current Assets
2,947
2,113
Cash and cash equivalents
575
477
Restricted cash
10
44
37
Receivables
224
205
Trade
39
35
Recoverable taxes, rebates, levies and duties
64
77
Related parties
4
6
Other
11
117
87
Inventories
12
552
523
Materials on the leach pad
12
49
49
Derivatives
25
571
516
Deferred taxation assets
7
150
275
Assets held for sale
17
782
31
Property, plant and equipment, net
13
4,765
5,527
Acquired properties, net
14
814
1,280
Goodwill
15
132
569
Other intangibles, net
15
20
22
Other long-term inventory
12
40
84
Materials on the leach pad
12
261
190
Other long-term assets
16
421
559
Deferred taxation assets
7
51
37
Total assets
9,451
10,381
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
3,445
3,795
Trade accounts payable
314
396
Payroll and related benefits
92
106
Other current liabilities
18
144
132
Derivatives
25
1,758
2,782
Short-term debt
20
1,067
319
Tax payable
28
59
Liabilities held for sale
17
42
1
Other non-current liabilities
19
117
146
Long-term debt
20
873
1,564
Derivatives
25
130
297
Deferred taxation liabilities
7
1,008
1,345
Provision for environmental rehabilitation
5 / 21
302
394
Provision for labor, civil, compensation claims and settlements
31
45
Provision for pension and other post-retirement medical benefits
27
139
180
Minority interest
84
63
Commitments and contingencies
22
-
-
Stockholders’ equity
23
3,322
2,552
Common stock
400,000,000 (2007 – 400,000,000) authorized common stock of 25 ZAR cents each
Stock issued 2008 – 353,483,410 (2007 – 277,457,471)
12
10
Additional paid in capital
7,502
5,607
Accumulated deficit
(3,044) (2,440)
Accumulated other comprehensive income
(1,148)
(625)
Total liabilities and stockholders’ equity
9,451
10,381
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-3
ANGLOGOLD ASHANTI LIMITED
Consolidated statements of cash flows
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In millions, except share information)
Notes
2008
$
2007
$
2006
$
Net cash provided by operating activities
64
561
770
Net loss – applicable to common stockholders
(563)
(814)
(142)
Reconciled to net cash provided by operations:
(Profit)/loss on sale of assets, realization of loans, indirect taxes and other
(64)
14
6
Depreciation, depletion and amortization
615
655
699
Impairment of assets
670
1
6
Deferred
taxation
(72)
(73)
(34)
Movement in non-hedge derivatives
(602)
802
339
Equity loss/(income) in affiliates
149
(41)
(99)
Dividends received from affiliates
78
65
85
Other non cash items
69
34
5
Net increase/(decrease) in provision for environmental rehabilitation,
pension and other post-retirement medical benefits
24
90
(62)
Effect of changes in operating working capital items:
Receivables
(7)
(77) 11
Inventories
(131) (240) (165)
Accounts payable and other current liabilities
(101)
147
122
Net cash provided by continuing operations
65
563
771
Net cash used in discontinued operations
(1)
(2)
(1)
Net cash used in investing activities
(1,593) (1,031) (611)
Acquisition of assets
-
(40)
-
Increase in non-current investments
(93)
(27)
(20)
Proceeds on disposal of affiliate
48
-
-
Affiliates loans advanced
(4)
-
-
Affiliates loans repaid
4
-
-
Additions to property, plant and equipment
(1,194)
(1,015)
(811)
Proceeds on sale of mining assets
39
29
57
Proceeds on sale of discontinued assets
10
1
9
Proceeds on sale of available for sale investments
4
4
-
Proceeds on redemption of held to maturity investments
84
21 11
Dividends from available for sale investments
-
2
-
Cash outflows from derivatives purchased
(485)
-
-
Cash inflows from derivatives purchased
-
19
141
Loans receivable advanced
-
(1)
(1)
Loans receivable repaid
-
1
6
Change in restricted cash
(6)
(25)
(3)
Net cash generated by financing activities
1,715
462
119
Short-term debt repaid
(298)
(520)
(134)
Short-term debt raised
110
318
16
Issuance of stock
1,722
34
512
Share issue expenses
(54)
-
(5)
Long-term debt repaid
(316)
-
(418)
Long-term debt raised
743
525
142
Cash outflows from derivatives with financing
(134)
-
-
Cash inflows from derivatives with financing
-
249 138
Dividends paid
(58)
(144)
(132)
Net increase/(decrease) in cash and cash equivalents
186
(8)
278
Effect of exchange rate changes on cash
(88) 14
(3)
Cash and cash equivalents – January 1,
477
471
196
Cash and cash equivalents – December 31,
575
477
471
The accompanying notes are an integral part of these Consolidated Financial Statements.
ANGLOGOLD ASHANTI LIMITED
Consolidated statements of stockholders’ equity
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In millions, except share information)
Common
stock
Common
stock
$
Additional paid
in capital
$
Accumulated other
comprehensive
income*
$
Accumulated
deficit
$
Total
$
Balance – January 1, 2006
264,938,432 10
4,972
(676) (1,143)
3,163
Cumulative deferred stripping adjustment. Refer to Note 2.
(73)
(73)
Cumulative cut-off adjustment. Refer to Note 2.
(11)
(11)
Net loss
(142)
(142)
Translation loss
(108)
(108)
Net loss on cash flow hedges removed from other comprehensive income and reported in income, net of tax
97
97
Net loss on cash flow hedges, net of tax
(86)
(86)
Net gain on available-for-sale financial assets arising during the period, net of tax
8
8
Comprehensive loss
(315)
Stock issues as part of equity offering
9,970,732 -
498
498
Stock issues as part of Share Incentive Scheme
398,399
-
9
9
Stock based compensation expense
60
60
Dividends
(107)
(107)
Balance – December 31, 2006
275,307,563 10
5,539
(765) (1,476)
3,308
Cumulative FIN 48 adjustment. Refer to Note 2.
(25)
(25)
Net loss
(814)
(814)
Translation gain
93
93
Net loss on cash flow hedges removed from other comprehensive income and reported in income, net of tax
200
200
Net loss on cash flow hedges, net of tax
(166)
(166)
Hedge ineffectiveness on cash flow hedges, net of tax
10
10
Net gain on available-for-sale financial assets arising during the period, net of tax
3
3
Comprehensive loss
(699)
Stock issues as part of Share Incentive Scheme
1,181,882
-
37
37
Stock issues in exchange for E Ordinary shares cancelled
8,026
-
2
2
Stock issues transferred from Employee Share Ownership Plan to exiting employees
46,590
-
2
2
Stock based compensation expense
27
27
Dividends
(125)
(125)
Balance – December 31, 2007
276,544,061 10
5,607
(625) (2,440)
2,552
Net loss
(563)
(563)
Translation loss
(597)
(597)
Net loss on cash flow hedges removed from other comprehensive income and reported in income, net of tax
157
157
Net loss on cash flow hedges, net of tax
(61)
(61)
Hedge ineffectiveness on cash flow hedges, net of tax
8
8
Net loss on available-for-sale financial assets arising during the period, net of tax
(29)
(29)
Release on disposal of available-for-sale financial assets during the period, net of tax
(1)
(1)
Comprehensive loss
(1,086)
Stock issues as part of rights offer
69,470,442 2 1,664
1,666
Stock issues as part of Golden Cycle acquisition
3,181,198
-
118
118
Stock issues as part of São Bento acquisition
2,701,660
-
70
70
Stock issues as part of Share Incentive Scheme
672,545
-
14
14
Stock issues in exchange for E Ordinary shares cancelled
94
-
3
3
Stock issues transferred from Employee Share Ownership Plan to exiting employees
57,761
-
2
2
Stock based compensation expense
24
24
Dividends
(41)
(41)
F-4
Balance – December 31, 2008
352,627,761 12
7,502
(1,148) (3,044)
3,322
* The cumulative translation loss included in accumulated other comprehensive income amounted to $1,085 million (2007: $488 million). The translation loss has no tax effect. The cumulative charge, net of deferred
taxation of $68 million (2007: $96 million), included in accumulated other comprehensive income in respect of cash flow hedges amounted to $112 million (2007: $216 million). The cumulative loss, net of deferred
taxation of $1 million (2007: $2 million), included in accumulated other comprehensive income in respect of available for sale financial assets amounted to $15 million (2007: $15 million gain). The cumulative gain
included in accumulated other comprehensive income in respect of the hedge of a net investment in foreign entities amounted to $64 million (2007: $64 million). This gain is offset by $64 million (2007: $64 million)
arising from translation of net investments in foreign entities.
As at December 31, 2008 and 2007, $453 million and $402 million, respectively, of retained earnings arising from the Company’s equity accounted joint ventures and certain subsidiaries may not be remitted without
third-party shareholder consent.
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-5
ANGLOGOLD ASHANTI LIMITED
Notes to the consolidated financial statements
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In millions, except share and per share information)
1.
NATURE OF OPERATIONS
AngloGold Ashanti Limited (the "Company"), as it conducts business today, was formed on April 26, 2004 following
the Business Combination of AngloGold Limited (AngloGold) with Ashanti Goldfields Company Limited (Ashanti).
AngloGold, formerly Vaal Reefs Exploration and Mining Company Limited, was incorporated in South Africa on
May 29, 1944 and Ashanti was incorporated in Ghana on August 19, 1974. The Company conducts gold-mining
operations in Argentina, Australia, Brazil, Ghana, Guinea, Mali, Namibia, South Africa, Tanzania and the United States
of America (USA). The Company also produces by-product silver, uranium oxide and sulfuric acid.
2.
ACCOUNTING CHANGES
Post-retirement benefit plan assets
In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit
Plan Assets” (“FSP FAS 132(R)-1”), which amends FASB Statement No. 132 “Employers’ Disclosures about Pensions
and Other Post-Retirement Benefits” (“SFAS132”). FSP FAS 132(R)-1 provides guidance on an employer’s disclosures
about plan assets of a defined benefit pension or other post-retirement plan. The objective of FSP FAS 132(R)-1 is to
require more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major
categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair
value of plan assets.
The disclosures about plan assets requir ed by FSP FAS 132(R)-1 shall be provided for fiscal years ending after
December 15, 2009. Upon initial application, the provisions of FSP FAS 132(R)-1 are not required for earlier periods
that are presented for comparative purposes. Earlier application of the provisions of FSP FAS 132(R)-1 is permitted.
The Company has early adopted the provisions of FSP FAS 132(R)-1 as of December 31, 2008. The adoption of
FSP FAS 132(R)-1 did not have a material impact on the Company’s financial statements. Refer to Note 27.
Disclosures about credit derivatives and certain guarantees
In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, “Disclosures about Credit Rating (Fitch)Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161” (“the FSP”). The FSP amends SFAS133, to require disclosures by sellers of
credit derivatives, includi ng credit derivatives embedded in a hybrid instrument to provide certain disclosures for each
credit derivative for each statement of financial position presented. The FSP also amends FIN45, to require an
additional disclosure about the current status of the payment/performance risk of a guarantee. Further, this FSP clarifies
that SFAS161, is effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The FSP is effective for reporting periods (annual or interim) ending after November 15, 2008. The
Company does not have any credit derivatives. The Company adopted the disclosure requirements of the FSP with
regards to guarantees as of December 31, 2008. Refer to Note 22.
Hierarchy of generally accepted accounting principles
In May 2008, the FASB issued FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles”
(“SFAS162”). SFAS162 improves financial rep orting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally
accepted accounting principles (GAAP) for nongovernmental entities. SFAS162 was effective November 15, 2008,
which was 60 days following the United States Securities and Exchange Commission (SEC's) approval of the Public
Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles”. The adoption of SFAS162 had no impact on the Company’s
financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-6
2.
ACCOUNTING CHANGES (continued)
Employee benefit plans
On September 29, 2006 the FASB issued SFAS158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS158”). SFAS158
requires an entity to:
• recognize in its statement of financial position an asset for a defined benefit post-retirement plan's overfunded
status or a liability for a plan's underfunded status;
• measure a defined benefit post-retirement plan's assets and obligations that determine its funded status as of the
same day of the employer's fiscal year-end (effective in fiscal years ending after December 15, 2008)
• recognize as a component of accumulated other comprehensive income, net of tax, amounts accumulated at the
date of adoption due to delayed recognition of actuarial gains and losses, prior service costs and credits, and
transition assets and obligations; and
• expand the disclosure requirements of SFAS132(R) to include additional information about certain effects on net
periodic benefit cost in the next fiscal year that arise from delayed recognition of actuarial gains or losses, prior
service costs or credits and unrecognized transition assets and obligations.
The adoption of the recognition and disclosure requirements of SFAS158 which are effective for fiscal years ending
after December 15, 2006, did not have a material impact on the Company’s earnings and financial position as the
Company changed its accounting policy during the second quarter of 2005, retroactive to January 1, 2005, with respect
to accounting for employee benefit plans to recognize the effects of actuarial gains and losses in income, rather than
amortizing over the expected average remaining service period. This change was made as the Company believes that
elimination of the permitted pension and post-retirement benefit corridor, as allowed by SFAS87 and SFAS106 results in
more accurate financial information.
The adoption of the SFAS158 requirement to measure the plan assets and benefit obligations as of December 31, 2008
did not have a material impact on the Company’s financial statements.
The Company’s employee benefit plans are described more fully in Note 27.
Fair value measurements
The Company adopted FASB Statement No. 157, “Fair Value Measurements” (“SFAS157”) for financial assets and
financial liabilities on January 1, 2008.
SFAS157 provides enhanced guidance for using fair value to measure assets and liabilities. Under SFAS157, fair value
refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants in the market in which the reporting entity transacts. SFAS157 clarifies the principle that fair value
should be based on the assumptions market participants would use when pricing the asset or liability and establishes a
fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS157 also requires that fair
value measurements be separately disclosed by level within the fair value hierarchy. Refer to Note 24. The credit risk
adjustment on adoption of SFAS157 is disclosed in Note 25.
In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective date of FASB Statement No. 157”
(“FSP FAS 157-2”). FSP FAS 157-2 provides a one year deferral until January 1, 2009 for the implementation of
SFAS157 for certain non-financial assets and non-financial liabilities, except for those items that are recognized or
disclosed at fair value on a recurring basis (at least annually). The provisions of FSP FAS 157-2 are not expected to
have a material impact on the Company’s financial statements.
In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of SFAS157
in determining the fair value of a financial asset when the market for that asset is not active. FSP FAS 157-3 is effective
as of the issuance date and has not affected the valuation of the Company’s financial assets.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-7
2.
ACCOUNTING CHANGES (continued)
Fair value option for financial assets and liabilities
In February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS159”). SFAS159 permits entities to choose to measure many financial instruments and certain other
items at fair value, with the objective of improving financial reporting by mitigating volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The
provisions of SFAS159 were adopted January 1, 2008. The Company did not elect the Fair Value Option for any of its
financial assets or liabilities, and therefore, the adoption of SFAS159 had no impact on the Company’s financial
statements.
Uncertain taxes
The Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes” (“FIN 48”) on January 1, 2007 and recorded an opening adjustment of $25 million against opening
retained income as a result of adopting FIN 48.
The Company operates in numerous countries and is subject to, and pays annual income taxes in terms of the various
income tax regimes in the countries in which it operates. Some of these tax regimes are defined by contractual
agreements with local government and others are defined by the general corporate income tax laws of the country. The
Company has historically filed, and continues to file, all required income tax returns and to pay the taxes reasonably
determined to be due. The tax rules and regulations in many countries are complex and subject to interpretation. From
time to time, the Company is subject to a review of its historic income tax filings. In connection w ith such reviews
disputes can arise with the taxing authorities over interpretation or application of certain rules to the Company's
business conducted within the country involved. Refer to Note 7.
Stock based compensation
On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based
Payment”, using the modified prospective transition method. As at December 31, 2008, the Company has five stock-
based employee compensation plans consisting of time-based awards, performance related awards and equity settled
compensation plans as described in Note 29.
Deferred stripping costs
On January 1, 2006, the Company adopted Emerging Issues Task Force (“EITF”) Issue 04-6, “Accounting for Stripping
Costs in the Mining Industry”. Issue No. 04-6 addresses the accounting for stripping costs incurred during the production
phase of a mine and that post production s tripping costs should be considered costs of the extracted minerals under a
full absorption costing system and recognized as a component of inventory to be recognized in cost of sales in the same
period as the revenue from the sale of the inventory. Additionally, capitalization of such costs would be appropriate only
to the extent inventory exists at the end of a reporting period.
The guidance required application through recognition of a cumulative effect adjustment to opening retained earnings in
the period of adoption, with no charge to current earnings for prior periods. The results for prior periods were not
restated. Upon adoption, the cumulative effect of the accounting change reduced opening retained earnings by
$73 million (net of Taxation), increased the value of inventory by $5 million, eliminated the capitalized deferred stripping
balance of $105 million, decreased Deferred taxation by $29 million, reduced Other long-term assets by $3 million and
decrease d Minority interest by $1 million. Adoption of the guidance had no impact on the Company’s cash position or
net cash from operations.
Cut-off adjustments
In prior years certain subsidiaries within the Company have consistently determined the year end close process in
respect of certain operating costs at dates immediately preceding the Christmas vacation period. Historically,
management concluded that any resulting adjustment was immaterial to operating results as all entities had twelve
reporting periods and used the same cut-off dates from year to year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-8
2.
ACCOUNTING CHANGES (continued)
The above errors arose as a combination of the cut-off process being linked to the mine production cycle as well as
utilizing a date not aligned to December 31, although the same dates were utilized from year to year.
On September 13, 2006, the SEC staff published Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108
(SAB Topic 1.N) addresses quantifying the financial statement effects of misstatements, specifically, how the effects of
prior year uncorrected errors must be considered in quantifying misstatements in the current year.
As part of the 2006 year end financial statement close process the Company quantified the balance sheet impact and
determined that it would only have a material effect in the reporting of “Payroll and related benefits”, which is separately
identified on the face of the balance sheet. The other accounts that were affected are Tangible Assets – Mine
development costs; Inventories – Gold in process; Deferred taxation; Cash and cash equivalents; Trade accounts
payable and Payroll and related benefits.
The Company previously considered the above to be immaterial under the rollover method and evaluated the
misstatement against the current year financial statements under both the rollover and iron curtain methods.
In accordance with the transition provisions provided in SAB 108 the cumulative effect of applying SAB 108 as an
adjustment to opening retained earnings is summarized below:
(in millions)
$
Assets
Tangible Assets – Mine development costs
3 (increase)
Inventories – Gold in process
1 (increase)
Deferred taxation
5 (increase)
Trade receivables
5 (decrease)
Liabilities
Trade accounts payable
3
(increase)
Payroll and related benefits
10 (increase)
Other creditors
2 International Bank(increase)
AAA
4Retained earnings
11 (decrease)
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS
2008 acquisitions
The Company made the following acquisitions during the year:
Acquisition of minority interests in North America
Effective July 1, 2008, AngloGold Ashanti acquired the remaining 33 percent shareholding in the Cripple Creek & Victor
Gold Mining Company joint venture (CC&V) through the acquisition of 100 percent of Golden Cycle Gold Corporation
(GCGC). The Company issued 3,181,198 AngloGold Ashanti shares (total value $118 million) pursuant to this
transaction.
The Company completed the purchase price allocation of fixed assets during the third quarter of 2008. The transaction
was accounted for as a purchase business combination whereby identifiable assets acquired and liabilities assumed
were recorded at their fair market values as of the date of acquisition. The excess of the pu rchase price over such fair
value was recorded as goodwill and as such, the acquisition resulted in goodwill of $18 million being recorded, relating
mainly to the premium paid to obtain the remaining interest in CC&V. The goodwill related to the acquisition is non-
deductible for tax purposes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-9
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued)
Acquisition of São Bento mine
On December 15, 2008, AngloGold Ashanti announced that it had completed the purchase of São Bento Gold Company
Limited (SBG) and its wholly-owned subsidiary, São Bento Mineração S.A. (SBMSA) from Eldorado Gold Corporation
(Eldorado) for a consideration of $70 million through the issuance of 2,701,660 AngloGold Ashanti shares. The
transaction was accounted for as an asset acquisition. The purchase price was allocated to the underlying assets
acquired. The purchase of SBG and SBMSA gives AngloGold Ashanti access to the São Bento mine, a gold operation
situated in the immediate vicinity of AngloGold Ashanti's Córrego do Sítio mine, located in the municipality of Santa
Bárbara, Iron Quadrangle region of Minas Gerais State, Brazil.
2008 disposals
The Company’s disposals during the year included:
Disposal of exploration interests in Colombia
On February 14, 2008, AngloGold Ashanti announced that it had entered into a binding memorandum of agreement
(MOA) with B2Gold Corp. (B2Gold). The MOA provides for the existing Colombian joint venture agreements between
AngloGold Ashanti and B2Gold to be amended. B2Gold would also acquire from AngloGold Ashanti, additional interests
in certain mineral properties in Colombia. In exchange, B2Gold would issue to AngloGold Ashanti, 25 million common
shares and 21.4 million common share purchase warrants in B2Gold. On May 16, 2008, AngloGold Ashanti announced
that it had completed the transaction to acquire a 15.9 percent direct interest in B2Gold and increase B2Gold's interest
in certain Colombian properties, as stated.
Disposal of equity interest in Nufcor International BankLimited
During the quarter ended June 30, 2008, the Company disposed of its 50 percent interest held in Nufcor International
Limited, a London based uranium marketing, trading and advisory business, to Constellation Energy Commodities
Group for net proceeds of $48 million.
2007 acquisitions
The Company made the following acquisitions during the year:
In June 2007, the Company acquired certain assets from Trans-Siberian Gold plc (TSG) as further discussed in this
note under 2006 acquisitions “Strategic alliance in Russia with Polymetal and assets acquired from Trans-Siberian Gold
plc”.
•
AA+Acquisition of minority interests in Ghana
AngloGold Ashanti completed the acquisition of the minority interests in the Iduapriem and Teberebie mine
previously held by the Government of Ghana (5 percent) and the International Finance Corporation (10 percent)
effective September 1, 2007 for a total cash consideration of $25 million. The Iduapriem and Teberebie mine is
now wholly-owned by the Company. The Company finalized the purchase price allocation of fixed assets during
the third quarter of 2008. The final purchase price allocation did not vary significantly from the preliminary
allocation.
4 International Bank2007 disposals
The Company’s disposals during the year included:
•
AA
9 International Bank
AA-
3 International Bank
A+
3 International Bank
A
1 International Bank
A-
1 International Bank
BBB
1
Sale of Ergo surface reclamation operation
On June 8, 2007, AngloGold Ashanti announced that it had sold, subject to certain conditions, most of the
remaining moveable and immovable assets of Ergo, the surface reclamation operation east of Johannesburg,
discontinued in March 2005, to a consortium of Mintails South Africa (Pty) Limited/DRD South African BankOperations
(Pty) Limited. The transaction was approved by the Competition Commissioner on May 5, 2008. An outstanding
resolutive condition to the sale agreement, is consent by the Minister of Minerals and Energy of the transfer of
mining rights.
AAA(zaf) (International BBB+)
•
1Sale of Mwana Africa plc shares
During July 2007, AngloGold Ashanti disposed of its investment of 600,000 shares previously held in Mwana
Africa plc for $0.8 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-10
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued)
2006 acquisitions
The Company made the following acquisitions during the year:
•
Agreement signed with China explorer Dynasty Gold Corporation
On February 27, 2006, AngloGold Ashanti announced that it had signed an agreement with Dynasty Gold
Corporation, a Vancouver-based company, with exploration activities in China, to acquire an effective 8.7 percent
stake in that company through a purchase of 5.75 million Dynasty units at a price of C$0.40 each.
•
Agreement with International Tower Hill Mines Limited
On June 30, 2006, AngloGold Ashanti (U.S.A.) Exploration Inc. (AngloGold Ashanti), International Tower Hill
Mines Ltd (ITH) and Talon Gold Alaska, Inc. (Talon), a wholly-owned subsidiary of ITH, entered into an Asset
Purchase and Sale and Indemnity Agreement whereby AngloGold Ashanti sold to Talon a 100 percent interest in
six Alaska mineral exploration properties and associated databases in return for 5,997,295 common shares of
ITH stock, representing 19.99 percent interest in ITH (December 31, 2008: 14.55 percent held). AngloGold Ashanti
also granted to ITH the exclusive option to acquire a 60 percent interest in each of its LMS and Terra projects by
incurring $3 million of exploration expenditure on each project (total of $6 million) within four years of the grant
date of the options. As part of the two option agreements, Anglo Gold Ashanti will have the option to increase or
dilute its stake in these projects.
•
Strategic alliance in Russia with Polymetal and assets acquired from Trans-Siberian Gold plc
On September 21, 2006, AngloGold Ashanti announced that it had entered into a 50:50 strategic alliance (joint
venture) with Russian gold and silver producer, OAO Inter-Regional Research and Production Association
Polymetal (Polymetal) in terms of which, Polymetal and AngloGold Ashanti would cooperate in exploration,
acquisition and development of gold mining opportunities within the Russian Federation. At the same time,
AngloGold Ashanti announced that it had submitted an offer to the board of Trans-Siberian Gold plc (TSG) to
acquire all of TSG’s interest in its Krasnoyarsk based subsidiaries, OOO GRK Amikan (Amikan) and OOO Artel
Staratelei Angarskaya Proizvodstvennaya Kompania (AS APK) for a consideration of $40 million. In June 2007,
the Company concluded the purchase of TSG’s i nterests in Amikan and AS APK. These companies acquired from
TSG by AngloGold Ashanti, together with two greenfields exploration companies held by Polymetal, hold the initial
operating assets of the joint venture. Of the assets acquired from TSG, assets of $15 million were subsequently
sold by the joint venture during the quarter ended March 31, 2008.
•
Purchase of Central African Gold Plc (CAG) shares
Arising from the sale of Bibiani assets, AngloGold Ashanti applied $3 million of the partial proceeds to an
investment of 15,825,902 Central African Gold plc (CAG) shares. Subsequent to this decision, local regulators
required that the shares in CAG be sold within 90 days of December 28, 2006. On February 14, 2007, the
Company disposed of 7,000,000 CAG shares yielding total proceeds of £768,845 ($1.5 million) and during
April 2007, disposed of the remaining 8,825,902 CAG shares yielding total proceeds of £894,833 ($1.8 million).
2006 disposals
The Company’s disposals during the year included:
•
Sale of Western Tanami project
In February 2006, disposed of the entire investment in Tanami Gold with the sale of 19 million shares for a cash
consideration of A$3.9 million ($3.0 million).
•
Sale of Bibiani
On August 23, 2006, AngloGold Ashanti announced that it had entered into a conditional agreement with Central
African Gold plc (CAG) to sell the assets, related to Bibiani and Bibiani North prospecting permit to CAG for a
consideration of $40 million. The conditions precedent to the sale were satisfied effective December 28, 2006. The
Bibiani North prospecting license was assigned to CAG on May 17, 2007 by the Ghanaian Land Commission and
Registry.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-11
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued)
Fair value of acquisition of business
2008
Golden Cycle
acquisition
(1)
$
Property, plant and equipment
93
Goodwill
(1)
18
Current assets
7
Net value of assets acquired
118
Purchase price paid
(118)
- Issuance of common stock
(118)
Gross value
(118)
Share issue expenses
-
(1)
The Golden Cycle Gold Corporation business combination was completed effective July 1, 2008. Refer to: Acquisition of minority interests in North
America. The Company has recorded goodwill, relating to the portion of the purchase price which cannot be attributed to the fair value of assets and
liabilities acquired, of $18 million on acquisition.
4.
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The accompanying financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The Company presents its consolidated financial
statements in United States dollars. The functional currency of a significant portion of the group’s operations is the
South African Bankrand. Other main subsidiaries have functional currencies of US dollars and Australian dollars. The
translation of amounts into US dollars was in accordance with the provisions of SFAS52, “Foreign Currency
Translation”.
AA+(zaf) (International BBB+)
1Use of estimates: The preparation of the financial statements requires the Company’s management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. The determination of estimates requires the exercise of judgment based on various assumptions and
other factors such as historical experience, current and expected economic conditions, and in some cases actuarial
techniques. The Company regularly reviews estimates and assumptions that affect the annual financial statements,
however, actual results could differ from those estimates.
South African Bank
AA(zaf) (International BBB)The more significant areas requiring the use of management estimates and assumptions include mineral reserves that
are the basis of future cash flow estimates and unit-of-production depreciation, depletion and amortization calculations;
environmental, reclamation and closure obligations; estimates of recoverable gold and other materials in heap leach
pads; asset impairments (including impairments of goodwill, long-lived assets, and investments); write-downs of
inventory to net realizable value; post employment, post retirement and other employee benefit liabilities; valuation
allowances for deferred taxation assets; reserves for contingencies and litigation; and the fair value and accounting
treatment of financial instruments.
1
South African BankThe following are the accounting policies used by the Company which have been consistently applied except for the
adoption of FIN 48, “Accounting for Uncertainty in Income Taxes” on January 1, 2007.
AA-(zaf) (International BBB)
14.1
South African BankConsolidation
The consolidated financial information includes the financial statements of the Company and its subsidiaries.
Where the Company has a direct or indirect controlling interest in an entity through a subsidiary, the entity is
classified as a subsidiary. Interests in incorporated mining joint ventures in which the Company has joint control
are accounted for by the equity method.
A+(zaf) (International BBB-)
5 Brazilian BankThe financial statements of subsidiaries and the Environmental Trust Fund (a rehabilitation trust under the
Company’s control) are prepared for the same reporting period as the Company, using the same accounting
policies, except for Rand Refinery Limited (a subsidiary of the Company) which reports on a three-month time
lag. Adjustments are made to subsidiary financial results for material transactions and events in the intervening
period.
AA(bra)
1Subsidiaries are consolidated from the date on which control is transferred. They are de-consolidated from the
date on which control ceases.
Trade Finance House
Not ratedAll significant intercompany transactions and accounts are eliminated in consolidation.
AngloGold AshantiNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-12
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.2
Investments in equity investees (associates and incorporated joint ventures)
An associate is an entity other than a subsidiary in which the Company has a material long-term interest and in
respect of which the Company has the ability to exercise significant influence over operational and financial
policies, normally owning between 20 percent and 50 percent of the voting equity.
A joint venture is an entity in which the Company holds a long-term interest and which is jointly controlled by the
Company and one or more external joint venture partners under a contractual arrangement that provides for
strategic, financial and operating policy decisions relating to the activities requiring unanimous consent.
Investments in associates and incorporated joint ventures are accounted for using the equity method.
Goodwill relating to associates and incorporated joint ventures is included i n the carrying value of the Company’s
investment. The total carrying value of equity accounted investments in associates and incorporated joint
ventures, including goodwill, is evaluated for impairment when conditions indicate that a decline in fair value
below the carrying amount is other than temporary or at least annually. When an indicated impairment exists, the
carrying value of the Company’s investment in those entities is written down to its fair value. The Company’s
share of results of equity accounted investees, that have financial years within three months of the fiscal year-
end of the Company, is included in the consolidated financial statements based on the results reported by those
investees for their financial years. There were no significant adjustments required to be made in respect of equity
accounted investees which have financial years that are different to those of the Company.
Profits realized in connection with transactions between the Company and associated companies are eliminated
in proportion to ownership.
4.3
Foreign currency translation
Items included in the financial statements of each of the Company’s entities are measured using the currency of
the primary economic environment in which the entity operates (the ‘functional currency’).
Transactions and balances
Transactions in foreign currencies are converted at the rates of exchange ruling at the date of these transactions.
Monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange ruling at
balance sheet date. Non-monetary items are translated at historic rates. Gains, losses and costs associated
with foreign currency transactions are recognized in the income statement in the period to which they relate,
except where hedge accounting is applied. These transactions are included in the determination of other income.
Group companies
The results and financial position of all group entities that have a functional currency different from the
presentation currency are translated into the presentation currency as follows:
•
equity items other than profit attributable to equity shareholders are translated at the closing rate;
•
assets and liabilities for each balance sheet presented are translated at the closing rate;
•
income and expenses for each income statement are translated at average exchange rates (unless this
average is not a reasonable approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the dates of the transactions);
and
•
all resulting exchange differences are recognized as a separate component of equity and included within
other comprehensive income.
Exchange differences arising from the translation of the net investment in foreign operations, and of borrowings
and other currency instruments designated as hedges of such investments, are taken to stockholders’ equity on
consolidation.
When a foreign operation is sold, cumulative exchange differences are recognized in the income statement as
part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and
liabilities of the foreign operation and translated at the closing rate at each balance sheet date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-13
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.4
Segment reporting
A segment is a group of assets and operations engaged in providing products or services that are subject to
risks and returns that are different from those of other segments and are reported on a reporting segment basis
using the management approach. This approach is based on the way management organizes segments within
the Company for making operating decisions and assessing performance. The Chief Operating Decision Maker
has determined that the Company operates primarily in the delivery of gold. A geographical segment is engaged
in providing products or services within a particular economic environment that is subject to risks and returns that
are different from those of segments operating in other economic environments.
4.5
Cash and cash equivalents and restricted cash
Cash and cash equivalents consist of cash balances and highly liquid investments with an original maturity of
three months or less. Due to the short maturity of cash equivalents, their carrying amounts approximate their fair
value. Restricted cash is reported separately in the consolidated balance sheets.
4.6
Non-marketable debt securities
Investments in non-marketable debt securities for which the Company does not anticipate non-performancecontrol or exercise significant
influence are classified as held to maturity are subsequently measured at amortized cost. If there is evidence
that held to maturity financial assets are impaired the carrying amount is reduced and the loss recognized in the
income statement.
4.7
Marketable equity investments and debt securities
Marketable equity investments and debt securities which are considered available-for-sale, are carried at fair
value, and the net unrealized gains and losses computed in marking these securities to market are reported
within other comprehensive income in the period in which they arise. These amounts are removed from other
comprehensive income and reported in income when the asset is derecognized or when there is evidence that
the asset is impaired in accordance with the provisions of SFAS115, “Accounting for Certain Investments in Debt
and Equity Securities (“SFAS115”)”.
Marketable debt securities that are classified as held to maturity are subsequently measured at amortized cost.
4.8
Inventories
Inventories, including gold in process, gold on hand (doré/bullion), uranium oxide, sulfuric acid, ore stockpiles
and supplies, are stated at the lower of cost or market value. Gold in process is valued at the average total
production cost at the relevant stage of production as described below. The cost of gold, uranium oxide and
sulfuric acid is determined principally by any counterparts.the weighted average cost method using related production costs.
Ore stockpiles are valued at the average moving cost of mining the ore. Supplies are valued at the lower of
weighted average cost or market value. Heap leach pad materials are measured on an average total production
cost basis.
The cost of inventory is determined using the full absorption costing method. Gold in process and ore stockpile
inventory include all costs attributable to the stage of completion. Costs capitalized to inventory include
amortization of property, plant and equipment and capitalized mining costs, direct and indirect materials, direct
labor, shaft overhead expenses, repairs and maintenance, utilities, metallurgy costs, attributable production
taxes and royalties, and directly attributable mine costs. Gold on hand (doré/bullion) includes all gold in process
and refining costs. Ore is recorded in inventory when blasted underground, or when placed on surface stockpiles
in the case of open-pit operations.
The costs of materials currently contained on the leach pad are reported as a separate line item. As at
December 31, 2008 and 2007, $49 million was classified as short-term as the Company expects the related gold
to be recovered within twelve months. The short-term portion of materials on the leach pad is determined by
multiplying the average cost per ounce in inventory by the expected production ounces for the next twelve
months. Short-term heap leach pad inventory occurs in two forms: (1) gold recoverable but yet to be dissolved
(i.e. gold still in the ore), and (2) gold recoverable from gold dissolved in solution within the leach pad (i.e. pore
water). This estimate was used in determining the short-term portion of materials on the leach pad as at
December 31, 2008. As at December 31, 2008, $261 million was classified as long-term compared with
$190 million as at December 31, 2007.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-14
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.9
FairDevelopment costs and stripping costs
Development costs relating to major programs at existing mines are capitalized. Development costs consist
primarily of expenditures to initially establish a mine and to expand the capacity of operating mines.
On January 1, 2006, the Company adopted EITF Issue 04-6, “Accounting for Stripping Costs in the Mining
Industry”. In accordance with the guidance of Issue No. 04-6, post production stripping costs are considered
costs of the extracted minerals under a full absorption costing system and recognized as a component of
inventory to be recognized in cost of sales in the same period as the revenue from the sale of the inventory.
Additionally, capitalization of such costs are appropriate only to the extent inventory exists at the end of a
reporting period.
Costs associated with the opening of a new pit, are capitalized as mine development costs.
4.10 Depreciation, depletion and amortization
Mine development costs, mine plant facilities and other fixed assets
Mine development costs, mine plant facilities and other fixed assets are recorded at cost less accumulated
amortization and impairments. Cost includes pre-production expenditure incurred during the development of a
mine and the present value of future decommissioning costs. Cost also includes finance charges capitalized
during the construction period where such expenditure is financed by borrowings.
Capitalized mine development costs include expenditure incurred to develop new orebodies, to define further
mineralization in existing orebodies and to expand the capacity of a mine. Where funds have been borrowed
specifically to finance a project, the amount of interest capitalized represents the actual borrowing costs incurred.
Depreciation, depletion and amortization of mine development costs are computed principally by the units-of-
production method based on estimated proven and probable mineral reserves. Proven and probable mineral
reserves reflect estimated quantities of economically recoverable reserves which can be recovered in the future
from known mineral deposits.
Mine plant facilities are amortized using the lesser of their useful life or units-of-production method based on
estimated proven and probable mineral reserves. Main shafts are depleted using total proven and probable
reserves as the shaft will be used over the life of the mine. Other infrastructure costs including ramps, stopes,
laterals, etc and ore reserve development are depleted using proven and probable reserves applicable to that
specific area. When an area is vacated and there is no longer an intention to mine due to a change in mine
plans, all costs that have not been depleted are written off.
Other fixed assets comprising vehicles and computer equipment, are depreciated by the straight-line method
over their estimated useful lives as follows:
•
vehicles up to five years; and
•
computer equipment up to three years.
Acquired properties
Acquired properties are carried at amortized cost. Purchased undeveloped mineral interests are acquired
mineral rights and, in accordance with FSP FAS 141/142-1, “Interaction of FASB Statements No. 141 and
No. 142 and EITF Issue No. 04-2” are recorded as tangible assets as part of acquired properties. The amount
capitalized related to a mineral interest represents its fair value at the time it was acquired, either as an individual
asset purchase or as a part of a business combination. “Brownfield” stage mineral interests represent interests
in properties that are believed to potentially contain other mineralized material, such as measured, indicated or
inferred mineral resources with insufficient drill spacing to qualify as proven and probable mineral reserves, that
is in proximity to proven and probable mineral reserves and within an imm ediate mine structure. “Greenfield”
stage mineral interests represent interests in properties that are other mine-related or greenfields exploration
potential that are not part of measured or indicated resources and are comprised mainly of material outside of a
mine’s infrastructure. The Company’s mineral rights are enforceable regardless of whether proven and probable
mineral reserves have been established. The Company has the ability and intent to renew mineral rights where
the existing term is not sufficient to recover all identified and valued proven and probable mineral reserves and/or
undeveloped mineral interests.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-15
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.10 Depreciation, depletion and amortization (continued)
Brownfield properties are carried at acquired costs until such time as a mineral interest enters the production
stage and are amortized using the unit-of-production method based on estimated proven and probable mineral
reserves.
Greenfield mineral interests are carried at acquired costs until such time as a mineral interest enters the
production stage and are amortized using the unit-of-production method based on estimated proven and
probable mineral reserves.
Both Brownfield properties and Greenfield mineral interests are evaluated for impairment as held for use assets
in accordance with the Company’s asset impairment accounting policy. See Note 4.13.
4.11 Other mining costs
Other mining costs including repair and maintenance costs incurred in connection with major maintenance
activities are charged to operations as incurred.
4.12 Goodwill
Where an investment in a subsidiary, joint venture or an associate is made, any excess of the purchase price
over the fair value of the attributable mineral reserves including value beyond proven and probable, acquired
properties and other net assets is recognized as goodwill.
Goodwill relating to subsidiaries is tested for impairment at least annually or when indicators of impairment exist
and is carried at cost less accumulated impairment losses.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to reporting units for the purpose of impairment testing.
Goodwill in respect of subsidiaries is disclosed as goodwill. Goodwill relating to incorporated joint ventures and
associates is included within the carrying value of the investment in incorporated joint ventures and associates
and tested for impairment when indicators exist. See Note 4.2.
The allocation of goodwill to an individual operating mine will result in an eventual goodwill impairment due to the
wasting nature of the mine reporting unit. In accordance with the provisions of SFAS142, the Company performs
its annual impairment review of assigned goodwill during the fourth quarter of each year.
4.13 Asset impairment
The Company evaluates its held-for-use long lived assets for impairment when events or changes in
circumstances indicate that the related carrying amount may not be recoverable. If the sum of estimated future
cash flows on an undiscounted basis is less than the carrying amount of the related asset, including goodwill, if
any, an asset impairment is considered to exist. The related impairment loss is measured by comparing
estimated future cash flows on a discounted basis to the carrying amount of the asset. Management’s estimate
of future cash flows is subject to risk and uncertainties. It is therefore reasonably possible that changes could
occur which may affect the recoverability of the group’s mining assets. The Company records a reduction of a
group of assets to fair value as a charge to earnings if expected future cash flows are less than the carrying
amount. The Company estimates f air value by discounting the expected future cash flows using a discount factor
that reflects the risk-free rate of interest for a term consistent with the period of expected cash flows, adjusted for
asset specific and country risks. In addition, an asset impairment is considered to exist where the net selling
price of an asset held for sale is below its carrying amount. Once recognized an impairment loss is not reversed.
4.14 Borrowing costs
Interest on borrowings relating to the financing of major capital projects under construction is capitalized during
the construction phase as part of the cost of the project. Such borrowing costs are capitalized over the period
during which the asset is being acquired or constructed and borrowings have been incurred. Capitalization
ceases when construction is interrupted for an extended period or when the asset is substantially complete.
Other borrowing costs are expensed as incurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-16
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.15 Leased assets
Assets subject to finance leases are capitalized at the lower of fair value or present value of minimum lease
payments with the related lease obligation recognized at the same amount. Capitalized leased assets are
depreciated over the shorter of their estimated useful lives and the lease term. Finance lease payments are
allocated using the effective interest rate method, between the lease finance cost, which is included in finance
costs, and the capital repayment, which reduces the liability to the lessor.
Operating lease rentals are charged against operating profits in a systematic manner related to the period the
assets concerned will be used.
4.16Provisions
Provisions are recognized when the Company has a present obligation, whether legal or constructive, as a result
of a past event for which it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of management’s best estimate of the expenditure required to
settle the present obligation at the balance sheet date. The discount rate used to determine the present value
reflects current market assessments of the time value of money and the risks specific to the liability.
4.17Taxation
Current and deferred taxation is recognized as income or expense and included in the profit or loss for the
period, except to the extent that the tax arises from a transaction or event which is recognized, in the same or a
different period directly in equity; or a business combination that is an acquisition. See Note 4.22.
Current taxation is measured on taxable income at the applicable enacted statutory rates.
The Company’s operation involves dealing with uncertainties and judgments in the application of complex tax
regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations
with taxing authorities and resolution of disputes arising from federal, state, and international tax audits. The
Company recognizes tax liabilities for anticipated tax audit issues in tax jurisdictions based on its estimate of
whether, and the extent to which, additional taxes will be due. The Company recognizes interest and penalties,
if any, related to unrecognized tax benefits.
4.18Asset retirement obligations and rehabilitation costs
The Company accounts for asset retirement obligations in accordance with Statement of Financial Accounting
Standards No. 143, “Accounting for Asset Retirement Obligations (AROs)” (“SFAS143”).
AROs arise from the acquisition, development, construction and operation of mining property, plant and
equipment, due to government controls and regulations that protect the environment on the closure and
reclamation of mining properties. The asset is amortized over its estimated useful life. In accordance with the
provisions of SFAS143 the fair value of a liability for an asset retirement obligation is recorded in the period in
which it is incurred. When the liability is initially recorded, the cost is capitalized by increasing the carrying
amount of the related long-lived asset. Over time, the liability is increased to reflect an interest element
(accretion) considered in its initial measurement at fair value, and the capitalized cost is amortized over the
useful life of the related asset. Where the obligation arises from activities that are operational in nature and does
not give rise to futu re economic benefit, the capitalized cost is amortized in the period incurred. Upon settlement
of the liability, a gain or loss will be recorded if the actual cost incurred is different from the liability recorded.
Rehabilitation costs and related liabilities are based on the Company’s interpretation of current environmental
and regulatory requirements.
Based on current environmental regulations and known rehabilitation requirements, management has included
its best estimate of these obligations in its rehabilitation accrual. However, it is reasonably possible that the
Company’s estimates of its ultimate rehabilitation liabilities could change as a result of changes in regulations or
cost estimates.
Environmental liabilities other than rehabilitation costs which relate to liabilities from specific events are accrued
when they are known, probable and reasonably estimable.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-17
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.19 Product sales
Revenue from product sales is recognized when:
•
persuasive evidence of an arrangement exists;
•
delivery has occurred or services have been rendered;
•
the seller’s price to the buyer is fixed or determinable; and
•
collectability is reasonably assured.
The sales price, net of any taxes, is fixed on either the terms of gold sales contracts or the gold spot price.
4.20 Financial instruments
Financial instruments recognized on the balance sheet include investments, loans receivable, trade and other
receivables, cash and cash equivalents, borrowings, derivatives, and trade and other payables. Financial
instruments are initially measured at cost, including transaction costs, when the Company becomes a party to
the contractual arrangements. Subsequent measurement of derivative instruments is dealt with below.
Derivatives
The Company accounts for derivative contracts in accordance with Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS133") as amended.
SFAS133 requires all contracts that meet the definition of a derivative to be recognized on the balance sheet as
either assets or liabilities and recorded at fair value. Gains or losses arising from remeasuring derivatives to fair
value at each reporting period are to be accounted for either in the income statement or in other comprehensive
income, depending on the use and designation of the derivative and whether it qualifies for hedge accounting.
The key criterion which must be met in order to qualify for hedge accounting, is that the derivative must be highly
effective in offsetting the change in the fair value or cash flows of the hedged item.
Contracts that meet the criteria for hedge accounting are designated as the hedging instruments hedging the
variability of forecasted cash flows from capitalized expenditure and the sale of production into the spot market,
and are classified as cash flow hedges under SFAS133. Where a derivative qualifies as the hedging instrument
in a cash flow hedge under SFAS133, changes in fair value of the hedging instruments, to the extent effective,
are deferred in other comprehensive income and reclassified to earnings as product sales or as an adjustment to
depreciation expense pertaining to capital expenditure, when the hedged transaction occurs. The ineffective
portion of changes in fair value of the cash flow hedging instruments is reported in earnings as gains or losses
on non-hedge derivatives in the period in which they occur.
All other contracts not meeting the criteria for the normal purchases and sales or hedge accounting, as defined in
SFAS133, are recorded at their fair market value, with changes in value at each reporting period recorded in
earnings as gains or losses on non-hedge derivatives.
Cash flows from derivative instruments accounted for as cash flow hedges are included in net cash provided by
operating activities in the statements of consolidated cash flows. Contracts that contain ‘off-market’ terms that
result in the inflow of cash at inception are analogous to borrowing activities and, as such, are treated as
financing activities. All current and future cash flows associated with such instruments are classified as financing
activities within the consolidated cash flow statement. Contracts that contain ‘off-market’ terms that result in the
outflow of cash at inception are analogous to lending activities and, as such, are treated as investing activities.
All current and future cash flows associated with such instruments are classified within the investing activities of
the consolidated statement of cash flows.
The estimated fair values of financial instrumentsderivatives are determined at discrete points in time based on relevant market
information. These estimates are calculated with reference to the market rates using industry standard valuation
techniques.
Certain derivative instruments are designated as hedges of foreign currency denominated borrowings and
investments in foreign entities. This designation is reviewed at least quarterly, or as borrowing and investment
levels change. The hedge amounts (to the extent effective) are recorded as an offset to the translation
gains/losses being hedged.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-18
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.21 Employee benefits
Pension obligations
Group companies operate various pension schemes. The schemes are funded through payments to insurance
companies or trustee administered funds, determined by annual actuarial calculations. The Company has both
defined benefit and defined contribution plans.
The current service cost in respect of defined benefit plans is recognized as an expense in the current year. Past
service costs, experience adjustments, the effect of changes in actuarial assumptions and the effects of plan
amendments in respect of existing employees are recognized as an expense or income as and when they arise.
This method is applied consistently in each period end to all gains and losses. See Note 2.
The asset/liability recognized in the balance sheet in respect of defined benefit pension plans is the present
value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined
benefit obligation is calculated annually by independent actuaries using the projected unit credit method.
The contributions on defined contribution plans are recognized as employee benefit expense when due. Prepaid
contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is
available.
Other post-employment benefit obligations
Some group companies provide post-retirement healthcare benefits. The expected costs of these benefits are
accrued over the period of employment using an accounting methodology on the same basis as that used for
defined benefit pension plans. These obligations are valued annually by independent qualified actuaries.
Actuarial gains and losses arising in the plan are recognized as income or expense as and when they arise. See
Note 2.
Termination benefits
The Company recognizes termination benefits when it is demonstrably committed to either: terminating the
employment of current employees according to a detailed formal plan; or providing termination benefits as a
result of an offer made to encourage voluntary redundancy based on the number of employees expected to
accept the offer. Benefits falling due more than twelve months after balance sheet date are discounted to present
value.
4.22 Deferred taxation
The Company follows the liability method of accounting for deferred taxation whereby the Company recognizes
the tax consequences of temporary differences by applying enacted tax rates applicable to future years to
differences between financial statement amounts and the tax bases of certain assets and liabilities. Changes in
deferred taxation assets and liabilities include the impact of any tax rate changes enacted during the year.
Principal temporary differences arise from depreciation on property, plant and equipment, derivatives, provisions
and tax losses carried forward. A valuation allowance is recorded to reduce the carrying amounts of deferred
taxation assets if it is more likely than not that such assets will not be realized.
4.23 Dividends
Dividends are recognized when declared by the board of directors. Dividends may be payable in Australian
dollars, South African rands, United Kingdom pounds or Ghanaian cedis. Dividends declared to foreign
stockholders are not subject to approval by the South African Reserve Bank in terms of South African foreign
exchange control regulations. Dividends are freely transferable to foreign stockholders from both trading and
non-trading profits earned in South Africa by publicly listed companies. Under South African law, the Company
may declare and pay dividends from any reserves included in total shareholders’ equity (including share capital
and premium) calculated in accordance with International Financial Reporting Standards (IFRS), subject to its
solvency and liquidity.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-19
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.24 Earnings per share
Earnings and diluted earnings per share have been calculated, for each class of common stock outstanding, in
accordance with SFAS128, “Earnings per Share”, using the two class method. Under the provisions of
SFAS128, basic net income (loss) per share is computed using the weighted average number of shares
outstanding during the period. Diluted net income (loss) per share is computed using the weighted average
number of Ordinary shares and, if dilutive, potential common shares outstanding during the period. The
computation of the diluted income (loss) per share of Ordinary shares assumes the conversion of E Ordinary
shares.
The rights, including the liquidation, voting and dividend rights, of holders of Ordinary shares and E Ordinary
shares are identical. As a result, and in accordance with EITF 03-6, “Participating Securities and the Two-Class
Method under FASB Statement No. 128”, the undistributed earnings for each year are allocated based on the
contractual participation rights of the Ordinary and E Ordinary shares as if the earnings for the year had been
distributed. As only 50 percent of dividends are paid to E ordinary share holders in cash (the remaining
50 percent reduces the exercise price of the E ordinary shares), the undistributed earnings are allocated
between E ordinary shares and ordinary shares based on this proportionate basis. Further, as the Company
assumes the conversion of E Ordinary shares in the computation of the diluted net income (loss) per share of
Ordinary shares, the undistr ibuted earnings are equal to net income (loss) for the computation.
4.25 Exploration and evaluation costs
The Company expenses all exploration costs until the directors conclude that a future economic benefit is more
likely than not of being realized. In evaluating if expenditures meet this criterion to be capitalized, the directors
utilize several different sources of information depending on the level of exploration. While the criteria for
concluding that expenditure should be capitalized is always probable, the information that the directors use to
make that determination depends on the level of exploration.
•
Costs on greenfields sites, being those where the Company does not have any mineral deposits which are
already being mined or developed, are expensed as incurred until the directors are able to demonstrate that
future economic benefits are probable, which generally will be the establishment of proved and probable
reserves at this location.
•
Costs on brownfields sites, being those adjacent to mineral deposits which are already being mined or
developed, are expensed as incurred until the directors are able to demonstrate that future economic
benefits are probable, which generally will be the establishment of increased proved and probable reserves
after which the expenditure is capitalized as a mine development cost.
•
Costs relating to extensions of mineral deposits, which are already being mined or developed, including
expenditure on the definition of mineralization of such mineral deposits, are capitalized as mine
development costs.
Costs relating to property acquisitions are capitalized within development costs.
Drilling and related costs incurred on sites without an existing mine and on areas outside the boundary of a
known mineral deposit that contain proven and probable reserves are recorded as exploration expenditures and
are expensed as incurred.
Drilling and related costs incurred to define and delineate a residual mineral deposit that has not been classified
as proven and probable reserves at a development stage or production stage mine are capitalized when
management determines that there is sufficient evidence that the expenditure will result in a future economic
benefit to the Company in the accounting period when the expenditure is made. Management evaluates whether
or not there is sufficient geologic and economic certainty of being able to convert a residual mineral deposit into
a proven and probable reserve at a development stage or production stage mine, based on the known geologic
and metallurgy, existing mining and processing facilities, operating permits and environmental programs.
Therefore prior to capitalizing such costs, management determines that the following conditions have been met:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-20
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.25 Exploration and evaluation costs (continued)
a. There is a probable future benefit;
b.
AngloGold Ashanti can obtain the benefit and control access to it; and
c.
The transaction or event giving rise to it has already occurred.
The Company understands that there is diversity in practice within the mining industry, in that some companies
expense the drilling and related costs incurred to define and delineate residual mineral deposits that have not
been classified as proven and probable reserves at a development stage or production stage mine. Had
AngloGold Ashanti expensed such costs as incurred, net income, earnings per share and retained earnings
would have been lower by approximately the following amounts:
2008 2007 2006
Net income ($ millions)
10
1
12
Earnings per share
(1)
(cents) 3
-
5
Retained income – January 1 ($ millions)
60
59
47
Retained income – December 31 ($ millions)
70
60
59
(1)
Impact per basic and diluted earnings per common share.
4.26 Stock-based compensation plans
The Company’s management awards certain cases,employees stock options on a discretionary basis.
The fair value of the stock-based payments is calculated at grant date using an appropriate model. For equity
settled stock-based payments, the fair value is determined using a Black-Scholes method and expensed on a
straight-line basis over the vesting period based on the group’s estimate of shares that will eventually vest.
Option schemes which include non-market vesting conditions have been calculated using the Black-Scholes
model. For all other stock-based payments to employees the fair value is determined by reference to the market
value of the underlying stock at grant date adjusted for the effects of the relevant terms and conditions.
For schemes with non-market related vesting conditions, the likelihood of vesting has been taken into account
when determining the income stat ement charge. Vesting assumptions are reviewed during each reporting period.
Stock options are subject to a three year vesting condition and their fair value is recognized as an employee
benefit expense with a corresponding increase in Additional paid in capital over the vesting period. The proceeds
received, net of any directly attributable transaction costs are credited to common stock (nominal value) and
Additional paid in capital when the options are exercised.
On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS123(R), “Share-Based
Payment”, using the modified prospective transition method. See Note 2.
4.27 Recent pronouncements
Fair value determination when there is no active market
In April 2009, the FASB issued FSP FAS 157-4 “Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”
(“FSP FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with
FASB Statement No. 157, “Fair Value Measurements” (“SFAS157”), when the volume and level of activity for the
asset or liability have significantly decreased. FSP FAS 157-4 also includes guidance on identifying
circumstances that indicate a transaction is not orderly. FSP FAS 157-4 applies to all assets and liabilities within
the scope of accounting pronouncements that require or permit fair value measurements, except as discussed in
paragraphs 2 and 3 of SFAS157. FSP FA S 157-4 shall be effective for interim and annual reporting periods
ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending
after March 15, 2009. The Company is currently evaluating the potential impact of adopting FSP FAS 157-4 on
the Company’s financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-21
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.27 Recent pronouncements (continued)
Recognition and presentation of other-than-temporary impairments
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-
Temporary Impairments” (“FSP FAS 115-2 and FAS 124-2”). FSP FAS 115-2 and FAS 124-2 amends the other-
than-temporary impairment guidance in US GAAP for debt securities to make the guidance more operational and
to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. The recognition guidance in paragraphs 19–34 of FSP FAS 115-2 and FAS 124-2
applies to debt securities classified as available-for-sale and held-to-maturity that are subject to other-than
temporary impairment guidance within:
a. SFAS115;
b.
FSP FAS 115-1 and FAS 124-1;
c.
EITF Issue 99-20, as amended by FSP EITF 99-20-1; or
d.
AICPA Statement of Position 03-3.
The presentation and disclosure guidance in paragraphs 35–43 of FSP FAS 115-2 and FAS 124-2 applies to
debt and equity securities that are subject to the disclosure requirements of Statement 115 and FSP FAS 115-1
and FAS 124-1. FSP FAS 115-2 and FAS 124-2 shall be effective for interim and annual reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company
is currently evaluating the potential impact of adopting FSP FAS 115-2 and FAS 124-2 on the Company’s
financial statements.
Interim disclosures about fair value of financial instruments
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 “Interim Disclosures about Fair Value of Financial
Instruments” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amends FASB Statement No.
107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.
FSP FAS 107-1 and APB 28-1 also amends APB Opinion No. 28, Interim Financial Reporting, to require those
disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1
applies to all financial instruments within the scope of Statement 107 held by publicly traded companies, as
defined by Opinion 28. FSP FAS 107-1 and APB 28-1 shall be effective for interim reporting periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently
evaluating the potential impact of adopting FSP FAS 107-1 and APB 28-1 on the Company’s financial
statements.
Assets and liabilities from contingencies in business combinations
In April 2009, the FASB issued FSP FAS 141(R)–1 “Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies” (“FSP FAS 141(R)–1”). FSP FAS 141(R)–1 amends and
clarifies FASB Statement No. 141 (revised 2007), “Business Combinations” issues raised on initial recognition
and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. FSP FAS 141(R)–1 applies to all assets acquired and liabilities
assumed in a business combination that arise from contingencies that would be within the scope of Statement 5
if not acquired or assumed in a business combination, except for assets or liabilities arising from contingencies
that are subject to specific guidance in Statement 141(R). FSP FAS 141(R)–1 shall be effective for assets or
liabilities arising from contingencies in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008. FSP FAS 141(R)-1 will
impact how the Company accounts for future business combinations and the Company’s future financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-22
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.27 Recent pronouncements (continued)
Equity method investment
In November 2008, the EITF reached consensus on Issue No. 08-6, “Equity Method Investment Accounting
Considerations” (“EITF 08-6”), which clarifies the accounting for certain transactions and impairment
considerations involving equity method investments. The intent of EITF 08-6 is to provide guidance on
(i) determining the initial carrying value of an equity method investment, (ii) performing an impairment
assessment of an underlying indefinite-lived intangible asset of an equity method investment, (iii) accounting for
an equity method investee’s issuance of shares, and (iv) accounting for a change in an investment from the
equity method to the cost method. EITF 08-6 is effective in fiscal years beginning on or after December 15, 2008,
and interim periods. EITF 08-6 must be applied prospectively. The Company does not expect the adoption of
EITF 08-6 to have a material impact on the Company’s financial statements.
Instrument indexed to own stock
In June 2008, The Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 07-5, “Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). The
consensus was reached on the following three issues:
•
How an entity should evaluate whether an instrument (or embedded feature) is indexed to its own stock.
•
How the currency in which the strike price of an equity-linked financial instrument (or embedded equity-
linked feature) is denominated affects the determination of whether the instrument is indexed to an entity’s
own stock.
•
How an issuer should account for market-based employee stock option valuation instruments.
Consensus was also reached that EITF 07-5 should be effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods. Earlier application by an entity that has previously
adopted an alternative accounting policy is not permitted. The consensus must be applied to outstanding
instruments as of the beginning of the fiscal year in which EITF 07-5 is adopted as a cumulative-effect
adjustment to the opening balance of retained earnings for that fiscal year. The Company is currently evaluating
the potential impact of adopting EITF 07-5 on the Company’s financial statements.
Participating securities
In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in computing earnings per share under the two-class
method as described in SFAS No. 128, “Earnings per Share” (“SFAS 128”). Under the guidance in FSP EITF 03-
6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. FSP EITF 03-6-1 shall be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods. All prior-period EPS data
presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings and
selected financial data) to conform with the provisions of FSP EITF 03-6-1. Early application is not permitted.
The Company does not expect the adoption of FSP EITF 03-6-1 to have a material impact on the Company’s
financial statements.
Convertible debt instruments
In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”) which addresses the
accounting for convertible debt securities that may be settled in cash, (or other assets) upon conversion,
including partial cash settlement, unless the embedded conversion option is required to be separately accounted
for as a derivative under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS133”). FSP APB 14-1 does not change the accounting for more traditional types of convertible
debt securities that do not have a cash settlement feature. Also, FSP APB 14-1 does not apply if, under existing
US GAAP for derivatives, the embedded conversion feature must be accounted fo r separately from the rest of
the instrument. FSP APB 14-1 shall be effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods. Early adoption is not permitted. FSP APB 14-1 should be applied
retrospectively to all past periods presented — even if the instrument has matured, has been converted, or has
otherwise been extinguished as of the effective date of FSP APB 14-1. The Company is currently evaluating the
potential impact of adopting FSP APB 14-1 on the Company’s financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-23
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.27 Recent pronouncements (continued)
Useful life of intangible assets
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS142”). FSP FAS 142-3 removes
the requirement under paragraph 11 of SFAS142 to consider whether an intangible asset can be renewed
without substantial cost or material modifications to the existing terms and conditions and instead, requires an
entity to consider its own historical experience in renewing similar arrangements. FSP FAS 142-3 also requires
expanded disclosure related to the determination of intangible asset useful liv es. FSP FAS 142-3 is effective for
financial statements issued for fiscal years beginning after December 15, 2008, and interim periods. Early
adoption is not permitted. The guidance for determining the useful life of a recognized intangible asset shall be
applied prospectively to intangible assets acquired after the effective date. The disclosure requirements shall be
applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The
Company is currently evaluating the potential impact of adopting FSP FAS 142-3 on the Company’s financial
statements.
Derivative instruments
In March 2008, the FASB issued FASB statement No. 161, “Disclosures about Derivative Instruments and
Hedging Activities – an amendment of FASB statement No. 133” (“SFAS161”). SFAS161 applies to all derivative
instruments and nonderivative instruments that are designated and qualify as hedging instruments pursuant to
paragraphs 37 and 42 of SFAS133 and related hedged items accounted for under SFAS133. SFAS161 requires
enhanced disclosures about an entity’s derivative and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect an entity’s financial position, result s of operations
and cash flows. SFAS161 is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. Comparative disclosures for earlier
periods at initial adoption are encouraged but not required. The Company does not expect the adoption of
SFAS161 to have a material impact on the Company’s financial statements.
Noncontrolling interests
In December 2007, the FASB issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated
Financial Statements” (“SFAS160”). SFAS160 amends ARB 51 to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported
as equity in the consolidated financial statements. SFAS160 is effective for fiscal years, and interim periods
beginning on or after December 15, 2008. Earlier adoption is prohibited. It shall be applied prospectively as of
the beginning of the fiscal year in which this Statement is initially adopted, except for the presentation and
disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all
periods presented. The Company is currently evaluating the potential impact of adopting SFAS160 on the
Company’s financial statements.
Business combinations
In December 2007, the FASB issued FASB Statement No. 141 (R), “Business Combinations” (“SFAS141(R)”).
SFAS141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets
acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose
information on the nature and financial effect of the business combination. SFAS141(R) applies prospectively to
business combinations for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it before that date. SFAS141(R)
applies to all transactions or other events in which an entity (the acquirer) obtains control of one or more
businesses (the acquiree), including combinations achieved without the transfer of consideration. SFAS141(R)
will impact how the Company accounts for future business combinations and the Company’s future financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-24
5.
COSTS AND EXPENSES
Employment severance costs
Total employee severance costs amounted to $9 million for 2008 (2007: $19 million, 2006: $22 million). Employee
severance costs recorded in 2008, 2007 and 2006 included retrenchment costs of $9 million, $5 million and $7 million,
respectively, in the South African region and $nil million, $14 million and $15 million, respectively, in Ghana.
Interest expense
2008
$
2007
$
2006
$
Finance costs on bank loans and overdrafts
49
18
20
Finance costs on corporate bond
(1)
18
31
32
Finance costs on convertible bond
(2)
27
26
26
Capital lease charges
3
3
2
Discounting of non-current trade and other debtors
1
6
4
Other
4
1
3
102
85
87
Less : Amounts capitalized
(3)
(30) (10) (10)
72
75
77
(1)
On August 21, 2003 AngloGold issued an unsecured bond in the aggregate principal amount of R2 billion ($300 million). The bond was repaid on
August 28, 2008. Refer to Note 20.
(2)
On February 27, 2004, AngloGold Ashanti Holdings plc, a wholly-owned subsidiary of the Company, issued $1.0 billion 2.375 percent guaranteed
convertible bonds due 2009, convertible into ADSs and guaranteed by AngloGold Ashanti. Refer to Note 20.
(3)
Interest capitalized on qualifying assets. Refer to Note 13.
Impairment of assets
Impairments are made up as follows:
2008
$
2007
$
2006
$
Tanzania
(1)
Impairment of goodwill held in Geita mine
181
-
-
Impairment of Geita mining assets
299
-
-
Ghana
Impairment of goodwill held in Obuasi mine
(2)
104 - -
Impairment of abandoned shaft infrastructure and reserve power plant at Obuasi mine
(3)
15 - -
Impairment of goodwill held in Iduapriem mine
(4)
14 - -
Impairment of reserve power plant at Iduapriem mine
(3)
3 - -
Congo
Impairment of exploration assets
(5)
29 - -
South Africa
Below 120 level at TauTona
(6)
16 - -
Guinea
Impairment of obsolete heap leach plant infrastructure
7
-
-
Other
Impairment and write-off of various minor tangible assets and equipment
2
1
6
670 1 6
(1)
In 2008, annual impairment testing for goodwill pursuant to SFAS142 was performed for Geita and it was determined that its goodwill was fully
impaired. The impairment testing for mining assets pursuant to SFAS144 was performed and the estimated fair value of the mining assets did not
support the carrying values and as a result, an impairment of mining assets was recorded. The impairment at Geita mine is due to a combination of
factors such as the lower forward gold curve price, higher discount rates and a change in the mine plan revised mainly due to a reduction in
reserves resulting from resource model changes, grade factors and an increase in the cost of extraction. The reporting unit's fair value was
determined using a real pre-tax discount rate of 11.5 percent.
(2)
In 2008, annual impairment testing for goodwill pursuant to SFAS142 was performed for Obuasi and it was determined that its goodwill was fully
impaired. The goodwill impairment is the result of factors such as the lower forward gold curve price, higher discount rates and a revised mine plan
which incorporates changes in the cost of extraction due to the higher power costs recently experienced in Ghana. The reporting unit's fair value
was determined using a real pre-tax discount rate of 9 percent.
(3)
The reserve power plant has been placed on care and maintenance pending handover to the Volta Regional Authority in 2009. Both Obuasi mine
and Iduapriem mine contributions to the capital cost of the reserve power plant have been impaired as the mines will not derive further economic
benefit.
(4)
In 2008, annual impairment testing for goodwill pursuant to SFAS142 was performed for Iduapriem and it was determined that its goodwill was fully
impaired. The goodwill impairment is the result of factors such as the lower forward gold curve price, higher discount rates and a revised mine plan
which incorporates changes in the cost of extraction due to the higher power costs recently experienced in Ghana. The reporting unit's fair value
was determined using a real pre-tax discount rate of 8.8 percent.
(5)
In terms of the current volatile political situation commercial exploitation appears unlikely at this point and the mineral right value has as a result
been impaired.
(6)
Due to a change in the mine plan resulting from safety related concerns following seismic activity, a portion of the below 120 level development has
been abandoned and will not generate future cash flows.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-25
5.
COSTS AND EXPENSES (continued)
The Company evaluates its held-for-use long lived assets for impairment when events or changes in circumstances
indicate that the related carrying amount may not be recoverable. The carrying value of the related asset is compared to
its fair value based on discounted estimated future cash flows.
The following estimates and assumptions were used by management when reviewing long-lived assets for impairment:
•
the forward gold price curve for the first 10 years, where a forward gold market and quoted prices exist (starting
point based on a 30-day average during the fourth-quarter of 2008 - $783 per ounce; (2007 - $749 per ounce).
Thereafter, the estimated future gold price has been increased by 2.25 percent (2007: 2.25 percent) per annum
over the remaining life of the mines. Although the starting point of the forward gold price curve was higher in 2008
compared with 2007, the slope or rate of escalation of the price curve was lower in 2008. The forward gold price
curve if discounted at US CPI is $817 per ounce (2007: $887 per ounce). These prices have been adjusted for the
effects of including the normal sale forward contracts to arrive at an average received price;
•
Proven and Probable Ore Reserves as well as value beyond proven and probable reserves estimates. For these
purposes Proven and Probable Ore Reserves of approximately 73.5 million ounces (including joint ventures) as at
December 31, 2008 were determined assuming a three year historical average gold price of $730 per ounce,
A$880 per ounce in Australia and R168,984 per kilogram in South Africa;
•
the real pre-tax discount rate is derived from the Company’s weighted average cost of capital (WACC) and risk
factors which is consistent with the basis used in 2007. The WACC of 5.57 percent, which is around 100 basis
points higher than 2007 of 4.53 percent, is based on the average capital structure of the Company and three major
gold companies considered to be appropriate peers. The risk factors considered are country risk as well as project
risk for cash flows relating to mines that are not yet in production and deep level mining projects. The country risk
factor is based on the Company’s internal assessment of country risk relative to the issues experienced in the
countries in which it operates and explores, adjusted by country credit risk rating;
•
foreign currency cash flows are translated at estimated forward exchange rates and then discounted using
appropriate discount rates for that currency;
•
cash flows used in impairment calculations are based on life of mine plans; and
•
variable operating cash flows are increased at local Consumer Price Index (CPI) rates.
The real pre-tax discount rates applied in the 2008 impairment calculations on reporting units with significant assigned
goodwill are as follows:
Percentage
Australia
Sunrise Dam
11.0
Tanzania
Geita
11.5
The factors affecting the estimates involve uncertaintiesinclude:
•
changes in Proven and cannot be determined with precision. Probable Ore Reserves as well as value beyond proven and probable reserves;
•
the grade of Ore Reserves as well as value beyond proven and probable reserves may vary significantly from time
to time;
•
differences between actual commodity prices and commodity price assumptions;
•
unforeseen operational issues; and
•
changes in capital, operating mining, processing and reclamation costs and foreign exchange rates.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-26
5.
COSTS AND EXPENSES (continued)
The carrying value and estimated
fair values (on an undiscounted basis) of AngloGold Ashanti’s financial instrumentsreporting units that are most sensitive to a
5 percent movement in gold price, ounces and cost assumptions, are:
Carrying amount
$
Estimated fair value
(undiscounted)
$
2008
Brazil
Serra Grande
104 358
Ghana
Iduapriem
326 378
2007
Brazil
Serra Grande
59 364
The carrying value and estimated fair values (on a discounted basis) of reporting units that have goodwill allocated to
them that are most sensitive to a 5 percent movement in gold price, ounces and cost assumptions, are:
Carrying amount
(including goodwill)
$
Estimated fair value
(discounted)
$
2008
Australia
Sunrise Dam
431 763
Namibia
Navachab
42 181
2007
Australia
Sunrise Dam
529 569
Namibia
Navachab
46 231
Ghana
Obuasi
1,713 1,769
Iduapriem
264 406
Tanzania
Geita
1,250 1,505
Asset retirement obligations
Long-term environmental obligations comprising decommissioning and restoration are based on the Company’s
environmental management plans, in compliance with the current environmental and regulatory requirements.
$ million
The following is a reconciliation of the total liabilities for asset retirement obligations:
Balance as at December 31, 2007
394
Additions to liabilities
6
Transfers to held for sale
(11)
Liabilities settled
(7)
Accretion expense
22
Change in assumptions
(46)
(1)
Translation
(56)
Balance as at December 31, 2008
302
(1)
Revisions relate to changes in laws and regulations governing the protection of the environment and factors relating to rehabilitation estimates and
a change in the quantities of material in reserves and a corresponding change in the life of mine plan. These liabilities are anticipated to unwind
beyond the end of the life of mine.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-27
5.
COSTS AND EXPENSES (continued)
These liabilities mainly relate to obligations at the Company’s active and inactive mines to perform reclamation and
remediation activities in order to meet applicable existing environmental laws and regulations.
Certain amounts have been contributed to a rehabilitation trust and environmental protection bond under the Company's
control. The monies in the trust and bond are invested primarily in interest bearing debt securities and are included in
Other long-term assets in the Company’s consolidated balance sheet. Cash balances held in the trust and bond are
classified as restricted cash in the Company’s consolidated balance sheets. As at December 31, 2008 and 2007 the
balances held in the trust and bond amounted to $64 million and $80 million, respectively.
Operating lease charges
Operating lease rentals are charged against income in a systematic manner related to the period the leased property
will be used. Lease charges relate mainly to the hire of plant and machinery and other land and buildings.
Operating leases for plant and machinery are for contracts entered into with mining contractors. The contracts are for
specified periods and include escalation clauses. Renewals are at the discretion of the respective operating mine and
allow a right of first refusal on the purchase of the mining equipment in the case of termination of the contract. Certain
contracts include the provision of penalties payable on early exiting or cancellation.
Rental expense
(1)
2008
$
2007
$
2006
$
Comprising of:
Minimum rentals
30 51 40
(1)
Included in production costs for each period presented.
Future minimum rental payments are:
2009
30
2010
18
2011
16
2012
16
2013
15
Thereafter
1
96
(Profit)/loss on sale of assets, realization of loans, indirect taxes and other
2008
$
2007
$
2006
$
Profit on disposal of certain exploration interests in Colombia to B2Gold Corporation
(33)
-
-
Certain royalty and production related payment interests in North America sold to Royal Gold Inc.
(14)
-
-
Profit on disposal of the Company’s 50 percent equity interest held in Nufcor International Limited
(2)
-
-
Deferred income on sale of La Rescatada exploration interest recognized in South America (Peru)
(8)
-
-
Costs relating to the issue of rights granted to E ordinary shareholders
(1)
9
-
-
Loss/(profit) on disposal and abandonment of land, mineral rights and exploration properties
(2)
2
(10) (48)
Reassessment of indirect taxes and royalties payable in Guinea
(3) 11
(3)
Reassessment of indirect taxes payable in Tanzania
(15)
7
20
Recovery of exploration costs previously expensed in South Africa and South America (Peru)
(4)
(6)
-
Contractor termination costs in Ghana
1
-
-
Impairment of investments
(3)
6
-
-
Contributions by other members to Nufcor Uranium Trust situated in South Africa
(3)
-
-
Non-recoverable value added state tax
(4)
-
5
9
Buildings destroyed by fire in Guinea
-
3
-
Recovery of loans previously written off
(5)
-
-
(14)
(64) 10
(36)
(1)
Rights offer was completed in early July 2008.
(2)
Refers to the disposal and abandonment of land, mineral rights and exploration properties situated in Brazil, Ghana, South Africa, North America and
Tanzania.
(3)
Impairment of Red 5 Limited shares of $4 million in Australia and Dynasty Gold Corporation shares of $2 million in China. Refer to Note 16.
(4)
Represents the write-off of value added state tax (at AngloGold Ashanti Brasil Mineração and Serra Grande) not expected to be recovered from the
Brazilian Government.
(5)
Related mainly to loans previously expensed as exploration costs as part of funding provided to the Yatela Joint Venture. The Yatela Joint Venture is
accounted for under the equity method. Refer to Note 16.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-28
5.
COSTS AND EXPENSES (continued)
Non-hedge derivative loss
A loss on non-hedge derivatives of $258 million was recorded in 2008 (2007: $808 million, 2006: $208 million) relating
to the use of non-hedging instruments, which represent derivatives not designated in formal hedge accounting
relationships. As such, the change in fair value of such derivatives is recorded each period in the income statement.
The loss primarily relates to changes in the prevailing spot gold price, exchange rates, interest rates, volatilities and
non-performance risk. Realized loss on accelerated settlement of non-hedge derivatives from the hedge close-outs
effected during 2008, amounted to $1,088 million.
In addition, the Company recognized a loss of $150 million during 2008 on forward gold contracts previously qualifying
for the normal sale exemption (which permits the Company to not record such amounts in its financial statements until
the maturity date of the contract) under which the Company had committed to deliver a specified quantity of gold at a
future date in exchange for an agreed price. However, due to the inability of a single counterpart to accept the physical
delivery of gold for the forward contracts expiring in April through June 2008, the Company cash settled such contracts
during the period. Accordingly, the remaining contracts with this counterpart scheduled to mature in later periods did
not meet all of the requirements necessary for them to continue to qualify for the normal sale exemption in future
periods and were accounted for as non-hedge derivatives at fair value on the balanc e sheet as from June 30, 2008, with
changes in fair value reflected in the income statement. During the third quarter of 2008, the Company early cash
settled contracts now designated as non-hedge derivative contracts, with the same counterpart, maturing in July 2008
through August 2009.
Other operating items
2008
$
2007
$
2006
$
Comprising of:
Realized loss on other commodity contracts
32
-
-
Provision (reversed)/raised on loss on future deliveries of other commodities
(5)
(13)
15
Unrealized (gain)/loss on other commodity physical borrowings
(8)
(3)
1
19
(16)
16
6.
RELATED PARTY TRANSACTIONS
During April 2006, Anglo American plc (AA plc) reduced its shareholding in the Company to less than 50 percent
interest held. As at December 31, 2008, AA plc and its subsidiaries held an effective 16.17 percent
(2007: 16.58 percent) interest in AngloGold Ashanti. On March 17, 2009, AA plc disposed of its entire remaining
shareholding in the Company. The Company had the following transactions with related parties during the years ended
December 31, 2008, 2007 and 2006:
December 31, 2008
December 31, 2007
December 31, 2006
(in millions)
Purchases
(by)/from
related party
$
Amounts
owed to/(by)
related party
$
Purchases
(by)/from
related party
$
Amounts
owed to/(by)
related party
$
Purchases
(by)/from
related party
$
Related party transactions with
significant shareholder AA plc
-
-
-
-
1
Related party transactions with
subsidiaries of AA plc
-
-
-
-
7
Related party transactions of equity
accounted joint ventures and
associates
AGA Polymetal Strategic Alliance
-
(3)
-
-
-
Margaret Water Company
1
-
-
-
-
Oro Group (Proprietary) Limited
-
(1)
-
(2)
-
Societe d'Exploitation des Mines d'Or
de Sadiola S.A.
(5) (2) (7) (2)
(4)
Societe d'Exploitation des Mines d'Or
de
Yatela
S.A.
(1)(1) (3) (1)
(6)
Societe des Mines de Morila S.A.
(5)
(1)
(5)
(2)
(4)
Trans-Siberian Gold plc
-
(1)
(1)
(11)
-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-29
6.
RELATED PARTY TRANSACTIONS (continued)
Amounts owed to/due by joint venture related parties and the loan balance due to Goldmed Medical Scheme of
$1 million (2007: $1 million), are unsecured, non-interest bearing and under terms that are no less favorable than those
with third parties.
The loan advanced to Trans-Siberian Gold plc amounted to $10 million as at December 31, 2007. In 2008, $4 million of
this loan was repaid and the balance of $6 million was converted into equity of Trans-Siberian Gold plc.
The AGA-Polymetal Strategic Alliance (joint venture) loan of $3 million advanced during 2008, is interest free and is
repayable on demand at any time after profits have been generated by the joint venture.
The Oro Group (Proprietary) Limited loan of $1 million (2007: $2 million) bears interest at a rate determined by the Oro
Group (Proprietary) Limited’s board of directors and is repayable at their discretion.
The Company, which holds an equity interest of 29.7 percent in Trans-Siberian Gold plc (TSG), entered into a
transaction during the quarter ended June 30, 2007 with TSG in which two companies were acquired from TSG for a
consideration of $40 million. The companies acquired consist of Amikan and AS APK.
In connection with the relocation of Roberto Carvalho Silva, a former executive director of the Company who retired in
2007, to Nova Lima, Brazil, in 2000, Mr. Carvalho Silva commenced renting a house in Nova Lima from a Brazilian
subsidiary of the Company. Mr. Carvalho Silva purchased the house from the Company’s subsidiary in January 2005.
The total purchase price of the house was BRL1,150,000 ($429,923). Mr. Carvalho agreed to pay the purchase price of
the house in 60 installments, the first being BRL19,167.70 and 59 installments of BRL19,166.65 each, starting on
January 28, 2005. Such monthly instal lments were adjusted annually by the cumulative INPC (a Consumer Price Index
in Brazil) in lieu of interest. As at December 31, 2006, BRL728,580 ($340,458) of the purchase price remained to be
paid to the Company’s subsidiary, with BRL657,717 ($341,352) remaining to be paid as at June 20, 2007. The
remaining balance was repaid on or about August 31, 2007.
A Brazilian subsidiary of the Company received marketing, communications and corporate affairs services from a
Brazilian company in which a son of Roberto Carvalho Silva owns a one-third interest. The amounts paid by the
Company’s subsidiary to this company in respect of such services during the years were: 2007: BRL634,023 ($329,055)
and in 2006: BRL903,465 ($414,433). The Company terminated the agreement with the Brazilian marketing,
communications and corporate affairs services company effective July 2007.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-30
7.
TAXATION
2008
$
2007
$
2006
$
Income/(loss) from continuing operations before income tax, equity income, minority interests
and cumulative effect of accounting change was derived from the following jurisdictions:
South Africa
251
(44)
79
Argentina
(13)
56
40
Australia
(69)
81
106
Brazil
86
21
114
Ghana
(222) 207) (128)
Guinea
55
(106)
(53)
Mali
1
5
6
Namibia
(2)
9
18
Tanzania
(546)(383) (213)
USA
127(93) (23)
Other, including Corporate and Non-gold producing subsidiaries
(41)
(50)
(42)
(373) (711) (96)
(Charge)/benefit for income taxes attributable to continuing operations is as follows:
Current:
South Africa
(1)
(20)(92) (66)
Argentina
(1) (10) (13)
Australia
(2)
3
(37)
(25)
Brazil
(33)(38) (38)
Ghana
(5)-
(5)
Guinea
(3)
(24)
-
-
Mali
(1) (2) (2)
Namibia
(6)(7) (4)
Tanzania
4
(3)
(1)
USA
-
(1)
-
Other
(11) (1) (2)
Total current
(94) (191)(156)
(1)
The reduction in the tax charge in 2008 mainly relates to losses on the early settlement of the hedges.
The increase in the taxation charge in 2007 and 2006 partly relates to the higher gold price and utilization
of unredeemed capital expenditure.
(2)
Sunrise Dam’s taxable income has reduced considerably following the completion of the mining in the
megapit during the year.
(3)
Siguiri has utilized the historic assessed losses and unredeemed capital allowances brought forward
assisted by the improved grade and plant utilization which resulted in taxable income.
Deferred:
South Africa
(1)
(40)
52
(16)
Argentina
6
(1)(2)
Australia
(4)
10
(4)
Brazil
(22)
(20) 4
Ghana
(2)
10
32
39
Guinea
(9)
(2) (2)
Mali
-
-
-
Namibia
(1)
1
(3)
Tanzania
(3)
122
7
20
USA
-
-
-
Other
10
(6)(2)
Total deferred
72
73
34
Total income and mining tax expense
(22) (118)(122)
(1)
Mining tax on mining income in South Africa is determined according to a formula which adjusts the tax
rate in accordance with the ratio of profit to revenue from operations. This formula also allows an initial
portion of mining income to be free of tax. Non-mining income is taxed at a standard rate. Estimated
deferred taxation rates reflect the future anticipated taxation rates at the time temporary differences
reverse.
During 2008, 2007 and 2006, deferred taxation was provided at a future anticipated taxation rate ranging
between 36 percent and 38 percent for 2008, 39 percent and 37 percent for 2007, and in 2006 at
37 percent and 38 percent, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-31
7.
TAXATION (continued)
The effect of the change in estimates on the results for 2008, 2007 and 2006 were as follows:
Year ended December 31
2008 20072006
Impact
$
Per basic
and diluted
common share
(a)(b)
cents
Impact
$
Per basic
and diluted
common share
(a)(b)
cents
Impact
$
Per basic
and diluted
common share
(a)(b)
cents
Net income
4
1
23
8
65
24
(a)
Per basic and diluted ordinary and E ordinary shares.
(b)
The calculation of diluted earnings per common share for 2008, 2007 and 2006 did not assume the effect
of 15,384,615 shares issuable upon exercise of Convertible Bonds and 872,373, 575,316 and
854,643 shares, respectively, issuable upon the exercise of stock incentive options as their effects are
anti-dilutive for these periods.
(2)
The 2008 benefit is due to the continuing net increase in the capital allowances at Obuasi as a result of the
high capital expenditure. The deferred tax benefit in 2007 included $28 million arising from the deferred
tax asset recognized on the increase in unredeemed capital expenditure allowances. The deferred tax
benefit in 2006 included $21 million resulting from an extension of tax losses granted by the Ghanaian
Taxation Authorities which would have been forfeited during that year.
(3)
The deferred tax benefit in 2008 relates to the impairment of mining assets at Geita.
The unutilized tax losses of the North American operations which are available for offset against
future profits earned in the United States, amount to $339 million (2007: $248 million,
2006: $277 million).
The unutilized tax losses of the Australian operation which are available for offset against future
capital gains amounts to $184 million.
2008
$
Analysis of unrecognized tax losses
Assessed losses utilized during the year
-
Unutilized tax losses remaining to be used against future profits requires utilization in the
following periods:
Within one year
-
Within one and two years
127
Within two and five years
4
In excess of five years
392
523
20082007 2006
$$ $
Reconciliation between corporate income tax and statutory income tax is as follows:
Corporate income tax at statutory rates
(131)
(263)
(36)
Formula variation in mining taxation rate
(1)
(3)
(2)
Disallowable expenditure
(1)
47
388
135
Effect of income tax rates of other countries
118
(9)
(38)
Impact of change in estimated deferred taxation rate
4
23
65
Other
(15) (18) (2)
Total income and mining tax expense
22
118
122
(1)
Disallowable expenditure includes the impact of hedge losses in non-taxable jurisdictions and share expense costs.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-32
7.
TAXATION (continued)
2008
$
2007
$
Deferred taxation liabilities and assets on the balance sheet as of December 31, 2008 and 2007,
relate to the following:
Deferred taxation liabilities:
Depreciation, depletion and amortization
1,309
1,778
Product inventory not taxed
15
23
Derivatives
-
72
Other comprehensive income deferred taxation
54
18
Other
3
4
Total
1,381
1,895
Deferred taxation assets:
Provisions, including rehabilitation accruals
(181)
(210)
Derivatives
(43) (97)
Other comprehensive income deferred taxation
(161)
(273)
Other
(9) (10)
Tax loss carry forwards
(382) (366)
Total
(776) (956)
Less: Valuation allowances
226
99
Total
550
857
Disclosed as follows:
Long-term portion deferred taxation assets
51
37
Short-term portion classified as other current assets
150
275
Long-term portion deferred taxation liabilities
1,008
1,345
Short-term portion classified as other current liabilities. Refer to Note 18.
24
5
The classification of deferred taxation assets is based on the related asset or liability
creating the deferred taxation. Deferred taxes not related to a specific asset or liability
are classified based on the estimated period of reversal. As at December 31, 2008,
the Company had non-mining losses in South Africa of $103 million
(2007: $nil million), on which deferred tax had been provided at the future anticipated
tax rate of 35 percent.
Unremitted earnings of foreign subsidiaries and foreign incorporated joint
ventures
Dividends from incorporated joint ventures may be remitted to the Company without
being subject to income or withholding taxes. No provision is made for the income
tax effect that may arise on the remittance of unremitted earnings by certain foreign
subsidiaries. It is management’s intention that these earnings will be permanently re-
invested. The amounts of these unremitted earnings as at December 31, 2008 totaled
$1,104 million (2007: $1,155 million). In the event that the Company repatriated these
earnings, income taxes and withholding taxes may be incurred. The determination of
such taxes is subject to various complex calculations and accordingly, the Company
has determined that it is impractical to estimate the amount of the deferred tax liability
on such unremitted earnings.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-33
7.
TAXATION (continued)
Analysis of valuation allowances
The movement in valuation allowances for the three years in the period ended December 31, is summarized as follows:
Balance at beginning
of period
$
Provision/ (benefit)
expenses
$
Balance at end
of period
$
Year ended December 31, 2008
- Valuation allowance
98
128
226
Year ended December 31, 2007
- Valuation allowance
97
1
98
Year ended December 31, 2006
- Valuation allowance
112
(15)
97
The deferred tax assets for the respective periods were assessed for recoverability
and, where applicable, a valuation allowance recorded to reduce the total deferred tax
asset to an amount that will, more likely than not, be realized. The valuation
allowance relates primarily to certain net operating loss carryforwards, tax credit
carryforwards and deductible temporary differences for which it is more likely than not
that these items will not be realized.
Although realization is not assured, we have concluded that it is more-likely-than-not
that the deferred tax assets for which a valuation allowance was determined to be
unnecessary will be realized based on the available evidence, including scheduling of
deferred tax liabilities and projected income from operating activities. The amount of
the net deferred tax assets considered realizable, however, could change in the near
term if actual future income or income tax rates differ from that estimated, or if there
are differences in the timing or amount of future reversals of existing taxable or
deductible temporary differences.
Uncertain tax positions
As at December 31, 2008 and 2007, the Company had $106 million and $134 million, respectively, of total unrecognized
tax benefits which, if recognized, would affect the Company’s effective income tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2008
$
2007
$
Balance at January 1,
134
109
Additions for tax positions of prior years
9
22
Translation
(37) 3
Balance at December 31,
106
134
The Company’s continuing practice is to recognize interest and penalties related to unrecognized tax benefits as part of
its income tax expense. During the years ended December 31, 2008, 2007 and 2006, the Company recognized
approximately $6 million, $9 million and $4 million, respectively, in interest. The Company had approximately
$34 million and $38 million for the payment of interest accrued as at December 31, 2008 and 2007, respectively.
As at December 31, 2008, the Company's South African tax assessment for the years 2001 - 2003 remain open to
scrutiny by the South African Revenue Service. As at December 31, 2008, in South Africa, the Company's assessments
due from the tax authorities for 2004 and all subsequent years have yet to be received. It is possible that the Company
will receive assessments during the next twelve months, which may have an effect on uncertain tax positions.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-34
7.
TAXATION (continued)
In other jurisdictions, the revenue system is based on a self-assessment process, all tax filings due by
December 31, 2008 have been filed, and the self-assessed position recorded in the consolidated financial statements.
The legislation of individual jurisdictions provides for different periods for the authorities to review the filings with
specified expiry dates. The Company is disputing assessments received in some jurisdictions where it operates and
these arguments are under consideration by the authorities. Based on current legal advice, the Company does not
expect the resolution will significantly affect the Company's consolidated financial statements.
8.
DISCONTINUED OPERATIONS
The Ergo reclamation surface operation, which forms part of the South African
operations, has been discontinued. After a detailed investigation of several options
mining operations at Ergo ceased in 2005. Site restoration activities continued after
the mining operation was discontinued. The pre-tax gain on disposal of $27 million
recorded in 2008 relates to the remaining moveable and immovable assets of Ergo,
that were sold by the Company to ERGO Mining (Pty) Limited a joint venture between
Mintails South Africa (Pty) Limited and DRD South African Operations (Pty) Limited.
The transaction was approved by the Competition Commissioner on May 5, 2008 and
ERGO Mining (Pty) Limited will operate, in terms of an agreement for its own account,
under the AngloGold Ashanti mineral authorizations until the mining rights have been
approved by the Minister of Minerals and Energy for transfer to ERGO Mining (Pty)
Limited. The environmental rehabilitation liability remains with the Company until all
the resolutive sale conditions have been met.
The Company reclassified the income statement results from the historical
presentation to profit/(loss) from discontinued operations in the consolidated income
statement. The consolidated cash flow statement has been reclassified for
discontinued operations. The results of Ergo for the years ended December 31, 2008,
2007 and 2006, are summarized as follows:
Year ended December 31,
2008 2007 2006
$ (cents)
(1)(3)
(cents)
(2)(3)
$ (cents)
(1)(3)
(cents)
(2)(3)
$
(cents)
(1)(3)
(cents)
(2)(3)
Revenue
-
-
-
1
-
-
4
1
-
Costs, expenses and recoveries
1
-
-
5
2
1
2
1
-
Gain on disposal
27
8
5
-
-
-
-
-
-
Pre-tax profit
28
8
5
6
2
1
6
2
-
Taxation (5)
(1)
(1)
(4)
(1)
(1)
-
-
-
Net profit attributable to discontinued
operations
23
7
4
2
1
-
6
2
-
(1)
Per basic and diluted ordinary shares.
(2)
Per basic and diluted E ordinary shares.
(3)
Basic and diluted earnings/(loss) per common share. The calculation of diluted earnings/(loss) per common share for 2008, 2007 and 2006 did not
assume the effect of 15,384,615 shares, issuable upon the exercise of Convertible Bond as their effects are anti-dilutive for these periods. The
calculation of diluted earnings/(loss) per common share for 2008, 2007 and 2006 did not assume the effect of 872,373, 575,316 and 854,643
shares, respectively, issuable upon the exercise of stock incentive options as their effects are anti-dilutive for these periods. The calculation of
diluted earnings/(loss) per common share for 2008, 2007 and 2006 did not assume the effect of conversion of E Ordinary shares as the Company
recorded a loss from continuing operations during these periods.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-35
9.
LOSS PER COMMON SHARE
2008
$
2007
$
2006
$
The following table sets forth the computation of basic and diluted loss per share
(in millions, except per share data):
Numerator
Loss from continuing operations
(586)(816) (148)
Discontinued operations
23
2
6
Net
loss
(563)(814) (142)
Less
Dividends:
Ordinary shares
41
124
107
E Ordinary shares
-
1
-
Undistributed
losses
(604) (939) (249)
Ordinary shares undistributed losses
(600)
(932)
(249)
E Ordinary shares undistributed losses
(1)
(4)
(7)
-
Total undistributed losses
(604)
(939)
(249)
Denominator for basic loss per ordinary share
Ordinary shares
312,610,124
276,805,309
272,214,937
Fully vested options
(2)
547,460
531,983
398,326
Weighted average number of ordinary shares
313,157,584
277,337,292
272,613,263
Effect of dilutive potential ordinary shares
Dilutive potential of stock incentive options
(3)
-
-
-
Dilutive potential of convertible bonds
(4)
-
-
-
Dilutive potential of E Ordinary shares
(5)
-
-
-
Denominator for diluted loss per share – adjusted weighted average number
of ordinary shares and assumed conversions
313,157,584
277,337,292
272,613,263
Weighted average number of E Ordinary shares used in calculation of basic
and diluted loss per E Ordinary share
4,046,364
4,117,815
194,954
Loss per share (cents)
From continuing operations
Ordinary shares
(186)
(293)
(54)
E
Ordinary
shares
(93)
(146)
(91)
Ordinary shares – diluted
(186)
(293)
(54)
E Ordinary shares – diluted
(93)
(146)
(91)
Discontinued operations
Ordinary shares
7
1
2
E Ordinary shares
4
-
-
Ordinary shares – diluted
7
1
2
E Ordinary shares – diluted
4
-
-
Net loss
Ordinary shares
(179)
(292)
(52)
E
Ordinary
shares
(89)
(146)
(91)
Ordinary shares – diluted
(179)
(292)
(52)
E Ordinary shares – diluted
(89)
(146)
(91)
(1)
Less than $1 million in 2006.
(2)
Compensation awards are included in the calculation of basic loss per common share from when the necessary conditions have been met, and it is
virtually certain that shares will be issued as a result of employees exercising their options.
(3)
The calculation of diluted loss per common share for 2008, 2007 and 2006 did not assume the effect of 872,373, 575,316 and 854,643 shares,
respectively, issuable upon the exercise of stock incentive options as their effects are anti-dilutive for these periods.
(4)
The calculation of diluted loss per common share for 2008, 2007 and 2006 did not assume the effect of 15,384,615 shares issuable upon the exercise
of Convertible Bonds as their effects are anti-dilutive for these periods.
(5)
The calculation of diluted loss per common share for 2008, 2007 and 2006 did not assume the effect of conversion of E Ordinary shares as the
Company recorded a loss from continuing operations during these periods.
10.
RESTRICTED CASH
2008
$
2007
$
Cash classified as restricted for use comprise of the following:
Cash restricted by prudential solvency requirements
9
7
Cash balances held by the Environmental Rehabilitation Trust Funds
34
24
Other
1
1
Cash balances held by the Boddington expansion
-
5
44
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-36
11.
OTHER RECEIVABLES
2008
$
2007
$
Prepayments and accrued income
107 72
Interest receivable
1 2
Other debtors
9 13
117 87
12.
INVENTORIES
Short-term:
Gold in process
118
133
Gold on hand (doré/bullion)
37
35
Ore stockpiles
182
166
Uranium oxide and sulfuric acid
24
13
Supplies
240
225
601
572
Less: Heap leach inventory
(1)
(49) (49)
552
523
(1)
Short-term portion relating to heap leach inventory classified separate, as materials on the leach pad.
Long-term:
Gold in process
261
190
Ore stockpiles
39
83
Supplies
1
1
301
274
Less: Heap leach inventory
(1)
(261) (190)
40
84
(1)
Long-term portion relating to heap leach inventory classified separate, as materials on the leach pad.
The Company recorded aggregate write-downs of $35 million, $29 million and
$2 million for the years ended December 31, 2008, 2007 and 2006, respectively, to
reduce the carrying value of inventories to net realizable value. Inventory write-downs
are included in production costs.
13.
PROPERTY, PLANT AND EQUIPMENT, NET
Mine development
(1)
4,642
5,388
Buildings and mine infrastructure
2,627
2,729
Mineral rights and other
1,032
1,071
Land
25
28
8,326
9,216
Accumulated depreciation, depletion and amortization
(3,561)
(3,689)
Net book value December 31,
4,765
5,527
(1)
Includes interest capitalized of $30 million (2007: $10 million). Refer to Note 5.
Mining assets with a net book value of $27 million (2007: $39 million) are encumbered
by capital leases. Refer to Note 20.
14.
ACQUIRED PROPERTIES, NET
Acquired properties, at cost
1,868
2,174
Accumulated amortization
(1,054) (894)
Net book value December 31,
814
1,280
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-37
15.
GOODWILL AND OTHER INTANGIBLES
Goodwill
The carrying amount of goodwill by reporting unit as of December 31, 2008 and 2007 and changes in the carrying
amount of goodwill are summarized as follows:
USA
$
Australia
$
Ghana
$
Guinea
$
Namibia
$
Tanzania
$
Total
$
Balance at January 1, 2007
-
232
118
10
1
181
542
Translation
-
27
-
-
-
-
27
Balance at December 31, 2007
-
259
118
10
1
181
569
Golden Cycle Gold Corporation acquisition
(1)
18
-
-
-
-
-
18
Transfers to assets held for sale
(2)
-
(103)
-
-
-
-
(103)
Impairment losses
(3)
-
-
(118)
-
-
(181)
(299)
Translation
-
(53)
-
-
-
-
(53)
Balance at December 31, 2008
18
103
-
10
1
-
132
(1)
Purchase price allocation for acquisition of remaining 33 percent shareholding in Cripple Creek & Victor Gold Mining Company, effective July 1, 2008.
(2)
Goodwill of Boddington mine reclassified as held for sale. Refer to Note 17.
(3)
During 2008, the Company recorded goodwill impairment losses for Obuasi ($104 million), Iduapriem ($14 million) and Geita ($181 million),
respectively. Refer to Note 5 – Impairment of assets.
2008
$
2007
$
Other intangibles, net:
Royalty rate concession agreement
(1)
Gross carrying value
29
29
Accumulated amortization
(9) (7)
20
22
(1)
The government of Ghana agreed to a concession on royalty payments at a fixed rate of 3 percent per
year for a period of fifteen years from 2004. The fair value of the royalty rate concession is amortized on a
straight line basis with nil residual value.
Amortization expense included in the consolidated statements of income amounted to $2 million for 2008
(2007: $2 million, 2006: $2 million).
2008
$
Based on carrying value at December 31, 2008, the estimated aggregate amortization expense
for each of the next five years is as follows:
2009
2
2010
2
2011
2
2012
2
2013
2
16.
OTHER LONG-TERM ASSETS
2008
$
2007
$
Investments in affiliates – unlisted
4 6
Investments in affiliates – listed
5 15
Investments in equity accounted joint ventures
272
337
Carrying value of equity method investments
281 358
Investment in marketable equity securities – available for sale
26 34
Investment in marketable debt securities – held to maturity
11 15
Investment in non-marketable assets – held to maturity
3 2
Investment in non-marketable debt securities – held to maturity
35 52
Other non-current assets
65 98
421 559
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-38
16.
OTHER LONG-TERM ASSETS (continued)
Investments in affiliates
Unlisted
The Company holds a 25 percent (2007: 25.0 percent) interest in Oro Group
(Proprietary) Limited which is involved in the manufacture and wholesale of jewellery.
The year end of Oro Group (Proprietary) Limited is March. Results are included for the
twelve months ended September 30, 2008, adjusted for material transactions. On
September 21, 2006, Oro Group (Proprietary) Limited repaid a shareholders loan of
$1 million originally granted in 2000. The loan granted to Oro Group (Proprietary)
Limited of $1 million (2007: $2 million) bears interest at a rate determined by the Oro
Group (Proprietary) Limited’s board of directors and is repayable at their discretion.
Listed
The Company holds a 29.7 percent (2007: 29.8 percent) interest in Trans-Siberian
Gold plc which is involved in the exploration and development of gold mines. The
Company’s initial 17.5 percent equity interest was increased to 29.9 percent on
May 31, 2005. The year end of Trans-Siberian Gold plc is December. Results are
included for the twelve months ended September 30, 2008, adjusted for material
transactions. On June 27, 2006, the Company advanced a loan of $10 million to
Trans-Siberian Gold plc at LIBOR plus 4 percent of which $4 million has been repaid
during 2008 and the balance of $6 million was converted into equity. The market
value of the Company’s share of the listed affiliate as at December 31, 2008 is
$5 million. During the years ended December 31, 2008, 2007 and 2006, the
Company recorded impairment losses of $8 million, $14 million and $7 million on it s
investment.
Investments in equity accounted joint ventures
The Company holds the following interests in incorporated mining joint ventures, of
which the significant financial operating policies are, by contractual arrangement,
jointly controlled:
December 31,
2008
percentage held
December 31,
2007
percentage held
Nufcor International Limited
(1)
- 50.00
Sadiola
38.00 38.00
Morila
40.00 40.00
Yatela
40.00 40.00
AGA – Polymetal Strategic Alliance
(2)
50.00 -
(1)
The Company disposed of its 50 percent equity interest, held in Nufcor International Limited during 2008.
(2)
The Company holds a 50.0 percent interest in AGA-Polymetal Strategic Alliance (joint venture) which is
involved in the exploration and development of gold mines. In 2008 the Company advanced an interest
free loan of $3 million to the joint venture. The loan is repayable on demand, only once profits have been
generated. The year end of AGA-Polymetal Strategic Alliance is December. Results are included for the
twelve months ended September 30, 2008, adjusted for material transactions. The joint venture
agreement was finalized during 2008.
During 2008, the Company recorded an impairment of $48 million relating to its interest held in Morila, based on the
investment’s future cash flows. The impairment is reflected in equity (loss)/income in affiliates for 2008.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-39
16.
OTHER LONG-TERM ASSETS (continued)
2008
$
2007
$
Investment in marketable equity securities – available for sale
26
(1)
34
Available for sale investments in marketable equity securities consists of investments
in ordinary shares.
Total gains, net of related taxation, on marketable equity securities included in other
comprehensive income during the year amount to $2 million (2007: $4 million). Total
losses, net of related taxation, on marketable equity securities included in other
comprehensive income during the year amount to $29 million (2007: $4 million) which
includes $21 million relating to the Company’s B2Gold investment as at
December 31, 2008. The Company has considered the effect of the current market
conditions evaluating its intent and ability to hold B2Gold until these losses are
recovered. The Company’s purpose in effecting the B2Gold transaction in 2008 was
to build on its Colombian strategy of continuing to leverage its advantage through
developing its exploration projects, both in its own right and together with partners like
B2Gold. B2Gold has consistently been reporting increases in exploration results of
various undeveloped properties. The Company has sufficient resources to continue to
finance and support its strategic goal and will be able to do so in the foreseeable
future. In addition to the investment in B2Gold, the Company holds various equities
as strategic investments in gold exploration companies. Three of the strategic
investments are in an unrealized loss position and the Company has the intent and
ability to hold these investments until the losses are recovered.
Less than
12 months
$
More than
12 months
$
Total
$
2008
Aggregate fair value of investments with
unrealized losses
9
8
17
Aggregate unrealized losses
(21)
(10)
(31)
2007
Aggregate fair value of investments with
unrealized losses
-
11
11
Aggregate unrealized losses
-
(6)
(6)
Investment in marketable debt securities – held to maturity
11
15
Investments in marketable securities represent held to maturity government and
corporate bonds.
Investment in non-marketable assets – held to maturity
3
2
Investments in non-marketable assets represent secured loans and receivables
secured by pledge of assets.
Investment in non-marketable debt securities – held to maturity
35
52
Investments in non-marketable securities represent the held to maturity fixed-term
deposits required by legislation for the Environmental Rehabilitation Trust Fund and
Nufcor Uranium Trust Fund.
(1)
Impairments of Red 5 Limited shares of $4 million in Australia and Dynasty Gold Corporation shares of
$2 million in China during 2008. Investments were impaired due to a decline in value and is not expected
to recover the full cost of the investment over the near term. The quoted market prices of these
investments have dropped significantly and there is no evidence to indicate that they will recover in the
near term. The impairment resulted in a transfer of fair value adjustments previously included in other
comprehensive income to the income statement in 2008.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-40
16.
OTHER LONG-TERM ASSETS (continued)
2008
$
2007
$
As of December 31, 2008 the contractual maturities of debt securities were as follows:
Marketable debt securities
Up to three years
5
Three to seven years
1
Seven to twelve years
5
11
Non-marketable debt securities
Less than one year
35
Fair values of the held to maturity debt securities at December 31, 2008 and 2007
approximate cost.
Other non-current assets
Unsecured
Other loans and assets
(1)
3
41
Non-current debtors
Prepayments and accrued income
11
8
Recoverable tax, rebates, levies and duties
35
47
Other debtors
16
-
Other trade debtor
-
2
65
98
(1)
Other comprises loans and receivables of $1 million (2007: $2 million) measured at amortized cost and
post retirement assets of $2 million (2007: $39 million) measured according to the employee benefits
accounting policy.
Equity accounted joint ventures
Summarized financial statements of the joint ventures which have been equity
accounted are as follows (100 percent shown):
2008
$
2007
$
2006
$
Statements of income for the period
Sales and other income
464
716
817
Costs and expenses
(727)
(465)
(465)
Taxation
(97) (115) (90)
Net (loss)/income
(360)
136
262
Balance sheets at December 31,
Non-current assets
496
697
Current assets
472
506
968
1,203
Long-term liabilities
(66) (102)
Loans from shareholders
(7)
(9)
Current liabilities
(219) (257)
Net assets
676
835
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-41
17.
ASSETS AND LIABILITIES HELD FOR SALE
2008
$
2007
$
Effective December 31, 2008, the 33.33 percent interest in the unincorporated joint
venture in Boddington Gold Mine in Australia was classified as held for sale. The
interest in Boddington Gold Mine was previously recognized as a combination of
tangible assets, goodwill, current assets and current and long-term liabilities. The
33.33 percent unincorporated joint venture interest in the Boddington Gold Mine was
sold, subject to conditions precedent, to Newmont Mining Corporation.
In terms of the sale agreement the purchase consideration consists of three
components: an initial cash payment upon the fulfillment of all conditions precedent to
the transaction; a further combination of Newmont shares; and/or a cash payment and
future royalty payments.
Completion is subject to conditions precedent in terms of the sale agreement
including: finalization of Newmont’s financing; the receipt, to the extent required, of
Ministerial consents and/or other Government agency approvals in Australia; the
approval of the South African Reserve Bank and the Australian Foreign Investment
Review Board; the execution by certain third parties of agreements with respect to the
assignment of material tenements and land as related to the Boddington Gold Mine;
and the receipt of certain other applicable third party approvals and consent. At
December 31, 2007 net assets for Boddington Gold Mine amounted to $458 million.
739
-
Effective December 2007, Rand Refinery Limited in South Africa (a subsidiary of the
Company) allocated parts of its premises that were no longer utilized (previously
recognized as a tangible asset), to held for sale. On April 1, 2008, a sale agreement
was concluded subject to achievement of the suspensive condition regarding rezoning
of the land and transfer of title deeds.
1
1
Effective June 30, 2005, the investment in the Weltevreden mining rights, located in
South Africa was classified as held for sale. During the quarter ended June 30, 2008
the investment in the Weltevreden mining rights was reclassified from held for sale to
Property, plant and 2004equipment because the conditions precedent in the sale
agreement with Aflease Gold and Uranium Resources Limited were not fulfilled and
the Company has no current prospective buyers to complete negotiations within a
twelve month period. The reclassification of the Weltevreden mining rights from held
for sale to held for use, resulted in a charge of $5 million which is included in loss from
continuing operations for the year ended December 31, 2008.
-
14
Effective June 30, 2007, exploration properties acquired from Trans-Siberian Gold plc
in Russia were classified as held for sale. The cash sale of these exploration
properties formed part of the joint venture between Polymetal and AngloGold Ashanti,
which was concluded during the quarter ended March 31, 2008.
-
15
The remaining moveable and immovable assets of Ergo, the surface dump
reclamation operation east of Johannesburg, which ceased mining operations in
March 2005, was sold by the Company to ERGO Mining (Pty) Limited a joint venture
between Mintails South Africa (Pty) Limited and DRD South African Operations (Pty)
Limited during the quarter ended June 30, 2008.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-42
17.
ASSETS AND LIABILITIES HELD FOR SALE (continued)
2008
$
2007
$
As at December 31, 2008 and 2007 the carrying amounts of major classes of assets
and liabilities classified as held for sale, included:
Cash and cash equivalents
2
-
Trade and other receivables
10
-
Inventories
2
-
Property, plant and equipment
651
16
Acquired properties
14
15
Goodwill
103
-
Trade and other payables
(31)
-
Deferred taxation
-
(1)
Provision for environmental rehabilitation
(11)
-
Net assets
740
30
18.
OTHER CURRENT LIABILITIES
Deferred income
5 20
Deferred taxation. Refer to Note 7.
24 5
Accrual for power
24 17
Unearned premiums
27 43
$1.0 billion term loan facility fee accrual
21
-
Other (including accrued liabilities)
43
47
144 132
19.
OTHER NON-CURRENT LIABILITIES
Deferred income
7 11
Taxation
106 134
Other creditors
4 -
Related parties
- 1
117 146
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-43
20.
LONG-TERM DEBT
2008
$
2007
$
Unsecured
Convertible bond
(1)
1,008 1,008
Fixed semi-annual coupon of 2.375 percent per annum. The bond is convertible, at
the holders’ option, into ADSs up to February 2009 and is US dollar-based. The bond
is convertible at a price of $65.00 per ADS.
Syndicated loan facility ($1,150million)-Drawn down in US and
Australian dollars
(2)
842 526
Interest charged at LIBOR plus 0.4 percent per annum. Loan is repayable in
December 2010 and is US dollar-based. The loan is subject to debt covenant
arrangements for which no default event occurred.
Standard Bank Argentina S.A.
23
-
Interest is charged at an average rate of 8.83 percent per annum. Loans are
repayable in January, February and April 2009 and are US dollar-based.
Santander Banespa
11 -
Interest is charged at LIBOR plus 1.45 percent per annum. Loan is repayable in
monthly installments terminating in September 2011 and is Brazilian real-based.
Santander Rio S.A.
6
-
Interest is charged at an average rate of 6.75 percent per annum. Loans are
repayable in January and March 2009 and are US dollar-based.
Banco Itaú S.A.
5 -
Interest is charged at a rate of 6.38 percent per annum. Loan is repayable in
February 2009 and is US dollar-based.
Banco Itaú Buen Ayre S.A.
4
-
Interest is charged at a rate of 8.75 percent per annum. Loan is repayable in
March 2009 and is US dollar-based.
Banco Bradesco S.A.
4 -
Interest is charged at an average rate of 7.49 percent per annum. Loans are
repayable in April and June 2009 and are US dollar-based.
Unibanco S.A.
3 -
Interest is charged at a rate of 6.3 percent per annum. Loan is repayable in
February 2009 and is US dollar-based.
JP Morgan Chase Bank, N.A.
3
-
Interest is charged at a rate of 3.72 percent per annum. Loan is repayable in
January 2009 and is US dollar-based.
Corporate bond
(3)
-
304
Fixed semi-annual coupon of 10.5 percent per annum. The bond was repaid on
August 28, 2008 and was ZAR-based.
Total unsecured borrowings
1,909 1,838
Secured
Capital leases
Turbine Square Two (Proprietary) Limited
(4)
27
37
The leases are capitalized at an implied interest rate of 9.8 percent per annum. Lease
payments are due in monthly installments terminating in March 2022 and are ZAR-
based. The buildings financed are used as security for these loans. Refer to Note 13.
Senstar Capital Corporation
(5)
3
5
Interest charged at a weighted average rate of 6.6 percent per annum. Loans are
repayable in monthly installments terminating in November 2009 and are US dollar-
based. The equipment financed is used as security for these loans. Refer to Note 13.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-44
20.
LONG-TERM DEBT(continued)
2008
$
2007
$
CSI Latina Arrendamento Mercantil S.A.
(6)
1
1
Interest charged at a rate of 11.7 percent per annum. Loan is repayable in monthly
installments terminating in May 2011 and is Brazilian real-based. The equipment
financed is used as security for this loan. Refer to Note 13.
Terex Africa (Proprietary) Limited
-
2
Interest charged at a rate of 9.0 percent per annum. Loan was repaid in January 2008
and was US dollar-based. The equipment financed was used as security for this loan.
Refer to Note 13.
Total debt
1,940 1,883
Current maturities included in short-term debt.
1,067
319
Total long-term debt
873
1,564
Scheduled minimum long-term debt repayments are:
2009
1,067
2010
846
2011
6
2012
3
2013
3
Thereafter
15
1,940
The currencies in which the borrowings are denominated are as follows:
United States dollars
1,380 1,391
South African rands
27
341
Australian dollars
521 150
Brazilian real
12 1
1,940 1,883
Undrawn borrowing facilities as at December 31, 2008 are as follows:
Syndicated loan ($1,150 million) – US dollar
327
627
FirstRand Bank Limited – US dollar
50
50
Absa Bank Limited – US dollar
42
42
Nedbank Limited – US dollar
2
2
Standard Bank of South Africa Limited – rands
20
38
FirstRand Bank Limited – rands
23
32
Nedbank Limited – rands
5
7
Absa Bank Limited – rands
3
4
Commerzbank AG – rands
-
3
ABN Amro Bank N.V. – rands
-
1
ABN Amro Bank N.V. – euros
-
7
472 813
(1)
Convertible Bond
Senior unsecured fixed rate bond
1,000 1,000
Add: Accrued interest
8 8
1,008 1,008
On February 27, 2004, AngloGold Ashanti Holdings plc, a wholly-owned subsidiary of the
Company, issued $1.0 billion 2.375 percent guaranteed convertible bonds due 2009,
convertible into ADSs and guaranteed by AngloGold Ashanti.
Holders of convertible bonds are entitled to convert each convertible bond into an AngloGold
Ashanti ADS at the then applicable conversion price at any time from April 8, 2004 to
February 20, 2009, or, if the convertible bonds are called for redemption earlier than
February 27, 2009, the seventh business day prior to the date of early redemption.
If the bonds have not been converted by February 20, 2009, they will be redeemed at par on
February 27, 2009. AngloGold Ashanti Holdings plc has the option of calling an early
redemption of all the bonds 3 years after their issuance, if the price of the ADSs exceeds
130 percent of the conversion price for more than 20 days during any period of 30 consecutive
trading days.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-45
20.
LONG-TERM DEBT(continued)
2008
$
2007
$
The initial conversion price for the convertible bonds was $65.00 per ADS. The conversion
premium to the reference volume weighted average price of the ADSs on the New York stock
exchange of $40.625 on February 19, 2004, when the issue of the convertible bonds was
announced, was 60 percent. If all bond holders exercise their option to convert their bonds
into ADSs and assuming no adjustments are made to the initial conversion price, up to
15,384,615 new ADSs will be issued.
The calculation of diluted loss per common share for 2008, 2007 and 2006 did not assume the
effect of 15,384,615 shares issuable upon the exercise of Convertible Bonds as their effects
are anti-dilutive. Refer to Note 9.
$1.0 billion term loan facility
On November 20, 2008, AngloGold Ashanti Holdings plc, a wholly-owned subsidiary of
AngloGold Ashanti Limited, entered into a $1.0 billion term loan facility agreement (the “Term
Facility”). $1.0 billion on the Term Facility was drawn on February 26, 2009 to redeem the
$1.0 billion convertible bond due February 27, 2009 upon its maturity.
The Term Facility is for an initial one year period from the date of first drawdown and is
extendible, if required, at the option of AngloGold Ashanti Holdings plc until
November 30, 2010. The amounts drawn under the Term Facility will bear an interest margin
over the lenders’ cost of funds (subject to a cap of 1.75 times applicable LIBOR) of
4.25 percent until six months after the date of first drawdown and 5.25 percent thereafter.
AngloGold Ashanti Limited, AngloGold Ashanti USA Incorporated and AngloGold Ashanti
Australia Limited have each guaranteed all payments and other obligations of AngloGold
Ashanti Holdings plc under the Term Facility.
AngloGold Ashanti’s interest expense will increase substantially as a result of the higher
interest rates and fees associated with the Term Facility. Fees payable amounted to
$42.5 million plus commitment fees of 2.125 percent per annum on the undrawn portion of the
Term Facility. As at December 31, 2008, $21 million is included in other current liabilities.
Refer to Note 18. These fees will be amortized over the expected term of the Term Facility.
Based on an assumed cost of funds of 100 basis points and assuming that the Term Facility is
fully drawn, the effective borrowing cost (including fees and applicable margin) on the Term
Facility is estimated at approximately 10 percent per annum. The actual interest expense in
2009, will depend upon the amount actually drawn under the Term Facility, the lenders’ actual
costs of funds and prevailing LIBOR rates.
Amounts outstanding under the Term Facility may be prepaid at any time prior to the maturity
date. AngloGold Ashanti intends to refinance the Term Facility through one or more of the
following: the proceeds of asset sales (which may include the sale of significant assets), long-
term debt financing and/or the issuance of an equity linked instrument. The nature and timing
of refinancing the Term Facility will depend upon market conditions.
An amendment to the Term Facility was made subsequent to year-end. Refer to Note 30.
(2)
Syndicated loan facility ($1,150 million)
Drawn down in US and Australian dollars
838
525
Add: Accrued interest
4 1
842 526
In December 2007, the Company entered into a new three year $1,150 million unsecured
syndicated borrowing facility, at a margin of 0.4 percent over LIBOR. A commitment fee of
0.12 percent per annum is payable on the undrawn portion of the facility. The three year
$1,150 million syndicated facility was used to repay a maturing facility of $700 million (repaid
on December 14, 2007) and is available for general corporate purposes. During the year
ended December 31, 2008, the Company drew down $743 million and repaid $316 million,
respectively, under the $1,150 million syndicated facility. The Company, AngloGold Ashanti
Holdings plc, AngloGold Ashanti USA Incorporated and AngloGold Ashanti Australia Limited
have guaranteed all payments and other obligations regarding the $1,150 million syndicated
loan facility.
(3)
Corporate Bond
Senior unsecured fixed rate bond
-
293
Add: Accrued interest
-
11
-
304
On August 21, 2003, AngloGold issued an unsecured bond in the aggregate principal amount
of R2 billion ($300 million) at a fixed semi-annual coupon of 10.5 percent per annum. The
bond was repaid on August 28, 2008.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-46
20.
LONG-TERM DEBT(continued)
2008
$
Capital leases
(4)
Turbine Square Two (Proprietary) Limited
Capital leases are for specific periods, with terms of renewal but no purchase options.
Renewals are at the discretion of the entity that holds the lease. As of December 31, 2008 and
2007, Property, plant and equipment, allocated to Buildings and mine infrastructure, includes
$26 million and $36 million of assets under capital leases and $3 million and $2 million of
related accumulated depreciation, respectively. Amortization charges relating to capital leases
are included in Depreciation, depletion and amortization expense for the years ended
December 31, 2008 and 2007. The weighted average interest rate on the leases existing at
December 31, 2008 is 9.8 percent. Payments are made monthly, including interest, through
2022.
(5)
Senstar Capital Corporation
Capital leases are for specific periods, with terms of renewal but no purchase options.
Renewals are at the discretion of the entity that holds the lease. As of December 31, 2008 and
2007, Property, plant and equipment, allocated to Buildings and mine infrastructure, includes
$11 million and $16 million of assets under capital leases and $8 million and $12 million of
related accumulated depreciation, respectively. Amortization charges relating to capital leases
are included in Depreciation, depletion and amortization expense for all periods presented.
The weighted average interest rate on the leases existing at December 31, 2008 is
6.6 percent. Payments are made monthly, including interest, through 2009.
(6)
CSI Latina Arrendamento Mercantil S.A.
Capital lease is for specific periods, with terms of renewal and purchase options. Renewals
are at the discretion of the entity that holds the lease. As of December 31, 2008 and 2007,
Property, plant and equipment, allocated to Buildings and mine infrastructure, includes
$1 million and $1 million of assets under capital leases and $nil million and $nil million of
related accumulated depreciation, respectively. Amortization charges relating to capital leases
are included in Depreciation, depletion and amortization expense for the years ended
December 31, 2008 and 2007. The average interest rate on the leases existing at
December 31, 2008 is 11.7 percent. Payments are made monthly, including interest, through
2011.
Future minimum lease payments under all the above capital leases together with the present
value of minimum lease payments as of December 31, 2008 are:
2009
6
2010
3
2011
3
2012
3
2013
3
Thereafter
40
Total minimum lease payments
58
Less interest
27
Present value of net minimum lease payments
31
Less current portion
3
Long-term capital lease obligation
28
21.
PROVISION FOR ENVIRONMENTAL REHABILITATION
2008
$
2007
$
Accrued environmental rehabilitation costs
302
394
Long-term environmental obligations comprising decommissioning and restoration are
based on the Company’s environmental management plans, in compliance with the
current environmental and regulatory requirements.
Decommissioning costs
The provision for decommissioning represents the cost that will arise from rectifying
damage caused from establishing mining operations.
Decommissioning costs, representing obligations associated with the retirement of
long-lived assets that result from the acquisition, construction or normal operations of
long-lived assets, are accounted for in accordance with the provisions of SFAS143.
Decommissioning costs are further described in Note 5 – Asset retirement obligations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-47
21.
PROVISION FOR ENVIRONMENTAL REHABILITATION (continued)
Restoration costs
While the ultimate amount of rehabilitation is uncertain, the Company has estimated
that the total cost for mine rehabilitation and closure, on an undiscounted basis, will
be $1,049 million which includes a total estimated liability of $84 million in respect of
equity accounted joint ventures. Refer to Note 16. AngloGold Ashanti USA has
posted reclamation bonds with various federal and governmental agencies to cover
environmental rehabilitation obligations. Refer to Note 22.
The Company intends to finance the ultimate rehabilitation costs from the monies
invested with the rehabilitation trust fund, the environmental protection bond as well
as the proceeds on sale of assets and gold from plant clean-up at the time of mine
closure.
22.
COMMITMENTS AND CONTINGENCIES
2008
$
2007
$
Capital expenditure commitments
(1)
Contracts for capital expenditure
82
436
Authorized by the directors but not yet contracted for
632
809
714
1,245
Allocated for:
Project expenditure
- within one year
252 422
- thereafter
70 311
322 733
Stay in business expenditure
- within one year
349 471
- thereafter
43 41
392 512
(1)
Including commitments of $11 million (2007: $17 million) through contractual arrangements by equity
accounted joint ventures.
Other contractual purchase obligations
(2)
- within one year
289 363
- thereafter
396 293
685 656
(2)
Other purchase obligations represent contractual obligations for the purchase of mining contract services,
power, supplies, consumables, inventories, explosives and activated carbon. Amounts exclude purchase
obligations of equity accounted joint ventures.
Summary of contracted uranium sales as at December 31, 2008
The Company had the following forward pricing uranium commitments:
Year
Ibs (‘000)
(1)
Average contracted
price ($/lbs)
2009
494 33.45
2010
988 33.46
2011 – 2013
1,482 35.94
(1)
Certain contracts allow the buyer to adjust the purchase quantity within a specified range.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-48
22.
COMMITMENTS AND CONTINGENCIES(continued)
2008
$
2007
$
Contingencies
Ground water pollution – South Africa
The Company has identified a number of groundwater pollution sites at its operations
in South Africa and has investigated a number of different technologies and
methodologies that could possibly be used to remediate the pollution plumes.
Numerous scientific, technical and legal reports have been produced and remediation
of the polluted soil and groundwater is the subject of continued research. Subject to
the technology being developed as a proven remediation technique, no reliable
estimate can be made for the obligation.
Deep ground water pollution – South Africa
The Company has identified a flooding and future pollution risk posed by deep
groundwater, due to the interconnected nature of operations in the West Wits and
Vaal River operations in South Africa. The Company is involved in task teams and
other structures to find long-term sustainable solutions for this risk, together with
industry partners and government. As there is too little information for the accurate
estimate of a liability, no reliable estimate can be made for the obligation.
Soil and sediment pollution – South Africa
The Company identified offsite pollution impacts in the West Wits area, resulting from
a long period of gold and uranium mining activity by a number of mining companies
as well as millennia of weathering of natural reef outcrops in the catchment areas.
Investigations are being conducted but no reliable estimate can be made for the
obligation.
Serra Grande sales tax on gold deliveries
55 63
Mineração Serra Grande S.A. (MSG), the operator of the Crixas mine in Brazil, has
received two tax assessments from the State of Goiás related to payments of sales
taxes on gold deliveries for export, including one assessment for the period between
February 2004 and June 2005 and the other for the period between July 2005 and
May 2006. The tax authorities maintain that whenever a taxpayer exports gold mined
in the State of Goiás through a branch located in a different Brazilian state, it must
obtain an authorization from the Goiás State Treasury by means of a Special Regime
Agreement (Termo de Acordo re Regime Especial – TARE). The Company’s
attributable share of the first assessment is approximately $34 million. Although MSG
requested the TARE in early 2004, the TARE, which authorized the remittance of gold
to the Company’s branch in Minas Gerais specifically for export purposes, was only
granted and executed in May 2006. In November 2006 the administrative council’s
second chamber ruled in favor of MSG and fully canceled the tax liability related to
the first period. The State of Goiás has appealed to the full board of the State of
Goiás tax administrative council. The second assessment was issued by the State of
Goiás in October 2006 on the same grounds as the first assessment, and the
Company’s attributable share of the assessment is approximately $21 million. The
Company believes both assessments are in violation of federal legislation on sales
taxes.
Tax disputes at MSG, Morro Velho and AngloGold Ashanti Brasil Mineração
12 8
MSG, Morro Velho and AngloGold Ashanti Brasil Mineração are involved in disputes
with the Brazilian tax authorities. These disputes involve federal tax assessments
including income tax, social contributions and annual property tax based on
ownership of properties outside of urban perimeters.
VAT dispute at MSG
6 8
MSG received a tax assessment in October 2003 from the State of Minas Gerais
related to sales taxes on gold
allegedly returned from the branch in Minas Gerais to
the company head office in the State of Goiás. The tax administrators rejected the
Company’s appeal against the assessment. The Company is now appealing the
dismissal of the case.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-49
22.
COMMITMENTS AND CONTINGENCIES(continued)
2008
$
2007
$
Financial guarantees
Oro Group surety
11 15
The Company has provided surety in favor of the lender in respect of gold loan
facilities to wholly-owned subsidiaries of Oro Group (Proprietary) Limited, an affiliate
of the Company. The Company has a total maximum liability, in terms of the
suretyships, of R100 million ($11 million). The probability of the non-performance
under the suretyships is considered minimal.
AngloGold Ashanti USA reclamation bonds
85 48
Pursuant to US environmental and mining requirements, gold mining companies are
obligated to close their operations and rehabilitate the lands that they mine in
accordance with these requirements. AngloGold Ashanti USA has posted reclamation
bonds with various federal and state governmental agencies to cover potential
rehabilitation obligations.
The Company has provided a guarantee for these obligations which would be payable
in the event of AngloGold Ashanti USA is not able to meet its rehabilitation
obligations. As at December 31, 2008, the carrying value of these obligations
amounted to $36 million and is included in the Provision for environmental
rehabilitation in the Company's consolidated balance sheet. The obligations will
expire upon completion of such rehabilitation and release of such areas by the
applicable federal and/or state agency. AngloGold Ashanti is not indemnified by third
parties for any of the amounts that may be paid by AngloGold Ashanti under its
guarantee.
Guarantee provided for convertible bond
1,000 1,000
The Company has guaranteed all payments and other obligations of AngloGold
Ashanti Holdings plc regarding the issued $1.0 billion 2.375 percent convertible bond
due February 27, 2009. Refer to Note 20. The Company’s obligations regarding the
guarantee are direct, unconditional and unsubordinated.
Guarantee provided for term loan facility
AngloGold Ashanti Limited, AngloGold Ashanti USA Incorporated and AngloGold
Ashanti Australia Limited, as guarantors, have each guaranteed all payments and
other obligations of AngloGold Ashanti Holdings plc and the other guarantors under
the $1.0 billion Term Facility. $1.0 billion on the Term Facility was drawn on February
26, 2009 to redeem the $1.0 billion convertible bond due February 27, 2009 upon its
maturity. Refer to Note 20.
Guarantee provided for syndicated loan facility
842 526
AngloGold Ashanti Limited, AngloGold Ashanti Holdings plc, AngloGold Ashanti USA
Incorporated and AngloGold Ashanti Australia Limited, as guarantors, have each
guaranteed all payments and other obligations of the borrowers and the other
guarantors under the $1.15 billion syndicated loan facility dated December 13, 2007.
Refer to Note 20.
Hedging guarantees
325 683
The Company has issued gold delivery guarantees to several counterpart banks in
which it guarantees the due performance of its subsidiaries AngloGold (USA) Trading
Company, AngloGold South America Limited and Cerro Vanguardia S.A. under their
respective gold hedging agreements.
Ashanti Treasury Services Limited (ATS) hedging guarantees
987
1,494
The Company together with its wholly-owned subsidiary AngloGold Ashanti Holdings
plc has provided guarantees to several counterpart banks for the hedging
commitments of its wholly-owned subsidiary ATS. The maximum potential amount of
future payments is all moneys due, owing or incurred by ATS under or pursuant to the
hedging agreements. At December 31, 2008 the marked-to-market valuation of the
ATS hedge book was negative $987 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-50
22.
COMMITMENTS AND CONTINGENCIES(continued)
2008
$
2007
$
Geita Management Company Limited (GMC) hedging guarantees
331
520
The Company and its wholly-owned subsidiary AngloGold Ashanti Holdings plc have
issued hedging guarantees to several counterpart banks in which they have
guaranteed the due performance by GMC of its obligations under or pursuant to the
hedging agreements entered into by GMC, and to the payment of all money owing or
incurred by GMC as and when due. The maximum potential amount of future
payments is all moneys due, owing or incurred by GMC under or pursuant to the
hedging agreements. At December 31, 2008 the marked-to-market valuation of the
GMC hedge book was negative $331 million.
The Company assesses the credit quality of counterparts on a quarterly basis. As of
December 31, 2008, the probability of non-performance is considered minimal.
Vulnerability from concentrations
The majority of AngloGold Ashanti’s 62,895 employees (2007: 61,522, 2006: 61,453)
are subject to collective bargaining agreements. These agreements are established in
negotiations between the Chamber of Mines, the body that represents the gold mining
industry in South Africa, and representative groups of labor. The agreements have a
two-year validity period. The most recent settlement negotiation was completed in
August 2007, when the parties reached an agreement covering the period from
July 1, 2007 to June 30, 2009.
There is a concentration of risk in respect of recoverable value added tax and fuel
duties from the Malian government to the Company’s equity accounted affiliates.
Recoverable value added tax due from the Malian government to the equity
accounted affiliates of the Company amounts to an attributable $27 million at
December 31, 20042008 (December 31, 2007: attributable $42 million).
Recoverable fuel duties from the Malian government to the equity accounted affiliates
of the Company amounts to an attributable $5 million at December 31, 2008
(December 31, 2007: attributable $7 million). Fuel duty refund claims are required to
be submitted before January 31 of the following year and are subject to authorization
by, firstly, the Department of Mining, and secondly, the Customs and Excise
authorities. With effect from February 2006, fuel duties are no longer payable to the
Malian government.
The Government of Mali is a shareholder in all of the Company’s equity accounted
affiliates in Mali. Management is in negotiations with the Government of Mali to agree
a protocol for the repayment of amounts due to Sadiola and Yatela. The amounts
outstanding at Sadiola and Yatela have been discounted at a rate of 18 percent
based on the provisions of the protocol. The amounts outstanding at Morila have
been discounted to their present value at a rate of 6.0 percent.
There is a concentration of risk in respect of recoverable value added tax and fuel
duties from the Tanzanian government. Recoverable value added tax due from the
Tanzanian government to the Company amounts to $16 million at December 31, 2008
(December 31, 2007: $16 million). The amounts outstanding have been discounted
to their present value at a rate of 7.8 percent.
Recoverable fuel duties from the Tanzanian government to the Company amount to
$37 million at December 31, 2008 (December 31, 2007: $37 million). Fuel duty claims
are required to be submitted after consumption of the related fuel and are subject to
authorization by the Customs and Excise authorities. The amounts outstanding have
been discounted to their present value at a rate of 7.8 percent.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-51
23.
STOCKHOLDERS’ EQUITY
The authorized common stock of the Company is 400,000,000 shares of common stock of 25 ZAR cents each.
During 2006, AngloGold Ashanti approved the Employee Share Ownership Plan for the employees in the South African
operations and a Black Economic Empowerment transaction (BEE transaction) for which 4,280,000 E shares of
common stock of 25 ZAR cents and 960,000 shares of common stock of 25 ZAR cents were authorized. In addition,
1,760,000 shares of common stock of 25 ZAR cents each were authorised for issue, at the discretion of the directors, to
employee share schemes to be implemented in countries other than South Africa, where the Company has its
operations. In the event that these shares are not issued by December 31, 2009, the authority will lapse.
During 2008, 76,025,939 shares of common stock were issued and 17 3,289 E shares of common stock were cancelled.
These issues and cancellations resulted in the movement year-on-year of 76,083,700 shares of common stock and
E shares as follows:
• 69,470,442 shares of common stock in the Company were issued as part of the rights offer completed on|
July 11, 2008, amounting to $1,666 million, which funds were applied primarily to reduce the hedge book;
• 3,181,198 shares of common stock in the Company were issued to acquire the remaining 33 percent shareholding
in the Cripple Creek & Victor Gold mine from Golden Cycle Gold Corporation effective July 1, 2008, amounting to
$118 million;
• 2,701,660 shares of common stock in the Company were issued to purchase São Bento Gold Company Limited inDecember
2008, amounting to $70 million;
• 672,545 shares of common stock were issued on the exercise of options/awards granted in terms of the share
incentive scheme for a consideration of $14 million;
• 94 shares of common stock were issued with a subscription value of $3 million in exchange for 173,289 E shares
of common stock which were cancelled in accordance with the cancellation formula pertaining to the Employee
Share Ownership Plan; and
• 57,761 shares of common stock with a subscription value of $2 million were transferred from the Employee Share
Ownership Plan to exiting employees pursuant to the rules of the scheme.
During 2007, 1,221,318 shares of common stock and 94,230 E shares of common stock were issued while
139,770 E shares of common stock were cancelled. These issues and cancellations resulted in the movement year-on-
year of 1,236,498 shares of common stock and the net cancellation of 45,540 E shares of common stock as follows:
• 1,181,882 shares of common stock were issued as part of the share incentive scheme for a consideration of
$37 million;
• 8,026 shares of common stock were issued with a subscription value of $2 million in exchange for
139,770 E shares of common stock which were cancelled in accordance with the cancellation formula pertaining to
the Employee Share Ownership Plan;
• 46,590 shares of common stock with a subscription value of $2 million were transferred from the Employee Share
Ownership Plan to exiting employees pursuant to the rules of the scheme;
• 31,410 shares of common stock were issued as part of the Employee Share Ownership Plan for a consideration of
$1 million;
(1)
and
• 94,230 E shares of common stock were issued as part of the Employee Share Ownership Plan for a considerationof $2 million.
(1)
(1)
Shares of common stock and E shares of common stock issued in respect of the Employee Share Ownership Plan are eliminated as shares held
within the Company.
During 2006, 11,297,721 shares of common stock and 4,185,770 E shares of common stock were issued as follows:
• 398,399 shares of common stock were issued as part of the share incentive scheme for a consideration of
$9 million;
• 4,185,770 E shares of common stock and 928,590 shares of common stock in the Company were issued as part
of the Employee Share Ownership Plan and the BEE transaction for a consideration of $93 million, which are
eliminated as shares held within the Company; and
• 9,970,732 shares of common stock in the Company were issued as part of the public offering which was
completed on April 20, 2006, amounting to $498 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-52
23.
STOCKHOLDERS’ EQUITY(continued)
A public offering to raise $500 million was completed on April 20, 2006 and resulted in the issue of 9,970,732 ordinary
shares, along with the simultaneous sale of 19,685,170 AngloGold Ashanti shares held by Anglo American plc (AA plc),
reducing AA plc’s holding in the Company to 41.8 percent. As at December 31, 2008, AA plc held a 16.17 percent
interest in the Company. On March 17, 2009, AA plc disposed of its entire remaining shareholding in the Company.
At a general meeting of shareholders held on May 6, 2008, shareholders approved, as a general authority, authorization
to the board of directors to allot and issue, in their discretion, and for such purposes as they may determine, up to
5 percent of the total number of common stock of 25 ZAR cents each in the issued share capital of the Company from
time to time. This authori ty expires if not renewed, at the forthcoming annual general meeting to be held on
May 15, 2009.
Redeemable preference shares
A and B redeemable preference shares issued of 2,000,000 and 778,896 shares, respectively, all of which are held by a
wholly-owned subsidiary Eastvaal Gold Holdings Limited, may not be transferred and are redeemable from the
realization of the assets relating to the Moab Lease area after cessation of mining operations in the area. The shares
carry the right to receive dividends equivalent to the profits (net of royalty, ongoing capital expenditure and taxation)
from operations in the area. No further A and B redeemable preference shares will be issued.
24.FAIR VALUE MEASUREMENTS
The Company adopted SFAS157 as of January 1, 2008, with the exception of the application of the statement to non-
recurring non-financial assets and non-financial liabilities as allowed by FSP FAS 157-2. The Company does not have
non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.
SFAS157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that
may be used to measure fair value:
Level 1
- Quoted prices in active markets for identical assets or liabilities.
Level 2
- Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level 3-Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market
approach uses prices and other relevant information generated by market transactions involving identical or comparable
assets or liabilities.
The following table sets out the Company’s financial assets and (liabilities) measured at fair value by level within the fair
value hierarchy as at December 31, 2008 (in US Dollars, millions):
Description
Level 1
CarryingLevel 2
amountLevel 3
Fair
value
Carrying
amount
Fair
value
(in
millions)
$
$
$
$Total
Cash and cash equivalents
(1)
196
196
276575
276
Restricted cash575
(1)Marketable equity securities
831
8
31
Derivatives, net
26(1,317)
26(1,317)
Short-term debt
(2)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
160
160
315F-53
31524. FAIR VALUE MEASUREMENTS(continued)
The Company’s cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using
quoted market prices. The cash instruments that are valued based on quoted market prices in active markets are
primarily money market securities. Due to the short maturity of cash, carrying amounts approximate fair values.
The Company’s marketable equity securities including listed affiliates are included in Other long-term assets in the
Company’s consolidated balance sheet. They consist of investments in ordinary shares and are valued using quoted
market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the
marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the
quantity of shares held by the Company.
The Company’ s derivative instruments are valued using pricing models and the Company generally uses similar models
to value similar instruments. Options associated with marketable equity securities are included as derivatives on the
balance sheet. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves,
credit spreads, measures of volatility, and correlations of such inputs. The Company’s derivatives trade in liquid
markets, and as such, model inputs are observable. Such instruments are typically classified within Level 2 of the fair
value hierarchy.
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES
In the normal course of its operations, the Company is exposed to gold and other commodity price, currency, interest
rate, liquidity and non-performance risk, which includes credit risk. In order to manage these risks, the Company enters
into derivative transactions. The Company does not acquire, hold or issue derivatives for trading purposes. The
Company has developed a risk management process to facilitate, control and monitor these risks. The board has
approved and monitors this risk management process, inclusive of documented treasury policies, counterpart limits,
controlling and reporting structures.
Long-term debtThe financial risk management activities objectives of the Company are as follows:
•
(2)Safeguarding the Company’s core earnings stream through the effective control and management of gold and
other commodity price risk, foreign exchange risk and interest rate risk;
1,779•
1,803Effective and efficient usage of credit facilities through the adoption of liquidity planning procedures;
1,371•
Ensuring that investment and hedging transactions are undertaken with creditworthy counterparts; and
•
Ensuring that contracts and agreements related to risk management activities are coordinated, consistent
throughout the Company and comply where necessary with relevant regulatory and statutory requirements.
A number of products, including derivatives are used to satisfy these objectives. Contracts that meet the criteria for
hedge accounting are designated as the hedging instruments hedging the variability of forecasted cash flows from the
sale of production into the spot market and capital expenditure and are classified as cash flow hedges under SFAS133.
The ineffective portion of matured and existing cash flow hedges recognized in loss on non-hedge derivatives in the
income statement during the year was $8 million (2007: $10 million; 2006: $nil million). Of the contracts accounted for
as cash flow hedges, contracts with a fair value of $123 million, a liability at December 31, 2008 are expected to be
reclassified from other comprehensive income and recognized as a reduction in product sales during 2009 or as an
adjustment to depreciation expense pertaining to capital expenditure.
Loss on non-hedge derivatives of $258 million (2007: $808 million; 2006: $208 million), being derivatives not designated
in formal hedge accounting relationships is included in the current year income statement. See Note 5 – Non-hedge
derivative loss.
Gold price and currency risk management activities
Gold and currency derivative instruments are denominated in South African rands, US dollars, Australian dollars and
Brazilian real. The derivative instruments utilized are forward sale and purchase contracts, purchased and sold put
options, and purchased and sold call options. The mix of derivative instruments, the volume of production hedged and
the tenor of the hedge book is continuously reviewed in light of changes in operational forecasts, market conditions and
the Company’s hedging policy as set by the board of directors. The Company’s reserve and financial strength has
allowed it to arrange unmargined credit lines with counterparts. The Compa ny’s also exposed to certain by-product
commodity price risk.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-54
1,36425.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
Some of the instruments described above are designated and accounted for as cash flow hedges. The cash flow
hedged forecast transactions are expected to occur over the next 2 years, in line with the maturity dates of the hedging
instruments.
Forward sales contracts establish the price of future gold sales at a specified price. A number of these contracts are
intended by AngloGold Ashanti for delivery against production in a future period. The volume of net outstanding forward
sales type contracts at the end of 2008 was 39,990kg (2007: 108,403kg). The volume of outstanding net call options
sold was 146,542kg (2007: 242,373kg) and the volume of outstanding net put options sold was 16,963kg
(2007: 46,585kg).
A put option gives the put buyer the right, but not the obligation, to sell the underlying to the put seller at a
predetermined price on a predetermined date. A call option gives the call buyer the right, but not the obligation, to buy
the underlying from the call seller at a predetermined price on a predetermined date. The Company’s risk in selling gold
call options is unlimited but mitigated by the fact that the Company produces the commodity required by the option and
can partially offset any loss resulting from sold call options via the sale of production in the open market.
Rights offer and reduction in derivatives position
The principal purpose of the rights offer concluded during July 2008 was to provide additional financial resources to
improve the Company’s financial flexibility. In particular, the net proceeds allowed AngloGold Ashanti to significantly
restructure and reduce the Company’s gold derivatives position, which has adversely affected financial performance in
recent years, while also being able to continue to fund the Company 217;s principal development projects and exploration
growth initiatives. The Company capitalized on a weaker gold market during the year in executing a combination of
delivery into and early cash settlement of a portion of its non-hedge derivative contracts (which have been fair valued in
the Company’s financial statements, with changes in such fair value recorded in the income statement), the latter
maturing in years 2008 to 2010.
The Company has therefore been able to make substantial progress in the reduction of its derivatives position, and
although the received gold price for 2008 was adversely impacted given the early cash settlement of certain non-hedge
derivatives with low contracted sales prices, committed ounces have been reduced to 5.99 million ounces as at
December 31, 2008 (December 31, 2007: 11.28 million committed ounces). This allowed the Company to benefit from
improved participation in the spot gold price in future periods, earlier than antic ipated.
Net delta open hedge position as at December 31, 2008
The Company has an established practice of actively managing its hedged commitments under changing market
circumstances.
As of December 31, 2008, the hedge book reflected a net delta tonnage position of 5.22 million ounces (162 tonnes).
As of December 31, 2007, the hedge book reflected a net delta tonnage position of 10.39 million ounces (323 tonnes).
The marked-to-market values of all hedge transactions, irrespective of accounting designation, making up the hedge
positions was a liability of $2,455 million as at December 31, 2008 (as at December 31, 2007: a liability of
$4,273 million). These values were based on a gold price of $872 per ounce, exchange rates of $1 = R9.4550 and
A$ = $0.6947 and the prevailing market interest rates and volatilities at December 31, 2008. The values as at
December 31, 2007 were based on a gold price of $836 per ounce, exchange rates of $1 = R6. 8104 and A$ = $0.8798
and the prevailing market interest rates and volatilities at that date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-55
Derivatives25.
(3)FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
The Company had the following net forward pricing commitments outstanding against future production as at
December 31, 2008.
(935)
(1,941)Year
(662)2009
(1,161)2010
2011
2012
2013
2014-2016
Total
DOLLAR GOLD
Forward sales type agreementscontracts
(3)Amount (kg)
(355)(5,960)
(909)
(511)
(647)(*)
8,354
Option contracts11,765
(3)11,944
(612)9,518
(1,058)2,845
(4)
(185)
(507)
(4)
Foreign exchange contracts
(3)
6
6
1738,466
17$ per oz
$1,199
$204
$383
$404
$408
$510
$467
Put options sold
Amount (kg)
4,043
4,226
3,048
1,882
1,882
1,882
16,963
$ per oz
$671
$708
$533
$430
$440
$450
$579
Call options sold
Amount (kg)
14,805
33,394
38,312
24,461
17,857
22,067
150,896
$ per oz
$442
$537
$530
$622
$601
$606
$557
RAND GOLD
Foreign exchange
Forward contracts
Amount (kg)
(1,866)
(*)
(1,866)
(*)
Rand per kg
R157,213
R157,213
AUD DOLLAR GOLD
Forward contracts
Amount (kg)
280
3,110
3,390
A$ per oz
A$852
A$652
A$669
Call options purchased
Amount (kg)
1,244
3,110
4,354
A$ per oz
A$694
A$712
A$707
Delta (kg)
(4,501)
(36,523)
(44,466)
(31,629) (24,106) (20,998) (162,223)
**Total net gold:
Delta (oz)
(144,720)
(1,174,250)
(1,429,620)
(1,016,910)
(775,040)
(675,070)
(5,215,610)
Hedge delta as a percentage of current
production levels (%)***
3%
24%
29%
20%
16%
5%
*
Indicates a long position from forward purchase contracts.
**
The Delta of the hedge position indicated above, is the equivalent gold position that would have the same marked-to-market sensitivity for a small
change in the gold price. This is calculated using the Black-Scholes option formula with the ruling market prices, interest rates and volatilities as at
December 31, 2008.
***
Weighted average percentage based on 2008 full year production of 4,982,000 ounces.
Year
2009 2010 2011
2012-2016
GOLD LEASE RATE SWAPS
Gold borrowing cost associated with forward
contracts
(3)(1)
(5)Amount (‘000oz)
(5)130,000
(2)100,000
(2)
Interest rate swaps – Gold%
(3)1.82
31
25
21
(20)1.96
Sub total – Hedge derivativesGold lease rate swaps
(935)(2)
(1,941)Amount
(660)
(1,159)
(‘000oz) 898,000 641,000 423,000 205,000
Interest rate %
1.81
1.83
1.83
1.84
(1)
Gold borrowing cost relating to Australian dollar gold forwards:
The Australian dollar denominated gold forward contract prices are presented on a net basis where the final price of the contract is determined by
the cost of borrowing gold over the full duration of the contract. The net prices in the table above have been adjusted to take account of the total
expected future cost of all accumulated costs incurred to date and the expected future borrowing cost based on ruling market prices. The amount
shown under “Gold borrowing cost associated with forward contracts” in the table above is the face value of the borrowing amount and the period in
which it matures. The interest rates shown are the future market rates prevailing at the time of the financial statements.
(2)
The gold lease rate swaps – Non-goldare contracts where the Company receives a fixed percentage of the outstanding amount in gold and pays a floating
market determined percentage in gold, quarterly in arrears. The amount shown in the table above is the number of ounces outstanding at the
beginning of each period. The interest rate shown is the weighted average fixed rate that the Company will receive for that period.
(3)
Foreign exchange price risk protection agreements
The Company enters into currency forward exchange and currency option contracts to hedge certain anticipated
transactions denominated in foreign currencies. The objective of the Company’s foreign currency hedging activities is to
protect the Company from the risk that the eventual cash flows resulting from transactions denominated in US dollars
will be adversely affected by changes in exchange rates.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-56
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
The following table indicates the Company’s currency hedge position at December 31, 2008.
Year
2009 2010 2011 2012 2013
2014-2016 Total
RAND DOLLAR (000)
Put options purchased
Amount ($)
30,000
30,000
Rand per $
R11.56
R11.56
Put options sold
Amount ($)
50,000
50,000
Rand per $
R9.52
R9.52
Call options sold
Amount ($)
50,000
50,000
Rand per $
R11.61
R11.61
AUD DOLLAR (000)
Forward contracts
Amount ($)
450,000
450,000
$ per A$
$0.65
$0.65
Put options purchased
Amount ($)
10,000
10,000
$ per A$
$0.69
$0.69
Put options sold
Amount ($)
10,000
10,000
$ per A$
$0.76
$0.76
Call options sold
Amount ($)
10,000
10,000
$ per A$
$0.64
$0.64
BRAZILIAN REAL
DOLLAR (000)
Forward contracts
Amount ($)
62,340
62,340
BRL per $
BRL1.86
BRL1.86
As at December 31, 2008 a limited number of the dollar gold hedge contracts reported in the above tables included
optional early termination provisions pursuant to which the hedge counterpart can elect to terminate the relevant
hedging contracts on specified dates. The early termination provision which applies can be exercised in the first five
business days of January 2010. These contracts form part of the Ashanti hedge that was in place prior to the Business
Combination between AngloGold and Ashanti completed in April 2004.
No termination options were exercised in 2008, 2007 and 2006.
Interest rate and liquidity risk
Fluctuations in interest rates impacts interest paid and received on the short-term cash investments and financing
activities, giving rise to interest rate risk.
In the ordinary course of business, the Company receives cash from the proceeds of its gold sale s and is required to
fund working capital requirements. This cash is managed to ensure surplus funds are invested in a manner to achieve
market related returns while minimizing risks. The Company is able to actively source financing at competitive rates.
The counterparts are financial and banking institutions of good credit standing.
Cash and loans advanced maturity profile
2008 2007
Maturity date
Currency
Fixed rate
investment
amount
(million)
Effective
rate
%
Floating
rate
investment
amount
(million)
Effective
rate
%
Fixed rate
investment
amount
(million)
Effective
rate
%
Floating
rate
investment
amount
(million)
Effective
rate
%
All less than one year
USD
166
2.48
121
1.95
32
4.3
66
4.0
ZAR
930
11.50
668
10.84
525
11.0
888
10.1
AUD
-
-
(2)-
(2)-
-
-
34
6.5
HKD
-
-
1
2.25
-
-
1
4.0
BRL
-
-
144
13.52
-
-
67
8.9
ARS
-
-
5
12.50
-
-
9
11.1
NAD
155
11.58
96
9.40
139
9.7
58
9.5
(1)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The carrying amounts approximate fair value because(continued)
F-57
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
Borrowings maturity profile
Within one year
Between
one and two years
Between
two and five years
After five years
Currency
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Total
Borrowings
amount
(million)
$
1,060
2.6
320
2.5 -
- -
-
1,380
ZAR 2
9.8 26
9.8 81
9.2 145
9.6 254
AUD 5
6.1
745
6.1 -
- -
-
750
BRL 8
3.6 11
3.6 8
3.6 -
- 27
Interest rate risk
Fixed for less than one year
Fixed for between one and three
years
Fixed for greater than
three years
Currency
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Total
Borrowings
amount
(million)
$ 1,060
2.6 320 2.5
-
-
1,380
ZAR 2 9.8 107 9.8 145
9.6
254
AUD 5
6.1
745
6.1 -
-
750
BRL 8
3.6 19
3.6 -
-
27
Non-performance risk
Realization of all these contracts is dependent upon the counterparts performing in accordance with the terms of the short-term duration
contracts. The Company generally does not obtain collateral or other security to support financial instruments subject to
non-performance risk, but monitors the credit standing of these instruments.
(2)
Fair value reflectscounterparts. The Company spreads its business over a
number of financial and banking institutions of good credit quality and believes that no concentration of non-
performance risk exists. Limits for each counterpart are based on the net present valueassessed credit quality of each counterpart. The
AngloGold Ashanti Treasury Committee makes recommendations for board approval of all counterparts and the future cash flows, discountedlimits to
be applied against each counterpart. Where possible, management puts ISDA netting agreements in place.
The combined maximum credit exposure at the prevailing market rate. balance sheet date amounts to $571 million (2007: $516 million). Credit
risk exposure netted by counterparts amounts to $207 million (2007: $123 million). No set-off is applied to the balance
sheet due to the different maturity profiles of assets and liabilities.
The fair value of listed fixed rate debtderivative assets and liabilities reflects non-performance risk relating to the counterparts and the
Convertible Bonds are shown at their market value. The remainder of debt re-prices on a short-term floating rate basis, and accordingly the carrying
amount is considered to approximate fair value.
(3)
The fair value of the above instruments is calculated based on market prices, volatilities and interest rates,Company, respectively as at December 31, 2005 and 2004.
(4)
Includes deliverable call options sold. A deliverable option is an option in terms of which the delivery quantity is fixed regardless of the market price on2008.
the exercise date. In the event that the market price is lower than the strike price, gold is sold to the counterpart at the ruling spot price.
218
Sensitivity analysis
The following table shows the approximate sensitivities of the $ marked-to-market value of the hedge book at December 31,
2005 (actual changes in the timing and amount of the following variables may differ from the assumed changes below):
Sensitivity analysis
Change in
Rate(+)
Change in Fair
value
(1)
Change in Rate
(-)
Change in Fair
value
(1)
Currency (R/$)
+1.0
(18.6)
-1.0
14.0
Currency (A$/$)
+0.05
11.6
-0.05
(12.6)
Gold price ($/oz)
+10
(106.5)
-10
105.7
US Interest Rate (%)
+0.1
(12.0)
-0.1
12.0
ZAR Interest Rate (%)
+0.1
(0.3)
-0.1
0.3
Aus Interest Rate (%)
+0.1
(0.4)
-0.1
0.4
Gold Interest Rate (%)
+0.1
17.0
-0.1
(17.3)
(1)
In $ million.
Hedge levels
AngloGold Ashanti employs hedging as an element of its risk management strategy.
A summary of the hedge position as at December 31, 2003, 2004 and 2005 is as follows. The “years of production hedged” is
calculated as the hedge net delta position at year-end divided by the annual production for that year.
As at December 31,
Hedge Net Delta
kg’s
(2)
Annual Production for
Year
kg’s
(2)
Years of Production
Hedge
2003 267,131
174,668
1.53
2004 326,208
188,223
1.73
2005 337,076
191,783
1.76
While AngloGold Ashanti may reduce its net delta hedge position further in line with a positive price outlook, it will continue to
actively manage the hedge in order to protect margins and to ensure the company’s ability to service debt requirements.
Hedge performance
The following tablebelow provides a summary of the average received gold price fornumber, type and credit quality of AngloGold Ashanti and the average spot gold
price over the last five years. The table provides an indication of pastAshanti’s hedge performance.
Sales
Average Price Received
Spot Price
Year Thousandounces
(2)
US dollar per ounce
US dollar per ounce
2001 7,004 286 271counterparts.
2002 5,941 303 310
2003 5,635 363 363
2004 6,060 394 410
2005 6,133 439 445
(2)
Includes equity accounted joint ventures.
219
Item 12: Description of securities other than equity securities
Not applicable.
220
PART II
ItemITEM 13: Defaults, dividend arrearages and delinquenciesDEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
232
ItemITEM 14: Material modifications to the rights of security holders andMATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
use of proceedsUSE OF PROCEEDS
None.
233
ItemITEM 15: CONTROLS AND PROCEDURES
(a) Disclosure Controls and proceduresProcedures: As of December 31, 2008 (the “Evaluation Date”), the company, under the
Thesupervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer after evaluating
has evaluated the effectiveness of the company’s disclosure controls
and procedures (as defined in Rules 13a – 15(e)
and 15d – 15(e) under the Securities Exchange Act Rule 13a-15(e))of 1934, as of amended (“the end ofExchange Act”). Based on such
evaluation, the period covered by this Form 20-F,Chief Executive Officer and Chief Financial Officer have
concluded that, as of such date, the Evaluation Date, the
company’s disclosure controls and procedures were effective.are effective, and are reasonably designed to ensure that information
required to be disclosed by the company in reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange
Commission. These disclosure controls and procedures include without limitation, controls and procedures designed to
ensure that information required to be disclosed by the company in reports that it files or submits under the Exchange Act
is accumulated and communicated to the company’s management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding disclosure.
As disclosed
(b) Management’s Annual Report on Internal Control over Financial Reporting: Management is responsible for establishing
and maintaining adequate internal control over financial reporting for the company, as defined in the Exchange Act Rule
13a – 15(f) and 15d -15(f). The company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of the company’s financial
statements for external purposes in accordance with generally accepted accounting principles in the United States of
America.
The company’s internal control over financial reporting includes those policies and procedures that:
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and
dispositions of the assets of the company;
•
Provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and the Directors of the company;
and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
The company’s management assessed the effectiveness of the company’s internal control over financial reporting as of
the Evaluation Date. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on this
assessment, and using those criteria, management concluded that the company’s internal control over financial reporting
was effective as of the Evaluation Date.
(c) Changes in Internal Control over Financial Reporting: There has been no changes in the company’s annual report on Form 20-F forinternal control over
financial reporting identified in connection with the financialevaluation required by paragraph (d) of Exchange Act Rule 13a – 15
during the year ended December 31, 2004,2008 that have materially affected, or are reasonably likely to materially affect, the
company’s internal control over financial reporting.
(d) Attestation Report of the Registered Public Accounting Firm: The company’s independent registered public accounting firm,
Ernst & Young reported that they considered certain policies and procedures
relating toInc., has issued an audit report on the US GAAP accounting and reportingeffectiveness of the company’s internal control over financial
reporting. This report appears below.
/s/
M
Cutifani
/s/
SVenkatakrishnan
Mark
Cutifani Srinivasan
Venkatakrishnan
Chief Executive Officer
Chief Financial Officer
234
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The board of directors and stockholders of AngloGold Ashanti acquisitionLimited
We have audited AngloGold Ashanti Limited’s internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). AngloGold Ashanti Limited’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the accounting for joint ventures noteffectiveness of internal control over financial reporting
included in the accompanying management certification. Our responsibility is to haveexpress an opinion on the Company’s internal
been sufficiently well developed. Ernst & Young considered these matters to represent a material weakness (undercontrol over financial reporting based on our audit.
We conducted our audit in accordance with the standards
established by of the Public Company Accounting Oversight Board (United States)) in.
Those standards require that we plan and perform the company’saudit to obtain reasonable assurance ab out whether effective internal
control over
financial reporting.
During the course of the period covered by this Form 20-F, management undertook the following measure to remediate these
issues:
•
making appropriate changes to the company’s documented accounting policies and procedures for acquisitions and joint
ventures; and
• increasing the number of employees in the company’s accounting department, including the addition of a specialist
technical accountant experienced in US GAAP reporting.
As an additional control measure, an executive position, head of risk, has been created to assist the board and management
with the constant monitoring and reviewing of the control environment and compliance with rules and regulations as required,
so as to mitigate any risk by implementing the necessary control measures.
With the exception of the remediation measures discussed above, there were no changes in the company’s internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that occurred duringa material weakness exists, testing and evaluating the year ended December 31, 2005design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that have materially affected, or areour audit provides a reasonable basis for our opinion.
reasonably likely to materially affect the
A company’s internal control over financial reporting.
Followingreporting is a process designed to provide reasonable assurance regarding the implementation
reliability of these measures,financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accura tely and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and
expenditures of the company are being made only in accordance with authorizations of management concludedand directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the material weakness discussed above had
been remediated and that the company’s disclosure controls and procedures were sufficiently well developed to support an
assessment that these controls and procedures were effective.
While the company concluded that its disclosure controls and procedures controls were effective, in connectiondegree of compliance with the policies or procedur es may deteriorate.
In our opinion, AngloGold Ashanti Limited maintained, in all material respects, effective internal control over financial reporting
implementationas of Sox 404,December 31, 2008, based on the company has identified and isCOSO criteria.
We also have audited, in the process of remediating significant deficiencies in its
controls and procedures. In the event that deficiencies that have been or might be identified are not remediated within the
required period, once tested, such deficiencies could result in a conclusion that the company has a material weakness in
internal control. The company is required to complyaccordance with the requirementsstandards of Section 404the Public Company Accounting Oversight Board (United States),
the 2008 consolidated financial statements of AngloGold Ashanti Limited and our report dated May 4, 2009 expressed an
unqualified opinion thereon.
Ernst & Young Inc.
Registered Auditor
Johannesburg, Republic of South Africa
May 4, 2009
235
235
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT
Prof Wiseman Nkuhlu, Chairman of the audit and corporate governance committee, has been determined by our board to be
an audit committee financial expert within the meaning of the Sarbanes-Oxley Act, (Sox 404)
by December 31, 2006.
221
ITEM 16A: Audit committee financial expert
The Sarbanes-Oxley Act requiresin accordance with the board of directors to identify a financial expert from its ranks. The board has determined
that Mr Colin Brayshaw, chairmanrules of the committee, is an “audit committee financial expert”NYSE
and the SEC. Prof Wiseman Nkuhlu as defined in Item 16A. of the
Form 20-F. Mr Brayshaw andwell as each of the other members of the Audit and Corporate Governance Committee
(being Mr F BFB Arisman, Mrs E le R BradleyMr RP Edey and Mr R P Edey) is an “independent director” as defined in the JSE Listings
Requirements and NYSE rules.JH Mensah) are independent directors. All members of the committee have
considerable financial knowledge and experience to help
oversee and guide the board and the company in respect of the audit
and corporate governance disciplines.
On April 9, 2009, Prof Nkuhlu advised of his impending resignation from the board, given his standing for political office in the forthcoming general elections in South Africa. Prof Nkuhlu resigned from the board at the conclusion of the meeting held on May 5, 2009 to approve the filing with the SEC of this annual report on Form 20-F. A suitable candidate qualifying as an audit committee financial expert within the meaning of the Sarbanes-Oxley Act, in accordance with the rules of the NYSE and the SEC, will be sought in due course.
ITEM 16B: Code of ethicsCODE OF ETHICS AND WHISTLE BLOWING POLICIES
In order to comply with the company’s obligationscompany's obligation in terms of the Sarbanes-Oxley Act and the South African King Code on
Corporate Governance, and in the interests
of good governance, the company has systems and procedures to introduce,
monitor and enforce its ethical codes and has adopted a code of ethics for employees, seniora code of ethics for the chief executive
officer, principal financial officer and executivesenior financial officers, and a
whistle-blowing policy that encourages employees and
other stakeholders to confidentially and anonymously report acts of an
unethical or illegal nature affectingthat affect the company’s company's
interests. Senior management oversee compliance with the ethical code by means of several mechanisms including:
• Assessing the integrity of new appointees in the selection and promotion process;
• Adherence to the policy on the delegation of authority;
• Induction of directors and employees on the company's values, policies and procedures; and
• Compliance with a strict disciplinary code of conduct.
AngloGold Ashanti has a whistle-blowing policy that provides a channel for the reporting of practices that are in conflict with
AngloGold Ashanti's business principles, unlawful conduct, financial malpractice, or are dangerous to the public and the
environment. The process encourages reports to be made in good faith in a responsible and ethical manner. Employees are
encouraged to discuss issues with their direct managers first (if appropriate) and then, if not resolved, to report these through
the whistle-blowing line or directly to the internal audit or legal departments. The codes and the whistle-blowing policy are
available on the company's website at www.anglogoldashanti.co.za/About/Gov+Policies.htm. There are several mediums by
which reports can be made such as through the intranet, internet, telephone, fax and post. An initiative is being undertaken to
implement short messaging system (sms) as a medium for reporting as well. All reports made in terms of the whistle-blowing whistle-blo wing
policy are fielded
by a third party, Tip-Offs Anonymous, whowhich ensures all reports are treated confidentially or anonymously
depending on the
preference of the caller. The information is relayed to the groupmanagement and to internal audit manager, and if required, to management for
investigation. All
reports and the progress of the investigations are conveyed to the audit and corporate governance committee
by the group
internal audit manager. Both codes and the whistle-blowing policy are availablemanager on the company website,a quarterly basis.
www.anglogoldashanti.com, and may be found as follows:
1. From our main web page, first hold the cursor over the “About” tab.
2. Scroll down and highlight the “Corporate Governance” tab.
3. Click on the “Guidelines” tab.
4. Scroll down and double click on “Code of Ethics for the Chief Executive Officer, Principal Financial Officer and Senior
Financial Officers”.
The code of ethics is also available on request from the company secretary.
In addition, the company has adopted a “Disclosures Policy”,Disclosures Policy, the object of which is to ensure compliance with the rules of the
various exchanges on which it is listed and provide timely, accurate and reliable information fairly to all stakeholders, including
investors (and potential investors), regulators and analysts. The
Each code of ethics, whistle blowing and disclosure policy is available on the companycompany’s website
http://www.anglogoldashanti.co.za/About/Gov+Policies.htm. Each code of ethics and disclosure policy is also available on
r equest from the
company secretary, on request.secretary.
ITEM 16C: Principal accountant fees and servicesPRINCIPAL ACCOUNTANT FEES AND SERVICES
Ernst & Young has served as AngloGold Ashanti’s independent public accountants for each of the financial years in the three-
year period ended December 31, 20052008 for which audited financial statements appear in this annual report on Form 20-F. The
Annual General Meeting elects the auditors annually.
222
236
The following table presents the aggregate fees for professional services and other services rendered by Ernst & Young to
AngloGold Ashanti in 20052008 and 2004.2007.
(in millions)
20052008
$
20042007
$
2003
$
Audit Fees
(1)
4.29 2.87 1.32
5.67
7.73
Audit-related Fees
(2)
1.03
0.281.30
0.410.80
Tax Fees
(3)
0.10 0.06 0.14
All Other Fees
(4)
0.10
0.02
0.140.45 0.05
Total
5.52 3.23 2.017.42 8.58
Rounding may result in computational differences.
(1)The Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services
that only the external auditor
reasonably can provide, and include the Company audit; statutory audits; comfort letters and consents; attest services; and
assistance with and review of
documents filed with the SEC. Included in the Audit fees for 2008 and 2007 are fees paid to the
external auditors in respect of SOX, which was implemented in 2006.
(2) Audit-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the
Company’s financial statements or that are traditionally performed by the external auditor, and include consultations concerning financial
accounting and
reporting standards due diligence related to acquisition, audits in connection with proposed or completed acquisitions;standards; and employee benefit plan audits.comfort letters; and consents.
(3)
(3) Tax Fees include fees billed for tax advice related to mergers and acquisitionstax compliance services.
Audit and transfer pricing.
(4) All Other Fees include fees billed for services relating to the review of an information technology system.
In addition to the fees set out in the table above, Ernst & Young received a fee of $0.91 million in 2004 for work associated with
and included in the cost of the business combination of AngloGold with Ashanti.
AuditCorporate Governance Committee Pre-approval Policies and Procedures
It is the policy of AngloGold Ashanti to maintain compliance with the requirements of the various applicable legislation and
good governance practices when appointing or assigning work to the Company’s external auditor. Non-audit services may not
be undertaken without an employee of AngloGold Ashanti obtaining the pre-approval of the Audit and Corporate Governance
Committee as is laid out in the procedures relating to the pre-approval process.
The audit committee has delegated the approval authority to the chairman of the Audit and Corporate Governance Committee, inclusive
Prof Wiseman Nkuhlu or his designated official. The approval may take the form of its chairman, comprises four independent non-executive
directors. The board considers it unnecessary for the chief executive officer to attend meetings of the committee, but should
rather attend by invitation from the chairman of the committee.
The group internal audit manager has unrestricted access to both the chief executive officer and the chief financial officer, the
board chairman and the chairman of the committee, and is invited to attend and report on his department’s activities at all
committee meetings. The board is confident that the unfettered access of the group internal audit manager to key board
members, and the direct and regular reporting to the committee, together with his caliber, experience and integrity, enables him
to discharge his duties as required by lawa written or oral instruction, and in fulfillment of his obligations to the company. The function, duties and powerscase
of an oral instruction this would be ratified at the internalnext audit function, for which the group internal audit managercommittee meeting. On a quarterly basis a summary of all approvals
and work to date is responsible, is governed by a formal internal audit
charter that has been approved by the committee.
The chairman meets regularly with the external audit partner, the group’s internal audit manager and the executive officer:
finance, to reviewtabled at the audit plans of the internal and external auditors, to ascertain the extent to which the scope of the auditcommittee.
can be relied upon to detect weaknesses in internal controls and to review the quarterly and half-yearly financial results,
significant legal matters affecting the company, the preliminary announcement of the annual results and the annual financial
statements, as well as all statutory submissions of a financial nature, prior to approval by the board.
The committee is furthermore, responsible for:
• the appointment and dismissal of the external auditors; determining and approving external auditors’ fees; overseeing the
work of the external auditors; determining allAll non-audit work of the external auditors including consulting work, and pre-
approving non-audit fees to be paid to the external auditors; and ensuring that the external auditors report regularly to the
committee;
• overseeing the internal audit function; receiving regular report back from the group internal audit manager; appointment and
dismissal of the group internal audit manager;
• assessing and reviewing the company’s risk management framework; and
• monitoring the group’s corporate governance practices in relation to regulatory requirements and guidelines.
The external auditors also meet with the committee members in the absence of management.
223
The committee met on five occasions during 2005. All members of the committee attended each of the committee meetings. In
addition, two sub-committee meetings were held.
The NYSE rules require that the board determine whether a member of the committee’s simultaneous service on more than
three public companies’ audit committees impairs the ability of such a member to effectively serve on a listed company’s audit
committee. Mr Brayshaw, the chairman of the committee, is a member of eight (2004: nine) other public companies’ audit
committees and is chairman of four (2004: seven). Mrs Bradley is a member of three (2004: four) other public companies’
audit committees and is the chairman of one (2004: one). Mr Brayshaw is a retired managing partner and chairman of Deloitte
& Touche, while Mrs Bradley, who is semi-retired, has considerable financial and accounting experience. The board is
confident that the experience, caliber and integrity of both Mr Brayshaw and Mrs Bradley, together with their regular attendance
and active contribution a t meetings of the committee and the board, demonstrate their commitment to the company. The
simultaneous service on other audit committees by Mr Brayshaw and Mrs Bradley has not impaired their ability to diligently
execute their responsibilities to the committee, the board or the company.
During 2005, no services were provided to AngloGold Ashanti by Ernst & Young in respect of Audit-related Fees (in the form ofprincipal independent registered public accounting firm during
tax fees) paid pursuant2008 were reviewed and approved according to the procedures above. None of the services provided during 2008 were
approved under the de minimis exception toallowed under the pre-approval requirement provided by paragraph (c)(7)(i)(C) of RuleExchange Act.
2-01 of Regulation S-X.
No work was performed by persons other than the principal accountant’s employees onin respect of the principal accountant’s engagement
to audit of AngloGold
Ashanti’s financial statements for 2005.2008.
ITEM 16D: Exemptions from the listing standards for auditEXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
committees
Not applicable.
ITEM 16E: Purchases of equity securities by the issuer andPURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
affiliated purchasersPURCHASERS
Neither the issuer nor any affiliate of the issuer purchased any of the company’s shares during 2005.2008.
ITEM 16F: CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
224
237
ITEM 16G: CORPORATE GOVERNANCE
The following is a summary of the significant ways in which AngloGold Ashanti’s corporate governance practices differ from
those followed by US domestic companies under the New York Stock Exchange’s corporate governance listing standards (the
“NYSE listing standards”).
The NYSE listing standards require the appointment of a Nominations Committee to oversee the appointment of new directors
to the board, and that such committee be comprised solely of independent directors. The JSE Listing Requirements also
require the appointment of such a committee, but require that it be comprised solely of non-executive directors, the majority of
whom must be independent. The company has appointed a Nominations Committee of the board. Since May 6, 2008, the
committee comprized of eight non-executive board members, six of whom were independent, as defined in the JSE Listing
Requi rements, and is chaired by the independent chairman of the board.
The NYSE listing standards require that a majority of the board to be comprised of independent directors, as such term is
defined in the NYSE listing standards, and that the remunerations committee of the board be fully independent. In previous
years, AngloGold Ashanti did not comply with these standards as the JSE Listing Requirements did not have similar standards.
However, since May 6, 2008, the board comprizes of a majority of independent directors, as defined in the JSE Listing
Requirements, and the remuneration committee of the board is fully independent.
238
PART III
ItemITEM 17: Financial statementsFINANCIAL STATEMENTS
Not applicable.
239
ItemITEM 18: Financial statementsFINANCIAL STATEMENTS
Report of the Independent Registered Public Accounting Firm
The board of directors and stockholders of AngloGold Ashanti Limited
We have audited the accompanying consolidated balance sheets of AngloGold Ashanti Limited (the “Company”) as of
December 31, 20052008 and 20042007 and the related consolidated statements of income, stockholders’ equity and cash flows for
each of
the three years in the period ended December 31, 2005.2008. These financial statements are the responsibility of the
Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit
The financial statements of Société d'Exploitation des Mines d'Or de Sadiola S.A. (“Sadiola”), a corporation in which the
Company has a 38 percent interest, have been audited by other auditors for the years ended December 31, 2008 and 2006
and for the periods then ended, whose report has been furnished to us, and our opinion on the consolidated financial
statements, insofar as it relates to the amounts included for Sadiola, is based solely on the report of the other auditors. In the
consolidated financial statements, the Company’s investment in Sadiola is stated at $97 million and $66 million, respectively,
at December 31, 2008 and 2006, and the Company’s equity in net loss is stated at $52 million for the year ended December
31, 2008 and the Company’s equity in net income is stated at $33 million for the year ended December 31, 2006.
The financial statements of Société d'Exploitation des Mines d'Or de Yatela S.A. (“Yatela”), a corporation in which the
Company has a 40 percent interest, have been audited by other auditors for the year ended December 31, 2006 and for the
period then ended, whose report has been furnished to us, and our opinion on the consolidated financial statements, insofar
as it relates to the amounts included for Yat ela, is based solely on the report of the other auditors. In the consolidated financial
statements, the Company’s investment in Yatela is stated at $26 million at December 31, 2006, and the Company’s equity in
net income is stated at $34 million for the year then ended.
The financial statements of Société des Mines de Morila S.A. and Société d'Exploitation des Mines d'Or de Sadiola S.A. included on
an equity basis for(“Morila”), a corporation in which AngloGold Ashanti Limited ownedthe Company has a 40 percent and 38 percent, respectively. These financial statements
reflect amounts included in Investment in affiliates of $97 million and $67 million as of December 31, 2005, respectively, and of
$ 85 million and $74 million as of December 31, 2004, respectively. These financial statements also reflect amounts included in
Equity income/(loss) in affiliates of $47 million and $8 million for the year ended December 31, 2005, respectively, and of
$25 million and $11 million for the year ended December 31, 2004, respectively of the related consolidated totals. Those
financial statements wereinterest, have been audited by other auditors at December 31, 2008 and for the period then ended, whose reports havereport has been
furnished to us, and our opinion on the consolidated financial statements, insofar as it
relates to the amounts included for Société des Mines de
Morila, S.A. and Société d'Exploitation des Mines d'Or de Sadiola S.A. is
based solely on the reportsreport of the other auditors.
In the consolidated financial statements, the Company’s investment
in Morila is stated at $114 million at December 31, 2008, and the Company’s equity in net loss is stated at $69 million for the
year then ended.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a
test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the
accounting principle sprinciples used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits
and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our auditsaudit and the reports of other auditors, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AngloGold Ashanti Limited at December 31, 20052008 and 2004,2007, and
the
consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 2008
in
conformity with U.S generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the effectiveness of AngloGold Ashanti Limited’s internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated May 4, 2009 expressed an unqualified opinion thereon.
As discussed in note 2 to the consolidated financial statements, in 20052007 the Company adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, and accordingly has evaluated all
tax positions and has made sufficient provision and disclosure.
As discussed in note 2 to the consolidated financial statements, in 2006 the Company changed its method of accounting for
stock-based compensation in accordance with SFAS123(R) Share-Based Payment, its method of accounting for deferred
stripping costs in accordance with EITF Issue 04-6 Accounting for Stripping Costs Incurred during Production in the Mining
Industry, and its method of considering the effects of prior year misstatements in accordance with SAB 108 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.
As discussed in note 2 to the consolidated financial statements, in 2006 the Company changed its method of accounting for
employee benefit plans in accordance with SFAS87SFAS158 Employers’ Accounting for Defined Benefit Pension and SFAS106.
As discussed in note 5 to the consolidated financial statements, in 2003 the Company changed its methodOther
Postretirement Plans, an amendment of accounting forFASB Statements No. 87, 88, 106 and 132(R).
Asset Retirement Obligations (AROs) in accordance with SFAS143.
Ernst & Young Inc.
Registered Accountants and AuditorsAuditor
Chartered Accountants (S.A.)
Johannesburg, Republic of South Africa
March 17, 2006May 4, 2009
F-1
ANGLOGOLD ASHANTI LIMITED
Consolidated statements of income
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
(In millions, except share and per share information)
Notes
2005
$
2004
$
2003
$
Sales and other income
2,485
2,151
1,670
Product sales
2,453
2,096
1,641
Interest, dividends and other
32
55
29
Costs and expenses
2,848
2,176
1,329
Production costs
1,638
1,340
992
Exploration costs
44
44
40
Related party transactions
6
41
45
37
General and administrative
71
58
43
Royalties
39
27
11
Market development costs
13
15
19
Depreciation, depletion and amortization
593
445
247
Impairment of assets
5
141
3
75
Interest expense
5
80
67
28
Accretion expense
5
5
8
2
Employment severance costs
5
26
7
4
Profit on sale of assets
5
(3)
(14)
(55)
Mining contractor termination costs
5
9
-
-
Non-hedge derivative loss/(gains)
26
151
131
(114)
(Loss)/income from continuing operations before income tax, equity
income, minority interests and cumulative effect of accounting change
(363)
(25)
341
Taxation benefit/(expense)
7
121
132
(143)
Minority interest
(23)
(22)
(17)
Equity income in affiliates
39
23
71
(Loss)/income from continuing operations before cumulative effect of
accounting change
(226)
108
252
Discontinued operations
8
(44)
(11)
(2)
(Loss)/income before cumulative effect of accounting change
(270)
97
250
Cumulative effect of accounting change, net of taxation of $11 million in 2005
2/5
(22)
-
(3)
Net (loss)/income – applicable to common stakeholders
(292)
97
247
Basic (loss)/earnings per common share : (cents)
From continuing operations
9
(85)
43
113
Discontinued operations
9
(17)
(4)
(1)
Before cumulative effect of accounting change
9
(102)
39
112
Cumulative effect of accounting change
9
(8)
-
(1)
Net (loss)/income – applicable to common stockholders
9
(110)
39
111
Diluted (loss)/earnings per common share : (cents)
From continuing operations
9
(85)
42
113
Discontinued operations
9
(17)
(4)
(1)
Before cumulative effect of accounting change
9
(102)
38
112
Cumulative effect of accounting change
9
(8)
-
(1)
Net (loss)/income – applicable to common stockholders
9
(110)
38
111
Pro forma amounts assuming change in accounting for employee
benefit plans is applied retroactively:
Income before cumulative effect of accounting change
2
79
233
Per basic share (cents)
2
32
104
Per diluted share (cents)
2
31
104
Net income
2
79
230
Per basic share (cents)
2
32
103
Per diluted share (cents)
2
31
103
Weighted average number of common shares used in computation
9 264,635,634 251,352,552 222,836,574
Dividend per common share (cents)
56
76
133
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-2
ANGLOGOLD ASHANTI LIMITED
Consolidated balance sheets
AT DECEMBER 31, 2005 and 2004
(In millions, except share information)
Notes
2005
$
2004
$
ASSETS
Current Assets
1,401
1,417
Cash and cash equivalents
196
276
Restricted cash
10
8
26
Receivables
884
736
Trade
97
100
Derivatives
26
675
491
Recoverable taxes, rebates, levies and duties
45
61
Other
67
84
Inventories
11
260
255
Materials on the leach pad
11
37
105
Assets held for sale
16
16
19
Property, plant and equipment, net
12
4,922
4,931
Deferred stripping
12
105
69
Acquired properties, net
13
1,412
1,654
Goodwill
14
524
543
Other intangibles, net
14
26
48
Derivatives
26
38
187
Other long-term inventory
11
32
13
Materials on the leach pad
11
116
22
Other long-term assets
15
496
512
Deferred taxation assets
7
41
-
Total assets
9,113
9,396
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
1,874
1,469
Trade accounts payable
203
193
Payroll and related benefits
78
97
Other current liabilities
17
199
186
Derivatives
26
1,121
606
Short-term debt
18
160
315
Tax payable
107
65
Liabilities held for sale
16
6
7
Other non-current liabilities
19
14
4
Long-term debt
20
1,779
1,371
Derivatives
26
527
734
Deferred taxation liabilities
7
1,152
1,518
Provision for environmental rehabilitation
5 / 21
325
209
Other accrued liabilities
22
19
13
Provision for pension and other post-retirement medical benefits
23
200
173
Minority interest
60
59
Commitments and contingencies
24
-
-
Stockholders’ equity
25
3,163
3,846
Common stock
400,000,000 (2004 – 400,000,000) authorized common stock of 25 ZAR cents each
Stock issued 2005 – 264,938,432 (2004 – 264,462,894)
10
10
Additional paid in capital
4,972
4,961
Accumulated deficit
(1,143)
(702)
Accumulated other comprehensive income
(676)
(423)
Total liabilities and stockholders’ equity
9,113
9,396
The accompanying notes are an integral part of these Consolidated Financial Statements
.
F-3
ANGLOGOLD ASHANTI LIMITED
Consolidated statements of cash flows
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
(In millions, except share information)
Notes
2005
$
2004
$
2003
$
Net cash provided by operating activities
347
513
417
Net (loss)/income – applicable to common stockholders
(292)
97
247
Reconciled to net cash provided by operations:
Cumulative effect of accounting change
22
-
3
Profit on sale of assets
(3)
(14)
(55)
Depreciation, depletion and amortization
593
445
247
Deferred stripping costs
(28)
(28)
(32)
Impairment of assets
141
3
75
Deferredtaxation
(191)
(200)
72
Movement in non-hedge derivatives
54
201
(60)
Equity income in affiliates
(39)
(23)
(71)
Dividends received from affiliates
51
24
86
Other non cash items
31
32
111
Net increase/(decrease) in provision for environmental
rehabilitation and pension and other post-retirement medical
benefits
52
(15)
(103)
Effect of changes in operating working capital items:
Receivables
8
(24)
(55)
Inventories
(58)
(39)
(78)
Accounts payable and other current liabilities
37
56
29
Net cash provided by continuing operations
378
515
416
Net cash (used in)/provided by discontinued operations
(31)
(2)
1
Net cash used in investing activities
(624)
(995)
(263)
Cash acquired in acquisitions
3
-
56
9
Increase in non-current investments
(27)
(30)
-
Additions to property, plant and equipment
(710)
(571)
(339)
Proceeds on sale of mining assets
8
10
6
Proceeds on sale of discontinued assets
4
-
-
Proceeds on sale of investments
1
-
56
Cash outflows from derivatives purchased
(69)
(359)
-
Cash inflows from derivatives sold
-
49
-
Cash inflows from derivates with financing
153
-
-
Cash consideration for acquisitions or disposals
3
-
(227)
1
Loans receivable advanced
(7)
(2)
(4)
Loans receivable repaid
6
85
4
Change in restricted cash
17
(6)
4
Net cash generated/(used) in financing activities
200
276
(79)
Short-term debt repaid
(284)
(609)
(105)
Short-term debt raised
137
88
79
Issuance of stock
9
3
10
Long-term debt repaid
(19)
(200)
(32)
Long-term debt raised
471
989
283
Cash outflows from derivatives relating to acquisitions
-
(24)
-
Cash inflows from derivatives with financing
55
227
-
Dividends paid
(169)
(198)
(314)
Net (decrease)/increase in cash and cash equivalents
(77)
(206)
75
Effect of exchange rate changes on cash
(3)
13
52
Cash and cash equivalents – January 1,
276
469
342
Cash and cash equivalents – December 31,
196
276
469
The accompanying notes are an integral part of these Consolidated Financial Statements.
ANGLOGOLD ASHANTI LIMITED
Consolidated statements of income
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In millions, except share and per share information)
Notes
2008
$
2007
$
2006
$
Sales and other income
3,730
3,095
2,715
Product sales
3,655
3,048
2,683
Interest, dividends and other
75
47
32
Costs and expenses
4,103
3,806
2,811
Production costs
2,159
1,917
1,539
Exploration costs
126
117
58
Related party transactions
6
(10)
(16)
(6)
General and administrative
136
130
140
Royalties
78
70
59
Market development costs
13
16
16
Depreciation, depletion and amortization
615
655
699
Impairment of assets
5
670
1
6
Interest expense
5
72
75
77
Accretion expense
5
22
20
13
Employment severance costs
5
9
19
22
(Profit)/loss on sale of assets, realization of loans, indirect taxes and other
5
(64)
10
(36)
Non-hedge derivative loss
5
258
808
208
Other operating items
5
19
(16)
16
Loss from continuing operations before income tax, equity income,
minority interests and cumulative effect of accounting change
(373) (711) (96)
Taxation expense
7 (22) (118) (122)
Minority interest
(42) (28) (29)
Equity (loss)/income in affiliates
(149)
41
99
Loss from continuing operations
(586) (816) (148)
Discontinued operations
8
23
2
6
Net loss – applicable to common stakeholders
(563) (814) (142)
(Loss)/earnings per share : (cents)
From continuing operations
9
Ordinary shares
(186)
(293)
(54)
E
Ordinary
shares
(93)
(146)
(91)
Ordinary shares - diluted
(186)
(293)
(54)
E Ordinary shares - diluted
(93)
(146)
(91)
Discontinued operations
9
Ordinary shares
7
1
2
E Ordinary shares
4
-
-
Ordinary shares - diluted
7
1
2
E Ordinary shares - diluted
4
-
-
Net loss
9
Ordinary shares
(179)
(292)
(52)
E
Ordinary shares
(89)
(146)
(91)
Ordinary shares - diluted
(179)
(292)
(52)
E Ordinary shares - diluted
(89)
(146)
(91)
Weighted average number of shares used in computation
9
Ordinary shares
313,157,584
277,337,292
272,613,263
E Ordinary shares - basic and diluted
4,046,364
4,117,815
194,954
Ordinary shares - diluted
313,157,584
277,337,292
272,613,263
Dividend paid per ordinary share (cents)
13
44
39
Dividend paid per E ordinary share (cents)
7
22
-
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-2
ANGLOGOLD ASHANTI LIMITED
Consolidated balance sheets
AT DECEMBER 31, 2008 AND 2007
(In millions, except share information)
Notes
2008
$
2007
$
ASSETS
Current Assets
2,947
2,113
Cash and cash equivalents
575
477
Restricted cash
10
44
37
Receivables
224
205
Trade
39
35
Recoverable taxes, rebates, levies and duties
64
77
Related parties
4
6
Other
11
117
87
Inventories
12
552
523
Materials on the leach pad
12
49
49
Derivatives
25
571
516
Deferred taxation assets
7
150
275
Assets held for sale
17
782
31
Property, plant and equipment, net
13
4,765
5,527
Acquired properties, net
14
814
1,280
Goodwill
15
132
569
Other intangibles, net
15
20
22
Other long-term inventory
12
40
84
Materials on the leach pad
12
261
190
Other long-term assets
16
421
559
Deferred taxation assets
7
51
37
Total assets
9,451
10,381
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
3,445
3,795
Trade accounts payable
314
396
Payroll and related benefits
92
106
Other current liabilities
18
144
132
Derivatives
25
1,758
2,782
Short-term debt
20
1,067
319
Tax payable
28
59
Liabilities held for sale
17
42
1
Other non-current liabilities
19
117
146
Long-term debt
20
873
1,564
Derivatives
25
130
297
Deferred taxation liabilities
7
1,008
1,345
Provision for environmental rehabilitation
5 / 21
302
394
Provision for labor, civil, compensation claims and settlements
31
45
Provision for pension and other post-retirement medical benefits
27
139
180
Minority interest
84
63
Commitments and contingencies
22
-
-
Stockholders’ equity
23
3,322
2,552
Common stock
400,000,000 (2007 – 400,000,000) authorized common stock of 25 ZAR cents each
Stock issued 2008 – 353,483,410 (2007 – 277,457,471)
12
10
Additional paid in capital
7,502
5,607
Accumulated deficit
(3,044) (2,440)
Accumulated other comprehensive income
(1,148)
(625)
Total liabilities and stockholders’ equity
9,451
10,381
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-3
ANGLOGOLD ASHANTI LIMITED
Consolidated statements of cash flows
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In millions, except share information)
Notes
2008
$
2007
$
2006
$
Net cash provided by operating activities
64
561
770
Net loss – applicable to common stockholders
(563)
(814)
(142)
Reconciled to net cash provided by operations:
(Profit)/loss on sale of assets, realization of loans, indirect taxes and other
(64)
14
6
Depreciation, depletion and amortization
615
655
699
Impairment of assets
670
1
6
Deferred
taxation
(72)
(73)
(34)
Movement in non-hedge derivatives
(602)
802
339
Equity loss/(income) in affiliates
149
(41)
(99)
Dividends received from affiliates
78
65
85
Other non cash items
69
34
5
Net increase/(decrease) in provision for environmental rehabilitation,
pension and other post-retirement medical benefits
24
90
(62)
Effect of changes in operating working capital items:
Receivables
(7)
(77) 11
Inventories
(131) (240) (165)
Accounts payable and other current liabilities
(101)
147
122
Net cash provided by continuing operations
65
563
771
Net cash used in discontinued operations
(1)
(2)
(1)
Net cash used in investing activities
(1,593) (1,031) (611)
Acquisition of assets
-
(40)
-
Increase in non-current investments
(93)
(27)
(20)
Proceeds on disposal of affiliate
48
-
-
Affiliates loans advanced
(4)
-
-
Affiliates loans repaid
4
-
-
Additions to property, plant and equipment
(1,194)
(1,015)
(811)
Proceeds on sale of mining assets
39
29
57
Proceeds on sale of discontinued assets
10
1
9
Proceeds on sale of available for sale investments
4
4
-
Proceeds on redemption of held to maturity investments
84
21 11
Dividends from available for sale investments
-
2
-
Cash outflows from derivatives purchased
(485)
-
-
Cash inflows from derivatives purchased
-
19
141
Loans receivable advanced
-
(1)
(1)
Loans receivable repaid
-
1
6
Change in restricted cash
(6)
(25)
(3)
Net cash generated by financing activities
1,715
462
119
Short-term debt repaid
(298)
(520)
(134)
Short-term debt raised
110
318
16
Issuance of stock
1,722
34
512
Share issue expenses
(54)
-
(5)
Long-term debt repaid
(316)
-
(418)
Long-term debt raised
743
525
142
Cash outflows from derivatives with financing
(134)
-
-
Cash inflows from derivatives with financing
-
249 138
Dividends paid
(58)
(144)
(132)
Net increase/(decrease) in cash and cash equivalents
186
(8)
278
Effect of exchange rate changes on cash
(88) 14
(3)
Cash and cash equivalents – January 1,
477
471
196
Cash and cash equivalents – December 31,
575
477
471
The accompanying notes are an integral part of these Consolidated Financial Statements.
ANGLOGOLD ASHANTI LIMITED
Consolidated statements of stockholders’ equity
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 and 20032008, 2007 AND 2006
(In millions, except share information)
Common stock
stock
Common
stock
$
Additional paid
in
capital
$
OtherAccumulated other
comprehensive
income*
$
Accumulated
deficit
$
Total
$
Balance – January 1, 20032006
222,622,022264,938,432 10
94,972
3,403(676) (1,143)
(1,025)
(567)
1,820
Net income
247
247
Translation gain
378
378
Net loss on cash flow hedges removed from other comprehensive income and reported in income, net of tax
45
45
Net loss on cash flow hedges, net of tax
(131)
(131)
Net gain on available for sale financial assets arising during the period, net of tax
15
15
Net gain on available for sale financial assets removed from other comprehensive income and reported in
income, net of tax
(22)
(22)
Comprehensive income
532
Stock issues as part of Share Incentive Scheme
514,320
-
8
8
Variable compensation awards compensation expense3,163
4
4
Dividends
(296)
(296)
Balance – December 31, 2003
223,136,342
9
3,415
(740)
(616)
2,068
Net income
97
97
Translation gain
178
178
Net loss on cash flow hedges removed from other comprehensive income and reported in income, net of tax
118
118
Net gain on cash flow hedges, net of tax
19
19
Net gain on available for sale financial assets arising during the period, net of tax
2
2
Comprehensive income
414
Stock issue as part of acquisition
41,133,752Cumulative deferred stripping adjustment. Refer to Note 2.
1
1,543
1,544
Stock issues as part of Share Incentive Scheme
192,800(73)
-(73)
3Cumulative cut-off adjustment. Refer to Note 2.
3
Reversal of variable compensation awards compensation expense
(4)(11)
(4)
Dividends
(179)
(179)
Balance – December 31, 2004
264,462,894
10
4,961
(423)
(702)
3,846
(11)
Net loss
(292)
(292)
(142)
(142)
Translation loss
(132)
(132)
(108)
(108)
Net loss on cash flow hedges removed from other comprehensive income and reported in income, net of tax
11
11
97
97
Net loss on cash flow hedges, net of tax
(134)
(134)
(86)
(86)
Net gain on available for saleavailable-for-sale financial assets arising during the period, net of tax
2
2
8
8
Comprehensive incomeloss
(545)
(315)
Stock issues as part of equity offering
9,970,732 -
498
498
Stock issues as part of Share Incentive Scheme
475,538398,399
-
9
9
Unearned stock awards
9
Stock based compensation expense
260
2
60
Dividends
(149)
(149)
(107)
(107)
Balance – December 31, 20052006
264,938,432275,307,563 10
5,539
(765) (1,476)
3,308
Cumulative FIN 48 adjustment. Refer to Note 2.
(25)
(25)
Net loss
(814)
(814)
Translation gain
93
93
Net loss on cash flow hedges removed from other comprehensive income and reported in income, net of tax
200
200
Net loss on cash flow hedges, net of tax
(166)
(166)
Hedge ineffectiveness on cash flow hedges, net of tax
10
4,972
(676)10
(1,143)Net gain on available-for-sale financial assets arising during the period, net of tax
3,163
3
3
Comprehensive loss
(699)
Stock issues as part of Share Incentive Scheme
1,181,882
-
37
37
Stock issues in exchange for E Ordinary shares cancelled
8,026
-
2
2
Stock issues transferred from Employee Share Ownership Plan to exiting employees
46,590
-
2
2
Stock based compensation expense
27
27
Dividends
(125)
(125)
Balance – December 31, 2007
276,544,061 10
5,607
(625) (2,440)
2,552
Net loss
(563)
(563)
Translation loss
(597)
(597)
Net loss on cash flow hedges removed from other comprehensive income and reported in income, net of tax
157
157
Net loss on cash flow hedges, net of tax
(61)
(61)
Hedge ineffectiveness on cash flow hedges, net of tax
8
8
Net loss on available-for-sale financial assets arising during the period, net of tax
(29)
(29)
Release on disposal of available-for-sale financial assets during the period, net of tax
(1)
(1)
Comprehensive loss
(1,086)
Stock issues as part of rights offer
69,470,442 2 1,664
1,666
Stock issues as part of Golden Cycle acquisition
3,181,198
-
118
118
Stock issues as part of São Bento acquisition
2,701,660
-
70
70
Stock issues as part of Share Incentive Scheme
672,545
-
14
14
Stock issues in exchange for E Ordinary shares cancelled
94
-
3
3
Stock issues transferred from Employee Share Ownership Plan to exiting employees
57,761
-
2
2
Stock based compensation expense
24
24
Dividends
(41)
(41)
F-4
Balance – December 31, 2008
352,627,761 12
7,502
(1,148) (3,044)
3,322
* The cumulative translation loss included in accumulated other comprehensive income amounted to $473$1,085 million (2004: $341(2007: $488 million). The translation loss has no tax effect. The cumulative charge, net of deferred taxation of $71 million
(2004: $14taxation of $68 million (2007: $96 million), included in accumulated other comprehensive income in respect of cash flow hedges amounted to $271$112 million (2004: $148(2007: $216 million). The cumulative gainloss, net of deferred
taxation of $1 million (2007: $2 million), included in accumulated other comprehensive income in respect of available for sale
financial assets amounted to $4$15 million (2004: $2 million)(2007: $15 million gain). This gain has no tax effect. The cumulative gain
included in accumulated other comprehensive income in respect of the hedge of a net investment in foreign entities amounted to
$64 $64 million (2004:(2007: $64 million). This gain is offset by $64 million (2004:(2007: $64 million)
arising from translation of a net investmentinvestments in foreign entities.
As at December 31, 2005, $342008 and 2007, $453 million and $402 million, respectively, of retained earnings arising from the Company’s equity accounted joint ventures and certain subsidiaries may not be remitted without
third-party shareholder consent.
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-5
ANGLOGOLD ASHANTI LIMITED
Notes to the consolidated financial statements
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 and 20032008, 2007 AND 2006
(In millions, except share and per share information)
1.
NATURE OF OPERATIONS
As a result of the completed
AngloGold Ashanti Limited (the "Company"), as it conducts business today, was formed on April 26, 2004 following
the Business Combination between AngloGold Limited and Ashanti Goldfields
Company Limited in April 2004,of AngloGold Limited (AngloGold) changed its name to AngloGoldwith Ashanti Goldfields Company Limited (the(Ashanti).
“Company”). AngloGold, formerly Vaal Reefs Exploration and Mining Company Limited, (Vaal Reefs), was incorporated in
South Africa on
May 29, 1944.1944 and Ashanti Goldfields Company Limited (Ashanti) was incorporated in Ghana on August 19,
1974. The Company conducts gold-mining
operations in Argentina, Australia, Brazil, Ghana, Guinea, Mali, Namibia,
South Africa, Tanzania and the United States
of America (USA). The Company also produces by-product silver, uranium oxide and sulfuric acid.
sulphuric acid.
2.
CHANGE IN ACCOUNTING FOR EMPLOYEE BENEFIT PLANSCHANGES
Post-retirement benefit plan assets
In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit
Plan Assets” (“FSP FAS 132(R)-1”), which amends FASB Statement No. 132 “Employers’ Disclosures about Pensions
and Other Post-Retirement Benefits” (“SFAS132”). FSP FAS 132(R)-1 provides guidance on an employer’s disclosures
about plan assets of a defined benefit pension or other post-retirement plan. The objective of FSP FAS 132(R)-1 is to
require more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major
categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair
value of plan assets.
The disclosures about plan assets requir ed by FSP FAS 132(R)-1 shall be provided for fiscal years ending after
December 15, 2009. Upon initial application, the provisions of FSP FAS 132(R)-1 are not required for earlier periods
that are presented for comparative purposes. Earlier application of the provisions of FSP FAS 132(R)-1 is permitted.
The Company has early adopted the provisions of FSP FAS 132(R)-1 as of December 31, 2008. The adoption of
FSP FAS 132(R)-1 did not have a material impact on the Company’s financial statements. Refer to Note 27.
Disclosures about credit derivatives and certain guarantees
In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161” (“the FSP”). The FSP amends SFAS133, to require disclosures by sellers of
credit derivatives, includi ng credit derivatives embedded in a hybrid instrument to provide certain disclosures for each
credit derivative for each statement of financial position presented. The FSP also amends FIN45, to require an
additional disclosure about the current status of the payment/performance risk of a guarantee. Further, this FSP clarifies
that SFAS161, is effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The FSP is effective for reporting periods (annual or interim) ending after November 15, 2008. The
Company does not have any credit derivatives. The Company adopted the disclosure requirements of the FSP with
regards to guarantees as of December 31, 2008. Refer to Note 22.
Hierarchy of generally accepted accounting principles
In May 2008, the FASB issued FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles”
(“SFAS162”). SFAS162 improves financial rep orting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally
accepted accounting principles (GAAP) for nongovernmental entities. SFAS162 was effective November 15, 2008,
which was 60 days following the United States Securities and Exchange Commission (SEC's) approval of the Public
Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles”. The adoption of SFAS162 had no impact on the Company’s
financial statements.
During
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-6
2.
ACCOUNTING CHANGES (continued)
Employee benefit plans
On September 29, 2006 the FASB issued SFAS158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS158”). SFAS158
requires an entity to:
• recognize in its statement of financial position an asset for a defined benefit post-retirement plan's overfunded
status or a liability for a plan's underfunded status;
• measure a defined benefit post-retirement plan's assets and obligations that determine its funded status as of the
same day of the employer's fiscal year-end (effective in fiscal years ending after December 15, 2008)
• recognize as a component of accumulated other comprehensive income, net of tax, amounts accumulated at the
date of adoption due to delayed recognition of actuarial gains and losses, prior service costs and credits, and
transition assets and obligations; and
• expand the disclosure requirements of SFAS132(R) to include additional information about certain effects on net
periodic benefit cost in the next fiscal year that arise from delayed recognition of actuarial gains or losses, prior
service costs or credits and unrecognized transition assets and obligations.
The adoption of the recognition and disclosure requirements of SFAS158 which are effective for fiscal years ending
after December 15, 2006, did not have a material impact on the Company’s earnings and financial position as the
Company changed its accounting policy during the second quarter of 2005, the Company changed its accounting policy, retroactive to January 1, 2005, with respect
respect to accounting for employee benefit plans to recognize the effects of actuarial gains and losses in income, rather than
than amortizing over the expected average remaining service period of employees participating in the plan.
period. This change was made as the Company believes that
elimination of the permitted pension and post-retirement benefit
corridor, as allowed by SFAS87 and SFAS106 will resultresults in
more accurate financial information.
The cumulative effectadoption of this changethe SFAS158 requirement to measure the plan assets and benefit obligations as of December 31, 2008
did not have a material impact on the Company’s financial statements.
The Company’s employee benefit plans are described more fully in accounting treatment with respect to actuarial gainsNote 27.
Fair value measurements
The Company adopted FASB Statement No. 157, “Fair Value Measurements” (“SFAS157”) for financial assets and losses decreased net
income and stockholders’ equity by $22 million (net of taxation of $11 million).
The results for 2004 and 2003financial liabilities on an historical basis, do not reflect the change in accounting treatment with respect to
actuarial gains and losses. Had the Company changed its accounting policy, retroactive to January 1, the historical2008.
income/(loss) before cumulative effect of accounting change, net income/(loss)
SFAS157 provides enhanced guidance for using fair value to measure assets and related per share amounts would haveliabilities. Under SFAS157, fair value
been changedrefers to the adjusted amounts indicated below:
Year ended December 31, 2004
(price that would be received to sell an asset or paid to transfer a liability in US Dollars, millions,an orderly transaction between
market participants in the market in which the reporting entity transacts. SFAS157 clarifies the principle that fair value
should be based on the assumptions market participants would use when pricing the asset or liability and establishes a
fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS157 also requires that fair
value measurements be separately disclosed by level within the fair value hierarchy. Refer to Note 24. The credit risk
adjustment on adoption of SFAS157 is disclosed in Note 25.
In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective date of FASB Statement No. 157”
(“FSP FAS 157-2”). FSP FAS 157-2 provides a one year deferral until January 1, 2009 for the implementation of
SFAS157 for certain non-financial assets and non-financial liabilities, except for share data)
Income/(loss)
before
cumulative effect
those items that are recognized or
disclosed at fair value on a recurring basis (at least annually). The provisions of accounting
change
Per
basic
share
(1)
(cents)
Per
diluted
share
(1)
(cents)
Net
income/
(loss)
Per
basic
share
(1)
(cents)
Per
diluted
share
(1)
(cents)
As reported – historical basis
97
39
38
97
39
38
ImpactFSP FAS 157-2 are not expected to
have a material impact on earnings netthe Company’s financial statements.
In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining the Fair Value of taxation
(18)
(7)
(7)
(18)
(7)
(7)
Adjusted 79
32
31
79
32
31
(1)
Basica Financial Asset
When the Market for That Asset Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of SFAS157
in determining the fair value of a financial asset when the market for that asset is not active. FSP FAS 157-3 is effective
as of the issuance date and diluted earnings/(loss) per common share. The calculationhas not affected the valuation of diluted earnings per common share for 2004 did not
assume the effect of 15,384,615 shares, issuable upon the exercise of Convertible Bonds as their effects are anti-dilutive for
this period.Company’s financial assets.
Year ended December 31, 2003
(in US Dollars, millions, except for share data)
Income/(loss)
before
cumulative effect
of accounting
change
Per
basic
share
(1)
(cents)
Per
diluted
share
(1)
(cents)
Net
income/
(loss)
Per
basic
share
(1)
(cents)
Per
diluted
share
(1)
(cents)
As reported – historical basis
250
112
112
247
111
111
Impact on earnings net of taxation
(17)
(8)
(8)
(17)
(8)
(8)
Adjusted
233 104 104 230 103 103
(1)
Basic and diluted earnings/(loss) per common share.
F-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-7
2.
ACCOUNTING CHANGES (continued)
Fair value option for financial assets and liabilities
In February 2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS159”). SFAS159 permits entities to choose to measure many financial instruments and certain other
items at fair value, with the objective of improving financial reporting by mitigating volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The
provisions of SFAS159 were adopted January 1, 2008. The Company did not elect the Fair Value Option for any of its
financial assets or liabilities, and therefore, the adoption of SFAS159 had no impact on the Company’s financial
statements.
Uncertain taxes
The Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes” (“FIN 48”) on January 1, 2007 and recorded an opening adjustment of $25 million against opening
retained income as a result of adopting FIN 48.
The Company operates in numerous countries and is subject to, and pays annual income taxes in terms of the various
income tax regimes in the countries in which it operates. Some of these tax regimes are defined by contractual
agreements with local government and others are defined by the general corporate income tax laws of the country. The
Company has historically filed, and continues to file, all required income tax returns and to pay the taxes reasonably
determined to be due. The tax rules and regulations in many countries are complex and subject to interpretation. From
time to time, the Company is subject to a review of its historic income tax filings. In connection w ith such reviews
disputes can arise with the taxing authorities over interpretation or application of certain rules to the Company's
business conducted within the country involved. Refer to Note 7.
Stock based compensation
On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based
Payment”, using the modified prospective transition method. As at December 31, 2008, the Company has five stock-
based employee compensation plans consisting of time-based awards, performance related awards and equity settled
compensation plans as described in Note 29.
Deferred stripping costs
On January 1, 2006, the Company adopted Emerging Issues Task Force (“EITF”) Issue 04-6, “Accounting for Stripping
Costs in the Mining Industry”. Issue No. 04-6 addresses the accounting for stripping costs incurred during the production
phase of a mine and that post production s tripping costs should be considered costs of the extracted minerals under a
full absorption costing system and recognized as a component of inventory to be recognized in cost of sales in the same
period as the revenue from the sale of the inventory. Additionally, capitalization of such costs would be appropriate only
to the extent inventory exists at the end of a reporting period.
The guidance required application through recognition of a cumulative effect adjustment to opening retained earnings in
the period of adoption, with no charge to current earnings for prior periods. The results for prior periods were not
restated. Upon adoption, the cumulative effect of the accounting change reduced opening retained earnings by
$73 million (net of Taxation), increased the value of inventory by $5 million, eliminated the capitalized deferred stripping
balance of $105 million, decreased Deferred taxation by $29 million, reduced Other long-term assets by $3 million and
decrease d Minority interest by $1 million. Adoption of the guidance had no impact on the Company’s cash position or
net cash from operations.
Cut-off adjustments
In prior years certain subsidiaries within the Company have consistently determined the year end close process in
respect of certain operating costs at dates immediately preceding the Christmas vacation period. Historically,
management concluded that any resulting adjustment was immaterial to operating results as all entities had twelve
reporting periods and used the same cut-off dates from year to year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-8
2.
ACCOUNTING CHANGES (continued)
The above errors arose as a combination of the cut-off process being linked to the mine production cycle as well as
utilizing a date not aligned to December 31, although the same dates were utilized from year to year.
On September 13, 2006, the SEC staff published Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108
(SAB Topic 1.N) addresses quantifying the financial statement effects of misstatements, specifically, how the effects of
prior year uncorrected errors must be considered in quantifying misstatements in the current year.
As part of the 2006 year end financial statement close process the Company quantified the balance sheet impact and
determined that it would only have a material effect in the reporting of “Payroll and related benefits”, which is separately
identified on the face of the balance sheet. The other accounts that were affected are Tangible Assets – Mine
development costs; Inventories – Gold in process; Deferred taxation; Cash and cash equivalents; Trade accounts
payable and Payroll and related benefits.
The Company previously considered the above to be immaterial under the rollover method and evaluated the
misstatement against the current year financial statements under both the rollover and iron curtain methods.
In accordance with the transition provisions provided in SAB 108 the cumulative effect of applying SAB 108 as an
adjustment to opening retained earnings is summarized below:
(in millions)
$
Assets
Tangible Assets – Mine development costs
3 (increase)
Inventories – Gold in process
1 (increase)
Deferred taxation
5 (increase)
Trade receivables
5 (decrease)
Liabilities
Trade accounts payable
3
(increase)
Payroll and related benefits
10 (increase)
Other creditors
2 (increase)
Retained earnings
11 (decrease)
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS
2005 acquisitions
On May 31, 2005 the Company acquired an additional 12.4 percent interest in Trans-Siberian Gold plc as discussed under
Note 3 – Acquisition and disposals of businesses and assets: AngloGold Ashanti acquires stake in Trans-Siberian Gold
plc.
2005 disposals
The Company’s disposals during the year included:
•
Conditional sale of Weltevreden mine in exchange for Aflease shares
On July 19, 2005, Aflease Gold and Uranium Resources Limited (Aflease) announced that it had purchased from
AngloGold Ashanti, its Weltevreden mine in an all script deal valued on May 6, 2005 at R75 million ($11 million). On December 19, 2005, Aflease was acquired by sxr Uranium One Incorporated (formerly Southern Cross Incorporated) (sxr Uranium One). The Company has separately classified assets and liabilities for Weltevreden presented in the consolidated balance sheet, as held for sale. Refer to Note 16 – Assets and liabilities held for sale.
20042008 acquisitions
The Company made the following acquisitions during the year:
•Acquisition of minority interests in North America
Business Combination betweenEffective July 1, 2008, AngloGold and Ashanti
On August 4, 2003, AngloGold and Ashanti announced that they had agreedacquired the terms of a recommended Business
Combination at an exchange ratio of 0.26 ordinary shares for every Ashanti share. On the same date, AngloGold entered
into the Lonmin Support Deed, pursuant to which Lonmin, which held 27.6remaining 33 percent of Ashanti's issued share capital,
agreed, among other things, to vote its Ashanti shares in favor of the Business Combination.
After further discussions with AngloGold and careful, detailed consideration of a competitive proposal, and following the
increase by AngloGoldshareholding in the offer consideration from 0.26 to 0.29 ordinary shares,Cripple Creek & Victor
Gold Mining Company joint venture (CC&V) through the Ashanti board announced on
October 15, 2003 that it was recommending the improved final offer from AngloGold.
On October 28, 2003, the governmentacquisition of Ghana, which held 16.8 percent of Ashanti's issued share capital, announced its
support for the AngloGold offer, as well as the principal terms of a Stability Agreement which the government of Ghana
intended to enter into with AngloGold.
AngloGold and the government of Ghana agreed the terms of a Stability Agreement, approved by the parliament of
Ghana, to govern certain aspects of the fiscal and regulatory framework under which AngloGold Ashanti will operate in
Ghana following the implementation of the Business Combination.
Under the Stability Agreement, the government of Ghana retained its special rights (“Golden Share”) under the provisions
of the mining law pertaining to the control of a mining Company, in respect of the assets and operations in Ghana.
In terms of the Golden Share, the following requires, and will not be effective without, the written consent of the
government of Ghana as the holder of the Golden Share:
•
any disposal of its Ghanaian assets and operations by Ashanti (other than any disposal in the ordinary course of
business of Ashanti) which, alone or when aggregated with any disposal or disposals forming part of, or connected
with, the same or a connected transaction, constitutes a disposal of the whole or a material part of the assets of the
Ashanti Group taken as a whole. For this purpose, a part of the Ashanti Group’s assets will be considered material if
either (a) its book value (calculated by reference to the then latest audited consolidated accounts), or the total
consideration to be received on its disposal, is not less than 25 percent of the book value of the net assets of the
Ashanti Group or (b) the average profits attributable to it represent at least 25 percent of the average profits of the
Ashanti Group for the last three years for which audited accounts are available (before dedu cting all charges, except
taxation and extraordinary items).
The Golden Share does not carry any right to vote at any general meeting of Ashanti.
F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued)
The government of Ghana has also agreed that Ashanti's Ghanaian operations will not be adversely affected by any new
enactments or orders or by changes to the level of payments of any customs or other duties relating to mining operations,
taxes, fees and other fiscal imports or laws relating to exchange control, transfer of capital and dividend remittance for a
period of 15 years after the completion of the Business Combination. In consideration of these agreements and
undertakings, AngloGold agreed to issue to the government of Ghana 2,658,000 new AngloGold ordinary shares and to
pay to the government of Ghana $5 million in cash, promptly after the implementation of the Business Combination.
AngloGold also agreed to pay to the government of Ghana, on the date of the completion of the Business Combination, an
additional $5 million in cash towards the transaction costs incurred by the government of Ghan a in its role as regulator of
Ashanti.
The Business Combination was effected by means of a scheme of arrangement under Ghanaian law, which required the
approval of Ashanti shareholders and the confirmation by the High Court of Ghana. In terms of the Business Combination,
Ashanti shareholders received 0.29 ordinary shares or 0.29 ADSs of AngloGold for every Ashanti share or Ashanti GDS
(Global Depositary Security) held. Each ADS represents one AngloGold ordinary share. The Business Combination
whereby AngloGold acquired 100 percent of Ashanti, became effective on April 26, 2004 after the Court Order from theGolden Cycle Gold Corporation
High Court of Ghana was lodged with the Ghana Registrar of Companies. From the effective date, Ashanti became a
private(GCGC). The Company and AngloGold changed its name toissued 3,181,198 AngloGold Ashanti Limited, following approval by its shareholders
at a general meeting held on April 8, 2004.
On April 26, 2004, AngloGold issued 38,400,021 ordinary shares to former Ashanti shareholders and 2,658,000 ordinary
shares under the Stability Agreement to the government of Ghana. On June 29, 2004, AngloGold issued a total of 75,731
ordinary shares to former Ashanti warrant holders(total value $118 million) pursuant to the Business Combination.
this
transaction.
The market value of the shares issued for Ashanti was approximately $1,544 million, net of share issue expenses of
$3 million, based on the average quoted value of the shares of $37.62 two days before and after October 15, 2003, the
date the terms of the transaction were announced. The market value of the issued shares, together with the cash
consideration paid to the government of Ghana as part of the Stability Agreement, cash consideration paid for outstanding
options over Ashanti ordinary shares and transaction costs and funding of $227 million, gave rise to a total purchase price
of approximately $1,771 million.
Ashanti Goldfields Company Limited was delisted from the London, New York and Ghana stock exchanges in late
April 2004. During 2005, AngloGold Ashanti finalizedcompleted the purchase price allocation based on independent appraisals and
valuations.of fixed assets during the third quarter of 2008. The transaction
was accounted for as a purchase business combination under US GAAP whereby identifiable
assets acquired and liabilities assumed
were recorded at their fair market values as of the date of acquisition. The excess
of the purchasepu rchase price over such fair
value was recorded as goodwill and as such, the acquisition resulted in goodwill of
$182 $18 million being recorded, relating
mainly to the extended life of AngloGold Ashanti bypremium paid to obtain the Obuasi projectremaining interest in Ghana and
enlarged negotiation base and presence in Africa by Ashanti operations. In accordance with the provisions of SFAS142,
goodwill was assigned to specific reporting units.CC&V. The Company’s reporting units are generally consistent with the
operating mines underlying the segments identified in Note 29 – Segment and Geographical Information. An individual
operating mine is not a typical "going-concern" business because of the finite life of its reserves. The allocation of goodwill
to an individual operating mine likely will result in an eventual goodwill impairment due to the wasting nature of the primary
asset of the reporting unit. The Company evaluates its held-for-use long lived assets for impairment when events or
changes in circumstances indicate that the related carrying amount likely will not be recoverable over the long term and in
accordance with the provisions of SFAS142 performs its annual impairment review of assigned goodwill during the fourth
quarter of each year. Goodwill related to the acquisition is non-deductiblenon-
deductible for tax purposes.
During the year ended December 31, 2005, the Company recorded an impairment of $4 million relating to goodwill
formerly assigned to operations situated in Ghana (at Bibiani) as part of the Business Combination, resulting from a
reduction in the life of mine following a re-assessment at Bibiani.
The combination of AngloGold and Ashanti was designed to combine the two companies into a long-life, low-cost, high-
margin investment opportunity, bringing together the best that both had to offer, by way of ore bodies, capital and human
resources.
The operations and financial condition of the companies and assets acquired are included in the financial statements from
April 26, 2004, the effective date of the Business Combination.
F-8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-9
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued)
Acquisition of São Bento mine
On December 15, 2008, AngloGold Ashanti announced that it had completed the purchase of São Bento Gold Company
Limited (SBG) and its wholly-owned subsidiary, São Bento Mineração S.A. (SBMSA) from Eldorado Gold Corporation
(Eldorado) for a consideration of $70 million through the issuance of 2,701,660 AngloGold Ashanti shares. The
transaction was accounted for as an asset acquisition. The purchase price was allocated to the underlying assets
acquired. The purchase of SBG and SBMSA gives AngloGold Ashanti access to the São Bento mine, a gold operation
situated in the immediate vicinity of AngloGold Ashanti's Córrego do Sítio mine, located in the municipality of Santa
Bárbara, Iron Quadrangle region of Minas Gerais State, Brazil.
2008 disposals
The Company’s disposals during the year included:
Disposal of exploration interests in Colombia
On February 14, 2008, AngloGold Ashanti announced that it had entered into a binding memorandum of agreement
(MOA) with B2Gold Corp. (B2Gold). The MOA provides for the existing Colombian joint venture agreements between
AngloGold Ashanti and B2Gold to be amended. B2Gold would also acquire from AngloGold Ashanti, additional interests
in certain mineral properties in Colombia. In exchange, B2Gold would issue to AngloGold Ashanti, 25 million common
shares and 21.4 million common share purchase warrants in B2Gold. On May 16, 2008, AngloGold Ashanti announced
that it had completed the transaction to acquire a 15.9 percent direct interest in B2Gold and increase B2Gold's interest
in certain Colombian properties, as stated.
Disposal of equity interest in Nufcor International Limited
During the quarter ended June 30, 2008, the Company disposed of its 50 percent interest held in Nufcor International
Limited, a London based uranium marketing, trading and advisory business, to Constellation Energy Commodities
Group for net proceeds of $48 million.
2007 acquisitions
The Company made the following acquisitions during the year:
In June 2007, the Company acquired certain assets from Trans-Siberian Gold plc (TSG) as further discussed in this
note under 2006 acquisitions “Strategic alliance in Russia with Polymetal and assets acquired from Trans-Siberian Gold
plc”.
•
Acquisition of minority interests in Ghana
AngloGold Ashanti completed the acquisition of the minority interests in the Iduapriem and Teberebie mine
previously held by the Government of Ghana (5 percent) and the International Finance Corporation (10 percent)
effective September 1, 2007 for a total cash consideration of $25 million. The Iduapriem and Teberebie mine is
now wholly-owned by the Company. The Company finalized the purchase price allocation of fixed assets during
the third quarter of 2008. The final purchase price allocation did not vary significantly from the preliminary
allocation.
2007 disposals
The Company’s disposals during the year included:
•
Sale of Ergo surface reclamation operation
On June 8, 2007, AngloGold Ashanti announced that it had sold, subject to certain conditions, most of the
remaining moveable and immovable assets of Ergo, the surface reclamation operation east of Johannesburg,
discontinued in March 2005, to a consortium of Mintails South Africa (Pty) Limited/DRD South African Operations
(Pty) Limited. The transaction was approved by the Competition Commissioner on May 5, 2008. An outstanding
resolutive condition to the sale agreement, is consent by the Minister of Minerals and Energy of the transfer of
mining rights.
•
Sale of Mwana Africa plc shares
During July 2007, AngloGold Ashanti disposed of its investment of 600,000 shares previously held in Mwana
Africa plc for $0.8 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-10
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued(continued))
2006 acquisitions
The carrying amount of goodwill recorded in the AngloGold Ashanti Business Combination by reporting segment, as of
December 31, 2005 and 2004 is summarized as follows:
Ghana
$
Guinea
$
Tanzania
$
Total
$
Balance at January 1, 2003
-
-
-
-
Purchase price allocation for Ashanti Business Combination
122
10
50
182
Impairment losses
-
-
-
-
Balance at December 31, 2004
122
10
50
182
Impairment losses
(4)
-
-
(4)
Balance at December 31, 2005
118
10
50
178
The fair value assigned to major assets and liabilities acquired in Ashanti are disclosed in Note 3 – Fair value of
acquisitions and (disposals) of businesses. The finalization of the purchase price allocation during 2005 in respect of fixed
assets resulted in a reallocation within the respective mines, between Mine development and Mine infrastructure of
$214 million included in Property, plant and equipment. The allocation of goodwill assigned to reporting units was not
affected.
For information purposes only,Company made the following unaudited pro forma financial data reflectsacquisitions during the consolidated results ofyear:
operations of AngloGold Ashanti as if the Business Combination had taken place on January 1, 2004 and on January 1,
2003:
Year ended December 31,
2004•
$
2003
$
Total revenue
2,478
2,429
$
Per basic and
diluted common
share
(1)
(cents)
$
Per basic and
diluted common
share
(1)
(cents)
Net income/(loss) before cumulative effect of accounting change
241
91
(227)
(86)
Cumulative effect of accounting change
-
-
1
-
Net income/(loss) – applicable to common stockholders
241
91
(226)
(86)
Basic weighted average number of common shares used in
computation
264,402,721
263,970,326
Diluted weighted average number of common shares used in
computation
265,098,470
264,851,327
(1)
The calculation of diluted earnings/(loss) per common share for 2004 and 2003 did not assume the effect of 15,384,615 shares
issuable upon the exercise of Convertible Bonds as their effects are anti-dilutive for these periods.
The above pro forma financial data for the year ended December 31, 2004 includes mark-to-market gains on derivative
instruments amounting to $169 million and for the year ended December 31, 2003 includes mark-to-market losses on
derivative instruments amounting to $437 million. The above pro forma financial data for the years ended
December 31, 2004 and 2003 do not include the application of hedge accounting prior to the acquisition to significant
portions of acquired derivative instruments as hedge accounting documentation was not in place during these periods.
The pro forma net loss for the year ended December 31, 2003 assumes the effects of the Convertible Bonds issue which
was raised primarily to finance the acquisition costs, debt repayment commitments, working capital and capital
expenditure requirements of Ashanti Goldfields Company Limited. The pro forma information is not indicative of the re sults
of operations that would have occurred had the Business Combination been consummated on January 1, 2004 and 2003,
respectively. The information is not indicative of the group’s future results of operations.
F-9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued)
•
AngloGold Ashanti acquires stake in Trans-SiberianAgreement signed with China explorer Dynasty Gold plcCorporation
On July 1, 2004, AngloGold Ashanti announced that it had entered into an agreement with Trans-Siberian Gold plc (TSG)
for the acquisition of a 29.9 percent stake in the Company through an equity investment of approximately £18 million
($32 million) in two subscriptions for ordinary shares. The first tranche of ordinary shares of 17.5 percent was acquired
during July 2004. TSG is listed on the London Stock Exchange’s Alternative Investment Market (AIM). This first move into
Russia allows AngloGold Ashanti the opportunity of establishing a meaningful interest in a Company with Russian assets
and activities, thereby allowing AngloGold Ashanti to gain exposure to, and familiarity with, the operating and business
environment in Russia, as well as being able to establish a business within this prospective new frontier. On
D ecember 23, 2004, it was announced that the second subscription had been delayed to April 15, 2005 while on April 18,
2005, the second subscription date was extended by a further two weeks to April 29, 2005. On April 28, 2005, the
Company announced that agreement had been reached with TSG on revised terms for the second subscription of shares
in TSG, and a revised subscription price of £1.30 per share, compared to £1.494 per share agreed between the parties on
June 30, 2004. The revised terms of the subscription was approved by TSG shareholders on MayFebruary 27, 2005 and
AngloGold Ashanti’s 17.5 percent equity interest in TSG increased to 29.9 percent on May 31, 2005, the date on which the
second subscription for 6,131,585 ordinary shares in TSG for an aggregate consideration of £8 million ($15 million) was
completed. The Company’s aggregate shareholding in TSG at December 31, 2005 was 12,263,170 ordinary shares (29.9
percent interest held).
•
Agreement with Red 5 Limited
On October 11, 2004,2006, AngloGold Ashanti announced that it had signed an agreement with Philippines explorer Red 5Dynasty Gold
LimitedCorporation, a Vancouver-based company, with exploration activities in China, to subscribe for a 12.3acquire an effective 8.7 percent
stake in the expanded issued capitalthat company through a purchase of Red 55.75 million Dynasty units at a price of C$0.40 each.
•
Agreement with International Tower Hill Mines Limited for a cash consideration of
A$5 million ($4 million). The placement is being used to fund the exploration activities along strike from current mineral
resources at the Siana Project, and to test the nearby porphyry gold-copper targets in the Surigao region of the Republic
of the Philippines. On August 26, 2005,June 30, 2006, AngloGold Ashanti subscribed for additional shares in Red 5 Limited, for(U.S.A.) Exploration Inc. (AngloGold Ashanti), International Tower Hill
Mines Ltd (ITH) and Talon Gold Alaska, Inc. (Talon), a cash
considerationwholly-owned subsidiary of A$0.8 million ($0.6 million), thereby increasing its holding to 14.1 percent. For a period of 2 yearsITH, entered into an Asset
commencing in October 2004,Purchase and Sale and Indemnity Agreement whereby AngloGold Ashanti has the rightsold to enter into Joint Venture arrangements on Red 5's
tenements (excluding their Siana project) with the potential to earn up toTalon a 67.5100 percent interest in
six Alaska mineral exploration properties and associated databases in return for 5,997,295 common shares of
ITH stock, representing 19.99 percent interest in areasITH (December 31, 2008: 14.55 percent held). AngloGold Ashanti
also granted to ITH the exclusive option to acquire a 60 percent interest in each of interestits LMS and Terra projects by
through further investment inincurring $3 million of exploration expenditure on each project (total of $6 million) within four years of the grant
date of the options. As part of the two option agreements, Anglo Gold Ashanti will have the option to increase or
dilute its stake in these Joint Venture areas. The Company has not yetprojects.
•
Strategic alliance in Russia with Polymetal and assets acquired from Trans-Siberian Gold plc
On September 21, 2006, AngloGold Ashanti announced that it had entered into such Jointa 50:50 strategic alliance (joint
Venture arrangements.venture) with Russian gold and silver producer, OAO Inter-Regional Research and Production Association
Polymetal (Polymetal) in terms of which, Polymetal and AngloGold Ashanti would cooperate in exploration,
acquisition and development of gold mining opportunities within the Russian Federation. At the same time,
AngloGold Ashanti announced that it had submitted an offer to the board of Trans-Siberian Gold plc (TSG) to
acquire all of TSG’s interest in its Krasnoyarsk based subsidiaries, OOO GRK Amikan (Amikan) and OOO Artel
Staratelei Angarskaya Proizvodstvennaya Kompania (AS APK) for a consideration of $40 million. In June 2007,
the Company concluded the purchase of TSG’s i nterests in Amikan and AS APK. These companies acquired from
TSG by AngloGold Ashanti, together with two greenfields exploration companies held by Polymetal, hold the initial
operating assets of the joint venture. Of the assets acquired from TSG, assets of $15 million were subsequently
sold by the joint venture during the quarter ended March 31, 2008.
•
Purchase of Central African Gold Plc (CAG) shares
Arising from the sale of Bibiani assets, AngloGold Ashanti applied $3 million of the partial proceeds to an
investment of 15,825,902 Central African Gold plc (CAG) shares. Subsequent to this decision, local regulators
required that the shares in CAG be sold within 90 days of December 28, 2006. On February 14, 2007, the
Company disposed of 7,000,000 CAG shares yielding total proceeds of £768,845 ($1.5 million) and during
April 2007, disposed of the remaining 8,825,902 CAG shares yielding total proceeds of £894,833 ($1.8 million).
20042006 disposals
The Company’s disposals during the year included:
•
•
Sale of Western Tanami project
On January 20, 2004, AngloGold announced that it had received a cash payment of A$4 million ($3 million) and 25 million
fully paid ordinary shares from Tanami Gold NL in Australia, as consideration for Tanami Gold's purchase of the Western
Tanami Project. This follows an initial payment of A$0.3 million ($0.2 million) made on November 24, 2003, when the
Heads of Agreement was signed by the companies. The Company realized a profit of $3 million on sale of these assets.
Refer to Note 5 – (Profit)/loss on sale of assets. In addition, a further 2 million fully paid ordinary shares were received
from Tanami Gold in respect of a rights issue in June 2004. During the period October 10, through October 18, 2005,
AngloGold Ashanti Australia reduced it shareholding in Tanami Gold to 5 percent, through the sale of 8 million fully paid
ordinary shares for a cash consideration of A$1.3 million ($1.0 million) and in February 2006, disposed of the entire
investment in Tanami Gold with the sale of 19 million shares for a cash
consideration of A$3.9 million ($3.0 million).
•
Sale of Union Reefs MineBibiani
On August 5, 2004,23, 2006, AngloGold Ashanti announced that it had entered into a conditional agreement with Central
African Gold plc (CAG) to sell the assets, related to Bibiani and Bibiani North prospecting permit to CAG for a
consideration of $40 million. The conditions precedent to the sale of its Union Reefs assetswere satisfied effective December 28, 2006. The
Bibiani North prospecting license was assigned to CAG on May 17, 2007 by the Burnside Joint Venture,Ghanaian Land Commission and
comprising subsidiaries of Northern Gold NL (50 percent) and Harmony Gold Mining Company Limited (50 percent), for a
total consideration of A$4 million ($2 million). The Burnside Joint Venture is responsible for all future obligations
associated with the assets, including remaining site rehabilitation and reclamation. The Company realized a profit of
$2 million on sale of these assets. Refer to Note 5 – (Profit)/loss on sale of assets.Registry.
F-10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-11
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued(continued))
•
Sale of Freda-Rebecca Mine
In a joint announcement made on September 10, 2004, AngloGold Ashanti confirmed its agreement to sell its entire
interest in Ashanti Goldfields Zimbabwe Limited to Mwana Africa Holdings (Proprietary) Limited for a total consideration of
$2.255 million, to be settled in two tranches, $0.75 million immediately and the balance ($1.505 million) to be settled within
six months of the satisfaction of all conditions to the sale agreement. The sale was effective on September 1, 2004 and all
conditions to the sale agreement were satisfied on April 22, 2005. Subsequently in August 2005, AngloGold Ashanti and
Mwana Africa Holdings (Proprietary) Limited agreed that the second payment of $1.505 million would be settled by an
immediate payment of $1.0 million and the subsequent issue to AngloGold Ashanti of 600,000 Mwana Africa plc shares,
once that company listed on the Lond on Stock Exchange. Mwana Africa plc is a junior exploration and mining company
with assets located in Zimbabwe as well as in the Democratic Republic of Congo. AngloGold Ashanti retains its 600,000
shares in Mwana Africa plc. The sole operating asset of Ashanti Goldfields Zimbabwe Limited as sold to Mwana Africa
Holdings (Proprietary) Limited was the Freda-Rebecca Gold Mine. No (profit)/loss was realized on disposal.
•
Sale of stake in Tameng Mining and Exploration
Agreement was reached to sell AngloGold Ashanti’s 40 percent equity interest in Tameng Mining and Exploration
(Proprietary) Limited of South Africa (Tameng) to Mahube Mining (Proprietary) Limited for a cash consideration of
R20 million ($3 million). Tameng owns certain mineral rights to platinum group metals (PGMs) on the farm Locatie Van
M’Phatlele KS 457, on the northern limb of the Bushveld Complex in the Limpopo Province in South Africa. No
(profit)/loss was realized on disposal and the sale was effective on September 1, 2004.
2003 acquisitions
The company made the following acquisition during the year:
•
Purchase of a portion of the Driefontein mining area from Gold Fields Limited
On September 18, 2003, AngloGold and Gold Fields Limited jointly announced that agreement had been reached on the
sale by Gold Fields Limited of a portion of the Driefontein mining area in South Africa to AngloGold for a cash
consideration of R315 million ($48 million). The purchase price including the related deferred taxation thereon, has been
capitalized as mining assets.
2003 disposals
The company’s disposals during the year included:
•
Sale of Amapari project located in the State of Amapá, North Brazil
On May 23, 2003, AngloGold announced that it had signed an agreement to sell its wholly-owned Amapari Project to
Mineração Pedra Branca do Amapari, for the total consideration of $18 million. The effective date of the transaction was
May 19, 2003. The Amapari project is located in the State of Amapá, in northern Brazil. Since acquiring the property as
part of the Minorco transaction, AngloGold had sought to prove up additional reserve ounces so as to achieve a size and
life that would justify the management resources needed to run it effectively. This was not achieved and AngloGold, on
receiving an offer from a purchaser who could constructively turn this orebody to account, agreed to sell. AngloGold
realized a loss of $3 million on the disposal of the Amapari project. Refer to Note 5 – (Profit)/los s on sale of assets.
•
Sale of stake in the Gawler Craton Joint Venture to Helix Resources Limited
On June 6, 2003, AngloGold announced that it had finalized the sale of its 49 percent stake in the Gawler Craton Joint
Venture, including the Tunkillia project located in South Australia to Helix Resources Limited. Consideration for the sale
comprised cash of $500,000 (A$750,000), 1.25 million fully-paid Helix shares issued at A$0.20 per share and 1.25 million
Helix options exercisable at A$0.25 per option before November 30, 2005 with an additional payment of $335,000
(A$500,000) deferred to the delineation of a mineable resource of 350,000 ounces. Helix’s proposed acquisition of
AngloGold’s rights to the Tarcoola Project, 60 kilometers to the south, was excluded from the final agreement. This
resulted in a restructure of the original agreement terms, as announced on April 8, 2003. On April 23, 2005, t he Company
received a further 416,667 fully-paid Helix shares and 37,281 Helix options following a rights issue. The Company did not
exercise its rights in terms of the Helix options which expired on November 30, 2005.
F-11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued)
•
Sale of stake in Jerritt Canyon Joint Venture to Queenstake Resources USA Inc.
On July 2, 2003, AngloGold announced that it had concluded the sale of its interest in the Jerritt Canyon Joint Venture to
Queenstake Resources USA Inc. effective June 30, 2003. This followed negotiations originally announced on
February 27, 2003. Queenstake paid the Jerritt Canyon Joint Venture partners, AngloGold and Meridian Gold, $1.5 million
in cash and 32 million shares of Queenstake stock, with $6 million in deferred payments and $4 million in future royalty
payments. Queenstake accepted full closure and reclamation liabilities. The shares acquired by AngloGold in this
transaction were issued by Queenstake Resources Limited, a subsidiary of Queenstake, and represents approximately 9.2
percent of that Company’s issued share capital. AngloGold disposed of its entire interest in Queenstake during Novembe r
2003. AngloGold realized a profit of $10 million and $3 million, respectively, on sale of the Jerritt Canyon Joint Venture
and the investment held in Queenstake. Refer to Note 5 – (Profit)/loss on sale of assets. In 2004, Queenstake
approached the Jerritt Canyon Joint Venture partners, AngloGold and Meridian Gold, about the possibility of monetizing all
or at least a majority of the $6 million in deferred payments and $4 million in future royalties, payable in the concluded sale
of AngloGold’s interest in the Jerritt Canyon Joint Venture to Queenstake Resources USA Inc., effective June 30 2003.
Based on an agreement reached between the parties, AngloGold Ashanti was paid on August 25, 2004 approximately
$7 million for its portion of the deferred payments and future royalties, thereby monetizing all outstanding obligations,
except for a minor potential royalty interest that AngloGold Ashanti retained.
•
Sale of investments held in East African Gold Mines Limited and Randgold Resources Limited
On July 8, 2003 AngloGold disposed of its entire investment of 8,348,600 shares held in East African Gold Mines Limited
for a consideration of $25 million and in the second half of 2003 AngloGold disposed of 952,481 shares in Randgold
Resources Limited, for a consideration of $23 million. AngloGold realized a profit of $42 million on sale of these
investments. Refer to Note 5 – (Profit)/loss on sale of assets.
Fair value of acquisitions and (disposals)acquisition of businessesbusiness
20052008
TotalGolden Cycle
2004
Ashanti
Goldfields
Company
Limitedacquisition
(1)(3)
2004
Other
(3)
2004
Total
$
$
$
$
Cash
-
56
-
56
Property, plant and equipment
-
2,066
(5)
2,061
Acquired properties
-
873
-
87393
Goodwill
(1)
-
182
-
182
Other intangibles
(2)
-
49
-
49
Provision for environmental rehabilitation
-
(51)
1
(50)
Long-term liabilities
-
(743)
1
(742)18
Current assets
-
126
(4)
122
Current liabilities
-
(155)
3
(152)
Long-term debts
-
(197)
2
(195)
Derivatives -
(432)
-
(432)
Minority interest
-
(3)
-
(3)7
Net value of assets acquired/(disposed)acquired
-
1,771
(2)
1,769
Profit on sale of assets
-
-
-
-
Purchase/(sale) consideration
-
1,771
(2)
1,769
Deferred purchase consideration
-
-
2
2
-
1,771
-
1,771118
Purchase price (paid)/receivedpaid
-
(1,771)
-
(1,771)
- Cash consideration
-
(227)
-
(227)(118)
- Issuance of common stock
-
(1,544)
-
(1,544)(118)
Gross value
-
(1,547)
-
(1,547)(118)
Share issue expenses
-
3
-
3
(1)
The AngloGold Ashanti Business CombinationGolden Cycle Gold Corporation business combination was completed effective April 26, 2004.July 1, 2008. Refer to Note 3 — Acquisitions and disposalsto: Acquisition of minority interests in North
of businesses and assets: Business Combination between AngloGold and Ashanti.America. The Company has recorded goodwill, relating to
the portion of the purchase price which cannot be attributed to the fair value of assets and
liabilities acquired, of $182$18 million on
acquisition. During the year ended December 31, 2005, the Company recorded an impairment of $4 million relating to goodwill
formally assigned to operations situated in Ghana (at Bibiani) as part of the Business Combination. Refer to Note 5 – Impairment of
assets.
F-12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
3.
ACQUISITIONS AND DISPOSALS OF BUSINESSES AND ASSETS (continued)
(2)
Represents royalty rate and tax rate concession agreements with the government of Ghana. Fair value is based on estimated future
cash flows. During the year ended December 31, 2005, the Company recorded an impairment of $20 million relating to the tax rate
concession agreement with the government of Ghana. Refer to Note 5 – Impairment of assets.
(3)
Operations and assets acquired from Ashanti in the AngloGold Ashanti Business Combination are situated in Ghana, Guinea,
Tanzania and Zimbabwe and are reported under these respective business segments. During 2004, the Company disposed of its
interest in the Freda-Rebecca Mine in Zimbabwe for a total consideration of $2 million, settled partly in cash and partly in shares. For
more information on the Company’s business segments see Note 29 – Segment and geographical information.
4.
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The accompanying financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. The Company presents its consolidated financial
statements in United States dollars. The functional currency of a significant portion of the group’s operations is the
South
African rand. Other main subsidiaries have functional currencies of US dollars and Australian dollars. The
translation of
amounts into US dollars was in accordance with the provisions of SFAS52, “Foreign Currency Translation���
Translation”.
Use of estimates: estimates: The preparation of the financial statements requires the Company’s management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting
period. The determination of estimates requires the exercise of judgment based on various assumptions and
other factors
such as historical experience, current and expected economic conditions, and in some cases actuarial
techniques. The
Company regularly reviews estimates and assumptions that affect the annual financial statements,
however, actual results
could differ from those estimates.
The more significant areas requiring the use of management estimates and assumptions include mineral reserves that
are
the basis of future cash flow estimates and unit-of-production depreciation, depletion and amortization calculations;
environmental, reclamation and closure obligations; estimates of recoverable gold and other materials in heap leach
pads;
asset impairments (including impairments of goodwill, long-lived assets, and investments); write-downs of
inventory to net
realizable value; post employment, post retirement and other employee benefit liabilities; valuation
allowances for deferred
taxation assets; reserves for contingencies and litigation; and the fair value and accounting
treatment of financial
instruments.
Comparatives: Comparatives have been reclassified, where necessary to comply with the current year’s presentation.
The following are the accounting policies used by the Company which have been consistently applied except for the
adoption
of SFAS143,FIN 48, “Accounting for Asset Retirement Obligations (AROs)”Uncertainty in Income Taxes” on January 1, 2003 and the Company’s change in
accounting policy, retroactive to January 1, 2005, with respect to accounting for employee pension and post-retirement
benefit plans.
4.1 Consolidation2007.
4.1
Consolidation
The consolidated financial information includes the financial statements of the Company and its subsidiaries.
Where
the Company has a direct or indirect through its subsidiary, controlling interest in an entity through a subsidiary, the entity is
classified as a
subsidiary. Interests in incorporated mining joint ventures in which the Company has joint control
are accounted for
by the equity method and are included in other long-term assets.method.
The financial statements of subsidiaries and the Environmental Trust Fund (a rehabilitation trust under the
Company’s control) are prepared for the same reporting period
as the holding Company, using the same accounting
policies, except for Rand Refinery Limited (a subsidiary of the Company) which reports on a
three-month time
lag. Adjustments are made to the subsidiary financial results for material transactions and events in the intervening
period.
Subsidiaries are fully consolidated from the date on which control is transferred to the group.transferred. They are de-
consolidatedde-consolidated from the
date on which control ceases.
F-13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
F-12
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.1 Consolidation(continued)
Intra-group transactions, balances and unrealized gains on transactions between group companies are eliminated.
Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred.4.2
Where the excess purchase price of a business acquisition cannot be attributed to assets acquired, including
acquired properties, it is included in goodwill and reviewed for impairment in accordance with the provisions of
SFAS142.
4.2 Investments in equity investees (associates and incorporated joint ventures)
Investments in associates
An associate is an entity other than a subsidiary in which the groupCompany has a material long-term interest and in
respect of
which the groupCompany has the ability to exercise significant influence over operational and financial
policies, normally
owning between 20 percent and 50 percent of the voting equity.
Investments in incorporated joint ventures
A joint venture is an entity in which the groupCompany holds a long-term interest and which is jointly controlled by the group
Company and one or more external joint venture partners under a contractual arrangement.
arrangement that provides for
strategic, financial and operating policy decisions relating to the activities requiring unanimous consent.
Investments in associates and incorporated joint ventures are accounted for using the equity method. Subsequent to the
acquisition date, the group’s share of profits or losses of associates and joint ventures is recognized in the income
statement as equity accounted earnings and its share of movements in equity reserves is recognized directly in the
statement of changes in shareholders’ equity. All cumulative post-acquisition movements in the equity of associates
and joint ventures are adjusted against the cost of the investment.
Goodwill relating to associates and incorporated joint ventures is included ini n the carrying value of the group’s investment in thoseCompany’s
entities.investment. The total carrying value of equity accounted investments in associates and incorporated joint
ventures, including goodwill,
is evaluated for impairment when conditions indicate that a decline in fair value
below the carrying amount is other
than temporary or at least annually. When impaired,an indicated impairment exists, the
carrying value of the group’sCompany’s investment in those entities is
written down to its fair value. The group’s Company’s
share of results of equity accounted investees, that have financial years
within three months of the fiscal year-endyear-
end of the group,Company, is included in the consolidated financial statements based on
the results reported by those
investees for their financial years. There were no significant adjustments required to be
made in respect of equity
accounted investees which have financi alfinancial years that are different to those of the group.Company.
Profits realized in connection with transactions between the Company and associated companies are eliminated
in proportion to ownership.
4.3
Foreign currency translation
Items included in the financial statements of each of the group’sCompany’s entities are measured using the currency of
the
primary economic environment in which the entity operates (the ‘functional currency’).
Transactions and balances
Transactions in foreign currencies are converted at the rates of exchange ruling at the date of these transactions.
Monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange ruling at
balance
sheet date. Non-monetary items are translated at historic rates. Gains, losses and costs associated
with foreign currency transactions are recognized in the income
statement in the period to which they relate.relate,
except where hedge accounting is applied. These transactions are included in the determination of other income.
F-14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.3 Foreign currency translation (continued)
Group companies
Group companies
The results and financial position of all group entities (none of which has the currency of a hyperinflationary economy)
that have a functional currency different from the
presentation currency are translated into the presentation currency
as follows:
•
equity items other than profit attributable to equity shareholders are translated at the closing rate on each balance
sheet date;rate;
•
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance
sheet;rate;
•
income and expenses for each income statement are translated at average exchange rates (unless this
average is
not a reasonable approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which
case income and expenses are translated at the dates of the transactions);
and
•
all resulting exchange differences are recognized as a separate component of equity and included within
other
comprehensive income.
Exchange differences arising from the translation of the net investment in foreign operations, and of borrowings
and
other currency instruments designated as hedges of such investments, are taken to shareholders’stockholders’ equity on
consolidation.
When a foreign operation is sold, suchcumulative exchange differences are recognized in the income statement as
part of the
gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and
liabilities of the foreign operation and translated at the closing rate.rate at each balance sheet date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-13
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.4
Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to
risks and returns that are different from those of other business segments and are reported on a reporting segment basis
basis using athe management approach. This approach is based on the way management organisesorganizes segments within
the groupCompany for making operating decisions and assessing performance. The Chief operating decision maker Operating Decision Maker
has
determined that the groupCompany operates primarily in one segment, Gold.the delivery of gold. A geographical segment is engaged
in providing
products or services within a particular economic environment that is subject to risks and returns that
are different
from those of segments operating in other economic environments.
4.5
Cash and cash equivalents and restricted cash
Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of
three
months or less. Due to the short maturity of cash equivalents, their carrying amounts approximate their fair
value.
Restricted cash is reported separately in the consolidated balance sheets for all periods presented.sheets.
4.6
Non-marketable equity investments and debt securities
Non-marketable equity investments,
Investments in non-marketable debt securities for which the Company does not havecontrol or exercise significant
influence or a controlling
interest, are carried at acquisition cost. Realized gains and losses are included in net income or loss. Unrealized
losses are included in net income or loss when a significant decline in the value of the investment, which is other than
temporary, has occurred. Investments in companies in which the Company’s ownership is 20 percent to 50 percent
and the Company is deemed to have significant but not controlling influence, are accounted for by the equity method
and are included in other long-term assets. Equity method investments including interests in mining joint ventures are
reviewed for impairment in accordance with APB18, “The Equity Method of Accounting for Investments in Common
Stock”. Income from such investments net of impairments is included in equity income of affili ated companies.
Investments in non-marketable debt securities that are classified as held to maturity are subsequently measured at
amortized cost. If there is evidence
that held to maturity financial assets are impaired the carrying amount of the
assets is reduced and the loss recognized in the
income statement.
F-154.7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.7 Marketable equity investments and debt securities
Marketable equity investments and debt securities which are considered available-for-sale, are carried at fair
value,
and the net unrealized gains and losses computed in marking these securities to market are reported
within other
comprehensive income in the period in which they arise. These amounts are removed from other
comprehensive
income and reported in income when the asset is derecognized or when there is evidence that
the asset is impaired
in accordance with the provisions of SFAS115, “Accounting for Certain Investments in Debt
and Equity Securities”Securities (“SFAS115”)”.
4.8 Inventories
Marketable debt securities that are classified as held to maturity are subsequently measured at amortized cost.
4.8
Inventories
Inventories, including gold in process, gold on hand (doré/bullion), uranium oxide, sulphuricsulfuric acid, ore stockpiles
and supplies, are
stated at the lower of cost or market value. Gold in process is valued at the average total
production cost at the
relevant stage of production.production as described below. The cost of gold, uranium oxide and sulphuric
sulfuric acid is determined principally by the
weighted average cost method using related production costs.
Ore stockpiles are valued at the average moving cost of mining the ore. Supplies are valued at the lower of
weighted
average cost or market value. Heap leach pad materials are measured on an average total production
cost basis.
The cost of inventory is determined using the full absorption costing method for the stage of completed production.
method. Gold in process and ore stockpile
inventory include all costs attributable to the stage of completion. Costs capitalized
to inventory include
amortization of property, plant and equipment and capitalized mining costs, direct and indirect
materials, direct
labor, shaft overhead expenses, repairs and maintenance, utilities, metallurgy costs, attributable production
production taxes and royalties, and directly attributable mine costs. Gold on hand (doré/bullion) includes all gold in process
and
refining costs. Ore is recorded in inventory when blasted underground, or when placed on surface stockpiles
in the
case of open-pit operations.
The costs of materials currently contained on the leach pad are reported as a separate line item apart from inventory.
item. As at
December
31,
2005, $37
2008 and 2007, $49 million was classified as short term compared with $105
million as at
December 31, 2004short-term as the Company expects the related gold
to be recovered within twelve months. The short term
short-term portion of materials on the leach pad is determined by
multiplying the average cost per ounce in inventory by the
expected production ounces for the next twelve
months. Based on data gathered and analyzed during 2005 from
2004Short-term heap leach pad drilling results, and other studies and analysis completed, short-term heap leach pad inventory
occur occurs in two forms: (1) gold recoverable but yet to be dissolved (i.e.
(i.e. gold still in the ore), and (2) gold recoverable
from gold dissolved in solution within the leach pad (i.e. pore
water). This revised estimate calculation was used in
determining the short termshort-term portion of materials on the leach pad as at December 31, 2005. As at
December 31, 2005, $1162008. As at December 31, 2008, $261 million was classified as long termlong-term compared with $22
$190 million as at December 31, 2004.2007.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-14
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.9
Development costs and stripping costs
Development costs relating to major programs at existing mines are capitalized. Development costs consist
primarily
of expenditures to initially establish a mine and to expand the capacity of operating mines.
Stripping costs incurred in open-pit operations during the production phase to remove additional waste are charged to
operating costs on the basis of the average life of mine stripping ratio and the average life of mine costs per tonne.
The average stripping ratio is calculated as the number of tonnes of waste material expected to be removed during
the life of mine per tonne of ore mined. The average life of mine cost per tonne is calculated as the total expected
costs to be incurred to mine the orebody divided by the number of tonnes expected to be mined. The average life of
mine stripping ratio and the average life of mine cost per tonne are recalculated annually in the light of additional
knowledge and changes in estimates. The cost of the “excess stripping” is capitalized as mine development costs
when the actual mining costs exceed the sum of the adjusted tonnes mined, being the ac tual ore tonnes plus the
product of the actual ore tonnes multiplied by the average life of mine stripping ratio, multiplied by the life of mine cost
per tonne. When the actual mining costs are below the sum of the adjusted tonnes mined, being the actual ore
tonnes plus the product of the actual ore tonnes multiplied by the average life of mine stripping ratio, multiplied by the
life of mine cost per tonne, previously capitalized costs are expensed to increase the cost up to the average. Thus,
the cost of stripping in any period will be reflective of the average stripping rates for the orebody as a whole.
The deferred stripping costs are included in the calculations of the impairment tests performed in accordance with the
provisions of SFAS144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.
F-16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.9 Development costs and stripping costs (continued)
The practice of deferring stripping costs, has the effect of amortizing the cost of waste ore removal over the expected
life of mine as an inventoriable type cost rather than reflecting actual waste ore removal cost incurred in each period
presented.
If waste ore is expensed rather than capitalized and amortized, this might result in the reporting of greater volatility in
period to period results of operations.
Deferred stripping costs deferred and amortized are included in production costs in the consolidated statements of
income for all periods presented and deferred stripping costs are reported separately in the consolidated balance
sheets for all periods presented.
On March 17, 2005 and on June 15 and 16, 2005, The Emerging Issues Task Force (“EITF”) reached a consensus in
January 1, 2006, the Company adopted EITF Issue 04-6, “Accounting for Stripping Costs in the Mining
Industry”, that. In accordance with the guidance of Issue No. 04-6, post production stripping costs should beare considered
consideredcosts of the extracted minerals under a full absorption costing system and recognized as a component of
inventory andto be recognized in cost of sales in
the same period as the revenue from the sale of the inventory. The guidance in Issue 04-6 is effective for financial
statements issued for fiscal years beginning after December 15, 2005. The Company plansAdditionally, capitalization of such costs are appropriate only to adopt Issue 04-6 onthe extent inventory exists at the end of a
January 1, 2006.reporting period.
Upon adoption,Costs associated with the cumulative effectopening of accounting change will be a reduction to the balance of retained earnings at
January 1, 2006 of $96 million (net of Taxation), an increase in the value of inventory of $6 million, a reduction in the
value of deferred stripping of $105 million, a decrease in Deferred taxation of $5 million, a reduction in Other long
term assets of $3 million and a decrease in Minority interest of $1 million. Adoption of the new guidance will have no
impact on the Company’s cash position.pit, are capitalized as mine development costs.
4.10 Depreciation, depletion and amortization
Mine development costs, mine plant facilities and other fixed assets
Mine development costs, mine plant facilities and other fixed assets are recorded at cost less accumulated
amortisationamortization and impairments. Cost includes pre-production expenditure incurred during the development of a
mine
and the present value of future decommissioning costs. Cost also includes finance charges capitalized
during the
construction period where such expenditure is financed by borrowings.
If there is an indication that the recoverable amount of any of the Mine development costs, mine plant facilities and
other fixed assets is less than the carrying value, the recoverable amount is estimated and an allowance is made for
the impairment in value.
Capitalized mine development costs include expenditure incurred to develop new orebodies, to define further
mineralisationmineralization in existing orebodies and to expand the capacity of a mine and to maintain production.mine. Where funds have
been borrowed
specifically to finance a project, the amount of interest capitalized represents the actual borrowing
costs incurred. Mine development costs include acquired proved and probable mineral resources at cost at
acquisition date.
Depreciation, depletion and amortization of mine development costs are computed principally by the units-of-
production method based on estimated proven and probable mineral reserves. Proven and probable mineral
reserves reflect estimated quantities of economically recoverable reserves which can be recovered in the future
from
known mineral deposits.
F-17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.10 Depreciation, depletion and amortization (continued)
Mine plant facilities are amortized using the lesser of their useful life or units-of-production method based on
estimated proven and probable mineral reserves. Main shafts are depleted using total proven and probable
reserves
as the shaft will be used over the life of the mine. Other infrastructure costs including ramps, stopes,
laterals, etc and
ore reserve development are depleted using proven and probable reserves applicable to that
specific area. When an
area is vacated and there is no longer an intention to mine in that area due to a change in mine
plans, all costs that
have not been depleted are written off.
Other fixed assets comprising vehicles and computer equipment, are depreciated by the straight-line method
over
their estimated useful lives as follows:
·
•
vehicles up to five years; and
·•
computer equipment up to three years.
Acquired properties
Acquired properties are carried at amortized cost. Purchased undeveloped mineral interests are acquired
mineral
rights and, in accordance with Financial Accounting Standards Board Staff Position FSP141/FSP FAS 141/142-1, “Interaction of FASB Statements No. 141 and
No. 142 and EITF Issue No. 04-2” are recorded as
tangible assets as part of acquired properties. The amount
capitalized related to a mineral interest represents its fair
value at the time it was acquired, either as an individual
asset purchase or as a part of a business combination.
“Brownfield” “Brownfield” stage mineral interests represent interests
in properties that are believed to potentially contain other
mineralized material, such as measured, indicated or
inferred mineral resources with insufficient drill spacing to
qualify as proven and probable mineral reserves, that
is in proximity to proven and probable mineral reserves and
within an immediateimm ediate mine structure. “Greenfield”
stage mineral interests represe ntrepresent interests in properties that are
other mine-related or greenfields exploration
potential that are not part of measured or indicated resources and are
comprised mainly of material outside of a
mine’s infrastructure. The Company’s mineral rights are enforceable
regardless of whether proven and probable
mineral reserves have been established. The Company has the ability
and intent to renew mineral rights where
the existing term is not sufficient to recover all identified and valued proven
and probable mineral reserves and/or
undeveloped mineral interests.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-15
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.10 Depreciation, depletion and amortization (continued)
Brownfield properties are carried at acquired costs until such time as a mineral interest enters the production
stage and are amortized using the unit-of-production method based on estimated proven and probable mineral
reserves.
Greenfield mineral interests are carried at acquired costs until such time as a mineral interest enters the
production
stage and are amortized using the unit-of-production method based on estimated proven and
probable mineral reserves.
reserves.
Both Brownfield properties and Greenfield mineral interests are evaluated for impairment as held for use assets
in
accordance with the Company’s asset impairment accounting policy. See Note 4.13.
4.11MiningOther mining costs
MiningOther mining costs including repair and maintenance costs incurred in connection with major maintenance
activities are
charged to operations as incurred.
4.12 Intangible assetsGoodwill
Acquisition and goodwill arising thereon
Where an investment in a subsidiary, joint venture or an associate is made, any excess of the purchase price
over the
fair value of the attributable mineral reserves exploration including value beyond proven and probable, acquired
properties and other net assets is recognized as goodwill.
Goodwill relating to subsidiaries is tested annually for impairment at least annually or when indicators of impairment exist
and is carried at cost less accumulated impairment
losses.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to reporting units for the purpose of impairment testing.
Goodwill in respect of subsidiaries is disclosed as goodwill. Goodwill relating to incorporated joint ventures and
associates is
included within the carrying value of the investment in incorporated joint ventures and associates
and tested for impairment when
indicators exist.
F-18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) See Note 4.2.
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.12 Intangible assets(continued)
Royalty rate and tax rate concessions
Royalty rate and tax rate concessionsThe allocation of goodwill to an individual operating mine will result in an eventual goodwill impairment due to the
wasting nature of the mine reporting unit. In accordance with the Governmentprovisions of Ghana were capitalized at fair value at agreementSFAS142, the Company performs
date. Fair value represents a present valueits annual impairment review of future royalty rate concessions over 15 years. The royalty rate and tax
rate concessions were assessed to have a finite life and are amortized under a straight-line method over a period of
15 years,assigned goodwill during the period over which the concession runs. The related amortisation expense is charged through the
income statement. These intangible assets are also tested for impairment where there is an indicatorfourth quarter of impairment.each year.
4.13Asset impairment
The Company evaluates its held-for-use long lived assets for impairment when events or changes in
circumstances
indicate that the related carrying amount may not be recoverable. If the sum of estimated future
cash flows on an
undiscounted basis is less than the carrying amount of the related asset, including goodwill, if
any, an asset
impairment is considered to exist. The related impairment loss is measured by comparing
estimated future cash flows
on a discounted basis to the carrying amount of the asset. Changes in significant assumptions underlying future cash
flow estimates may have a material effect on the Company’s financial position and results of operations.
Management’s estimate
of future cash flows is subject to risk and uncertainties. It is therefore reasonably possible
that changes could
occur which may affect the recoverability of the group’s mining assets. The Company re cordsrecords a
reduction of a
group of assets to fair value as a charge to earnings if expected future cash flows are less than the carrying
carrying amount. The Company estimates fairf air value by discounting the expected future cash flows using a discount factor
factor that reflects the risk-free rate of interest for a term consistent with the period of expected cash flows, adjusted for
for asset specific and country risks. A low gold price market, if sustained for an extended period of time, may result in
asset impairments. In addition, an asset impairment is considered to exist where the net selling
price of an asset held
for sale is below its carrying amount. Once identifiedrecognized an impairment loss is nevernot reversed.
An individual operating mine is not a typical "going-concern" business because of the finite life of its reserves. The
allocation of goodwill to an individual operating mine may result in an eventual goodwill impairment due to the wasting
nature of the mine reporting unit. In accordance with the provisions of SFAS142, the Company performs its annual
impairment review of assigned goodwill during the fourth quarter of each year.
4.14 Borrowing costs
Interest on borrowings relating to the financing of major capital projects under construction is capitalized during
the
construction phase as part of the cost of the project. Such borrowing costs are capitalized over the period
during
which the asset is being acquired or constructed and borrowings have been incurred. Capitalisation Capitalization
ceases when
construction is interrupted for an extended period or when the asset is substantially complete.
Other borrowing costs
are expensed as incurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-16
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.15 Leased assets
Assets subject to finance leases are capitalized at the lower of fair value or present value of minimum lease
payments
with the related lease obligation recognized at the same amount. Capitalized leased assets are
depreciated over the
shorter of their estimated useful lives and the lease term. Finance lease payments are
allocated using the effective
interest rate method, between the lease finance cost, which is included in finance
costs, and the capital repayment,
which reduces the liability to the lessor.
Operating lease rentals are charged against operating profits in a systematic manner related to the period the
assets
concerned will be used.
4.16 Provisions
Provisions are recognized when the Company has a present obligation, whether legal or constructive, as a result
of a
past event for which it is probable that an outflow of resources embodying economic benefits will be required
to settle
the obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of management’s best estimate of the expenditure required to
settle the
present obligation at the balance sheet date. The discount rate used to determine the present value
reflects current
market assessments of the time value of money and the risks specific to the liability.
F-19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.17 Taxation
Deferred taxation is provided on all temporary differences at the balance sheet date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes.
The carrying amount of deferred taxation assets is reviewed at each balance sheet date and reduced by a valuation
allowance to the extent that it is more likely than not that sufficient future taxable profit will be available to allow all or
part of the deferred taxation asset to be utilized.
A deferred taxation liability is recognized for all taxable temporary differences if it is more likely than not that the
temporary difference will reverse in the foreseeable future.
Deferred taxation assets and liabilities are measured at tax rates, which have been enacted at the balance sheet
date. See Note 4.22.
Current and deferred taxation is recognized as income or expense and included in the profit or loss for the
period,
except to the extent that the tax arises from a transaction or event which is recognized, in the same or a
different
period directly in equity; or a business combination that is an acquisition.
See Note 4.22.
Current taxation is measured on taxable income at the applicable enacted statutory rate.rates.
The Company’s operation involves dealing with uncertainties and judgments in the application of complex tax
regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations
with taxing authorities and resolution of disputes arising from federal, state, and international tax audits. The
Company recognizes tax liabilities for anticipated tax audit issues in tax jurisdictions based on its estimate of
whether, and the extent to which, additional taxes will be due. The Company recognizes interest and penalties,
if any, related to unrecognized tax benefits.
4.18 Asset retirement obligations and rehabilitation costs
AngloGold adopted SFAS143,The Company accounts for asset retirement obligations in accordance with Statement of Financial Accounting
Standards No. 143, “Accounting for Asset Retirement Obligations (AROs)” with effect from
January 1, 2003 as follows:(“SFAS143”).
UnderAROs arise from the acquisition, development, construction and operation of mining property, plant and
equipment, due to government controls and regulations that protect the environment on the closure and
reclamation of mining properties. The asset is amortized over its estimated useful life. In accordance with the
provisions of SFAS143 the fair value of a liability for an asset retirement obligation is recorded in the period in
which it is
incurred. When the liability is initially recorded, the cost is capitalized by increasing the carrying
amount of the related
long-lived asset. Over time, the liability is increased to reflect an interest element
(accretion) considered in its initial
measurement at fair value, and the capitalized cost is amortized over the
useful life of the related asset. Where the
obligation isarises from activities that are operational ofin nature and does
not give rise to futurefutu re economic benefit, the capitalized cost is amortized
in the period incurred. Upon settlement
of the liability, a gain or loss will be recorded if the actual cost incurred is
different thanfrom the liability recorded.
The adoption of SFAS143 on January 1, 2003 resulted in an increase in Property, plant and equipment of $1 million,
an increase in Provision for environmental rehabilitation of $4 million and a cumulative effect of adoption which
decreased net income and stockholders’ equity by $3 million. No increase in deferred taxation was recorded upon the
adoption of SFAS143. Refer to Note 5 – Asset retirement obligations and to Note 21.
Rehabilitation costs and related liabilities are based on the Company’s interpretation of current environmental
and
regulatory requirements.
Based on current environmental regulations and known rehabilitation requirements, management has included
its
best estimate of these obligations in its rehabilitation accrual. However, it is reasonably possible that the
Company’s
estimates of its ultimate rehabilitation liabilities could change as a result of changes in regulations or
cost estimates.
Environmental liabilities other than rehabilitation costs which relate to liabilities from specific events are accrued
when
they are known, probable and reasonably estimable.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-17
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.19Product sales
Revenue from product sales is recognized when when:
•
persuasive evidence of an arrangement exists, exists;
•
delivery has
occurred or services have been rendered, rendered;
•
the seller’s price to the buyer is fixed or determinabledeterminable; and
•
collectability is
reasonably assured.
F-20The sales price, net of any taxes, is fixed on either the terms of gold sales contracts or the gold spot price.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.20 Financial instruments
Financial instruments recognized on the balance sheet include investments, loans receivable, trade and other
receivables, cash and cash equivalents, borrowings, derivatives, and trade and other payables. Financial
instruments
are initially measured at cost, including transaction costs, when the groupCompany becomes a party to
the contractual
arrangements. The subsequentSubsequent measurement of financialderivative instruments is dealt with below.
Derivatives
Derivatives
The Company accounts for derivative contracts in accordance with Statement of Financial Accounting Standards
No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS133") as amended.
SFAS133 requires all contracts whichthat meet the definition of a derivative to be recognized on the balance sheet as
either assets or liabilities and recorded at fair value. Gains or losses arising from remeasuring derivatives to fair
value
at each reporting period are to be accounted for either in the income statement or in other comprehensive
income, depending on
the use and designation of the derivative and whether it qualifies for hedge accounting.
The key criterion which must be met in order
to qualify for hedge accounting, is that the derivative must be highly
effective in offsetting the change in the fair value
or cash flows of the hedged item.
Contracts that meet the criteria for hedge accounting are designated as the hedging instruments hedging the
variability of forecasted cash flows from capitalized expenditure and the sale of AngloGold Ashanti’s production into the spot market,
and are
classified as cash flow hedges under SFAS133. Where a derivative qualifies as the hedging instrument
in a cash
flow hedge under SFAS133, gains and losses onchanges in fair value of the derivative,hedging instruments, to the extent effective,
are deferred in other
comprehensive income and reclassified to earnings as product sales or as an adjustment to
depreciation expense pertaining to capital expenditure, when the hedged transaction occurs. The ineffective
ineffective portion of changes in fair value of the cash flow hedging instruments is reported in earnings as gains or losses
on non-hedge derivatives in the period in
which they occur.
All other contracts not meeting the criteria for the normal purchases and sales or hedge accounting, as defined in
SFAS133, are recorded at their fair market value, with changes in value at each reporting period being recorded in
earnings as gains or losses on non-hedge derivatives.
Cash flows from derivative instruments accounted for as cash flow hedges are included in net cash provided by
operating activities in the statements of consolidated cash flows for all periods presented.flows. Contracts that contain ‘off-
market’‘off-market’ terms that
result in the inflow of cash at inception are analogous to borrowing activities and, as such, are
treated as
financing activities. All current and future cash flows associated with such instruments are classified withinas financing
the financing activities section ofwithin the consolidated cash flow statement. Contracts that contain ‘off-market’ terms that
result in the
outflow of cash at inception are analogous to lending activities and, as such, are treated as investing activities.
activities. All current and future cash flows associated with such instruments are classified within the investing
activities of
the consolidated statement of cash flow statement.flows.
The estimated fair values of derivatives are determined at discrete points in time based on the relevant market
information. These estimates are calculated with reference to the market rates using industry standard valuation
techniques.
Certain derivative instruments are designated as hedges of foreign currency denominated borrowings and
investments in foreign entities. This designation is reviewed at least quarterly, or as borrowing and investment
levels
change. The hedge amounts (to the extent effective) are recorded as an offset to the translation
gains/losses that are
being hedged.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-18
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.21 Employee benefits
benefits
Pension obligations
Group companies operate various pension schemes. The schemes are funded through payments to insurance
companies or trustee administered funds, determined by periodicannual actuarial calculations. The groupCompany has both
defined
benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension
benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of
service and compensation.
F-21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.21 Employeebenefits(continued)
The current service cost in respect of defined benefit plans is recognized as an expense in the current year. Past
service costs, experience adjustments, the effect of changes in actuarial assumptions and the effects of plan
amendments in respect of existing employees are recognized as an expense or income as and when they arise.
This
method is applied consistently in each period end to all gains and losses. See Note 2.
A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity.
The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient
assets to pay all employees the benefits relating to employee service in the current and prior periods. The
contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized
as an asset to the extent that a cash refund or a reduction in the future payments is available.
The asset/liability recognized in the balance sheet in respect of defined benefit pension plans is the present
value of
the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments
for past service costs.assets. The defined
benefit obligation is calculated annually by independent actuaries using the
projected unit credit method.
The contributions on defined contribution plans are recognized as employee benefit expense when due. Prepaid
contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is
available.
Other post-employment benefit obligations
Some group companies provide post-retirement healthcare benefits to their retirees. The entitlement to these benefits
is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum
service period.benefits. The expected costs of these benefits are
accrued over the period of employment using an accounting
methodology on the same basis as that used for
defined benefit pension plans. These obligations are valued annually
by independent qualified actuaries.
Actuarial gains and losses arising in the plan are recognized as income or
expense as and when they arise. See
Note 2.
Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or when an
employee accepts voluntary redundancy in exchange for these benefits. The groupCompany recognizes termination benefits
when it is demonstrably committed to either: terminating the
employment of current employees according to a
detailed formal plan without possibility of withdrawal;plan; or providing termination benefits as a
result of an offer made to
encourage voluntary redundancy based on the number of employees expected to
accept the offer. Benefits falling
due more than 12twelve months after balance sheet date are discounted to present
value.
4.22 Deferred taxation
The Company follows the liability method of accounting for deferred taxation whereby the Company recognizes
the
tax consequences of temporary differences by applying enacted tax rates applicable to future years to
differences
between financial statement amounts and the tax bases of certain assets and liabilities. Changes in
deferred taxation
assets and liabilities include the impact of any tax rate changes enacted during the year.
Principal temporary
differences arise from depreciation on property, plant and equipment, derivatives, provisions
and tax losses carried
forward. A valuation allowance is recorded to reduce the carrying amounts of deferred
taxation assets if it is more
likely than not that such assets will not be realized.
F-22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.23 Dividends paid
Dividends paid are recognized when declared by the board of directors. Dividends aremay be payable in Australian
dollars,
South African rands, United Kingdom pounds or Ghanaian cedis. Dividends declared to foreign
stockholders are not
subject to approval by the South African Reserve Bank in terms of South African foreign
exchange control
regulations. Dividends are freely transferable to foreign stockholders from both trading and
non-trading profits earned
in South Africa by publicly listed companies. Under South African law, the Company
may declare and pay dividends
from any reserves included in total shareholders’ equity (including share capital
and premium) calculated in accordance with International Financial
Reporting Standards (IFRS), subject to its
solvency and liquidity.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-19
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.24 Earnings per common share
Earnings and diluted earnings per common share have been calculated, for each class of common stock outstanding, in
accordance with SFAS128, “Earnings per Share”, using the two class method. Under the provisions of
Share”.SFAS128, basic net income (loss) per share is computed using the weighted average number of shares
outstanding during the period. Diluted net income (loss) per share is computed using the weighted average
number of Ordinary shares and, if dilutive, potential common shares outstanding during the period. The
computation of the diluted income (loss) per share of Ordinary shares assumes the conversion of E Ordinary
shares.
The rights, including the liquidation, voting and dividend rights, of holders of Ordinary shares and E Ordinary
shares are identical. As a result, and in accordance with EITF 03-6, “Participating Securities and the Two-Class
Method under FASB Statement No. 128”, the undistributed earnings for each year are allocated based on the
contractual participation rights of the Ordinary and E Ordinary shares as if the earnings for the year had been
distributed. As only 50 percent of dividends are paid to E ordinary share holders in cash (the remaining
50 percent reduces the exercise price of the E ordinary shares), the undistributed earnings are allocated
between E ordinary shares and ordinary shares based on this proportionate basis. Further, as the Company
assumes the conversion of E Ordinary shares in the computation of the diluted net income (loss) per share of
Ordinary shares, the undistr ibuted earnings are equal to net income (loss) for the computation.
4.25 Exploration and evaluation costs
The Company expenses all exploration costs until the directors conclude that a future economic benefit is more
likely than not of being realized. In evaluating if expenditures meet this criterion to be capitalized, the directors
utilize several different sources of information depending on the level of exploration. While the criteria for
concluding that expenditure should be capitalized is always probable, the information that the directors use to
make that determination depends on the level of exploration.
Mineral exploration costs•
Costs on greenfields sites, being those where the Company does not have any mineral deposits which are
already being mined or developed, are expensed as incurred. When it has been determinedincurred until the directors are able to demonstrate that a
future economic benefits are probable, which generally will be the establishment of proved and probable
reserves at this location.
•
Costs on brownfields sites, being those adjacent to mineral property candeposits which are already being mined or
developed, are expensed as incurred until the directors are able to demonstrate that future economic
benefits are probable, which generally will be the establishment of increased proved and probable reserves
economically developedafter which the expenditure is capitalized as a resultmine development cost.
•
Costs relating to extensions of establishingmineral deposits, which are already being mined or developed, including
expenditure on the definition of mineralization of such mineral deposits, are capitalized as mine
development costs.
Costs relating to property acquisitions are capitalized within development costs.
Drilling and related costs incurred on sites without an existing mine and on areas outside the boundary of a
known mineral deposit that contain proven and probable reserves are recorded as exploration expenditures and
are expensed as incurred.
Drilling and related costs incurred to develop suchdefine and delineate a residual mineral deposit that has not been classified
propertyas proven and probable reserves at a development stage or production stage mine are capitalized. Capitalization of pre-production costs ceasescapitalized when
management determines that there is sufficient evidence that the expenditure will result in a future economic
benefit to the Company in the accounting period when the expenditure is made. Management evaluates whether
or not there is sufficient geologic and economic certainty of being able to convert a residual mineral deposit into
a proven and probable reserve at a development stage or production stage mine, based on the known geologic
and metallurgy, existing mining propertyand processing facilities, operating permits and environmental programs.
Therefore prior to capitalizing such costs, management determines that the following conditions have been met:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-20
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.25 Exploration and evaluation costs (continued)
a. There is capable ofa probable future benefit;
commercial production.b.
AngloGold Ashanti can obtain the benefit and control access to it; and
c.
The transaction or event giving rise to it has already occurred.
The Company understands that there is diversity in practice within the mining industry, in that some companies
expense the drilling and related costs incurred to define and delineate residual mineral deposits that have not
been classified as proven and probable reserves at a development stage or production stage mine. Had
AngloGold Ashanti expensed such costs as incurred, net income, earnings per share and retained earnings
would have been lower by approximately the following amounts:
2008 2007 2006
Net income ($ millions)
10
1
12
Earnings per share
(1)
(cents) 3
-
5
Retained income – January 1 ($ millions)
60
59
47
Retained income – December 31 ($ millions)
70
60
59
(1)
Impact per basic and diluted earnings per common share.
4.26 Stock-based compensation plans
The group’sCompany’s management awards certain employees stock options on a discretionary basis.
The fair value of the stock-based payments is calculated at grant date using an appropriate model. For the equity
settled stock basedstock-based payments, the fair value is determined using a binomialBlack-Scholes method and expensed on a
straight-line
basis over the vesting period based on the group’s estimate of shares that will eventually vest.
Option schemes which include non-market vesting conditions have been calculated using the Black Scholes Black-Scholes
model.
For all other stock-based payments to employees the fair value is determined by reference to the market
value of the
underlying stock at grant date adjusted for the effects of the relevant terms and conditions. All other stock-based
payments fair values are determined by reference to the goods or services received.
For schemes with non-market related vesting conditions, the likelihood of vesting has been taken into account
when
determining the income statementstat ement charge. Vesting assumptions are reviewed during each reporting period to ensureperiod.
they reflect current expectations.
Stock options are subject to a three year vesting condition and their fair value is recognized as an employee
benefit
expense with a corresponding increase in other comprehensive incomeAdditional paid in capital over the vesting period. The proceeds
received, net of any directly attributable transaction costs are credited to common stock (nominal value) and
additionalAdditional paid in capital when the options are exercised.
On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS123(R), “Share-Based
Payment”, using the modified prospective transition method. See Note 2.
4.27 Recent pronouncements
Fair value determination when there is no active market
In April 2009, the FASB issued FSP FAS 157-4 “Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”
(“FSP FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with
FASB Statement No. 157, “Fair Value Measurements” (“SFAS157”), when the volume and level of activity for the
asset or liability have significantly decreased. FSP FAS 157-4 also includes guidance on identifying
circumstances that indicate a transaction is not orderly. FSP FAS 157-4 applies to all assets and liabilities within
the scope of accounting pronouncements that require or permit fair value measurements, except as discussed in
paragraphs 2 and 3 of SFAS157. FSP FA S 157-4 shall be effective for interim and annual reporting periods
ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending
after March 15, 2009. The Company has adoptedis currently evaluating the disclosure-only provisionspotential impact of SFAS123, “Accounting for Stock-Based Compensation”adopting FSP FAS 157-4 on
and applies Accounting Principles Board Opinion No. 25 (APB No. 25) and related interpretations in accounting for its
employee stock-based compensation plans.the Company’s financial statements.
F-23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-21
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.26 Stock-based compensation plans(continued)
At December 31, 2005, the Company has four stock-based employee compensation plans consisting of time-based
awards and performance related awards, which are described more fully in Note 30 the “AngloGold Limited share
incentive scheme and plans”. During the years ended December 31, 2005, 2004 and 2003 there was no
compensation expense recognized related to time-based awards as the exercise price of all awards was greater than
or equal to the fair market value of the underlying stock on the date of grants. During the year ended December 31,
2005 the Company recognized a compensation expense of $2 million related to Bonus Share Plan (BSP) and Long-
Term Incentive Plan (LTIP) treated as equity settled compensation plans under APB No. 25. As
of December 31, 2005 no compensation expense was recognized, related to the performance awards under APB No.
25. The performance related options are accounted for as variable compensation awards, accordingly the
compensation expense is calculated at the end of each reporting period until the performance obligation has been
met or waived. Compensation expense will vary based on the fluctuations of the underlying stock price in excess of
the exercise price. The following table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of SFAS123 to stock-based employee compensation.
Year Ended December 31,
(in millions, except per share data)
2005
$
2004
$
2003
$
Net (loss)/income, as reported
(292)
97
247
Add: Unearned stock awards compensation expense, calculated under
APB No. 25
2 - -
(Deduct)/add: Variable compensation awards (credit)/expense,
calculated under APB No. 25
-
(4)
4
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
(2) (3) (12)
Pro forma net (loss)/income
(292)
90
239
(Loss)/earnings per share (cents)
Basic – as reported
(110)
39
111
Basic – pro forma
(110)
36
107
Diluted – as reported
(1)
(110)
38
111
Diluted – pro forma
(1)
(110)
36
107
(1)
The calculation of diluted (loss)/earnings per common share for 2005 and 2004 did not assume the effect of 15,384,615 shares
issuable upon the exercise of Convertible Bonds as their effects are anti-dilutive for these periods. The calculation of diluted
(loss)/earnings per common share for 2005 did not assume the effect of 601,315 shares issuable upon the exercise of stock
incentive options as their effects are anti-dilutive for this period.
4.27 Recent pronouncements(continued)
Recognition and presentation of other-than-temporary impairments
In December 2004,April 2009, the Financial Accounting Standards Board (FASB)FASB issued FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-
Temporary Impairments” (“FSP FAS 115-2 and FAS 124-2”). FSP FAS 115-2 and FAS 124-2 amends the other-
than-temporary impairment guidance in US GAAP for debt securities to make the guidance more operational and
to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. The recognition guidance in paragraphs 19–34 of FSP FAS 115-2 and FAS 124-2
applies to debt securities classified as available-for-sale and held-to-maturity that are subject to other-than
temporary impairment guidance within:
a. SFAS115;
b.
FSP FAS 115-1 and FAS 124-1;
c.
EITF Issue 99-20, as amended by FSP EITF 99-20-1; or
d.
AICPA Statement of Position 03-3.
The presentation and disclosure guidance in paragraphs 35–43 of FSP FAS 115-2 and FAS 124-2 applies to
debt and equity securities that are subject to the disclosure requirements of Statement 115 and FSP FAS 115-1
and FAS 124-1. FSP FAS 115-2 and FAS 124-2 shall be effective for interim and annual reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company
is currently evaluating the potential impact of adopting FSP FAS 115-2 and FAS 124-2 on the Company’s
financial statements.
Interim disclosures about fair value of financial instruments
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 “Interim Disclosures about Fair Value of Financial
Instruments” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amends FASB Statement No.
107, “Disclosures about Fair Value of Financial Accounting
Standards No. 123 (revised 2004)Instruments”, “Share-Based Payment” (“SFAS123R”).
SFAS123(R) is a revisionto require disclosures about fair value of SFAS123, “Accountingfinancial
instruments for Stock-Based Compensation”. It supersedesinterim reporting periods of publicly traded companies as well as in annual financial statements.
FSP FAS 107-1 and APB 28-1 also amends APB Opinion No. 28, Interim Financial Reporting, to require those
25,disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1
applies to all financial instruments within the scope of Statement 107 held by publicly traded companies, as
defined by Opinion 28. FSP FAS 107-1 and APB 28-1 shall be effective for interim reporting periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently
evaluating the potential impact of adopting FSP FAS 107-1 and APB 28-1 on the Company’s financial
statements.
Assets and liabilities from contingencies in business combinations
In April 2009, the FASB issued FSP FAS 141(R)–1 “Accounting for Stock IssuedAssets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies” (“FSP FAS 141(R)–1”). FSP FAS 141(R)–1 amends and
clarifies FASB Statement No. 141 (revised 2007), “Business Combinations” issues raised on initial recognition
and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. FSP FAS 141(R)–1 applies to Employees”all assets acquired and amends SFAS95, “Statementliabilities
assumed in a business combination that arise from contingencies that would be within the scope of Cash Flows”Statement 5
if not acquired or assumed in a business combination, except for assets or liabilities arising from contingencies
that are subject to specific guidance in Statement 141(R). Generally,FSP FAS 141(R)–1 shall be effective for assets or
liabilities arising from contingencies in business combinations for which the acquisition date is on or after the
approach to accountingbeginning of the first annual reporting period beginning on or after December 15, 2008. FSP FAS 141(R)-1 will
impact how the Company accounts for share-based payments in SFAS123(R) is similar tofuture business combinations and the approach described in SFAS123.Company’s future financial
However, SFAS123(R) requires all share-based payments to employees, including grants of employee stock options,statements.
to be recognized in the financial statements based on their fair values (i.e., pro forma disclosure is no longer an
alternative to financial statement recognition).
F-24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-22
4.
SIGNIFICANT ACCOUNTING POLICIES (continued(continued))
4.27 Recent pronouncements (continued)
SFAS123(R) permits public companiesEquity method investment
In November 2008, the EITF reached consensus on Issue No. 08-6, “Equity Method Investment Accounting
Considerations” (“EITF 08-6”), which clarifies the accounting for certain transactions and impairment
considerations involving equity method investments. The intent of EITF 08-6 is to adopt its requirements using oneprovide guidance on
(i) determining the initial carrying value of two methods:
A “modified prospective”an equity method investment, (ii) performing an impairment
assessment of an underlying indefinite-lived intangible asset of an equity method investment, (iii) accounting for
an equity method investee’s issuance of shares, and (iv) accounting for a change in which compensation cost is recognized beginning withan investment from the effective date (a)
based on the requirements of SFAS123(R) for all share-based payments granted after the effective date and (b)
based on the requirements of SFAS123 for all awards granted to employees priorequity method to the cost method. EITF 08-6 is effective date of SFAS123(R)
that remain unvestedin fiscal years beginning on the effective date.
A “modified retrospective” method which includes the requirements of the modified prospective method described
above, but also permits entities to restate based on the amounts previously recognized under SFAS123 for purposes
of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.
SFAS123(R) was originally effective at the beginning of the first interim or annual period beginning after JuneDecember 15,
2005. On April 14, 2005 the United States Securities and Exchange Commission (SEC) announced that it would
provide for a phased-in implementation process of SFAS123(R). The SEC would require that registrants adopt
SFAS123(R) no later than the beginning of the first fiscal year beginning after June 15, 2005. The SEC also provided
guidance to registrants during the year in the release of Staff Accounting Bulletin 107.
As permitted by SFAS123, the Company currently accounts for share-based payments to employees using APB
Opinion No. 25’s intrinsic value method. SFAS123(R) also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement will reduce net operating cash flows and increase net financing
cash flows in periods after adoption. This requirement will not impact the Company’s cash flow disclosure as the
Company does not receive the benefit of a tax deduction for compensation cost.
On August 31, 2005, the FASB issued FASB Staff Position (FSP) FAS 123 (R)-1, “Classification and Measurement of
Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No.
123(R)”.
The FSP defers the requirement of SFAS123(R) that a freestanding financial instrument originally subject to
SFAS123(R) becomes subject to the recognition and measurement requirements of other applicable generally
accepted accounting principles (GAAP) when the rights conveyed by the instrument to the holder are no longer
dependent on the holder being an employee of the entity. The guidance in this FSP supersedes FSP EITF 00-19-1,
“Application of EITF Issue No. 00-19 to Freestanding Financial Instruments Originally Issued as Employee
Compensation,” and amends paragraph 11(b) of FASB Statement No. 133, “Accounting for Derivative Instruments 2008,
and Hedging Activities” (“SFAS133”), and SFAS133 Implementation Issue No. C3, “Scope Exceptions: Exception
Related to Share-Based Payment Arrangements.”
On October 18, 2005, the FASB issued FSP FAS 123(R)-2, “Practical Accommodation to the Application of Grant
Date as Defined in FASB Statement No. 123(R)”.
The FSP provides guidance on the application of grant date as defined in SFAS123(R). As a practical
accommodation, in determining the grant date of an award subject to SFAS123(R), assuming all other criteria in the
grant date definition have been met, a mutual understanding of the key terms and conditions of an award to an
individual employee shallinterim periods. EITF 08-6 must be presumed to exist at the date the award is approved in accordance with the relevant
corporate governance requirements (that is, by the Board or management with the relevant authority) if both of the
following conditions are met:
a.
The award is a unilateral grant and, therefore, the recipient does not have the ability to negotiate the key terms
and conditions of the award with the employer.
b.
The key terms and conditions of the award are expected to be communicated to an individual recipient within a
relatively short time period from the date of approval.
F-25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.27 Recent pronouncements (continued)
The Company plans to adopt SFAS123(R) using the modified-prospective method on January 1, 2006. The adoption
of SFAS123(R) is not anticipated to have an impact on the financial results of the Company as the options are not
likely to vest as the conditions are unlikely to be met.
In March 2005, the FASB issued FASB interpretation No. 47, “Accounting for Conditional Asset Retirement
Obligations, an interpretation of FASB Statement No. 143” (“FIN 47”).
FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair
value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement
obligation should be recognized when incurred—generally upon acquisition, construction, or development and (or)
through the normal operation of the asset. Uncertainty about the timing and (or) method of settlement of a
conditional
asset retirement obligation should be factored into the measurement of the liability when sufficient information exists.
applied prospectively. The Company does not expect the adoption of FIN47
EITF 08-6 to have a material impact on its earnings andthe Company’s financial position.statements.
On March 17, 2005,Instrument indexed to own stock
In June 2008, The Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 07-5, “Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). The
consensus was reached on the following three issues:
•
How an entity should evaluate whether an instrument (or embedded feature) is indexed to its own stock.
•
How the currency in Issue 04-6, “Accountingwhich the strike price of an equity-linked financial instrument (or embedded equity-
linked feature) is denominated affects the determination of whether the instrument is indexed to an entity’s
own stock.
•
How an issuer should account for market-based employee stock option valuation instruments.
Consensus was also reached that EITF 07-5 should be effective for financial statements issued for fiscal years
Stripping Costsbeginning after December 15, 2008, and interim periods. Earlier application by an entity that has previously
adopted an alternative accounting policy is not permitted. The consensus must be applied to outstanding
instruments as of the beginning of the fiscal year in which EITF 07-5 is adopted as a cumulative-effect
adjustment to the opening balance of retained earnings for that fiscal year. The Company is currently evaluating
the potential impact of adopting EITF 07-5 on the Company’s financial statements.
Participating securities
In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment transactions are participating securities prior to vesting and,
therefore, need to be included in the Mining Industry”,earnings allocation in computing earnings per share under the two-class
method as described in SFAS No. 128, “Earnings per Share” (“SFAS 128”). Under the guidance in FSP EITF 03-
6-1, unvested share-based payment awards that post-production stripping costscontain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are a componentparticipating securities and shall be included in the computation of mineral inventory cost
subjectearnings per share pursuant to the two-class method. FSP EITF 03-6-1 shall be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods. All prior-period EPS data
presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings and
selected financial data) to conform with the provisions of AICPA Accounting Research Bulletin No. 43, Restatement and RevisionFSP EITF 03-6-1. Early application is not permitted.
The Company does not expect the adoption of AccountingFSP EITF 03-6-1 to have a material impact on the Company’s
Research Bulletins, Chapter 4, “Inventory Pricing” (ARB 43).financial statements.
BasedConvertible debt instruments
In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon this consensus, post production stripping costsConversion (Including Partial Cash Settlement)” (“FSP APB 14-1”) which addresses the
accounting for convertible debt securities that may be settled in cash, (or other assets) upon conversion,
including partial cash settlement, unless the embedded conversion option is required to be separately accounted
for as a derivative under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS133”). FSP APB 14-1 does not change the accounting for more traditional types of convertible
debt securities that do not have a cash settlement feature. Also, FSP APB 14-1 does not apply if, under existing
US GAAP for derivatives, the embedded conversion feature must be accounted fo r separately from the rest of
the instrument. FSP APB 14-1 shall be effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods. Early adoption is not permitted. FSP APB 14-1 should be applied
retrospectively to all past periods presented — even if the instrument has matured, has been converted, or has
otherwise been extinguished as of the effective date of FSP APB 14-1. The Company is currently evaluating the
potential impact of adopting FSP APB 14-1 on the Company’s financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-23
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.27 Recent pronouncements (continued)
Useful life of intangible assets
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered costsin
developing renewal or extension assumptions used to determine the useful life of the extracted mineralsa recognized intangible asset
under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS142”). FSP FAS 142-3 removes
the requirement under paragraph 11 of SFAS142 to consider whether an intangible asset can be renewed
without substantial cost or material modifications to the existing terms and conditions and instead, requires an
entity to consider its own historical experience in renewing similar arrangements. FSP FAS 142-3 also requires
expanded disclosure related to the determination of intangible asset useful liv es. FSP FAS 142-3 is effective for
financial statements issued for fiscal years beginning after December 15, 2008, and interim periods. Early
adoption is not permitted. The guidance for determining the useful life of a full absorption costing system andrecognized intangible asset shall be
applied prospectively to intangible assets acquired after the effective date. The disclosure requirements shall be
applied prospectively to all intangible assets recognized as a component of, inventory to be recognized in cost of sales
in the same period as the revenue from the sale of the inventory. Additionally, capitalization of such costs would be
appropriate onlyand subsequent to, the extent inventory exists ateffective date. The
Company is currently evaluating the endpotential impact of a reporting period.adopting FSP FAS 142-3 on the Company’s financial
statements.
AtDerivative instruments
In March 2008, the FASB issued FASB statement No. 161, “Disclosures about Derivative Instruments and
Hedging Activities – an EITF meeting held on June 15amendment of FASB statement No. 133” (“SFAS161”). SFAS161 applies to all derivative
instruments and 16, 2005, the EITF clarifiednonderivative instruments that are designated and qualify as hedging instruments pursuant to
paragraphs 37 and 42 of SFAS133 and related hedged items accounted for under SFAS133. SFAS161 requires
enhanced disclosures about an entity’s derivative and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS133 and its intention that "inventory produced" shouldrelated interpretations, and (c)
mean "inventory extracted." That is, stripping costs incurred during a period should be attributed only to the inventoryhow derivative instruments and related hedged items affect an entity’s financial position, result s of operations
that is extracted during that period.
The guidance in this consensusand cash flows. SFAS161 is effective for financial statements issued for fiscal years beginning after December
15, 2005, with early adoption permitted. However, consistent with the guidance in SFAS154 (see below), the EITF
reached decision that the cumulative effect of adoption of the consensus in Issue 04-6 should be recognized as an
adjustment to the beginning balance of retained earnings during the period, and not in the income statement as
originally described in the consensus. If a Company adopted the consensus prior to FASB ratification of this change,
they would not have to change the accounting for the adoption. The Company plans to adopt Issue 04-6 on January
1, 2006. Upon adoption, the cumulative effect of accounting change will be a reduction to the balance of retained
earnings at January 1, 2006 of $96 million (net of Taxation), an increase in the value of inventory of $6 million, a
reduction in the value of deferred stripping of $105 million, a decrease in Deferred taxation of $5 million, a reduction in
Other long term assets of $3 million and a decrease in Minority interest of $1 million. Adoption of the new guidance
will have no impact on the Company’s cash position.
In May 2005 the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements” (“SFAS154”).
SFAS154 applies to all voluntary changes in accounting principle, and changes the requirements for accounting for
and reporting of a change in accounting principle. SFAS154 requires retrospective application to prior periods’
financial statements of a voluntary change in accounting principle unless it is impracticable. Accounting Principles
Board Opinion No. 20, Accounting Changes (APB 20) previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change the cumulative effect of changing to the
new accounting principle. SFAS154 is effective for accounting changes and corrections of errors made in fiscal yearsinterim periods
beginning after DecemberNovember 15, 2005. Earlier2008, with early application is permittedencouraged. Comparative disclosures for accounting changes and corrections of errorsearlier
made occurring in fiscal years beginning after June 1, 2005.periods at initial adoption are encouraged but not required. The Company does not expect the adoptio nadoption of SFAS154
SFAS161 to have a material impact on its earningsthe Company’s financial statements.
Noncontrolling interests
In December 2007, the FASB issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated
Financial Statements” (“SFAS160”). SFAS160 amends ARB 51 to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported
as equity in the consolidated financial statements. SFAS160 is effective for fiscal years, and interim periods
beginning on or after December 15, 2008. Earlier adoption is prohibited. It shall be applied prospectively as of
the beginning of the fiscal year in which this Statement is initially adopted, except for the presentation and
disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all
periods presented. The Company is currently evaluating the potential impact of adopting SFAS160 on the
Company’s financial statements.
Business combinations
In December 2007, the FASB issued FASB Statement No. 141 (R), “Business Combinations” (“SFAS141(R)”).
SFAS141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets
acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose
information on the nature and financial position.effect of the business combination. SFAS141(R) applies prospectively to
business combinations for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it before that date. SFAS141(R)
applies to all transactions or other events in which an entity (the acquirer) obtains control of one or more
businesses (the acquiree), including combinations achieved without the transfer of consideration. SFAS141(R)
will impact how the Company accounts for future business combinations and the Company’s future financial
statements.
F-26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
SIGNIFICANT ACCOUNTING POLICIES (continued)
4.27 Recent pronouncements (continued)
In July 2005, the FASB issued FSP APB18-1, “Accounting by an Investor for Its Proportionate Share of Accumulated
Other Comprehensive Income of an Investee Accounted for under the Equity Method in Accordance with APB
Opinion No. 18 upon a Loss of Significant Influence”.F-24
The FSP provides guidance on how an investor should account for its proportionate share of an investee’s equity
adjustments for other comprehensive income (OCI) upon a loss of significant influence. The Board believes that an
investor’s proportionate share of an investee’s equity adjustments for OCI should be offset against the carrying value
of the investment at the time significant influence is lost. To the extent that the offset results in a carrying value of the
investment that is less than zero, an investor should (a) reduce the carrying value of the investment to zero and (b)
record the remaining balance in income. The guidance in this FSP is effective as of the first reporting period
beginning after July 12, 2005. The Company does not expect the adoption of FSP APB18-1 to have a material impact
on its earnings and financial position.
On October 6, 2005, the FASB issued FSP FAS 13-1, “Accounting for Rental Costs Incurred during a Construction
Period”.
The FSP addresses the accounting for rental costs associated with operating leases that are incurred during a
construction period. Rental costs incurred during and after a construction period are for the right to control the use of
a leased asset during and after construction of a lessee asset. There is no distinction between the right to use a
leased asset during the construction period and the right to use that asset after the construction period. Therefore,
rental costs associated with ground or building operating leases that are incurred during a construction period shall be
recognized as rental expense. The rental costs shall be included in income from continuing operations. The guidance
in this FSP shall be applied to the first reporting period beginning after December 15, 2005. Early adoption is
permitted for financial statements or interim financial statements that have not yet been issued. A l essee shall cease
capitalizing rental costs as of the effective date of this FSP for operating lease arrangements entered into prior to the
effective date of this FSP. Retrospective application in accordance with SFAS154 is permitted but not required. The
Company does not expect the adoption of FAS 13-1 to have a material impact on its earnings and financial position.
In February 2006 the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain
Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140”. (“SFAS155”).
SFAS155 resolves issues addressed in SFAS133 Implementation Issue No. D1, “Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets.” SFAS155 permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would require bifurcation; clarifies which
interest-only strips and principal-only strips are not subject to the requirements of SFAS133; establishes a
requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives
or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; clarifies that
concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS140 to
eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that
pertains to a beneficial interest other than another derivative financial instrument. The Company does not expect the
adoption of SFAS155 to have a material impact on its earnings and financial position.
5.
COSTS AND EXPENSES
Ore Reserve Development Expenditure
The Company has reassessed the useful life of on-reef Ore Reserve development expenditure with effect from January 1,
2004. The effect of this change in estimate on the results for 2004 was as follows:
Year ended December 31, 2004
(in millions, except per share data)
Impact
$
Per basic common
share (cents)
Per diluted common
share
(1)
(cents)
Income before income tax provision
54
21
21
Taxation (19)
(8)
(8)
Net income
35
13
13
(1)
The calculation of diluted earnings per common share for 2004 did not assume the effect of 15,384,615 shares issuable upon the exercise of
Convertible Bonds as their effects are anti-dilutive for this period.
F-27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5.
COSTS AND EXPENSES (continued)
Employment Severance Costsseverance costs
Total employee severance costs amounted to $26$9 million for 2005 (2004:2008 (2007: $19 million, 2006: $22 million). Employee
severance costs recorded in 2008, 2007 and 2006 included retrenchment costs of $9 million, $5 million and $7 million, 2003: $4 million) and were due to
retrenchmentsrespectively, in the South AfricaAfrican region reflecting mainly downsizing of operations at Savukaand $nil million, $14 million and $15 million, respectively, in 2003 and rationalization
of operations in 2004 (at Great Noligwa and TauTona) and in 2005 (at Great Noligwa, Kopanang, Savuka, TauTona and
Mponeng).Ghana.
Interest Expense
2005Interest expense
2008
$
20042007
$
20032006
$
Finance costs on bank loans and overdrafts
2149
1118
1620
Finance costs on corporate bond
(1)
3418
3331
1132
Finance costs on convertible bond
(2)
27
2326
-26
Capital lease charges
23
3
2
Discounting of non-current trade and other debtors
1
6
4
Other
124
91
3
-102
9685
78
2887
Less : Amounts capitalized
(3)
(16)
(11)
-(30) (10) (10)
8072
6775
77
28
(1)
On August 21, 2003 AngloGold issued an unsecured bondsbond in the aggregate principal amount of R2 billion ($300 million). The bond was repaid on
August 28, 2008. Refer to Note
20.
(2)
On February 27, 2004, AngloGold Ashanti Holdings plc, a wholly-owned subsidiary of the Company, issued $1,000,000,000$1.0 billion 2.375 percent
guaranteed
convertible bonds due 2009, convertible into ADSs and guaranteed by AngloGold Ashanti. Refer to Note 20.
(3)
Interest capitalized on qualifying assets. Refer to Note 12.13.
Impairment of Assetsassets
The impairment loss in respect of the reporting units arose from the declining values of the remaining ore reserves and is
based on the estimated remaining cashflows computed at a discount. The impairment isImpairments are made up as follows:
2005
$2008
2004$
$2007
2003$
$2006
Australia$
Tanzania
(1)
Impairment of various mining assets and mineral rights based on net realizable valuegoodwill held in Geita mine
181
-
1-
9Impairment of Geita mining assets
Brazil299
-
-
Ghana
Impairment of equipment based on fair valuegoodwill held in Obuasi mine
-
-
1
Ghana(2)
104 - -
Impairment of Bibianiabandoned shaft infrastructure and reserve power plant at Obuasi mine following an assessment and reduction in life of mine
based on fair value
37(3)
-
15 - -
Impairment of goodwill held in Bibiani. Refer to Note 3.Iduapriem mine
4(4)
-
14 - -
Impairment of tax rate concession agreements. Refer to Note 14.reserve power plant at Iduapriem mine
20(3)
3 - -
-
South AfricaCongo
Impairment of Goedgenoeg drilling and 1650exploration assets
(5)
29 - -
South Africa
Below 120 level decline drilling based on fair valueat TauTona
2(6)
16 - -
Guinea
Impairment of obsolete heap leach plant infrastructure
7
-
-
Impairment of East of Bank Dyke at TauTona access development based on fair valueOther
4
-
-
Impairment and write-off of Western Ultra Deep Levels based on fair valuevarious minor tangible assets and equipment
742
-
-
Impairment of Savuka based on fair value
-
-
59
Decline in value of non-marketable equity investments. Refer to Note 15.
-
-1
6
Impairment
670 1 6
(1)
In 2008, annual impairment testing for goodwill pursuant to SFAS142 was performed for Geita and it was determined that its goodwill was fully
impaired. The impairment testing for mining assets pursuant to SFAS144 was performed and the estimated fair value of the mining assets did not
support the carrying values and as a result, an impairment of mining assets was recorded. The impairment at Geita mine is due to a combination of
factors such as the lower forward gold curve price, higher discount rates and a change in the mine plan revised mainly due to a reduction in
reserves resulting from resource model changes, grade factors and an increase in the cost of extraction. The reporting unit's fair value was
determined using a real pre-tax discount rate of 11.5 percent.
(2)
In 2008, annual impairment testing for goodwill heldpursuant to SFAS142 was performed for Obuasi and it was determined that its goodwill was fully
impaired. The goodwill impairment is the result of factors such as the lower forward gold curve price, higher discount rates and a revised mine plan
which incorporates changes in Gold Avenue,the cost of extraction due to the higher power costs recently experienced in Ghana. The reporting unit's fair value
was determined using a subsidiary. Referreal pre-tax discount rate of 9 percent.
(3)
The reserve power plant has been placed on care and maintenance pending handover to Note 15.the Volta Regional Authority in 2009. Both Obuasi mine
and Iduapriem mine contributions to the capital cost of the reserve power plant have been impaired as the mines will not derive further economic
benefit.
-(4)
2In 2008, annual impairment testing for goodwill pursuant to SFAS142 was performed for Iduapriem and it was determined that its goodwill was fully
impaired. The goodwill impairment is the result of factors such as the lower forward gold curve price, higher discount rates and a revised mine plan
which incorporates changes in the cost of extraction due to the higher power costs recently experienced in Ghana. The reporting unit's fair value
was determined using a real pre-tax discount rate of 8.8 percent.
-(5)
141In terms of the current volatile political situation commercial exploitation appears unlikely at this point and the mineral right value has as a result
been impaired.
3(6)
75
Due to a change in the mine plan resulting from safety related concerns following seismic activity, a portion of the below 120 level development has
been abandoned and will not generate future cash flows.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-25
5.
COSTS AND EXPENSES (continued)
The Company evaluates its held-for-use long lived assets for impairment when events or changes in circumstances
indicate that the related carrying amount may not be recoverable. The carrying value of the related asset is compared to
its fair value .
based on discounted estimated future cash flows.F-28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5.
COSTS AND EXPENSES (continued)
The following estimates and assumptions were used by management when reviewing long-lived assets for impairments:impairment:
· revised•
the forward gold price curve for the first 10 years, where a forward gold market and quoted prices exist (starting
point based on a 30-day average during the fourth-quarter of 2008 - $783 per ounce; (2007 - $749 per ounce).
Thereafter, the estimated future gold price has been increased by 2.25 percent (2007: 2.25 percent) per annum
over the remaining life of mine plans which take into account production from the mines. Although the starting point of the forward gold price curve was higher in 2008
compared with 2007, the slope or rate of escalation of the price curve was lower in 2008. The forward gold price
curve if discounted at US CPI is $817 per ounce (2007: $887 per ounce). These prices have been adjusted for the
effects of including the normal sale forward contracts to arrive at an average received price;
•
Proven and Probable Ore Reserves as well as value
beyond proven and probable reserves.reserves estimates. For these
purposes Proven and Probable Ore Reserves of approximately
63 73.5 million ounces (including joint ventures) as at
December 31, 20052008 were determined assuming a three year historical
average gold price of $400$730 per ounce,
A$556880 per ounce in Australia and R86,808R168,984 per kilogram in South Africa;
· that •
the forward curve price points werereal pre-tax discount rate is derived from the Company’s weighted average cost of capital (WACC) and risk
factors which is consistent with the other factorsbasis used in 2007. The WACC of 5.57 percent, which a market participant would consider and
were, inis around 100 basis
points higher than 2007 of 4.53 percent, is based on the Company’s judgement the best indicator of fair value. The Company therefore used the forward gold price
curve existing in December 2005 for the 10 year period where there is a forward gold market and quoted forward prices
for gold. Thereafter, the estimated gold price has been adjusted upward at 2.25 percent per year for the anticipated
remaining lifeaverage capital structure of the mine;
· a pre-tax discount rate adjusted forCompany and three major
gold companies considered to be appropriate peers. The risk factors considered are country andrisk as well as project
risk for cash flows relating to mines that are not yet in commercial
production and deep level mining projectsprojects. The country risk
factor is based on the discount rate applicableCompany’s internal assessment of country risk relative to long-term US dollar market rates;the issues experienced in the
countries in which it operates and explores, adjusted by country credit risk rating;
·•
foreign currency cash flows are translated at estimated forward exchange rates and then discounted using
appropriate discount rates for that currency;
•
cash flows used in impairment calculations are based on management’s estimates;
·costslife of mine plans; and
•
variable operating cash flows are estimated based on operational requirements, adjusted by inflation, and escalated 2.25 percent per year;
·cost savings are included for Obuasi and Tau Lekoa in the cash flow projections for 2007, 2008 and 2009. Theseincreased at local Consumer Price Index (CPI) rates.
savings are based on actions taken and plans implemented prior to year end.
The real pre-tax discount rates applied in the 2008 impairment calculations on assets which had impairment indicators or on reporting
units with significant assigned
goodwill are as follows:
Percentage
South Africa
(1)
6.0
Ghana
(2)
6.5 to 8.5
Australia
5.4 to 6.3
Tanzania
6.5
(1)Percentage
As the Company does not have the intention to mine and no future cash flows are expected from the Western Ultra Deep Levels areaAustralia
Sunrise Dam
11.0
(in South Africa), an impairment loss of $74 million was recorded during 2005.Tanzania
(2)
Based on a pre-tax discount rate of 6.5 percent in Ghana (at Bibiani) the estimated fair value amount did not support the carryingGeita
values and as a result, an impairment loss of $37 million on mining assets and $4 million on assigned goodwill was recorded during
2005. Refer to Note 3.11.5
The Company review and testsfactors affecting the carrying value of long-lived assets, including goodwill, when events or changes in
circumstances suggest that the carrying amount may not be recoverable. Assets are grouped at the lowest level for which
identifiable cash flows are largely independent of cash flows of other assets and liabilities. For long-lived assets other than
goodwill, if the sum of estimated future cash flows on an undiscounted basis is less than the carrying amount of the related
asset, including goodwill, if any, an asset impairment is considered to exist. The related impairment loss is measured by
comparing estimated future cash flows on a discounted basis to the carrying amount of the asset. Goodwill is tested for
impairment on an annual basis. Estimated future cash flows used to determine the fair value of goodwill and long-lived
assets are inherently uncertain and could materially change over time. They are significantly affected by a number of
factors including: reserves and production estimates, together with economic factors such as spot and forward prices,
discount rates, foreign currency exchange rates, estimates of costs to produce reserves and future capital expenditure.
Should management’s estimate of the future not reflect actual events, further impairments may be identified. The factors
that may affect future estimates include:
·
•
changes in Proven and Probable Ore Reserves;
· changes inReserves as well as value beyond Provenproven and Probable;
· significant variations inprobable reserves;
•
the grade of Ore Reserves as well as value beyond proven and probable reserves may vary significantly from time
to time;
·
•
differences between actual commodity prices and commodity price assumptions;
· unforseen
•
unforeseen operational issues at mine sites;
·issues; and
•
changes in capital, operating mining, processing and reclamation costs and foreign currency exchange rates; and
· changes in discount rates.
F-29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5.
F-26
5.
COSTS AND EXPENSES(continued)
Based on analysis, the
The carrying value and estimated fair values (on an undiscounted basis) of reporting units that are most sensitive to a
5 percent movement in gold price, ounces and cost assumptions, are:
Carrying amount
$
Estimated fair value
(undiscounted)
$
2008
Brazil
Serra Grande
104 358
Ghana
Iduapriem
326 378
2007
Brazil
Serra Grande
59 364
The carrying value and estimated fair values (on a discounted basis) of reporting units that have goodwill allocated to
them that are most
sensitive to a 5 percent movement in gold price, ounces costs and discount ratecost assumptions, are:
As at December 31, 2005
Carrying amount
(including goodwill)
$
Estimated fair value
(discounted)
$
Ghana
Iduapriem(discounted)
214 230$
2008
Australia
Sunrise Dam
431 763
Namibia
Navachab
42 181
2007
Australia
Sunrise Dam
529 569
Namibia
Navachab
46 231
Ghana
Obuasi
1,586 1,5911,713 1,769
An adverse change in assumptions which is not mitigated by a change in other factors may result in an impairment of
these assets.Iduapriem
The Company cannot predict the possible effects of changes in assumptions for estimates of the future gold price264 406
Tanzania
Geita
1,250 1,505
Asset retirement obligations
Long-term environmental obligations comprising decommissioning and life
of mines as at December 31, 2005, as these and others used in impairment testing of long-lived assets, including goodwill,
restoration are inextricably linked. In addition, for operations with functional currencies other than the dollar, movements in the dollar
exchange rate may impact estimations of future production and life of mines.
It is therefore reasonably possible, based on existing knowledge, that future outcomes are different fromthe Company’s
environmental management plans, in compliance with the current
assumptions used in impairment testing of long-lived assets, including goodwill, which may result in material adjustments
to existing carrying amounts.
Asset Retirement Obligations
The adoption of SFAS143 on January 1, 2003 resulted in an increase in Property, plant environmental and equipment of $1 million, an
increase in Provision for environmental rehabilitation of $4 million and a cumulative effect of adoption which decreased net
income and stockholders’ equity by $3 million. No increase in Deferred taxation was recorded upon the adoption of
SFAS143.regulatory requirements.
(in US Dollars,
millions)$ million
The following is a reconciliation of the total liabilities for asset retirement obligations:
Balance as at December 31, 2004
209
Impact of acquisitions and disposals
-
Additions to liabilities
22
Liabilities settled
(9)
Accretion expense
5
Change in assumptions
108
(1)
Translation
(10)
Balance as at December 31, 20052007
394
Additions to liabilities
3256
Transfers to held for sale
(11)
Liabilities settled
(7)
Accretion expense
22
Change in assumptions
(46)
(1)
Translation
(56)
Balance as at December 31, 2008
302
(1)
(1)
Revisions relate to changes in laws and regulations governing the protection of the environment and factors relativerelating to
rehabilitation estimates and
a change in the quantities of material in reserves and a corresponding change in the life of mine
plan. These liabilities are anticipated to unwind
beyond the end of the life of mine.
Upon adoption of SFAS143, the total amount of recognized liabilities for asset retirement obligations was $137 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-27
5.
COSTS AND EXPENSES (continued)
These liabilities mainly relate to obligations at the group’sCompany’s active and inactive mines to perform reclamation and
remediation activities in order to meet applicable existing environmental laws and regulations.
Certain amounts have been contributed to an irrevocablea rehabilitation trust and environmental protection bond under the Company's
control. The monies in
the trust and bond are invested primarily in interest bearing debt securities and are included in
Other long-term assets in the
Company’s consolidated balance sheet. Cash balances held in the trust and bond are
classified as restricted cash in the Company’s
consolidated balance sheets for all periods presented.sheets. As at December 31, 20052008 and 20042007 the
balances held in thisthe trust
(cash and investments)bond amounted to $85$64 million and $78$80 million, respectively. Besides these assets there were no other
assets that were legally restricted for purposes of settling asset retirement obligations as at December 31, 2005.
F-30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5.
COSTS AND EXPENSES (continued)
Operating Lease Chargeslease charges
Operating lease rentals are charged against income in a systematic manner related to the period the leased property
will be
used. Lease charges relate mainly to the hire of plant and machinery and other land and buildings.
Operating leases for plant and machinery are in terms offor contracts entered into with mining contractors to undertake mining at
certain operations.contractors. The contracts are for
specified periods with renewalsand include escalation clauses. Renewals are at the discretion of the respective operating mine and
and allow a right of first refusal on the purchase of the mining equipment in the case of termination of the contract. Certain
contracts include the provision of penalties payable on early exiting or cancellation.
Rental Expenseexpense
(1)
2005
$2008
2004$
$2007
2003$
2006
$
Comprising of:
Minimum rentals
44
30 51 40
72
Contingent rentals
-
-
-(1)
Sublease rentals
-
-
-
44
40 72
(1)
Included in production costs for each period presented.
Future minimum rental payments are:
2006
7
20072009
30
2010
18
2011
16
2012
16
2013
15
Thereafter
1
2008
196
2009
1
2010
1
11
(Profit)/loss on Salesale of Assetsassets, realization of loans, indirect taxes and other
2005
$2008
2004$
$2007
2003$
2006
$
Profit on the saledisposal of Mitchell Plateaucertain exploration interests in Colombia to B2Gold Corporation
(33)
-
-
Certain royalty and Cape Bougainvilleproduction related payment interests in North America sold to Royal Gold Inc.
(1)(14)
-
-
Profit on disposal of Union Reefs Gold Mine
(1)
-the Company’s 50 percent equity interest held in Nufcor International Limited
(2)
-
Profit-
Deferred income on sale of La Rescatada exploration interest recognized in South America (Peru)
(8)
-
-
Costs relating to the issue of rights granted to E ordinary shareholders
(1)
9
-
-
Loss/(profit) on disposal of Western Tanami assets
(2)
-
(3)
-
Profit on disposal of Tanami Gold Mine
-
(3)
-
Profit on disposaland abandonment of land, mineral rights and exploration properties
(2)
2
(10) (48)
Reassessment of indirect taxes and royalties payable in Guinea
(3) 11
(3)
Reassessment of indirect taxes payable in Tanzania
(15)
7
20
Recovery of exploration costs previously expensed in South Africa and South America (Peru)
(4)
(6)
-
Loss on saleContractor termination costs in Ghana
1
-
-
Impairment of Amapari projectinvestments
(3)
6
-
-
Contributions by other members to Nufcor Uranium Trust situated in Northern BrazilSouth Africa
(3)
-
-
3
Sale of Jerritt Canyon Joint VentureNon-recoverable value added state tax
(4)
-
- (10)5
Profit on sale of Queenstake Resources USA Inc. shares9
(4)Buildings destroyed by fire in Guinea
-
3
-
(3)
Profit on saleRecovery of shares held in East African Gold Mines Limitedloans previously written off
(5)
-
- (25)
Gain on disposal of available-for-sale financial assets – Randgold
Resources Limited
(6)
-
- (17)
Profit on sale of helicopter at Vaal River operations
-
-
(3)
(3)
(14)
(55)
(64) 10
(36)
(1)
(1)Rights offer was completed in early July 2008.
(2)
Refers to the disposal and abandonment of land, mineral rights and exploration properties situated in Brazil, Ghana, South Africa, North America and
The saleTanzania.
(3)
Impairment of Union Reefs MineRed 5 Limited shares of $4 million in Australia and Dynasty Gold Corporation shares of $2 million in China. Refer to Note 16.
(4)
Represents the Burnside Joint Venture was announced on August 5, 2004.write-off of value added state tax (at AngloGold Ashanti Brasil Mineração and Serra Grande) not expected to be recovered from the
(2)Brazilian Government.
(5)
Related mainly to loans previously expensed as exploration costs as part of funding provided to the Yatela Joint Venture. The sale of the Western Tanami Project to Tanami Gold NL was announced on January 20, 2004.Yatela Joint Venture is
(3)
The sale ofaccounted for under the Amapari project in Northern Brazil was announced on May 23, 2003.
(4)
Jerritt Canyon Joint Venture was disposed of effective June 30, 2003 and the shares acquired by AngloGold in Queenstake
Resources USA Inc., as part of this transaction, were disposed of during November 2003.
(5)
On July 8, 2003 AngloGold disposed of its investment of 8,348,600 shares held in East African Gold Mines Limited for a consideration
of $25 million.
(6)
In the second half of 2003, AngloGold disposed of 952,481 shares in Randgold Resources Limited, for a consideration of $23 million.
Results of operations for Union Reefs Gold Mine (assets disposed of):
2005
$
2004
$
2003
$
Revenue -
-
27
Net income before tax
-
-
3
The Union Reefs Gold Mine was disposed of as per Note 5 – (Profit)/loss on sale of assets.
F-31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5.
COSTS AND EXPENSES (continued)
Results of operations for the Western Tanami Project (assets disposed of):
2005
$
2004
$
2003
$
Revenue -
-
-
Net income before tax
-
-
5
The Western Tanami Project was disposed of as per Note 5 – (Profit)/loss on sale of assets.
Results of operations for Jerritt Canyon Joint Venture (assets disposed of):
2005
$
2004
$
2003
$
Revenue
-
-
35
(1)
Net (loss)/income before tax
-
-
(5)
(1)
(1)
The Jerritt Canyon Joint Venture was disposed of effective June 30, 2003.equity method. Refer to Note 5 – (Profit)/loss on sale of assets. Figures for
2003 are for the six months ended June 30, 2003.16.
Mining Contractor Termination Costs
Mining contractor termination costs of $9 million (before taxation of $3 million) recorded in 2005 (2004: $nil million, 2003:
$nil million) relate to contractor termination costs at Geita, in Tanzania, on the transition to owner mining completed in
early August 2005.
6.
RELATED PARTY TRANSACTIONS
On October 26, 2005 Anglo American plc (AA plc) announced that it intended to reduce its shareholding in the Company,
while still intending to remain a significant shareholder in the medium term. As at December 31, 2005 AA plc and its
subsidiaries held an effective 50.88 percent (2004: 50.97 percent) interest in AngloGold Ashanti. The Company had the
following transactions with related parties during the years ended December 31, 2005, 2004 and 2003:
December 31, 2005
December 31, 2004
December 31, 2003
(in millions)
Purchases
by/(from)
related party
$
Amounts
owed to/(by)
related party
$
Purchases
by/(from)
related party
$
Amounts
owed to/(by)
related party
$
Purchases
by/(from)
related party
$
Related party transactions with
holding Company AA plc
5
1
5
-
2
Related party transactions with
subsidiaries of AA plc
Boart Longyear Limited – mining
services
(1)
5
-
9
1
10
Mondi Limited – forestry
16
2
16
2
11
Scaw Metals – A division of Anglo
Operations Limited – steel and
engineering 6
1
5
1
5
Haggie Steel Wire Rope Operations
(2)
8
1
9
-
7
Anglo Coal – a division of Anglo
Operations Limited
1
-
1
-
-
Related party transactions with
associates
Rand Refinery Limited – gold refinery
(3)
-
-
-
-
2
41
5
45
4
37
Related party transactions of equity
accounted joint ventures
Societe d'Exploitation des Mines d'Or de
Sadiola S.A.
-
-
1
-
1
Societe d'Exploitation des Mines d'Or de
Yatela S.A.
-
-
1
-
-
Societe des Mines de Morila S.A.
(2)
-
(1)
-
(1)
(1)
AA plc sold their interest in Boart Longyear Limited with effect from July 29, 2005.
(2)
Previously included in Scaw Metals – A division of Anglo Operations Limited.
(3)
Consolidated from 2004.
F-32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-28
5.
COSTS AND EXPENSES (continued)
Non-hedge derivative loss
A loss on non-hedge derivatives of $258 million was recorded in 2008 (2007: $808 million, 2006: $208 million) relating
to the use of non-hedging instruments, which represent derivatives not designated in formal hedge accounting
relationships. As such, the change in fair value of such derivatives is recorded each period in the income statement.
The loss primarily relates to changes in the prevailing spot gold price, exchange rates, interest rates, volatilities and
non-performance risk. Realized loss on accelerated settlement of non-hedge derivatives from the hedge close-outs
effected during 2008, amounted to $1,088 million.
In addition, the Company recognized a loss of $150 million during 2008 on forward gold contracts previously qualifying
for the normal sale exemption (which permits the Company to not record such amounts in its financial statements until
the maturity date of the contract) under which the Company had committed to deliver a specified quantity of gold at a
future date in exchange for an agreed price. However, due to the inability of a single counterpart to accept the physical
delivery of gold for the forward contracts expiring in April through June 2008, the Company cash settled such contracts
during the period. Accordingly, the remaining contracts with this counterpart scheduled to mature in later periods did
not meet all of the requirements necessary for them to continue to qualify for the normal sale exemption in future
periods and were accounted for as non-hedge derivatives at fair value on the balanc e sheet as from June 30, 2008, with
changes in fair value reflected in the income statement. During the third quarter of 2008, the Company early cash
settled contracts now designated as non-hedge derivative contracts, with the same counterpart, maturing in July 2008
through August 2009.
Other operating items
2008
$
2007
$
2006
$
Comprising of:
Realized loss on other commodity contracts
32
-
-
Provision (reversed)/raised on loss on future deliveries of other commodities
(5)
(13)
15
Unrealized (gain)/loss on other commodity physical borrowings
(8)
(3)
1
19
(16)
16
6.
RELATED PARTY TRANSACTIONS
During April 2006, Anglo American plc (AA plc) reduced its shareholding in the Company to less than 50 percent
interest held. As at December 31, 2008, AA plc and its subsidiaries held an effective 16.17 percent
(2007: 16.58 percent) interest in AngloGold Ashanti. On March 17, 2009, AA plc disposed of its entire remaining
shareholding in the Company. The Company had the following transactions with related parties during the years ended
December 31, 2008, 2007 and 2006:
December 31, 2008
December 31, 2007
December 31, 2006
(in millions)
Purchases
(by)/from
related party
$
Amounts
owed to/(by)
related party
$
Purchases
(by)/from
related party
$
Amounts
owed to/(by)
related party
$
Purchases
(by)/from
related party
$
Related party transactions with
significant shareholder AA plc
-
-
-
-
1
Related party transactions with
subsidiaries of AA plc
-
-
-
-
7
Related party transactions of equity
accounted joint ventures and
associates
AGA Polymetal Strategic Alliance
-
(3)
-
-
-
Margaret Water Company
1
-
-
-
-
Oro Group (Proprietary) Limited
-
(1)
-
(2)
-
Societe d'Exploitation des Mines d'Or
de Sadiola S.A.
(5) (2) (7) (2)
(4)
Societe d'Exploitation des Mines d'Or
de
Yatela
S.A.
(1)(1) (3) (1)
(6)
Societe des Mines de Morila S.A.
(5)
(1)
(5)
(2)
(4)
Trans-Siberian Gold plc
-
(1)
(1)
(11)
-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-29
6.
RELATED PARTY TRANSACTIONS (continued)
Amounts owed to/due by joint venture related parties and the loan balance due to Goldmed Medical Scheme of
$1 million (2007: $1 million), are unsecured, non-interest bearing and under terms that are no less favorable than those
with third parties.
The loan advanced to Trans-Siberian Gold plc amounted to $10 million as at December 31, 2007. In 2008, $4 million of
this loan was repaid and the balance of $6 million was converted into equity of Trans-Siberian Gold plc.
The AGA-Polymetal Strategic Alliance (joint venture) loan of $3 million advanced during 2008, is interest free and is
repayable on demand at any time after profits have been generated by the joint venture.
The Oro Group (Proprietary) Limited loan of $1 million (2007: $2 million) bears interest at a rate determined by the Oro
Group (Proprietary) Limited’s board of directors and is repayable at their discretion.
The Company, which holds an equity interest of 29.7 percent in Trans-Siberian Gold plc (TSG), entered into a
transaction during the quarter ended June 30, 2007 with TSG in which two companies were acquired from TSG for a
consideration of $40 million. The companies acquired consist of Amikan and AS APK.
In connection with the relocation of Roberto Carvalho Silva, a former executive director of the Company who retired in
2007, to Nova Lima, Brazil, in 2000, Mr. Carvalho Silva commenced renting a house in Nova Lima from a Brazilian
subsidiary of the Company. Mr. Carvalho Silva purchased the house from the Company’s subsidiary in January 2005.
The total purchase price of the house was BRL1,150,000 ($429,923). Mr. Carvalho agreed to pay the purchase price of
the house in 60 installments, the first being BRL19,167.70 and 59 installments of BRL19,166.65 each, starting on
January 28, 2005. Such monthly instal lments were adjusted annually by the cumulative INPC (a Consumer Price Index
in Brazil) in lieu of interest. As at December 31, 2006, BRL728,580 ($340,458) of the purchase price remained to be
paid to the Company’s subsidiary, with BRL657,717 ($341,352) remaining to be paid as at June 20, 2007. The
remaining balance was repaid on or about August 31, 2007.
A Brazilian subsidiary of the Company received marketing, communications and corporate affairs services from a
Brazilian company in which a son of Roberto Carvalho Silva owns a one-third interest. The amounts paid by the
Company’s subsidiary to this company in respect of such services during the years were: 2007: BRL634,023 ($329,055)
and in 2006: BRL903,465 ($414,433). The Company terminated the agreement with the Brazilian marketing,
communications and corporate affairs services company effective July 2007.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-30
7.
TAXATION
2005
$
20042008
$
20032007
$
(Loss)/income2006
$
Income/(loss) from continuing operations before income tax, equity income,
minority interests
and cumulative effect of accounting change was derived from the
following jurisdictions:
South Africa
(179)251
(97)(44)
19779
Argentina
30(13)
2456
1240
Australia
66(69)
3981
16106
Brazil
8186
10221
71114
Ghana
(139)
(39)
-(222) 207) (128)
Guinea
(18)55
(28)(106)
-(53)
Mali
-1
-5
-6
Namibia
11(2)
29
818
Tanzania
(86)
3
-(546)(383) (213)
USA
(37)127(93) (23)
(8)
1
Zimbabwe
-
-
-
Other, including Corporate and Non-gold producing subsidiaries
(92)(41)
(23)(50)
36(42)
(363)
(25)(373) (711) (96)
341
Charge
(Charge)/benefit for income taxes attributable to continuing operations is as follows:
Current:
South Africa
(1)
40
44
43(20)(92) (66)
Argentina
(1) (10) (13)
Australia
(2)
3
(37)
(25)
Brazil
(33)(38) (38)
Ghana
(5)-
(5)
Guinea
(3)
(24)
-
-
Mali
(1) (2) (2)
Namibia
(6)(7) (4)
Tanzania
4
(3)
(1)
USA
-
(1)
-
AustraliaOther
(11) (1) (2)
Total current
(94) (191)(156)
(1)
The reduction in the tax charge in 2008 mainly relates to losses on the early settlement of the hedges.
The increase in the taxation charge in 2007 and 2006 partly relates to the higher gold price and utilization
of unredeemed capital expenditure.
(2)
Sunrise Dam’s taxable income has reduced considerably following the completion of the mining in the
megapit during the year.
(3)
Siguiri has utilized the historic assessed losses and unredeemed capital allowances brought forward
assisted by the improved grade and plant utilization which resulted in taxable income.
Deferred:
South Africa
(1)
(40)
52
(16)
Argentina
6
2(1)(2)
-Australia
(4)
10
(4)
Brazil
(2)(22)
23(20) 4
15
17
Ghana
-(2)
-10
-32
39
Guinea
-(9)
-
-(2) (2)
Mali
-
-
-
Namibia
-(1)
-1
2(3)
Tanzania
-(3)
2122
-7
20
USA
(1)
-
-
Zimbabwe
-
-
-
Other
2
6
9
Total current
70
68
71
(1)
Charges for current tax in 2005 and 2004 includes an increase in provision in
respect of estimated tax payable amounting to $40 million and $40 million,
respectively, as a result of the receipt of tax assessments for the years ended
December 31, 1998, 1999 and 2000.
(2)
Charges for current tax in 2005 includes $13 million relating to tax obligations as a
result of a change in interpretation of legislation made by the Brazilian Superior
Justice Court.10
Deferred:
South Africa(6)
(1)
(95)
(201)
85
Argentina
(2)
10
10
(8)
Australia
10
5
3
Brazil
3
1
(1)
Ghana
(3)
(110)
(11)
-
Guinea
2
(1)
-
Mali
-
-
-
Namibia
4
-
-
Tanzania
(12)
-
-
USA
(4)
-
-
-
Zimbabwe
-
-
-
Other
(3)
(3)
(7)
Total deferred
(191)72
(200)73
7234
Total income and mining tax (benefit)/expensed
(121)
(132)
143
F-33expense
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7.(22) TAXATION (continued)
(1)(118)(122)
(1)
Mining tax on mining income in South Africa is determined according to a formula
which adjusts the tax
rate in accordance with the ratio of profit to revenue from
mining operations. This formula also allows an initial
portion of mining income to
be free of tax. Non-mining income is taxed at a standard rate.
During 2004, the estimated Estimated
deferred taxation rate was revised torates reflect the future
anticipated taxation raterates at the time temporary differences reverses
reverse.
During 2008, 2007 and deferred
taxation was provided at a rate of 38 percent (2003: 46 percent) for temporary
differences relating to mining operations. During 2005,2006, deferred taxation was
provided at a future anticipated taxation rate ofranging
between 36 percent and 38 percent for 2008, 39 percent and 37 percent. In addition, charges
percent for deferred taxation2007, and in 2005 include tax benefits of $13 million resulting from2006 at
changes in enacted statutory tax rates.37 percent and 38 percent, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-31
7.
TAXATION (continued)
The effect of the change in estimates on the results for 20052008, 2007 and 20042006 were as
follows:
Year ended December 31 2005
2008 20072006
Impact
$
Per basic
and diluted
common share
(a)(b)
cents
Impact
$
Per basic
common share
(cents)
Perand diluted
common share
(a)(b)
(cents)cents
Income before extraordinary itemsImpact
20$
8Per basic
8and diluted
Extraordinary itemscommon share
-(a)(b)
-
-cents
Net income
204
1
23
8
865
(a)24
(a)
Per basic and diluted ordinary and E ordinary shares.
(b)
The calculation of diluted earnings per common share for 20052008, 2007 and 2006 did not assume the effect
effect of 15,384,615 shares issuable upon the exercise of Convertible Bonds and 872,373, 575,316 and
601,315854,643 shares, respectively, issuable upon the exercise of stock incentive options as their effects are
are anti-dilutive for this period.these periods.
(2)
Year ended December 31, 2004The 2008 benefit is due to the continuing net increase in the capital allowances at Obuasi as a result of the
Impact
$
Per basic
common share
(cents)
Per diluted
common share
(a)
(cents)
Income before extraordinary items
158
63
63
Extraordinary items
-
-
-
Net income
158
63
63
(a)
high capital expenditure. The calculation of diluted earnings per common share for 2004 did not
assumedeferred tax benefit in 2007 included $28 million arising from the effect of 15,384,615 shares issuable upondeferred
tax asset recognized on the exercise of
Convertible Bonds as their effects are anti-dilutive for this period.
2005
$
2004
$
2003
$
(2)
Figures as stated for 2003, includes a changeincrease in estimate resultingunredeemed capital expenditure allowances. The deferred tax
benefit in a reversal
of a valuation allowance of $16 million. This related to mining operations in
Argentina where deferred taxation assets were considered to be recoverable
due to an improved gold price achieved and the stabilization of the local
economy during 2003.
(3)
Charges for deferred taxation in 2005 include tax benefits of $942006 included $21 million
resulting from changesan extension of tax losses granted by the Ghanaian
Taxation Authorities which would have been forfeited during that year.
(3)
The deferred tax benefit in enacted statutory tax rates and is net2008 relates to the impairment of valuation
allowances of $4 million (2004: $nil million).
(4)
Net of valuation allowances of $2 million (2004: negative $6 million, 2003:
$8 million).
mining assets at Geita.
The unutilized tax losses of the North American operations which are
available for offset against
future profits earned in the United States, of
America, amount to $198$339 million (2004: $192(2007: $248 million, 2003: $209
2006: $277 million).
The unutilized tax losses of the South American operationsAustralian operation which are
available for offset against future profits earned in these countries, amount
capital gains amounts to
$nil million (2004: $nil million, 2003: $67 million) $184 million.
The unutilized
2008
$
Analysis of unrecognized tax losses of the Ghanaian operation, acquired as part of the
AngloGold Ashanti Business Combination, which are available for offset
against future profits earned in this country, amount to $146 million
(2004: $132 million).
F-34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7.
TAXATION (continued)
2005
$
Analysis of tax losses
Assessed losses utilized during the year
-
Unutilized tax losses remaining to be used against future profits can be splitrequires utilization in the
into the following periods:
Utilization required within
Within one year
146-
Utilization required within
Within one and two years
-127
Utilization required within
Within two and five years
-4
Utilization in
In excess of five years
198
344392
2005
Amount %
2004523
Amount
%
2003
Amount%20082007 2006
$$ $
Reconciliation between corporate income tax and statutory
income tax is as follows:
Corporate income tax at statutory rates
(134)(131)
37(263)
(10)
38
130
38(36)
Formula variation in mining taxation rate for
current period
(4)(1)
1
(28) 112(3)
(2)
-
Disallowable expenditure
(1)
30 (8)47
40388
(160)
24 7
Non-taxable income
-
-
-
-
(30)
(9)135
Effect of income tax rates of other countries
115118
(32)(9)
18
(72)
21
6(38)
Impact of change in estimated deferred taxation rate
(127)4
3523
(158) 632
-
-65
Other net
(1)(15) (18) (2)
-
6
(22)
-
-
Total income and mining tax (benefit)/expense
(121)22
33118
(132) 528122
143
42(1)
(1)
Disallowable expenditure includes the impact of different tax rates applied to assets that are impaired.hedge losses in non-taxable jurisdictions and share expense costs.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-32
7.
2005TAXATION (continued)
$
2004
2008
$
2007
$
Deferred taxation liabilities and assets on the balance sheet as of December 31, 2005
2008 and 2004, 2007,
relate to the following:
Deferred taxation liabilities:
Depreciation, depletion and amortization
1,579
1,7751,309
1,778
Product inventory not taxed
18
1715
23
Derivatives
30
73-
72
Other comprehensive income deferred taxation
-
654
18
Other
38
283
4
Total
1,665
1,8991,381
1,895
Deferred taxation assets:
Provisions, including rehabilitation accruals
(140)
(91)(181)
(210)
Derivatives
(72) (47)(43) (97)
Other comprehensive income deferred taxation
(101)
(16)(161)
(273)
Other
(17) (9) (10)
Tax loss carry forwards
(244) (297)(382) (366)
Total
(574) (460)(776) (956)
Less: Valuation allowances
112
113226
99
Total
(462) (347)
550
857
Disclosed as follows:
Deferred
Long-term portion deferred taxation assets
41
-51
Deferred taxation liabilities37
1,244
1,552
Short-term portion classified as other current assets
150
275
Long-term portion deferred taxation liabilities
92
341,008
1,1521,345
1,518
F-35
24
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7.
TAXATION (continued)
The classification of deferred taxation assets is based on the related asset or liability
creating the deferred taxation. Deferred taxes not related to a specific asset or liability
are classified based on the estimated period of reversal. As at December 31, 2005, 2008,
the
Company had unredeemed capital expenditure,non-mining losses in South Africa of $175 $103 million
(2007: $nil million), on which
deferred tax hashad been provided at the future anticipated
tax rate of 37 percent, which is35 percent.
Unremitted earnings of foreign subsidiaries and foreign incorporated joint
available for deduction against future taxable mining income. This future deduction is
utilizable against taxable mining income generated onlyventures
Dividends from the Company’s current
mining operations and does not expire unlessincorporated joint ventures may be remitted to the Company ceasedwithout
being subject to operateincome or withholding taxes. No provision is made for athe income
periodtax effect that may arise on the remittance of longer than one year.unremitted earnings by certain foreign
subsidiaries. It is management’s intention that these earnings will be permanently re-
invested. The amounts of these unremitted earnings as at December 31, 2008 totaled
$1,104 million (2007: $1,155 million). In the event that the Company repatriated these
earnings, income taxes and withholding taxes may be incurred. The determination of
such taxes is subject to various complex calculations and accordingly, the Company
has determined that it is impractical to estimate the amount of the deferred tax liability
on such unremitted earnings.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-33
7.
TAXATION (continued)
Analysis of Valuation Allowancesvaluation allowances
The movement in valuation allowances for the three years in the period ended December 31, is summarized as follows:
Balance at beginning
beginning of period
period$
$Provision/ (benefit)
Charged toexpenses
costs and$
expenses
$
Deductions
$
Balance at end
end of period
$
Year ended December 31, 2005
2008
- Valuation allowance
11398
19128
(20)
112226
Year ended December 31, 2004
- Valuation allowance
86
45
(18)
113
Year ended December 31, 2003
2007
- Valuation allowance
97
51
(16)98
86Year ended December 31, 2006
- Valuation allowance
112
(15)
97
The deferred tax assets for the respective periods were assessed for recoverability
and, where applicable, a valuation allowance recorded to reduce the total deferred tax
asset to an amount that will, more likely than not, be realized. The valuation
allowance relates primarily to certain net operating loss carryforwards, tax credit
carryforwards and deductible temporary differences for which it is more likely than not
that these items will not be realized.
Although realization is not assured, we have concluded that it is more-likely-than-not
that the deferred tax assets for which a valuation allowance was determined to be
unnecessary will be realized based on the available evidence, including scheduling of
deferred tax liabilities and projected income from operating activities. The amount of
the net deferred tax assets considered realizable, however, could change in the near
term if actual future income or income tax rates differ from that estimated, or if there
are differences in the timing or amount of future reversals of existing taxable or
deductible temporary differences.
Uncertain tax positions
As at December 31, 2008 and 2007, the Company had $106 million and $134 million, respectively, of total unrecognized
tax benefits which, if recognized, would affect the Company’s effective income tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2008
$
2007
$
Balance at January 1,
134
109
Additions for tax positions of prior years
9
22
Translation
(37) 3
Balance at December 31,
106
134
The Company’s continuing practice is to recognize interest and penalties related to unrecognized tax benefits as part of
its income tax expense. During the years ended December 31, 2008, 2007 and 2006, the Company recognized
approximately $6 million, $9 million and $4 million, respectively, in interest. The Company had approximately
$34 million and $38 million for the payment of interest accrued as at December 31, 2008 and 2007, respectively.
As at December 31, 2008, the Company's South African tax assessment for the years 2001 - 2003 remain open to
scrutiny by the South African Revenue Service. As at December 31, 2008, in South Africa, the Company's assessments
due from the tax authorities for 2004 and all subsequent years have yet to be received. It is possible that the Company
will receive assessments during the next twelve months, which may have an effect on uncertain tax positions.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-34
7.
TAXATION (continued)
In other jurisdictions, the revenue system is based on a self-assessment process, all tax filings due by
December 31, 2008 have been filed, and the self-assessed position recorded in the consolidated financial statements.
The legislation of individual jurisdictions provides for different periods for the authorities to review the filings with
specified expiry dates. The Company is disputing assessments received in some jurisdictions where it operates and
these arguments are under consideration by the authorities. Based on current legal advice, the Company does not
expect the resolution will significantly affect the Company's consolidated financial statements.
8.
DISCONTINUED OPERATIONS
The Ergo reclamation surface operation, which forms part of the South African
operations, and is included under South Africa for segmental reporting, has been
discontinued as the operation has reached the end of its useful life. discontinued. After a detailed
investigation of several options and scenarios, and based on management’s decision
reached on February 1, 2005, mining operations at Ergo ceased in 2005. Site restoration activities continued after
the mining operation was discontinued. The pre-tax gain on March 31, 2005disposal of $27 million
recorded in 2008 relates to the remaining moveable and immovable assets of Ergo,
that were sold by the Company to ERGO Mining (Pty) Limited a joint venture between
Mintails South Africa (Pty) Limited and DRD South African Operations (Pty) Limited.
The transaction was approved by the Competition Commissioner on May 5, 2008 and
ERGO Mining (Pty) Limited will operate, in terms of an agreement for its own account,
under the AngloGold Ashanti mineral authorizations until the mining rights have been
approved by the Minister of Minerals and Energy for transfer to ERGO Mining (Pty)
Limited. The environmental rehabilitation liability remains with only site restoration obligations remaining. The remaining available tonnage will
be treated and cleaned through the tailings facility. Company until all
the resolutive sale conditions have been met.
The Company has reclassified the
income statement results from the historical
presentation to lossprofit/(loss) from discontinued
operations in the condensed consolidated income statement for all periods presented.
statement. The condensed consolidated cash flow statement has been reclassified for
discontinued operations for all periods presented.operations. The resu ltsresults of Ergo for the years
ended December 31, 2005, 20042008,
2007 and 2003,2006, are summarized as follows:
Year ended December 31,
2005 20042008 2007 2006
$ (cents)
2003(1)(3)
(cents)
(2)(3)
$ (cents)
(1)(3)
(cents)
(2)(3)
$
Per share(cents)
(1)(3)
(cents)
$(2)(3)
Per share
(1)
(cents)$
Per share
(cents)
Revenue
18-
7 87-
35 73-
331
-
-
4
1
-
Costs, expenses and expensesrecoveries
(62)1
(24)-
(98)-
(39)5
(71)
(32)
Pre-tax loss
(44)
(17)
(11)
(4) 2
1
Taxation2
1
-
Gain on disposal
27
8
5
-
-
-
-
-
-
Pre-tax profit
28
8
5
6
2
1
6
2
-
Taxation (5)
(1)
(1)
(4)
(2)(1)
(1)
-
-
-
Net lossprofit attributable to discontinued
operations
(44)23
(17)7
(11)4
(4)2
(2)1
(1)-
6
2
-
(1)
Per basic and diluted ordinary shares.
(1)(2)
Per basic and diluted E ordinary shares.
(3)
Basic and diluted earnings/(loss) per common share. The calculation of diluted earnings/(loss) per common share for 20052008, 2007 and 2006 did not
assume the effect of 15,384,615 shares, issuable upon the exercise of Convertible Bond as their effects are anti-dilutive for these periods. The
calculation of diluted earnings/(loss) per common share for 2008, 2007 and 2006 did not assume the effect of 872,373, 575,316 and 854,643
shares, respectively, issuable upon the exercise of stock incentive options as their effects are anti-dilutive for these periods. The calculation of
diluted earnings/(loss) per common share for 2008, 2007 and 2006 did not assume the effect of conversion of E Ordinary shares as the Company
recorded a loss from continuing operations during these periods.
2004
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-35
9.
LOSS PER COMMON SHARE
2008
$
2007
$
2006
$
The following table sets forth the computation of basic and diluted loss per share
(in millions, except per share data):
Numerator
Loss from continuing operations
(586)(816) (148)
Discontinued operations
23
2
6
Net
loss
(563)(814) (142)
Less
Dividends:
Ordinary shares
41
124
107
E Ordinary shares
-
1
-
Undistributed
losses
(604) (939) (249)
Ordinary shares undistributed losses
(600)
(932)
(249)
E Ordinary shares undistributed losses
(1)
(4)
(7)
-
Total undistributed losses
(604)
(939)
(249)
Denominator for basic loss per ordinary share
Ordinary shares
312,610,124
276,805,309
272,214,937
Fully vested options
(2)
547,460
531,983
398,326
Weighted average number of ordinary shares
313,157,584
277,337,292
272,613,263
Effect of dilutive potential ordinary shares
Dilutive potential of stock incentive options
(3)
-
-
-
Dilutive potential of convertible bonds
(4)
-
-
-
Dilutive potential of E Ordinary shares
(5)
-
-
-
Denominator for diluted loss per share – adjusted weighted average number
of ordinary shares and assumed conversions
313,157,584
277,337,292
272,613,263
Weighted average number of E Ordinary shares used in calculation of basic
and diluted loss per E Ordinary share
4,046,364
4,117,815
194,954
Loss per share (cents)
From continuing operations
Ordinary shares
(186)
(293)
(54)
E
Ordinary
shares
(93)
(146)
(91)
Ordinary shares – diluted
(186)
(293)
(54)
E Ordinary shares – diluted
(93)
(146)
(91)
Discontinued operations
Ordinary shares
7
1
2
E Ordinary shares
4
-
-
Ordinary shares – diluted
7
1
2
E Ordinary shares – diluted
4
-
-
Net loss
Ordinary shares
(179)
(292)
(52)
E
Ordinary
shares
(89)
(146)
(91)
Ordinary shares – diluted
(179)
(292)
(52)
E Ordinary shares – diluted
(89)
(146)
(91)
(1)
Less than $1 million in 2006.
(2)
Compensation awards are included in the calculation of basic loss per common share from when the necessary conditions have been met, and it is
virtually certain that shares will be issued as a result of employees exercising their options.
(3)
The calculation of diluted loss per common share for 2008, 2007 and 2006 did not assume the effect of 872,373, 575,316 and 854,643 shares,
respectively, issuable upon the exercise of stock incentive options as their effects are anti-dilutive for these periods.
(4)
The calculation of diluted loss per common share for 2008, 2007 and 2006 did not assume the effect of 15,384,615 shares issuable upon the exercise
of Convertible Bonds as their -effectseffects are anti-
dilutiveanti-dilutive for these periods.
(5)
The calculation of diluted earnings/(loss)loss per common share for 20052008, 2007 and 2006 did not assume the effect of
601,315 conversion of E Ordinary shares issuable upon the exercise of stock incentive options as the their effects are anti-dilutive for this period.
F-36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2005
$
2004
$
2003
$
9.
(LOSS)/EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted
(loss)/earnings per common share (in millions, except per share
data):
Numerator
(Loss)/income before cumulative effect of accounting change
(270)
97
250
Cumulative effect of accounting change
(22)
-
(3)
Net (loss)/income – applicable to common stockholders
(292)
97
247
Denominator for basic (loss)/earnings per common share
Weighted average number of common shares
264,635,634
251,352,552
222,836,574
Basic (loss)/earnings per common share (cents)
Before cumulative effect of accounting change
(102)
39
112
Cumulative effect of accounting change
(8)
-
(1)
(110)
39
111
Dilutive potential common shares
Weighted average number of common shares
264,635,634
251,352,552
222,836,574
Dilutive potential of stock incentive options
-
(2)
695,749
881,001
Dilutive potential of Convertible Bonds
-
(1)
-
(1)
-
Denominator for diluted (loss)/earnings per common share
Adjusted weighted average number of common
shares and assumed conversions
264,635,634
252,048,301
223,717,575
Diluted (loss)/earnings per common share (cents)
Before cumulative effect of accounting change
(102)
38
112
Cumulative effect of accounting change
(8)
-
(1)
(110)
38
111
(1)
The calculation of diluted (loss)/earnings per common share for
2005 and 2004 did not assume the effect of 15,384,615 shares
issuable upon the exercise of Convertible Bonds as their effects
are anti-dilutive forCompany recorded a loss from continuing operations during these periods.
(2)
The calculation of diluted (loss)/earnings per common share for
2005 did not assume the effect of 601,315 shares issuable upon
the exercise of stock incentive options as their effects are anti-
dilutive for this period.
10.
RESTRICTED CASH
2008
$
2007
$
Cash classified as restricted for use comprise of the following:
Cash restricted by the prudential solvency requirements
3
49
7
Cash balances held by the Environmental Rehabilitation Trust Funds
34
24
Other
1
1
Cash balances held by the Boddington expansion
-
5
The Company is restricted from utilizing available funds in Geita
Management Company Limited, up to a maximum of $25 million in
respect of outstanding hedging contracts.44
4
1937
Other
1
3
8
26
F-37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2005F-36
$
2004
$
11.
OTHER RECEIVABLES
2008
$
2007
$
Prepayments and accrued income
107 72
Interest receivable
1 2
Other debtors
9 13
117 87
12.
INVENTORIES
Short-term:
Gold in process
93
157118
133
Gold on hand (doré/bullion)
10
1537
35
Ore stockpiles
47
52182
166
Uranium oxide and sulphuricsulfuric acid
14
1024
13
Supplies
133
126240
297225
360
601
572
Less: Heap leach inventory
(1)
(37)
(49) (49)
(105)
260552
255523
(1)
Short-term portion relating to heap leach inventory classified separate,
as materials on the leach pad.
Long-term:
Gold in process
116 22
261
190
Ore stockpiles
30 13
39
83
Supplies
2 -
148 351
1
301
274
Less: Heap leach inventory
(1)
(116)
(22)(261) (190)
32 13
(1)
40
84
(1)
Long-term portion relating to heap leach inventory classified separate,
as materials on the leach pad.
12.
The Company recorded aggregate write-downs of $35 million, $29 million and
$2 million for the years ended December 31, 2008, 2007 and 2006, respectively, to
reduce the carrying value of inventories to net realizable value. Inventory write-downs
are included in production costs.
13.
PROPERTY, PLANT AND EQUIPMENT, NET
Mine development
(1)
4,861
4,5534,642
Mine5,388
Buildings and mine infrastructure
1,832
1,7762,627
2,729
Mineral rights and other
166
2251,032
1,071
Land
27
2425
6,88628
6,578
8,326
9,216
Accumulated depreciation, depletion amortization and impairmentamortization
(1,964)
(1,647)(3,561)
(3,689)
Net book value December 31,
4,922
4,9314,765
5,527
(1)
(1)
Includes interest capitalized of $16$30 million (2004: $11(2007: $10 million). Refer to Note 5.
Mining assets with a net book value of $296$27 million (2004: $204(2007: $39 million) are encumbered
encumbered by project finance.capital leases. Refer to Note 20.
14.
DEFERRED STRIPPINGACQUIRED PROPERTIES, NET
Acquired properties, at cost
1,868
2,174
Stripping costs incurred during the production phase to remove additional waste ore
are deferred and charged to operating costs on the basis of the average life of mine
stripping ratio. Refer to Note 4.9.Accumulated amortization
(1,054) (894)
Net book value December 31,
814
Movements in the deferred stripping costs balance were as follows:
Opening balance
69
37
Amount deferred
28
28
Translation
8
4
Closing balance
105
69
Production costs for the years ended December 31, 2005, 2004 and 2003 as
disclosed in the consolidated statements of income, would have increased by
$28 million, $28 million and $32 million, respectively, if stripping costs were expensed
rather than capitalized in these periods.
The full amount of stripping costs incurred during the production phase will not be
expensed until the end of the life of the respective mines.
Under the current assumptions used, the following is an indication when the
cumulative deferred stripping balance is expected to be fully amortized:
1,280
F-38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. PROPERTY, PLANT AND EQUIPMENT, NET (continued)
Open-pit operations
Year
Argentina
- Cerro Vanguardia
2014
Australia
- Sunrise Dam
2011
Brazil
- AngloGold Ashanti Mineração (formerly Morro Velho)
2010
Ghana
- Bibiani
2005F-37
- Iduapriem
201215.
Guinea
- Siguiri
2014
Namibia
- Navachab
2016
Tanzania
- Geita
2015
USA
- Cripple Creek & Victor
2015
Total stripping costs net of amortization included in production costs in the
consolidated statements of income for the periods ended December 31, 2005, 2004
and 2003 amounted to $189 million, $98 million and $54 million, respectively.
As described in Note 4.27 the Company plans to adopt the guidance of EITF Issue 04-
6, “Accounting for Stripping Costs in the Mining Industry” on January 1, 2006.
2005
$
2004
$
13.
ACQUIRED PROPERTIES, NET
Acquired properties, at cost
2,983
3,204
Accumulated amortization and impairment
(1,571)
(1,550)
Net book value December 31,
1,412
1,654
F-39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
14.
GOODWILL AND OTHER INTANGIBLES
Goodwill
The carrying amount of goodwill by reporting unit as of December 31, 20052008 and 20042007 and changes in the carrying
amount
of goodwill are summarized as follows:
South
Africa Australia Ghana Guinea Namibia Tanzania Total
$$USA
$
$
$ $Australia
$
Ghana
$
Guinea
$
Namibia
$
Tanzania
$
Total
$
Balance at January 1, 20042007
2-
223232
118
10
1
181
542
Translation
-
27
-
-
1
-
226
Purchase price allocation for Ashanti
Business Combination. Refer to Note 3.
-
-
12227
Balance at December 31, 2007
-
259
118
10
-1
50181
182569
Goodwill previously held in GeitaGolden Cycle Gold Corporation acquisition
(1)
18
-
-
-
-
-
13118
131
Impairment lossesTransfers to assets held for sale
(2)
(2)-
(103)
-
-
-
-
-
(2)
Translation -
6
-
-
-
-
6
Balance at December 31, 2004
-
229
122
10
1
181
543(103)
Impairment losses
(3)
-
-
(4)(118)
-
-
(181)
(299)
Translation
-
(4)
Translation -
(15)(53)
-
-
-
-
(15)(53)
Balance at December 31, 20052008
18
103
-
214
118
10
1
181-
524132
(1)
The(1)
Purchase price allocation for acquisition of an additional 50remaining 33 percent acquiredshareholding in GeitaCripple Creek & Victor Gold Mining Company, effective July 1, 2008.
(2)
Goodwill of Boddington mine reclassified as part of the AngloGold Ashantiheld for sale. Refer to Note 17.
Business Combination, resulted in Geita being accounted for as a subsidiary of AngloGold
Ashanti from April 26, 2004.(3)
(2)
During 2004,2008, the Company recorded angoodwill impairment loss of $2 million relating to goodwill heldlosses for Obuasi ($104 million), Iduapriem ($14 million) and Geita ($181 million),
in its subsidiary, Gold Avenue.respectively. Refer to Note 5 – Impairment of assets.
2008
$
2007
$
Other intangibles, net:
(3)Royalty rate concession agreement
During 2005, the Company recorded impairment losses of $4 million relating to goodwill held in
Bibiani. Refer to Note 5 – Impairment of assets.(1)
2005
$
2004
$
Other intangibles, net
Royalty rate and tax rate concession agreements
(1)
Gross carrying value
49
4929
29
Accumulated amortization
(3)
(1)(9) (7)
Impairment losses
(20)
-20
2622
48(1)
(1)
The government of Ghana agreed as part of the AngloGold Ashanti Business
Combination, to a concession on royalty payments at a fixed rate of 3 percent per
year for a period of fifteen years.years from 2004. The fair value of the royalty rate concession is
amortized on a
straight line basis over a period of fifteen years with nil residual
value.
In addition, the government of Ghana also agreed as part of the AngloGold Ashanti
Business Combination, to a concession wherein income tax will not exceed a rate
of 30 percent for a period of fifteen years. During 2005, enacted statutory tax rates
in Ghana were reduced to 25 percent. This indicated an impairment and the
Company recorded an impairment loss of $20 million (2004: $nil million). Refer to
Note 5 – Impairment of assets.
Amortization expense included in the consolidated statements of income amounted
to $2 million for 2005 (2004: $12008
(2007: $2 million, 2003: $nil2006: $2 million).
2008
$
Based on carrying value at December 31, 2005,2008, the estimated aggregate
amortization expense
for each of the next five years is as follows:
2006
2
2007
2
2008
2
2009
2
2010
2
2011
F-402
2012
2
2013
2
16.
OTHER LONG-TERM ASSETS
2008
$
2007
$
Investments in affiliates – unlisted
4 6
Investments in affiliates – listed
5 15
Investments in equity accounted joint ventures
272
337
Carrying value of equity method investments
281 358
Investment in marketable equity securities – available for sale
26 34
Investment in marketable debt securities – held to maturity
11 15
Investment in non-marketable assets – held to maturity
3 2
Investment in non-marketable debt securities – held to maturity
35 52
Other non-current assets
65 98
421 559
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2005F-38
$
200416.
$
15.
OTHER LONG-TERM ASSETS
Investments in affiliates – unlisted
5
6
Investments in affiliates – listed
29
-
Investments in equity accounted joint ventures
324
344
Carrying value of equity method investments (see below)
358
350
Investment in marketable equity securities
15
29
Investment in non-marketable equity securities
3
3
Investment in non-marketable debt securities
84
75
Other non-current assets
36
55
496
512(continued)
Investments in affiliates
Unlisted
Unlisted
The Company holds a 25.025 percent (2004: 26.6(2007: 25.0 percent) interest in Oro Group
(Proprietary) Limited which is involved in the manufacture and wholesale of jewellery.
jewellery. The year end of Oro Group (Proprietary) Limited is March. Results are
included for the
twelve months ended September 30, 2005.2008, adjusted for material transactions. On
September 21, 2006, Oro Group (Proprietary) Limited repaid a shareholders loan of
$1 million originally granted in 2000. The loan granted to Oro Group (Proprietary)
Limited of $1 million (2007: $2 million) bears interest at a rate determined by the Oro
Group (Proprietary) Limited’s board of directors and is repayable at their discretion.
Listed
The Company holds a 29.929.7 percent (2004: 17.5(2007: 29.8 percent) interest in Trans-Siberian
Gold plc which is involved in the exploration and development of gold mines. The
Company’s initial 17.5 percent equity interest acquired in Trans-Siberian Gold plc
during July 2004 was increased to 29.9 percent on
May 31, 2005, the date on
which the second subscription was completed. Refer to Note 3 – Acquisitions and
disposals of businesses and assets.2005. The year end of Trans-Siberian Gold plc is
December. Results are
included for the twelve months ended September 30, 2008, adjusted for material
2005.transactions. On June 27, 2006, the Company advanced a loan of $10 million to
Trans-Siberian Gold plc at LIBOR plus 4 percent of which $4 million has been repaid
during 2008 and the balance of $6 million was converted into equity. The fair market
value of the Company’s share of the listed affiliate as at
December 31, 20052008 is $16
$5 million. The investment is carried at carrying valueDuring the years ended December 31, 2008, 2007 and 2006, the
Company recorded impairment losses of
$29 $8 million, as the decrease in the market price is considered temporary.
Subsequently, the fair value of this investment has increased to $25$14 million as atand $7 million on it s
February 28, 2006 .
investment.
Investments in equity accounted joint ventures
The Company holds the following interestinterests in incorporated mining joint ventures, of
which the significant financial operating policies are, by contractual arrangement,
jointly controlled:
December 31,
2008
percentage held
December 31,
20052007
percentage held
December 31,
2004
percentage held
Nufcor International Limited
50.00(1)
- 50.00
Sadiola
38.00
38.00 38.00
Morila
40.00 40.00
Yatela
40.00 40.00
GeitaAGA – Polymetal Strategic Alliance
(1)
N/A(2)
50.00 -
(1)
(1)
The Company acquired an additionaldisposed of its 50 percent equity interest, held in Geita as part of the
AngloGold Ashanti Business Combination, effective April 26, 2004 resulting in
Geita being accounted for as a subsidiary of AngloGold Ashanti. Equity income
from Geita is included for the period ended April 26, 2004.Nufcor International Limited during 2008.
(2)
The Company holds a 50.0 percent interest in AGA-Polymetal Strategic Alliance (joint venture) which is
involved in the exploration and development of gold mines. In 2008 the Company advanced an interest
free loan of $3 million to the joint venture. The loan is repayable on demand, only once profits have been
generated. The year endsend of these entities areAGA-Polymetal Strategic Alliance is December. Results are included for the
twelve
months ended December 31.
2005
$
2004
$September 30, 2008, adjusted for material transactions. The joint venture
agreement was finalized during 2008.
During 2008, the Company recorded an impairment of $48 million relating to its interest held in Morila, based on the
investment’s future cash flows. The difference between the carrying value of the investmentsimpairment is reflected in equity (loss)/income in affiliates and joint
ventures and the underlying equity in net assets is as follows:for 2008.
Carrying value of investments
358
350
Cost of investments
407 373
Undistributed loss since acquisition
(20)
(16)
Other than temporary decline in the value of investments
(3)
(3)
Other comprehensive income
(26)
(4)
F-41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15.
F-39
16.
OTHER LONG-TERM ASSETS (continued)
2005
$
2004
$2008
$
2007
$
Investment in marketable equity securities – available for sale
15
(2)
2926
(1)
(1)34
Includes an initial investmentAvailable for sale investments in marketable equity securities consists of $16 million representing 17.5 percent interestinvestments
in ordinary shares.
acquired in Trans-Siberian Gold plc during July 2004.
(2)
On May 31, 2005, the Company increased its interest in Trans-Siberian Gold plc
to 29.9 percent and Trans-Siberian Gold plc has been accounted for as an
affiliate from May 31, 2005. Refer to Investments in affiliates detailed above.
Total gains, net of related taxation, on marketable equity securities included in other
comprehensive income
amounts during the year amount to $1$2 million (2004: $2(2007: $4 million). Total
losses, net of related taxation, on marketable equity securities included in other
comprehensive income during the year amount to $29 million (2007: $4 million) which
includes $21 million relating to the Company’s B2Gold investment as at
December 31, 2008. The Company has considered the effect of the current market
conditions evaluating its intent and ability to hold B2Gold until these losses are
recovered. The Company’s purpose in effecting the B2Gold transaction in 2008 was
to build on its Colombian strategy of continuing to leverage its advantage through
developing its exploration projects, both in its own right and together with partners like
B2Gold. B2Gold has consistently been reporting increases in exploration results of
various undeveloped properties. The Company has sufficient resources to continue to
finance and support its strategic goal and will be able to do so in the foreseeable
future. In addition to the investment in B2Gold, the Company holds various equities
as strategic investments in gold exploration companies. Three of the strategic
investments are in an unrealized loss position and the Company has the intent and
ability to hold these investments until the losses are recovered.
Less than
12 months
$
More than
12 months
$
Total
$
2008
Aggregate fair value of investments with
unrealized losses
9
8
17
Aggregate unrealized losses
(21)
(10)
(31)
2007
Aggregate fair value of investments with
unrealized losses
-
11
11
Aggregate unrealized losses
-
(6)
(6)
Investment in marketable debt securities – held to maturity
11
15
Investments in marketable securities represent held to maturity government and
corporate bonds.
Investment in non-marketable equity securities
Investments in unlisted common stock comprise investments in various companies
in South Africa for which a fair value is not readily determinable. The directors of
the Company perform independent valuations of the investments on an annual basis
assets – held to ensure that no decline other than a temporary diminution in the value of the
investment has occurred. For the year ended December 31, 2005 a decline of
$nil million was recorded (2004: $nil million, 2003: $6 million) and charged to
income. Refer to Note 5 – Impairment of assets.maturity
3
32
Investments in non-marketable assets represent secured loans and receivables
secured by pledge of assets.
Investment in non-marketable debt securities
– held to maturity
35
52
Investments in non-marketable securities represent the held to maturity fixed-term
deposits required by legislation for the Environmental Rehabilitation Trust Fund and
Environmental Protection Bond.
84
75
Investment in non-marketable debt securities held to maturity comprises:Nufcor Uranium Trust Fund.
Government bonds (RSA)
14
14
Corporate bonds
(1)
Impairments of Red 5 Limited shares of $4 million in Australia and notesDynasty Gold Corporation shares of
69$2 million in China during 2008. Investments were impaired due to a decline in value and is not expected
to recover the full cost of the investment over the near term. The quoted market prices of these
investments have dropped significantly and there is no evidence to indicate that they will recover in the
near term. The impairment resulted in a transfer of fair value adjustments previously included in other
comprehensive income to the income statement in 2008.
62
84
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-40
16.
OTHER LONG-TERM ASSETS (continued)
2008
$
2007
$
As of December 31, 20052008 the contractual maturities of debt securities were as
follows:
Marketable debt securities
Up to three years
5
Three to seven years
1
Seven to twelve years
5
11
Non-marketable debt securities
Less than one year
57
35
Two to seven years
10
Seven to twelve years
1
More than twelve years
16
84
Fair values of the held to maturity debt securities at December 31, 20052008 and 20042007
approximate cost.
Other non-current assets
Unsecured
Loans to joint ventures
Unsecured
Other loans and assets
(1)
-
30
Other3
(2)41
16
15
16
45
Non-current debtors
Prepayments and accrued income
4
411
8
Recoverable tax, rebates, levies and duties
35
47
Other debtors
16
6-
20Other trade debtor
10
36-
552
(1)
These loans have no fixed terms of repayment, are denominated in $ and accrue interest at
LIBOR plus 2 percent per annum.65
(2)98
(1)
Other comprises loans and receivables of $1 million (2007: $2 million) measured at amortized cost and
post retirement
assets of $2 million (2007: $39 million) measured according to the employee benefits
accounting policy.
Equity accounted joint ventures
Summarized financial statements of the joint ventures which have been equity
accounted are as follows (Geita –(100 percent shown):
2008
$
2007
$
2006
$
Statements of income for the period ended April 26, 2004
included) (100 percent shown):
Sales and other income
464
716
817
Costs and expenses
(727)
(465)
(465)
Taxation
(97) (115) (90)
Net (loss)/income
(360)
136
262
Balance sheets at December 31,
Non-current assets
496
697
Current assets
472
506
968
1,203
Long-term liabilities
(66) (102)
Loans from shareholders
(7)
(9)
Current liabilities
(219) (257)
Net assets
676
835
F-42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. OTHER
LONG-TERMF-41
17.
ASSETS AND LIABILITIES HELD FOR SALE
2008
$
2007
$
Effective December 31, 2008, the 33.33 percent interest in the unincorporated joint
venture in Boddington Gold Mine in Australia was classified as held for sale. The
interest in Boddington Gold Mine was previously recognized as a combination of
tangible assets, goodwill, current assets and current and long-term liabilities. The
33.33 percent unincorporated joint venture interest in the Boddington Gold Mine was
sold, subject to conditions precedent, to Newmont Mining Corporation.
In terms of the sale agreement the purchase consideration consists of three
components: an initial cash payment upon the fulfillment of all conditions precedent to
the transaction; a further combination of Newmont shares; and/or a cash payment and
future royalty payments.
Completion is subject to conditions precedent in terms of the sale agreement
including: finalization of Newmont’s financing; the receipt, to the extent required, of
Ministerial consents and/or other Government agency approvals in Australia; the
approval of the South African Reserve Bank and the Australian Foreign Investment
Review Board; the execution by certain third parties of agreements with respect to the
assignment of material tenements and land as related to the Boddington Gold Mine;
and the receipt of certain other applicable third party approvals and consent. At
December 31, 2007 net assets for Boddington Gold Mine amounted to $458 million.
739
-
Effective December 2007, Rand Refinery Limited in South Africa (a subsidiary of the
Company) allocated parts of its premises that were no longer utilized (previously
recognized as a tangible asset), to held for sale. On April 1, 2008, a sale agreement
was concluded subject to achievement of the suspensive condition regarding rezoning
of the land and transfer of title deeds.
1
1
Effective June 30, 2005, the investment in the Weltevreden mining rights, located in
South Africa was classified as held for sale. During the quarter ended June 30, 2008
the investment in the Weltevreden mining rights was reclassified from held for sale to
Property, plant and equipment because the conditions precedent in the sale
agreement with Aflease Gold and Uranium Resources Limited were not fulfilled and
the Company has no current prospective buyers to complete negotiations within a
twelve month period. The reclassification of the Weltevreden mining rights from held
for sale to held for use, resulted in a charge of $5 million which is included in loss from
continuing operations for the year ended December 31, 2008.
-
14
Effective June 30, 2007, exploration properties acquired from Trans-Siberian Gold plc
in Russia were classified as held for sale. The cash sale of these exploration
properties formed part of the joint venture between Polymetal and AngloGold Ashanti,
which was concluded during the quarter ended March 31, 2008.
-
15
The remaining moveable and immovable assets of Ergo, the surface dump
reclamation operation east of Johannesburg, which ceased mining operations in
March 2005, was sold by the Company to ERGO Mining (Pty) Limited a joint venture
between Mintails South Africa (Pty) Limited and DRD South African Operations (Pty)
Limited during the quarter ended June 30, 2008.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2005
$
2004
$
2003
$
Statements of income for the periodF-42
Sales and other income
600
546
740
Costs and expenses
(496)
(493)
(575)
Taxation
(6)
(1)
3
Net income
98
52
168
Balance sheets at December 31,
Non-current assets
754
826
Current assets
366
308
1,120 1,134
Long-term liabilities
(97)
(113)
Loans from shareholders
(27)
(65)
Current liabilities
(176)
(74)
Net assets
820
882
2005
$
2004
$
16.17.
ASSETS AND LIABILITIES HELD FOR SALE (continued)
On July 19, 2005, Aflease Gold and Uranium Resources Limited (Aflease)
announced that it had purchased from AngloGold Ashanti, its Weltevreden rights in
exchange for Aflease shares in a transaction valued at R75 million ($11 million)
based on the fixed agreed number of shares and the listed market price thereof. The
Company’s investment held in Weltevreden consist of mineral participation rights
purchased from Gold Fields Limited adjacent to the Tau Lekoa lease area in South
Africa. On December 19, 2005, Aflease was acquired by sxr Uranium One
Incorporated (formerly Southern Cross Incorporated) (sxr Uranium One). In terms of
the agreement, the purchase price will be paid in the form of shares to be issued to
the Company when certain conditions, precedent to the agreement, have been met.
These conditions are that the Weltevreden rights are part of a minin g rights
conversion application and upon the South African Government granting the
conversion rights, the Company will cede the Weltevreden mineral rights to Aflease.
The Director-General of the South African Department of Minerals and Energy has
notified the Company that the new order mining rights have been granted to
AngloGold Ashanti, which are expected to be received during 2006. The related sxr
Uranium One shares will then be issued to the Company as full settlement of the
purchase price. The Company has reclassified the balance sheet amounts from the
historical presentation to assets and liabilities of disposal groups classified as held for
sale, in the asset and liability sections, respectively, for all periods presented. The
carrying value of Weltevreden as at December 31, 2005 represents the lower of
carrying amount and fair value less cost to sell. The fair value of the sxr Uranium One
shares as at December 31, 2005 amounts to $19 million.
2008
$
2007
$
As at December 31, 20052008 and 20042007 the carrying amountamounts of major classes of assets
and
liabilities to be disposed of,classified as held for sale, included:
Cash and cash equivalents
2
-
Trade and other receivables
10
-
Inventories
2
-
Property, plant and equipment
651
16
19Acquired properties
14
15
Goodwill
103
-
Trade and other payables
(31)
-
Deferred taxation
(6)-
(7)
(1)
Provision for environmental rehabilitation
(11)
-
Net assets
10
12740
17.30
18.
OTHER CURRENT LIABILITIES
Deferred income
6
2
5 20
Deferred taxation. Refer to Note 7.
92
34
Related parties. Refer to Note 6.
24 5
4
Accrual for interest
-
10
Accrual for power
14
1224 17
Unearned premiums
5127 43
59$1.0 billion term loan facility fee accrual
21
-
Other (including accrued liabilities)
31
6543
19947
186
144 132
19.
OTHER NON-CURRENT LIABILITIES
Deferred income
7 11
Taxation
106 134
Other creditors
4 -
Related parties
- 1
117 146
F-43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2005F-43
$
2004
$
18.
SHORT-TERM DEBT
Current maturities of long-term debt. Refer to Note 20.
160
315
19.
OTHER NON-CURRENT LIABILITIES
Deferred income
14
4
20.
LONG-TERM DEBT
2008
$
2007
$
Unsecured
Convertible bond
(1)
1,008 1,008
Fixed semi-annual coupon of 2.375%2.375 percent per annum. The bond is convertible, at
the
holders’ option, into ADSs up to February 2009 and is US dollar-based. The bond
is
convertible at a price of $65.00 per ADS.
1,008
1,008
Corporate bond
(2)
Fixed semi-annual coupon of 10.50% per annum. The bond is repayable on
August 28, 2008 and is ZAR-based.
327
367
Syndicated loan facility ($700 1,150million)-Drawn down in US and
(3)Australian dollars
(2)
842 526
Interest charged at LIBOR plus 0.4%0.4 percent per annum. Loan is repayable in January 2008
December 2010 and is US dollar-based. The loan is subject to certain debt covenant
arrangements for
which no default event occurred.
460
-
Local money-market short-term borrowings
Short-term borrowings at market related rates and are ZAR-based.
129
-
RMB International (Dublin) Limited
Interest charged at LIBOR plus 0.82% per annum. Loan is of a short-term nature, and
has no fixed repayment date and is US dollar-based.
-
16
Bank Belgolaise
Interest charged at LIBOR plus 1.5% per annum. Loan is repayable in 24 equal
monthly installments commencing October 2005 and is US dollar-based.
4
5
Local bank overdraft
Short-term overdraft at market related rates and is ZAR-based.
-
-
Precious Fields Estates Company Ltd
Annuity based repayments expiring October 2006. Loan is US dollar-based.
1
1
Syndicated loan facility ($600 million)
(3)
Interest charged at LIBOR plus 0.7% per annum. Loan was repaid in February 2005
and was US dollar-based. The loan is subject to certain debt covenant arrangements
for which no default event occurred.
Standard Bank Argentina S.A.
23
-
265Interest is charged at an average rate of 8.83 percent per annum. Loans are
repayable in January, February and April 2009 and are US dollar-based.
Iduapriem – Syndicated Project Finance
Santander Banespa
11 -
Interest is charged at LIBOR plus 2%1.45 percent per annum. Loan was repaidis repayable in February 2005
monthly installments terminating in September 2011 and was US dollar-based.is Brazilian real-based.
Santander Rio S.A.
6
-
10Interest is charged at an average rate of 6.75 percent per annum. Loans are
repayable in January and March 2009 and are US dollar-based.
AustraliaBanco Itaú S.A.
5 -
Interest is charged at a rate of 6.38 percent per annum. Loan is repayable in
February 2009 and New Zealand Banking Group Limitedis US dollar-based.
Banco Itaú Buen Ayre S.A.
(4)4
-
Interest is charged at a rate of 8.75 percent per annum. Loan is repayable in
March 2009 and is US dollar-based.
Banco Bradesco S.A.
4 -
Interest is charged at an average rate of 7.49 percent per annum. Loans are
repayable in April and June 2009 and are US dollar-based.
Unibanco S.A.
3 -
Interest is charged at a rate of 6.3 percent per annum. Loan is repayable in
February 2009 and is US dollar-based.
JP Morgan Chase Bank, N.A.
3
-
Interest is charged at a rate of 3.72 percent per annum. Loan is repayable in
January 2009 and is US dollar-based.
Corporate bond
(3)
-
304
Fixed semi-annual coupon of 10.5 percent per annum. The bond was repaid on
August 28, 2008 and was ZAR-based.
Total unsecured borrowings
1,9291,909 1,838
1,672
Secured
Capital leases
Turbine Square Two (Proprietary) Limited
(4)
27
37
The leases are capitalized at an implied interest rate of 9.8 percent per annum. Lease
payments are due in monthly installments terminating in March 2022 and are ZAR-
based. The buildings financed are used as security for these loans. Refer to Note 13.
Senstar Capital Corporation
(5)
3
5
Interest charged at ana weighted average rate of 6.83%6.6 percent per annum. Loans are
repayable in monthly installments terminating in November 2009 and are US dollar-
based. The equipment financed is used as security for these loans. Refer to Note 12.
10
13
Other secured loans
Geita Syndicated Project finance
Interest charged at LIBOR plus 1.95% per annum. Loan was repaid in June 2005 and
was US dollar-based. The loan was secured by a fixed and floating charge over the
project assets (Refer to Note 12) and a pledge over the shares in the project
Company.
-
1
Total long-term debt
1,939
1,68613.
Current maturities included in short-term debt. Refer to Note 18.
160
315
1,779
1,371
F-44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
20.
F-44
20.
LONG-TERM DEBT(continued)
2005
$2008
2004$
2007
$
CSI Latina Arrendamento Mercantil S.A.
(6)
1
1
Interest charged at a rate of 11.7 percent per annum. Loan is repayable in monthly
installments terminating in May 2011 and is Brazilian real-based. The equipment
financed is used as security for this loan. Refer to Note 13.
Terex Africa (Proprietary) Limited
-
2
Interest charged at a rate of 9.0 percent per annum. Loan was repaid in January 2008
and was US dollar-based. The equipment financed was used as security for this loan.
Refer to Note 13.
Total debt
1,940 1,883
Current maturities included in short-term debt.
1,067
319
Total long-term debt
873
1,564
Scheduled minimum long-term debt repayments are:
2006
160
2007
4
2008
773
2009
1,067
1002
2010
-846
1,939
2011
6
2012
3
2013
3
Thereafter
15
1,940
The currencies in which the borrowings are denominated are as follows:
United States dollars
1,483
1,319
1,380 1,391
South African rands
45627
367341
1,939Australian dollars
1,686521 150
Brazilian real
12 1
1,940 1,883
Undrawn borrowing facilities as at December 31, 20052008 are as follows:
Syndicated loan ($7001,150 million) – US dollar
245
-327
627
Syndicated loan ($600 million)FirstRand Bank Limited – US dollar
-
33550
50
Citibank, N.A. – dollar
8
8
ABSAAbsa Bank Limited – US dollar
42
-42
Nedbank Limited – US dollar
2
2
Standard Bank of South Africa Limited – rands
20
38
FirstRand Bank Limited – rands
17
2123
32
Nedbank Limited – rands
5
7
8
ABSAAbsa Bank Limited – rands
5
-3
4
Commerzbank AG – rands
- rands
3
1ABN Amro Bank N.V. – rands
Australia and New Zealand Banking Group Limited-
1
ABN Amro Bank N.V. – Australian dollareuros
37
39-
3647
412
472 813
(1)
(1)
Convertible Bond
Senior unsecured fixed rate bond
1,000
1,000
Add: Accrued interest
88
8
1,008
1,008
On February 27, 2004, AngloGold Ashanti Holdings plc, a wholly-owned subsidiary of the
Company, issued $1,000,000,000$1.0 billion 2.375 percent guaranteed convertible bonds
due 2009,
convertible into ADSs and guaranteed by AngloGold Ashanti.
Subject to certain restrictions, holders
Holders of convertible bonds are entitled to convert
each convertible bond into an AngloGold
Ashanti ADSsADS at the then applicable
conversion price at any time from April 8, 2004 to
February 20, 2009, or, if the
convertible bonds are called for redemption earlier than
February 27, 2009, the
seventh business day prior to the date of early redemption.
If the bonds have not been converted by February 20, 2009, they will be
redeemed at par on
February 27, 2009. AngloGold Ashanti Holdings plc has the option of
calling an early
redemption of all the bonds 3 years after their issuance, if the
price of the ADSs exceeds
130 percent of the conversion price for more than 20
days during any period of 30 consecutive
trading days.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-45
20.
LONG-TERM DEBT(continued)
2008
$
2007
$
The initial conversion price for the convertible bonds was $65.00 per ADS. The conversion
conversion premium to the reference volume weighted average price of the ADSs
on the New York stock
exchange of $40.625 on February 19, 2004, when the
issue of the convertible bonds was
announced, was 60 percent. If all bond
holders exercise their option to convert their bonds
into ADSs and assuming no
adjustments are made to the initial conversion price, up to
15,384,615 new ADSs
will be issued. The conversion ratio is subject to adjustment in case of various
corporate events including share splits and capital distributions.
The calculation of diluted (loss)/earningsloss per common share for 20052008, 2007 and 2004
2006 did not assume the
effect of 15,384,615 shares issuable upon the exercise of
Convertible Bonds as their effects
are anti-dilutive for these periods.anti-dilutive. Refer to
Note 9.
The proceeds
$1.0 billion term loan facility
On November 20, 2008, AngloGold Ashanti Holdings plc, a wholly-owned subsidiary of the issue, after pay ment of expenses, were utilized by
AngloGold Ashanti Limited, entered into a $1.0 billion term loan facility agreement (the “Term
Facility”). $1.0 billion on the Term Facility was drawn on February 26, 2009 to redeem the
$1.0 billion convertible bond due February 27, 2009 upon its maturity.
The Term Facility is for an initial one year period from the date of first drawdown and is
extendible, if required, at the option of AngloGold Ashanti Holdings plc until
November 30, 2010. The amounts drawn under the Term Facility will bear an interest margin
over the lenders’ cost of funds (subject to a cap of 1.75 times applicable LIBOR) of
4.25 percent until six months after the date of first drawdown and 5.25 percent thereafter.
AngloGold Ashanti Limited, AngloGold Ashanti USA Incorporated and AngloGold Ashanti
Australia Limited have each guaranteed all payments and other obligations of AngloGold
Ashanti Holdings plc under the Term Facility.
AngloGold Ashanti’s interest expense will increase substantially as a result of the higher
interest rates and fees associated with the Term Facility. Fees payable amounted to
$42.5 million plus commitment fees of 2.125 percent per annum on the undrawn portion of the
Term Facility. As at December 31, 2008, $21 million is included in other current liabilities.
Refer to Note 18. These fees will be amortized over the expected term of the Term Facility.
Based on an assumed cost of funds of 100 basis points and assuming that the Term Facility is
fully drawn, the effective borrowing cost (including fees and applicable margin) on the Term
Facility is estimated at approximately 10 percent per annum. The actual interest expense in
2009, will depend upon the amount actually drawn under the Term Facility, the lenders’ actual
costs of funds and prevailing LIBOR rates.
Amounts outstanding under the Term Facility may be prepaid at any time prior to the maturity
date. AngloGold Ashanti intends to refinance amounts outstanding under credit facilities,the Term Facility through one or more of the
following: the proceeds of asset sales (which may include the sale of significant assets), long-
term debt financing and/or the issuance of an equity linked instrument. The nature and timing
of refinancing the Term Facility will depend upon market conditions.
An amendment to
meet transaction costs the Term Facility was made subsequent to year-end. Refer to Note 30.
(2)
Syndicated loan facility ($1,150 million)
Drawn down in connection withUS and Australian dollars
838
525
Add: Accrued interest
4 1
842 526
In December 2007, the acquisitionCompany entered into a new three year $1,150 million unsecured
syndicated borrowing facility, at a margin of Ashanti0.4 percent over LIBOR. A commitment fee of
0.12 percent per annum is payable on the undrawn portion of the facility. The three year
$1,150 million syndicated facility was used to repay a maturing facility of $700 million (repaid
on December 14, 2007) and is available for
general corporate purposes, including planned capital expenditure.
purposes. During the yearended December 31, 2008, the Company drew down $743 million and repaid $316 million,respectively, under the $1,150 million syndicated facility. The Company, AngloGold AshantiHoldings plc, AngloGold Ashanti USA Incorporated and AngloGold Ashanti Australia Limitedhave guaranteed all payments and other obligations regarding the $1,150 million syndicatedloan facility.F-45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(3)20.
LONG-TERM DEBT (continued)
2005
$
2004
$
(2)
Corporate Bond
Senior unsecured fixed rate bond
315-
354
293
Add: Accrued interest
12-
1311
327
367-
304
On August 21, 2003, AngloGold issued an unsecured bondsbond in the aggregate
principal amount
of R2 billion ($300 million) at a fixed semi-annual coupon of
10.50 10.5 percent per annum. The
bond is repayablewas repaid on August 28, 2008, subject to
early redemption at the Company’s option and is listed on the Bond Exchange of
South Africa. The net proceeds of the bond are for general corporate purposes.2008.
(3)
Syndicated loan facilities ($600 million) and ($700 million)
On February 7, 2002, the group entered into a new three year $600 million
unsecured syndicated borrowing facility, at a margin of 0.7% over LIBOR, that
was used in part to refinance near-term maturing debt. This facility was repaid on
February 4, 2005 and a new three-year $700 million syndicated facility was
signed in January 2005 with an interest charge of LIBOR plus 0.4% per annum.
The three-year $700 million syndicated facility was used to repay the maturing
facility of $600 million and is available for general corporate purposes. The
amount drawn under this facility was $460 million as at December 31, 2005.
(4)
Australia and New Zealand Banking Group Limited
On October 14, 2002, a new loan facility of A$50 million was arranged with the
Australia and New Zealand Banking Group Limited, at 0.35% over the Bank Bill
Swop Reference Rate. The facility, originally repayable by September 2003, has
been extended to September 2006. There was $nil million drawn under this
facility as at December 31, 2005.
On August 21, 2003, AngloGold issued unsecured bonds in the aggregateprincipal amount of R2 billion ($300 million) at a fixed semi-annual coupon of10.50 percent per annum. The bond is repayable on August 28, 2008, subject toearly redemption at the Company’s option and is listed on the Bond Exchange ofSouth Africa. The net proceeds of the bond are for general corporate purposes.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(3)F-46
Syndicated loan facilities ($600 million) and ($700 million)
On February 7, 2002, the group entered into a new three year $600 million
unsecured syndicated borrowing facility, at a margin of 0.7% over LIBOR, that
was used in part to refinance near-term maturing debt. This facility was repaid on
February 4, 2005 and a new three-year $700 million syndicated facility was
signed in January 2005 with an interest charge of LIBOR plus 0.4% per annum.
The three-year $700 million syndicated facility was used to repay the maturing
facility of $600 million and is available for general corporate purposes. The
amount drawn under this facility was $460 million as at December 31, 2005.
(4)20.
Australia and New Zealand Banking Group Limited
On October 14, 2002, a new loan facility of A$50 million was arranged with the
Australia and New Zealand Banking Group Limited, at 0.35% over the Bank Bill
Swop Reference Rate. The facility, originally repayable by September 2003, has
been extended to September 2005. There was $nil million drawn under this
facility as at December 31, 2005.LONG-TERM DEBT(continued)
(5)
2008
$
Capital leases
Senstar capital corporation
(4)
Turbine Square Two (Proprietary) Limited
Capital leases are for specific periods, with terms of renewal but no purchase options.
options or escalation clauses. Renewals are at the discretion of the entity that
holds the lease. As of December 31, 20052008 and 2004,
2007, Property, plant and
equipment, allocated to Buildings and mine infrastructure, includes $18
$26 million and $18$36 million of assets under capital leases and
$10 $3 million and $7$2 million of
related accumulated depreciation, respectively.
Amortization charges relating to capital leases
are included in Depreciation, depletion and amortization expense for the years ended
December 31, 2008 and 2007. The weighted average interest rate on the leases existing at
December 31, 2008 is 9.8 percent. Payments are made monthly, including interest, through
2022.
(5)
Senstar Capital Corporation
Capital leases are for specific periods, with terms of renewal but no purchase options.
Renewals are at the discretion of the entity that holds the lease. As of December 31, 2008 and
2007, Property, plant and equipment, allocated to Buildings and mine infrastructure, includes
$11 million and $16 million of assets under capital leases and $8 million and $12 million of
related accumulated depreciation, respectively. Amortization charges relating to capital leases
are included in Depreciation, depletion and amortization expense for all periods presented.
The weighted
average interest rate on the leases existing at December 31, 20052008 is 6.83%.
6.6 percent. Payments are made monthly, including interest, through 2009.
F-46
(6)
CSI Latina Arrendamento Mercantil S.A.
Capital lease is for specific periods, with terms of renewal and purchase options. Renewals
are at the discretion of the entity that holds the lease. As of December 31, 2008 and 2007,
Property, plant and equipment, allocated to Buildings and mine infrastructure, includes
$1 million and $1 million of assets under capital leases and $nil million and $nil million of
related accumulated depreciation, respectively. Amortization charges relating to capital leases
are included in Depreciation, depletion and amortization expense for the years ended
December 31, 2008 and 2007. The average interest rate on the leases existing at
December 31, 2008 is 11.7 percent. Payments are made monthly, including interest, through
2011.
Future minimum lease payments under all the above capital leases together with the present
value of minimum lease payments as of December 31, 2008 are:
2009
6
2010
3
2011
3
2012
3
2013
3
Thereafter
40
Total minimum lease payments
58
Less interest
27
Present value of net minimum lease payments
31
Less current portion
3
Long-term capital lease obligation
28
21.
PROVISION FOR ENVIRONMENTAL REHABILITATION
2008
$
2007
$
Accrued environmental rehabilitation costs
302
394
Long-term environmental obligations comprising decommissioning and restoration are
based on the Company’s environmental management plans, in compliance with the
current environmental and regulatory requirements.
Decommissioning costs
The provision for decommissioning represents the cost that will arise from rectifying
damage caused from establishing mining operations.
Decommissioning costs, representing obligations associated with the retirement of
long-lived assets that result from the acquisition, construction or normal operations of
long-lived assets, are accounted for in accordance with the provisions of SFAS143.
Decommissioning costs are further described in Note 5 – Asset retirement obligations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
20.
LONG-TERM DEBT (continued)
2005
$
2004
$
Future minimum lease payments under capital leases together with the present value
of minimum lease payments as of December 31, 2005 are:
2006
3
2007
3
2008
3
2009
3
Total minimum lease payments
12
Less
interest
(2)
Present value of net minimum lease payments
10
Less current portion
(3)
Long-term capital lease obligation
7
F-47
21.
PROVISION FOR ENVIRONMENTAL REHABILITATION
Accrued environmental rehabilitation costs
325
209
Long-term environmental obligations comprising decommissioning and restoration are (continued)
based on the group’s environmental management plans, in compliance with the current
environmental and regulatory requirements.
Decommissioning costs
The provision for decommissioning represents the cost that will arise from rectifying
damage caused from establishing mining operations.
Decommissioning costs, representing obligations associated with the retirement of long-
lived assets that result from the acquisition, construction or normal operations of long-
lived assets, are accounted for in accordance with the provisions of SFAS143. The effect
of adoption of SFAS143 in respect of decommissioning is described in Note 5 – Asset
retirement obligations.
Restoration costs
The provision for restoration represents the closure cost for restoration of site damage.
Rehabilitation of site damage only commences at the closure stage of the mine. Site
damage are not costs associated with the construction or normal operations of long-lived
assets and do not create probable future economic benefits.
At each reporting balance sheet date, gross restoration costs are estimated at the present
value of the expenditures expected to settle the obligation, using estimated cash flows
based on current prices. The estimates are discounted at a credit adjusted risk free rate.
While the ultimate amount of rehabilitation cost to be incurred in the future is uncertain,
the Company has estimated
that the total cost for mine rehabilitation and closure, inon an undiscounted basis, will
current monetary terms, will be $426$1,049 million which includes a total estimated liability of
$19 $84 million in respect of
equity accounted joint ventures. Refer to Note 15. Certain
amounts have been contributed to an irrevocable rehabilitation trust under the Company's
control. The monies in the trust are invested primarily in interest bearing debt securities
and are included in Other long-term assets in the Company’s consolidated balance sheet.
Cash balances held in the trust are classified as restricted cash in the Company’s
consolidated balance sheets for all periods presented.16. AngloGold Ashanti USA has
posted reclamation bonds with various federal and governmental agencies to cover
environmental rehabi litationrehabilitation obligations. Refer to Note 24.22.
The Company intends to finance the ultimate rehabilitation costs from the monies
invested with the rehabilitation trust fund, the environmental protection bond as well
as the proceeds on sale of assets and
gold from plant clean-up at the time of mine
closure.
22.
OTHER ACCRUED LIABILITIES
Other accrued liabilities
19
13
Other accrued liabilities include the following:
Provisions for labour and civil claim court settlements for South American operations
(1)
19
13
Provision for employee compensation claims in Australia
(2)
-
-
19
13
(1)
Other provisions consist of claims filed by former employees in respect of loss of employment, work-
related accident injuries and diseases, government fiscal claims relating to levies and surcharges and
closure costs of old tailings operations. These liabilities are anticipated to unwind over the next two to five
years.
(2)
Comprises workers compensation claims with regard to work related incidents. The liability is anticipated
to unwind over the next three to five year period. (Values are less than $0,5 million.)
F-47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2005
$
2004
$
23.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS
Accrued liability
200
173
The provision for pension and post-retirement medical funding represents the provision for
health care and pension benefits for employees, retired employees and their dependants.
The post-retirement medical liability is assessed in accordance with the advice of
independent professionally qualified actuaries. The actuarial method used is the
projected unit credit actuarial valuation method. Refer to Note 28. The costs of post-
retirement benefits are made up of those obligations which the group has towards current
and retired employees.
24.
COMMITMENTS AND CONTINGENCIES
2008
$
2007
$
Capital expenditure commitments
(1)
Contracts for capital expenditure
186
14882
436
Authorized by the directors but not yet contracted for
725
658632
911809
806
714
1,245
Allocated for:
Project expenditure
- within one year
190
308252 422
-
thereafter
106
148
296
456
(1)
Including commitments through contractual arrangements with equity accounted joint ventures.70 311
322 733
Stay in business expenditure
- within one year
572
145349 471
-
thereafter
43 41
205
615392 512
350(1)
Including commitments of $11 million (2007: $17 million) through contractual arrangements by equity
accounted joint ventures.
Other contractual purchase obligations
(2)
- within one year
289 363
- thereafter
396 293
685 656
(2)
Other purchase obligations represent contractual obligations for the purchase of mining contract services,
power, supplies, consumables, inventories, explosives and activated carbon. Amounts exclude purchase
obligations of equity accounted joint ventures.
Summary of contracted uranium sales as at December 31, 2008
The Company had the following forward pricing uranium commitments:
Year
Ibs (‘000)
(1)
Average contracted
price ($/lbs)
2009
494 33.45
2010
988 33.46
2011 – 2013
1,482 35.94
The
(1)
Certain contracts allow the buyer to adjust the purchase quantity within a specified range.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-48
22.
COMMITMENTS AND CONTINGENCIES(continued)
2008
$
2007
$
Contingencies
Ground water pollution – South African Department of Water Affairs and Forestry issued a new Directive on
November 1, 2005 ordering the four mining groups, Simmer and Jack Investments
(Proprietary) Limited, Simmer and Jack Mines Limited (collectively known as Simmers
who purchased the Buffelsfontein shafts from DRDGold Limited), Harmony Gold Mining
Company Limited, AngloGold Ashanti and Stilfontein Gold Mining Company to share
equally, the costs of pumping water at Stilfontein’s Margaret Shaft. This follows an
interdict application made by AngloGold Ashanti in response to DRDGold Limited’s threat
to cease funding the pumping of water at the Margaret and Buffelsfontein shafts, after
placing Buffelsfontein, its subsidiary that operated the North West operations, into
liquidation on March 22, 2005. Simmers have purchased the Buffelsfontein shafts from
DRDGold Limited and have assumed the water manageme nt liabilities associated with the
Buffelsfontein shafts. The Directive also orders the mining companies to submit an
agreement and a joint proposal towards the long term sustainable management of water
arising from the mining activities in the area. The Company believes that it is not liable to
fund these pumping costs but cannot make any assurances regarding the ultimate result
until the matter has been settledAfrica
The Company has identified a number of possible groundwater pollution sites at its operations
current operations in South Africa. The CompanyAfrica and has investigated a number of different
technologies and
methodologies that could possibly be used to remediate the pollution plumes.
plumes. The viability Numerous scientific, technical and legal reports have been produced and remediation
of the suggested remediation techniques inpolluted soil and groundwater is the local geological
formation in South Africa is however unknown. No sites have been remediated in South
Africa. Present research and development work is focused on several pilot projects to find
a solution that will in fact yield satisfactory results in South African conditions.subject of continued research. Subject to
the technology being developed as a proven remediation technique, no reliable
estimate can be
made for the obligation.
F-48
Deep ground water pollution – South Africa
The Company has identified a flooding and future pollution risk posed by deep
groundwater, due to the interconnected nature of operations in the West Wits and
Vaal River operations in South Africa. The Company is involved in task teams and
other structures to find long-term sustainable solutions for this risk, together with
industry partners and government. As there is too little information for the accurate
estimate of a liability, no reliable estimate can be made for the obligation.
Soil and sediment pollution – South Africa
The Company identified offsite pollution impacts in the West Wits area, resulting from
a long period of gold and uranium mining activity by a number of mining companies
as well as millennia of weathering of natural reef outcrops in the catchment areas.
Investigations are being conducted but no reliable estimate can be made for the
obligation.
Serra Grande sales tax on gold deliveries
55 63
Mineração Serra Grande S.A. (MSG), the operator of the Crixas mine in Brazil, has
received two tax assessments from the State of Goiás related to payments of sales
taxes on gold deliveries for export, including one assessment for the period between
February 2004 and June 2005 and the other for the period between July 2005 and
May 2006. The tax authorities maintain that whenever a taxpayer exports gold mined
in the State of Goiás through a branch located in a different Brazilian state, it must
obtain an authorization from the Goiás State Treasury by means of a Special Regime
Agreement (Termo de Acordo re Regime Especial – TARE). The Company’s
attributable share of the first assessment is approximately $34 million. Although MSG
requested the TARE in early 2004, the TARE, which authorized the remittance of gold
to the Company’s branch in Minas Gerais specifically for export purposes, was only
granted and executed in May 2006. In November 2006 the administrative council’s
second chamber ruled in favor of MSG and fully canceled the tax liability related to
the first period. The State of Goiás has appealed to the full board of the State of
Goiás tax administrative council. The second assessment was issued by the State of
Goiás in October 2006 on the same grounds as the first assessment, and the
Company’s attributable share of the assessment is approximately $21 million. The
Company believes both assessments are in violation of federal legislation on sales
taxes.
Tax disputes at MSG, Morro Velho and AngloGold Ashanti Brasil Mineração
12 8
MSG, Morro Velho and AngloGold Ashanti Brasil Mineração are involved in disputes
with the Brazilian tax authorities. These disputes involve federal tax assessments
including income tax, social contributions and annual property tax based on
ownership of properties outside of urban perimeters.
VAT dispute at MSG
6 8
MSG received a tax assessment in October 2003 from the State of Minas Gerais
related to sales taxes on gold
allegedly returned from the branch in Minas Gerais to
the company head office in the State of Goiás. The tax administrators rejected the
Company’s appeal against the assessment. The Company is now appealing the
dismissal of the case.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
24.
F-49
22.
COMMITMENTS AND CONTINGENCIES(continued)
2005
$2008
2004$
$2007
Following the decision to discontinue operations at Ergo in 2005, employees’ surplus to
requirement have had their service contracts terminated and retrenchment packages settled. Ergo continues to retain various staff members to complete the discontinuance and attendant environmental obligations which are expected to be completed by 2015. The retained employees may resign, be transferred within the group, attain retirement age or be retrenched as their
current position is made redundant. The Company is currently unable to determine the
effects, if any, of any potential retrenchment costs.$
Re-export arrangements regarding certain artifacts:
5
1
AngloGold Ashanti has undertaken to re-export certain gold artifacts temporarily imported
into South Africa, for which custom and value added tax was waived. The Company will
be required to pay if it fails to comply with the re-export arrangements agreed with the
South African Revenue Service.Financial guarantees
Oro groupGroup surety given amounting to:
1611 15
-
The Company has provided surety in favor of the lender in respect of gold loan
facilities to
wholly-owned subsidiaries of Oro Group (Proprietary) Limited, an affiliate
of the Company.
The Company has a total maximum liability, in terms of the
suretyships, of R100 million
($16 ($11 million). The suretyship agreements have a termination notice periodprobability of 90 days.the non-performance
under the suretyships is considered minimal.
Serra Grande sales tax on
AngloGold Ashanti USA reclamation bonds
85 48
Pursuant to US environmental and mining requirements, gold deliveries amounting to:mining companies are
obligated to close their operations and rehabilitate the lands that they mine in
accordance with these requirements. AngloGold Ashanti USA has posted reclamation
bonds with various federal and state governmental agencies to cover potential
rehabilitation obligations.
29
-
Mineração Serra Grande S.A.,
The Company has provided a guarantee for these obligations which would be payable
in the operatorevent of AngloGold Ashanti USA is not able to meet its rehabilitation
obligations. As at December 31, 2008, the carrying value of these obligations
amounted to $36 million and is included in the Provision for environmental
rehabilitation in the Company's consolidated balance sheet. The obligations will
expire upon completion of such rehabilitation and release of such areas by the
applicable federal and/or state agency. AngloGold Ashanti is not indemnified by third
parties for any of the Crixas mine in Brazil, has receivedamounts that may be paid by AngloGold Ashanti under its
assessments from the State of Goias Tax Inspection related to payments of sales taxes
on gold deliveriesguarantee.
Guarantee provided for export. The Serra Grande Joint Venture is co-owned with Kinross
Gold Corporation. convertible bond
1,000 1,000
The Company manageshas guaranteed all payments and other obligations of AngloGold
Ashanti Holdings plc regarding the operationissued $1.0 billion 2.375 percent convertible bond
due February 27, 2009. Refer to Note 20. The Company’s obligations regarding the
guarantee are direct, unconditional and its share of the assessment
is approximately $29 million. The Company believes the assessments are in violation of
Federal legislation on sales taxes and that there is a remote chance of successunsubordinated.
Guarantee provided for the
State of Goias. The assessment has been appealed.term loan facility
AngloGold Offshore InvestmentsAshanti Limited, guaranteeAngloGold Ashanti USA Incorporated and AngloGold
Ashanti Australia Limited, as guarantors, have each guaranteed all payments and
other obligations of AngloGold Ashanti Holdings plc and the Nufcor International Limited
loan facility:
25
40
AngloGold Offshore Investments Limited, a wholly-owned subsidiary of the Company,
has given a guarantee of 50 percent of the Nufcor International Limited loan facility with
RMB International (Dublin) Limited. Nufcor International Limited is accounted forother guarantors under
the equity method.$1.0 billion Term Facility. $1.0 billion on the Term Facility was drawn on February
26, 2009 to redeem the $1.0 billion convertible bond due February 27, 2009 upon its
maturity. Refer to Note 15.20.
Guarantee provided for syndicated loan facility
842 526
AngloGold Ashanti Limited, AngloGold Ashanti Holdings plc, AngloGold Ashanti USA
Incorporated and AngloGold Ashanti Australia Limited, as guarantors, have each
guaranteed all payments and other obligations of the borrowers and the other
guarantors under the $1.15 billion syndicated loan facility dated December 13, 2007.
Refer to Note 20.
Hedging guarantees of
325 683
The Company has issued gold delivery guarantees to several counterpart banks in
which it guarantees the due performance of its subsidiaries AngloGold (USA) Trading
Company, AngloGold South America Limited and Cerro Vanguardia S.A. under their
respective gold hedging agreements.
Ashanti Treasury Services Limited (ATS) hedging guarantees
987
1,494
The Company together with its wholly-owned subsidiary AngloGold Ashanti Holdings
plc has provided guarantees to several counterpart banks for the hedging
commitments of its wholly-owned subsidiary ATS. The maximum potential amount of
future payments is all moneys due, owing or incurred by ATS under or pursuant to the
hedging agreements. At December 31, 2008 the marked-to-market valuation of the
ATS hedge book was negative $987 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-50
22.
COMMITMENTS AND CONTINGENCIES(continued)
2008
$
2007
$
Geita Management Company Limited
(GMC): hedging guarantees
172331
-520
The Company and its wholly-owned subsidiary AngloGold Ashanti Holdings plc have
issued hedging guarantees to several counterpartycounterpart banks in which they have
guaranteed the due performance by the GMC of its obligations under or pursuant to the
hedging agreements entered into by GMC, and to the payment of all money owing or
incurred by GMC as and when due. The guarantee shall remain in force until no sum
remains to be paid under the Hedging Agreements and the Bank has irrevocably
recovered or received all sums payable to it under the Hedging Agreements. The
maximum potential amount of future
payments is all moneys due, owing or incurred by
GMC under or pursuant to the Hedging Agreements.
hedging agreements. At December 31, 20052008 the
marked-to-market valuation of the
GMC hedge book was negative $172$331 million.
North and South America delivery guarantees given amounting to:
-
-
The Company has issued gold delivery guarantees to several counterparty banks in
which it guarantees the due performance of its wholly-owned subsidiaries AngloGold
Ashanti USA Inc. and AngloGold Ashanti South America under their respective gold
hedging agreements.
F-49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
24.
COMMITMENTS AND CONTINGENCIES (continued)
2005
$
2004
$
Ashanti Treasury Services guarantees given amounting to:
723
494
The Company together with its wholly-owned subsidiary AngloGold Ashanti Holdings
plc have provided guarantees to several counterparty banks for the hedging
commitments of its wholly owned subsidiary Ashanti Treasury Services Limited (ATS).
The maximum potential amount of future payments is all moneys due, owing or
incurred by ATS under or pursuant to the Hedging Agreements. At December 31,
2005 the marked-to-market valuation of the ATS hedge book was negative
$723 million.
The Company had providedassesses the credit quality of counterparts on a letterquarterly basis. As of credit in favor
December 31, 2008, the probability of the Geita project finance
lenders for:
-
19
The letter of credit may be called if Geita Gold Mining Limited fails to perform under
their project finance agreement and has a potential maximum tenor in accordance
with this agreement. See Note 20 – Long-term debt – Geita Project Finance. In this
event, Geita Gold Mining Limited would be liable to the Company. All project finance
obligations have been fully repaid during 2005.non-performance is considered minimal.
In addition to the above, the Company has contingent liabilities in respect of certain
claims, disputes and guarantees which are not considered to be material.
With operations in several countries on several continents, many of which are
emerging markets, AngloGold Ashanti is subject to, and pays annual income taxes
under the various income tax regimes where it operates. Some of these tax regimes
are defined by contractual agreements with the local government, but others are
defined by the general corporate income tax laws of the country. The Company has
historically filed, and continues to file, all required income tax returns and to pay the
taxes reasonably determined to be due. The tax rules and regulations in many
countries are complex and subject to interpretation. From time to time the Company is
subject to a review of its historic income tax filings and in connection with such
reviews, disputes can arise with the taxing authorities over the interpretation or
application of certain rules to the Company’s business conducted within the c ountry
involved. Management believes based on information currently to hand, that such tax
contingencies have been adequately provided for, and as assessments are
completed, the Company will make appropriate adjustments to those estimates used
in determining amounts due.
Vulnerability from concentrations
Vulnerability from concentrations
The majority of AngloGold Ashanti’s 63,99362,895 employees (2004: 65,400, 2003: 55,439) (2007: 61,522, 2006: 61,453)
are subject to collective bargaining
agreements. These agreements are established in
negotiations between the Chamber of Mines, the body which
that represents the gold mining
industry in South Africa, and representative groups of labor. The agreements have a two-
yeartwo-year validity period. The most recent settlement negotiation was completed in July 2005,
August 2007, when the parties reached an
agreement covering the period from
July 1, 20052007 to June 30, 2007.2009.
There is a concentration of risk in respect of reimbursablerecoverable value added tax and fuel
duties from the Malian government.government to the Company’s equity accounted affiliates.
ReimbursableRecoverable value added tax due from the Malian government to the groupequity
accounted affiliates of the Company amounts to $25an attributable $27 million at
December 31,
2005 2008 (December 31, 2004: $142007: attributable $42 million). The last audited value added tax return was for the period ended June 30, 2005
and at that date $12 million was still outstanding and $13 million is still subjected to audit. The accounting processes for
the unaudited amount are in accordance with the processes advised by the Malian government in terms of the previous
audits. The government of Mali is a shareholder in all of the group’s entities in Mali and has promised to provide a
repayment plan for the amounts due. Due to this uncertainty, the amounts, although reported as current assets, may
take longer than 12 months to be received.
Reimbursable
Recoverable fuel duties from the Malian government to the group amountequity accounted affiliates
of the Company amounts to $13an attributable $5 million at December 31, 20052008
(December 31, 2004: $132007: attributable $7 million). Fuel dutiesduty refund claims are required to
be submitted before January 31 of the following year and
are subject to authorization
by, firstly, the Department of Mining, and secondly, the Customs and Excise
authorities. TheWith effect from February 2006, fuel duties are no longer payable to the
Customs and Excise department has approved $7 million which is still outstanding, while $6 million is still subject to
authorization. Malian government.
The accounting processes for the unauthorized amount are in accordance with the processes advised by
the Malian government in terms of the previous authorizations. The governmentGovernment of Mali is a shareholder in all of the Company’s equity accounted
group’s entitiesaffiliates in Mali. Management is in negotiations with the Government of Mali and has promised to provide agree
a repayment planprotocol for the repayment of amounts due. Duedue to this uncertaintySadiola and Yatela. The amounts
outstanding at Sadiola and Yatela have been discounted at a rate of 18 percent
based on the
provisions of the protocol. The amounts although reported as current assets, may take longer than 12 monthsoutstanding at Morila have
been discounted to their present value at a rate of 6.0 percent.
There is a concentration of risk in respect of recoverable value added tax and fuel
duties from the Tanzanian government. Recoverable value added tax due from the
Tanzanian government to the Company amounts to $16 million at December 31, 2008
(December 31, 2007: $16 million). The amounts outstanding have been discounted
to their present value at a rate of 7.8 percent.
Recoverable fuel duties from the Tanzanian government to the Company amount to
$37 million at December 31, 2008 (December 31, 2007: $37 million). Fuel duty claims
are required to be receiv ed.submitted after consumption of the related fuel and are subject to
authorization by the Customs and Excise authorities. The amounts outstanding have
been discounted to their present value at a rate of 7.8 percent.
F-50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
25.F-51
23.
STOCKHOLDERS’ EQUITY
The authorized common stock of the Company was increased in 1998 tois 400,000,000 shares of common stock of 25 ZAR
cents each principally to meet its obligations regardingeach.
During 2006, AngloGold Ashanti approved the proposed mergerEmployee Share Ownership Plan for the employees in the South African
operations and a Black Economic Empowerment transaction (BEE transaction) for which 4,280,000 E shares of AAC gold interests through the Company.
No changes to the authorizedcommon stock of 25 ZAR cents and 960,000 shares of common stock of AngloGold Ashanti25 ZAR cents were madeauthorized. In addition,
1,760,000 shares of common stock of 25 ZAR cents each were authorised for issue, at the discretion of the directors, to
employee share schemes to be implemented in 2005.
countries other than South Africa, where the Company has its
operations. In the event that these shares are not issued by December 31, 2009, the authority will lapse.
During 2005, 475,5382008, 76,025,939 shares of common stock were issued and 17 3,289 E shares of common stock were cancelled.
These issues and cancellations resulted in the movement year-on-year of 76,083,700 shares of common stock and
E shares as follows:
• 69,470,442 shares of common stock in the Company were issued as part of the rights offer completed on|
July 11, 2008, amounting to $1,666 million, which funds were applied primarily to reduce the hedge book;
• 3,181,198 shares of common stock in the Company were issued to acquire the remaining 33 percent shareholding
in the Cripple Creek & Victor Gold mine from Golden Cycle Gold Corporation effective July 1, 2008, amounting to
$118 million;
• 2,701,660 shares of common stock in the Company were issued to purchase São Bento Gold Company Limited inDecember
2008, amounting to $70 million;
• 672,545 shares of common stock were issued on the exercise of options/awards granted in terms of the share
incentive scheme for a consideration of $14 million;
• 94 shares of common stock were issued with a subscription value of $3 million in exchange for 173,289 E shares
of common stock which were cancelled in accordance with the cancellation formula pertaining to the Employee
Share Ownership Plan; and
• 57,761 shares of common stock with a subscription value of $2 million were transferred from the Employee Share
Ownership Plan to exiting employees pursuant to the rules of the scheme.
During 2007, 1,221,318 shares of common stock and 94,230 E shares of common stock were issued while
139,770 E shares of common stock were cancelled. These issues and cancellations resulted in the movement year-on-
year of 1,236,498 shares of common stock and the net cancellation of 45,540 E shares of common stock as follows:
• 1,181,882 shares of common stock were issued as part of the share incentive scheme for a consideration of
$9 million.
During 2004, 41,326,55237 million;
• 8,026 shares of common stock were issued with a subscription value of $2 million in AngloGold Ashantiexchange for
139,770 E shares of common stock which were cancelled in accordance with the cancellation formula pertaining to
the Employee Share Ownership Plan;
• 46,590 shares of common stock with a subscription value of $2 million were transferred from the Employee Share
Ownership Plan to exiting employees pursuant to the rules of the scheme;
• 31,410 shares of common stock were issued as follows:part of the Employee Share Ownership Plan for a consideration of
$1 million;
(1)
and
• 94,230 E shares of common stock were issued as part of the Employee Share Ownership Plan for a considerationof $2 million.
(1)
·(1)
192,800Shares of common stock and E shares of common stock issued in respect of the Employee Share Ownership Plan are eliminated as shares held
within the Company.
During 2006, 11,297,721 shares of common stock and 4,185,770 E shares of common stock were issued as follows:
• 398,399 shares of common stock were issued as part of the share incentive scheme for a consideration of $3 million.
· 41,133,752$9 million;
• 4,185,770 E shares of common stock in the Company were issued to facilitate the share swap for the acquisition of
Ashanti Goldfields Company Limited, amounting to $1,544 million.
During 2003, 514,320and 928,590 shares of common stock in the Company were issued as follows:
· 508,020part
of the Employee Share Ownership Plan and the BEE transaction for a consideration of $93 million, which are
eliminated as shares held within the Company; and
• 9,970,732 shares of common stock in the Company were issued as part of the share incentive scheme and 6,300 shares of commonpublic offering which was
completed on April 20, 2006, amounting to $498 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
stock were issued in terms of the Acacia Employee Option Plan for a consideration of $8 million.F-52
23.
STOCKHOLDERS’ EQUITY(continued)
A public offering to raise $500 million was completed on April 20, 2006 and resulted in the issue of 9,970,732 ordinary
shares, along with the simultaneous sale of 19,685,170 AngloGold Ashanti shares held by Anglo American plc (AA plc),
reducing AA plc’s holding in the Company to 41.8 percent. As at December 31, 2008, AA plc held a 16.17 percent
interest in the Company. On March 17, 2009, AA plc disposed of its entire remaining shareholding in the Company.
At a general meeting of shareholders held on April 29, 2005,May 6, 2008, shareholders approved, as a general authority, authorization
to the board of directors to allot and issue, in their discretion, and for such purposes as they may determine, up to 10
5 percent of the authorized but unissuedtotal number of common stock of 25 ZAR cents each in the issued share capital of the Company (subjectfrom
time to the South African Companies Act and the Listings Requirements of the JSE Securities Exchange South Africa) after
setting aside so many common stock of 25 ZAR cents each as may be required to be allotted and issued by the Company
pursuant to the AngloGold Share Incentive Scheme and for the purposes of the conversion of the $1,000,000,000, 2.375
percent guaranteed Convertible Bonds issued by AngloGold Holdings plc. Refer to Note 30 and Note 20. Astime. This authori ty expires if not renewed, at December
31, 2005 of the total unissued common stock of 135,061,568 of 25 ZAR cents each, 11,281,2 97 of 25 ZAR cents each
was under the control of the directors until the forthcoming annual general meeting. In terms of a specific authority
granted at the general meeting of stockholdersto be held on March 29, 1993, the directors are authorized to issue the
4,221,104 unissuedMay 15, 2009.
Redeemable preference shares
A and B redeemable preferred stockpreference shares issued of 1 ZAR cent each to2,000,000 and 778,896 shares, respectively, all of which are held by a
wholly-owned subsidiary Eastvaal Gold Holdings Limited.Limited, may not be transferred and are redeemable from the
realization of the assets relating to the Moab Lease area after cessation of mining operations in the area. The shares
carry the right to receive dividends equivalent to the profits (net of royalty, ongoing capital expenditure and taxation)
from operations in the area. No further A and B redeemable preference shares will be issued.
26.
24.FAIR VALUE MEASUREMENTS
The Company adopted SFAS157 as of January 1, 2008, with the exception of the application of the statement to non-
recurring non-financial assets and non-financial liabilities as allowed by FSP FAS 157-2. The Company does not have
non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.
SFAS157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that
may be used to measure fair value:
Level 1
- Quoted prices in active markets for identical assets or liabilities.
Level 2
- Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level 3-Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market
approach uses prices and other relevant information generated by market transactions involving identical or comparable
assets or liabilities.
The following table sets out the Company’s financial assets and (liabilities) measured at fair value by level within the fair
value hierarchy as at December 31, 2008 (in US Dollars, millions):
Description
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
575
575
Marketable equity securities
31
31
Derivatives, net
(1,317)
(1,317)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-53
24. FAIR VALUE MEASUREMENTS(continued)
The Company’s cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using
quoted market prices. The cash instruments that are valued based on quoted market prices in active markets are
primarily money market securities. Due to the short maturity of cash, carrying amounts approximate fair values.
The Company’s marketable equity securities including listed affiliates are included in Other long-term assets in the
Company’s consolidated balance sheet. They consist of investments in ordinary shares and are valued using quoted
market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the
marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the
quantity of shares held by the Company.
The Company’ s derivative instruments are valued using pricing models and the Company generally uses similar models
to value similar instruments. Options associated with marketable equity securities are included as derivatives on the
balance sheet. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves,
credit spreads, measures of volatility, and correlations of such inputs. The Company’s derivatives trade in liquid
markets, and as such, model inputs are observable. Such instruments are typically classified within Level 2 of the fair
value hierarchy.
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES
In the normal course of its operations, the groupCompany is exposed to gold and other commodity price, currency, interest
rate, liquidity and non-performance risk, which includes credit risks.
risk. In order to manage these risks, the group may enter Company enters
into transactions which make use of both on- and off-balance sheet
derivatives.derivative transactions. The groupCompany does not acquire, hold or issue derivatives for trading purposes. The group
Company has developed a
comprehensive risk management process to facilitate, control and monitor these risks. The board has
approved and
monitors this risk management process, inclusive of documented treasury policies, counterpart limits,
controlling and
reporting structures.
The financial risk management activities objectives of the groupCompany are as follows:
•
·Safeguarding the groupCompany’s core earnings stream from its major assets through the effective control and management of
gold and
other commodity price risk, foreign exchange risk and interest rate risk;
·•
Effective and efficient usage of credit facilities in both the short and long term through the adoption of reliable liquidity
planning and procedures;
·•
Ensuring that investment and hedging transactions are undertaken with creditworthy counterparts;
· and
•
Ensuring that all contracts and agreements related to risk management activities are coordinated, consistent
throughout the groupCompany and comply where necessary with all relevant regulatory and statutory requirements.
A number of products, including derivatives are used to satisfy these objectives. Forward sales contracts and call and put
options are used by the group to manage its exposure to gold price and currency fluctuations.
SFAS133 requires that derivatives be accounted for as follows:
· Commodity based (“normal purchase or normal sale”) contractsContracts that meet the requirements of SFAS138, and are
designated as such, are recognized in product sales when they are settled by physical delivery.
· Where the conditions in SFAS133criteria for
hedge accounting are met,designated as the derivative is recognized onhedging instruments hedging the balance sheetvariability of forecasted cash flows from the
sale of production into the spot market and capital expenditure and are classified as
either a derivative asset or derivative liability, and recorded at fair value. For cash flow hedges the effective portion ofunder SFAS133.
fair value gains or losses are recognized in equity (other comprehensive income) until the underlying transaction
occurs, then the gains or losses are recognized in product sales. The ineffective portion of changesmatured and existing cash flow hedges recognized in fair value is
reported in earnings as gains or lossesloss on non-hedge derivatives in the period in which they occur.
income statement during the year was $8 million (2007: $10 million; 2006: $nil million). Of the contracts accounted for
as cash flow hedges, contracts with a carryingfair value net of tax, of negative $129$123 million, a liability at December 31, 20052008 are
expected to be recycled
reclassified from other comprehensive income and recognized as a reduction in product sales during 2006.
F-51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
26.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
· All other derivatives are measured at their estimated fair value, with the changes in estimated fair value at each
reporting date being reported in earnings2009 or as gains or losses on derivatives in the period in which they occur.
Cash flows from derivative instruments accounted for as cash flow hedges are included in net cash provided by operatingan
activities in the statements of consolidated cash flows for all periods presented. Contracts that contain ‘off-market’ terms
that result in the inflow of cash at inception are analogousadjustment to borrowing activities and, as such, are treated as financing
activities. All current and future cash flows associated with such instruments are classified within the financing activities
section of the consolidated cash flow statement. Contracts that contain ‘off-market’ terms that result in the outflow of cash
at inception are analogousdepreciation expense pertaining to lending activities and, as such, are treated as investing activities. All current and future cashcapital expenditure.
flows associated with such instruments are classified within the investing activities of the consolidated cash flow
statement.
Loss on non-hedge derivatives of $151$258 million (2004: $131 million loss) (2003: $119 million gain) was(2007: $808 million; 2006: $208 million), being derivatives not designated
in formal hedge accounting relationships is included in the
current year income statement.
See Note 5 – Non-hedge
derivative loss.
Gold price and currency risk management activities
Gold and currency hedgingderivative instruments are denominated in South African rands, US dollars, Australian dollars and
Brazilian Real.real. The hedgingderivative instruments utilized are forward salessale and purchase contracts, purchased and sold put
options, and
purchased and sold call options and gold lease rate swaps.options. The mix of hedgingderivative instruments, the volume of production
hedged and
the tenor of the hedginghedge book is continuously reviewed in the light of changes in operational forecasts, market
conditions and
the group’sCompany’s hedging policy as set by the board of directors. The group’sCompany’s reserve and financial strength has
allowed it to arrange unmargined credit lines of upwith counterparts. The Compa ny’s also exposed to ten years with counterparties.certain by-product
commodity price risk.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-54
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
Some of the instruments described above are designated and accounted for as cash flow hedges. The cash flow
hedged forecast
transactions are expected to occur over the next 52 years, in line with the maturity dates of the hedging
instruments.
Forward sales contracts establish the price of future gold sales at a specified price. A number of these contracts are
intended by AngloGold Ashanti for delivery against production in a future period. The volume of net outstanding forward
sales
type contracts at the end of 20052008 was 159,783kg (2004: 256,409kg)39,990kg (2007: 108,403kg).
The volume of outstanding net call options
sold was 146,542kg (2007: 242,373kg) and the volume of outstanding net put options sold was 16,963kg
(2007: 46,585kg).
A put option gives the put buyer the right, but not the obligation, to sell goldthe underlying to the put seller at a
predetermined price on a
predetermined date. A call option gives the call buyer the right, but not the obligation, to buy gold
the underlying from the call seller at a
predetermined price on a predetermined date. The group’sCompany’s risk in selling gold
call options is unlimited but mitigated by the fact
that the group produceCompany produces the commodity required by the option and would benefit by
can partially offset any loss resulting from sold call options via the same quantity as the option loss by
sellingsale of production in the open market.
Rights offer and reduction in derivatives position
The group’s riskprincipal purpose of the rights offer concluded during July 2008 was to provide additional financial resources to
improve the Company’s financial flexibility. In particular, the net proceeds allowed AngloGold Ashanti to significantly
restructure and reduce the Company’s gold derivatives position, which has adversely affected financial performance in selling put options is unlimited but mitigated by put options
purchased.
recent years, while also being able to continue to fund the Company 217;s principal development projects and exploration
growth initiatives. The Company capitalized on a weaker gold market during the year in executing a combination of
delivery into and early cash settlement of a portion of its non-hedge derivative contracts (which have been fair valued in
the Company’s financial statements, with changes in such fair value recorded in the income statement), the latter
maturing in years 2008 to 2010.
The Company has therefore been able to make substantial progress in the reduction of its derivatives position, and
although the received gold price for 2008 was adversely impacted given the early cash settlement of certain non-hedge
derivatives with low contracted sales prices, committed ounces have been reduced to 5.99 million ounces as at
December 31, 2008 (December 31, 2007: 11.28 million committed ounces). This allowed the Company to benefit from
improved participation in the spot gold price in future periods, earlier than antic ipated.
Net delta open hedge position as at December 31, 20052008
The groupCompany has an established practice of actively managing its hedged commitments under changing market
circumstances. A substantial restructuring of the hedge book was concluded between December 2004 and January 2005
was followed by a smaller restructuring of the hedging commitments of the Geita Management Company following the
repayment of project finance loans.
As of December 31, 2005,2008, the hedge book reflected a net delta tonnage position of 10.845.22 million ounces (337(162 tonnes) or.
35 percentAs of December 31, 2007, the next 5 years forecast production.
hedge book reflected a net delta tonnage position of 10.39 million ounces (323 tonnes).
The marked-to-market valuevalues of all hedge transactions, irrespective of accounting designation, making up the hedge
positions was a negative $1,941liability of $2,455 million as at December 31, 20052008 (as at December 31, 2004: negative $1,1612007: a liability of
$4,273 million).
These values were based on a gold price of $517.00$872 per ounce, exchange rates of R/$6.305$1 = R9.4550 and
A$/$0.7342 = $0.6947 and the
prevailing market interest rates and volatilities at December 31, 2008. The values as at
December 2005.
These marked-to-market valuations are not predictive31, 2007 were based on a gold price of $836 per ounce, exchange rates of $1 = R6. 8104 and A$ = $0.8798
and the future value of the hedge position nor of future impact on the
revenue of the Company. The mark-to-market represents the current value of the hedge book atprevailing market pricesinterest rates and rates
availablevolatilities at that time.date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-55
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
The groupCompany had the following net forward pricing commitments outstanding against future production as at
December 31, 2008.
2005.
F-52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
26.Year
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)2009
Year
2006
2007
2008
2009
2010
2011-2015
Total
2011
2012
2013
2014-2016
Total
DOLLAR GOLD
Forward contracts
Amount (kg)
8,592(5,960)
25,469
30,076
26,288
16,328
37,239
143,992
$
per
oz
$279
$357
$365
$380
$382
$411
$375
Put options purchased
Amount (kg)
8,592
1,455(*)
8,354
10,04711,765
$11,944
per9,518
oz2,845
$345
$292
38,466
$337 per oz
$1,199
$204
$383
$404
$408
$510
$467
Put options sold
Amount (kg)
6,5324,043
8554,226
3,048
1,882
1,882
7,5271,882
18,67816,963
$
per
oz
$389671
$390708
$400533
$410430
$435440
$411450
$579
Call options sold
Amount (kg)
14,805
33,394
38,312
24,461
17,857
22,067
150,896
$ per oz
$442
$537
$530
$622
$601
$606
$557
RAND GOLD
Forward contracts
Amount (kg)
(1,866)
(*)
(1,866)
(*)
Rand per kg
R157,213
R157,213
AUD DOLLAR GOLD
Forward contracts
Amount (kg)
280
3,110
3,390
A$ per oz
A$852
A$652
A$669
Call options purchased
Amount (kg)
12,1441,244
6,3573,110
18,501
$
per
oz
$346
$344
$345
Call options sold
Amount (kg)
32,157
32,544
32,500
31,194
28,054
72,911
229,360
$
per
oz
$386
$387
$393
$418
$429
$497
$432
RAND GOLD
Forward contracts
Amount (kg)
2,449
933
3,382
Rand per kg
R97,520
R116,335
R102,711
Put options purchased
Amount (kg)
1,875
1,875
Rand per kg
R93,602
R93,602
Put options sold
Amount (kg)
2,333
2,333
Rand per kg
R93,713
R93,713
Call options sold
Amount (kg)
3,306
311
2,986
2,986
2,986
12,575
Rand per kg
R102,447
R108,123
R202,054 R216,522
R230,990
R183,851
AUD DOLLAR GOLD
Forward contracts
Amount (kg)
*(3,110)
6,843
2,177
3,390
3,110
12,4104,354
A$ per oz
A$625
A$640
A$665
A$656
A$684
A$664
Call options sold
Amount (kg)
3,110
3,732
3,110
1,244
3,110
14,308
A$ per oz
A$673
A$668
A$680
A$694
A$712
A$683707
Delta (kg)
23,848(4,501)
56,229(36,523)
59,740(44,466)
57,703(31,629) (24,106) (20,998) (162,223)
42,074
97,482
337,076
**Total net gold:
Delta (oz)
766,730(144,720)
1,807,802(1,174,250)
1,920,683(1,429,620)
1,855,192 1,352,709(1,016,910)
3,134,115(775,040)
10,837,231(675,070)
(5,215,610)
Hedge delta as a percentage of current
production levels (%)***
12%3%
24%
29%
31%20%
30%16%
22%5%
10%
18%
*
Indicates a long position from forward purchase contracts. The group enters into forward purchase contracts as part of its strategy to manage
and reduce the size of the hedge book.
**
The Delta of the hedge position indicated above, is the equivalent gold position that would have the same marked-to-market sensitivity for a
small
change in the gold price. This is calculated using the Black-Scholes option formula with the ruling market prices, interest rates and
volatilities as at
December 31, 2005. The delta positions indicated above includes positions from equity accounted joint ventures. Refer to Note
15.2008.
Gold lease rate swaps***
YearWeighted average percentage based on 2008 full year production of 4,982,000 ounces.
2006
2007
2008
Year
2009 20102011
2011-20152012-2016
Amount (‘000oz)GOLD LEASE RATE SWAPS
250
270
100
130
100
-
Gold borrowing cost associated with forward
forward contracts
(1)
Amount (‘000oz)
130,000
100,000
Interest rate %
0.3%1.82
0.6%1.96
0.8%
1.0%
1.7%
-
Amount (‘000oz)
708
1,334
1,168
898
641
423
Gold lease rate swaps
2)(2)
Amount
(‘000oz) 898,000 641,000 423,000 205,000
Interest rate %
1.2%1.81
1.8%1.83
1.8%1.83
1.8%1.84
1.8%
1.8%(1)
Amount (‘000oz)
320
280
240
200
160
120
Interest rate %
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
Gold lease rate swap
(3)
$ per ounce
302
302
302
302
302
302
(1)
Gold borrowing cost relating to Australian dollar gold forwards:
The Australian dollar denominated gold forward contract prices are shownpresented on a net basis where the final price of the contract is determined by
the cost of borrowing gold over the full duration of the contract. The net prices shown in the table above have been adjusted to take account of
the total
expected future cost of all accumulated costs incurred to date and the expected future borrowing cost based on ruling market prices at
the financial statement date.prices. The amount
shown under “Gold borrowing cost associated with forward contracts” in the table above is the face
value of the borrowing amount and the period in
which it matures. The interest rates shown are the future market rates prevailing at the time of
the financial statement.statements.
(2)
The gold lease rate swaps are contracts where the Company receives a fixed percentage of the outstanding amount in gold and pays a floating
market determined percentage in gold, quarterly in arrears. The amount shown in the table above is the number of ounces outstanding at the
beginning of each period. The interest rate shown is the weighted average fixed rate that the Company will receive for that period.
(3)
The gold lease rate swap is a contract where the Company receives a fixed percentage of the outstanding amount at a fixed US dollar gold price
and pays a floating market determined percentage in gold, quarterly in arrears. The amount shown in the table above is the number of ounces
outstanding at the beginning of each period. The interest rate shown is the average fixed rate that the Company will receive during that period.
The US$ price is the average rate at which the fixed interest amount in gold is converted to US dollars.
Year 2006
2007
2008
2009
2010
2011-2015
Total
DOLLAR SILVER
Put options purchased
Amount (kg)
43,545
43,545
43,545
130,635
$
per
oz
$7.11
$7.40
$7.66
$7.39
Put options sold
Amount (kg)
43,545
43,545
43,545
130,635
$
per
oz
$6.02
$5.93
$6.19
$6.05
Call options sold
Amount (kg)
43,545
43,545
43,545
130,635
$
per
oz
$8.11
$8.40
$8.64
$8.39
F-53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
26.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
Foreign exchange price risk protection agreements
The groupCompany enters into currency forward exchange and currency option contracts to hedge certain anticipated
transactions
denominated in foreign currencies. The objective of the group’sCompany’s foreign currency hedging activities is to
protect the group
Company from the risk that the eventual cash flows resulting from transactions denominated in US dollars
will be adversely affected by
changes in exchange rates.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-56
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
The following table indicates the group’sCompany’s currency hedge position at December 31, 20052008.
Year
20062009 2010 2011 2012 2013
20072014-2016
2008
2009
2010
2011-2015
Total
RAND DOLLAR (000)
Put options purchased
Amount ($)
60,00030,000
60,000
30,000
Rand per $
R6.89R11.56
R6.89
Putl
R11.56
Put options sold
Amount ($)
60,00050,000
60,000
50,000
Rand per $
R6.56R9.52
R6.56
R9.52
Call options sold
Amount ($)
60,00050,000
60,000
50,000
Rand per $
R7.28R11.61
R7.28
R11.61
AUD DOLLAR (000)
Forward contracts
Amount ($)
59,149450,000
59,149
450,000
$ per A$
$0.750.65
$0.750.65
Put options purchased
Amount ($)
80,00010,000
80,000
10,000
$ per A$
$0.730.69
$0.730.69
Put options sold
Amount ($)
80,00010,000
80,000
10,000
$ per A$
$0.76
$0.76
Call options sold
Amount ($)
130,00010,000
130,000
10,000
$ per A$
$0.720.64
$0.720.64
BRAZILIAN REAL
DOLLAR (000)
Forward contracts
Amount ($)
24,000
4,00062,340
28,000
62,340
BRL per $
BRL3.18
BRL3.31BRL1.86
BRL3.20
Call options sold
Amount ($)
20,000
20,000
BRL per $
BRL3.29BRL1.86
BRL3.29
As at December 31, 2005 certain2008 a limited number of the hedging positionsdollar gold hedge contracts reported in the above tables were governed byincluded
optional early termination provisions pursuant to which the hedge counterpart can elect to terminate the relevant
hedging contracts on specified dates. The early termination provision which applies can be exercised in the first five
business days of January 2010. These contracts form part of the Ashanti hedge that was in place prior to the Business
Combination between AngloGold and Ashanti completed in April 2004.
No termination options were exercised in favor of certain counterparts.
2008, 2007 and 2006.
Interest rate and liquidity risk
Fluctuations in interest rates impacts on interest paid and received on the short-term cash investments and financing
activities, giving rise to interest rate risk.
In the ordinary course of business, the groupCompany receives cash from the proceeds of its gold salessale s and is required to
fund
working capital requirements. This cash is managed to ensure surplus funds are invested in a manner to achieve
market
related returns while minimizing risks. The groupCompany is able to actively source financing at competitive rates.
The Syndicated $600 million loan facility was repaid on February 4, 2005,counterparts are financial and a new three-year $700 million Syndicated
loan facility was signed in January 2005, with an interest ratebanking institutions of LIBOR plus 0.4% per annum. The Company has sufficientgood credit standing.
undrawn borrowing facilities available to fund working capital requirements.
Cash and loans advanced maturity profile
2008 2007
Maturity date
Currency
Fixed rate
investment
amount
(million)
Effective
rate
%
Floating rate
investmentrate
amountinvestment
(million)amount
Effective(million)
rateEffective
rate
%
Fixed rate
investment
amount
(million)
Effective
rate
%
Floating
rate
investment
amount
(million)
Effective
rate
%
All less than one year
$USD
166
2.48
121
1.95
32
4.3
66
4.0
ZAR
930
11.50
668
10.84
525
11.0
888
10.1
AUD
-
-
-
-
-
-
34
6.5
HKD
-
-
1
2.25
-
-
1
4.0
BRL
-
-
144
13.52
-
-
67
8.9
ARS
-
-
5
12.50
-
-
9
3.8
64
3.6
ZAR
52
6.0
12
5.9
A$
22
5.4
30
6.0
EUR
1
3.8
5
2.5
HKD
1
1.8
BRL
10
19.0
ARS
2
5.111.1
NAD
45155
7.511.58
96
9.40
139
9.7
58
9.5
F-54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
26.
F-57
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
Borrowings maturity profile
Within one year
Between
one and two years
Between
two and five years
CurrencyAfter five years
BorrowingsCurrency
AmountBorrowings
(million)Amount
Effective(million)
RateEffective
%Rate
Borrowings%
AmountBorrowings
(million)Amount
Effective(million)
RateEffective
%Rate
Borrowings%
AmountBorrowings
(million)Amount
Effective(million)
RateEffective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Total
Borrowings
amount
(million)
$
471,060
5.02.6
10320
5.32.5 -
1,466- -
3.3-
1,380
ZAR 8942
(1)9.8 26
7.49.8 81
9.2 145
9.6 254
2,000 10.5AUD 5
6.1
745
6.1 -
- -
-
750
BRL 8
3.6 11
3.6 8
3.6 -
- 27
Interest rate risk
Fixed for less than
one year
Fixed for between
one and three years
years
Fixed for greater than
three years
Currency
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Borrowings
Amount
(million)
Effective
Rate
%
Total
borrowingsBorrowings
amount
(million)
$ 1,060
5012.6 320 2.5
5.3-
22-
5.3
1,000
2.4
1,5231,380
ZAR 8942 9.8 107 9.8 145
(1)9.6
7.4254
AUD 5
6.1
2,000 10.5745
2,8946.1 -
(1)-
Includes R73 million interest accrual on the corporate bond as at December 31, 2005.750
BRL 8
3.6 19
3.6 -
-
27
Interest rate swaps
The group previously entered into a convertible interest rate swap. The swap was a derivative instrument as defined by
SFAS133. The swap, done on the back of the $1 billion Convertible Bond, converted the fixed coupon of 2.375% per annum
into a LIBOR-based floating rate. The swap was not designated as a fair value hedge. The swap was unwound during
September 2005, based on the group’s view of US dollar interest rates.
The group previously entered into interest rate swap agreements to convert R750 million ($133 million) of its R2,000 million
($354 million) ZAR denominated fixed rate Bond to variable rate debt. The swaps were not designated as fair value hedges.
The interest rate swaps were unwound during April 2005, based on the group’s view of ZAR interest rates.
CreditNon-performance risk
Realization of all these contracts is dependent upon the counterparts performing in accordance with the terms of the
contracts. The Company generally does not obtain collateral or other security to support financial instruments subject to
creditnon-performance risk, but monitors the credit standing of counterparts. The Company spreads its business over a
number of financial
and banking institutions of good credit quality and believes that no concentration of creditnon-
performance risk exists. Limits for each
counterpart are based on the assessed credit quality of each counterpart. The
AngloGold Ashanti Treasury Committee
makes recommendationrecommendations for board approval of all counterparts and the limits to
be applied against each counterpart. Where
possible, management tries to ensure thatputs ISDA netting agreements are in place.
The combined maximum credit exposure at the balance sheet date amounts to $713$571 million on a contract by contract basis.(2007: $516 million). Credit
Credit risk exposure netted by counterparts amounts to $18 million.$207 million (2007: $123 million). No set-off is applied to the balance
sheet due to the
different maturity profiles of assets and liabilities.
The fair value of derivative assets and liabilities reflects non-performance risk relating to the counterparts and the
Company, respectively as at December 31, 2008.
The table below provides a summary of the number, type and credit quality of AngloGold Ashanti’s hedge counterparts.
Number of Counterparts
Type
Credit Rating (Fitch)
2 6 International BankAA
AAA10 International Bank AA-
4 5International BankA+
AA+3 International Bank A
4 3 International Bank
AA
9 International Bank
AA-
3 International Bank
A+
3 International Bank
A
1 International Bank
A-
1 International Bank
BBB
1
South African Bank
AAAzaf)AAA(zaf) (International BBB+)
1
South African Bank
AA+zaf)(zaf) (International BBB+)
12
South African Bank
AA(zaf) (International BBB)
1
South African Bank
AA-(zaf) (International BBB)
15 Brazilian Bank
South African AAA(bra)
5 Brazilian Bank
AA+(bra)
1 Brazilian Bank
AA(bra)
1Brazilian Bank
A+(zaf) (International BBB-)(bra)
5 1Brazilian Bank
AA(bra)A(bra)
1
Trade Finance House
Not rated
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-58
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
Due to the inability of a single counterpart to accept the physical delivery of gold for normal purchase normal sale
exemption contracts expiring in April through June 2008, the Company cash settled such contracts with this counterpart
during the period. The Company also reclassified all remaining outstanding contracts with this counterpart from the
“normal purchase and sale exemption” category to the “non-hedge accounting” category as they no longer qualified for
the exemption permitted by SFAS133. See Note 5 – Non-hedge derivative loss.
AngloGold Ashanti does not anticipate non-performance by any other counterparts.
F-55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
26.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
Fair value of financial instruments
The estimated fair values of financial instruments are determined at discrete points in time based on relevant market
information. In certain cases these estimates involve uncertainties and cannot be determined with precision. The estimated
fair values of the Company’s financial instruments, as measured at December 31, 20052008 and 2004,
2007, are as follows:follows (assets (liabilities)):
December 31, 20052008
December 31, 20042007
Carrying
amount
$
Fair
value Value
$
Carrying
amount
$
Fair
value Value
$
Cash and cash equivalents
196575
196575
276477
276477
Restricted cash
844
844
2637
2637
Short-term
debt
160(1,067)
160
315
315(1,048) (319) (319)
Long-term debt
1,779(873)
1,803(873)
1,371(1,564)
1,364(1,564)
Derivatives (1,317)
(935)(1)
(1,941)(2,497)
(662)(1)
(1,161)(2,563)
(1)
(4,342)
(1)
(1)
Carrying amounts represent on-balance sheet derivatives and fair value includes off-balance sheet normal sale exemption contracts.
The following is the fair value of the derivative (liabilities)/assets split by accounting designation
December 31, 2008
Normal purchase and
sale exemption
$
Cash flow hedge
accounted
$
Non-hedge
accounted
(2)
$
Total
$
Forward sales type agreements
(355)(622)
(909)(146)
(511)52
(647)(716)
Option contracts
(612)
(1,058)(534)
(1)
(185) (507)-
(1)
(1,254)
(1,788)
Foreign exchange contracts
6-
6(1)
1716
1715
Foreign exchange option contracts
(5)-
(5)-
(2)1
(2)1
Interest rate swaps – Gold
31
25
21
(20)
Sub total – Hedge derivatives
(935)
(1,941)
(660)
(1,159)
Interest rate swaps – Non-gold(24)
-
-15
(2)(9)
(2)Total including credit risk adjustment
(1)(1,180)
Includes(147)
(1,170)
(2,497)
Credit risk adjustment
(68) (2)
(157)
(227)
Total excluding credit risk adjustment
(1,248)
(149)
(1,327)
(2,724)
(1)
Represent deliverable call options sold. A deliverable option is an option in terms of which the delivery quantity is fixed regardless of the
market price
on the exercise date. In the event that the market price is lower than the strike price, gold is sold to the counterpart at the
ruling spot price.
Derivative analyses by accounting designation(2)
Including B2Gold warrants 2008: $1 million (2007: $nil million)
December 31, 2005
Normal
purchase
and sale
exemption
Cash flow
hedge
accounted2007
NonNormal purchase and
sale exemption
$
Cash flow hedge
accounted
$
Non-hedge
accounted
$
Total
$
Forward sales type agreements
(554)(1,044)
(342)(336)
(236)
(13)
(909)(1,616)
Option contracts
(446)(708)
(4)(1)
-
(608)(2,030)
(1,058)(2,738)
Foreign exchange contracts
-
84
7
(2)
611
Foreign exchange option contracts
-
-
(6)
(5)
(5)(6)
Interest rate swaps – Gold
(6)(27)
-
34
317
25Total including credit risk adjustment
Interest rate swaps – Non-gold(1,779)
-(332)
-(2,231)
(4,342)
Credit risk adjustment
-
-
Total (1,006)
(338)
(597)
(1,941)
December 31, 2004
Normal
purchase
and sale
exemption
Cash flow
hedge
accounted
Non hedge
accounted
Total
Forward sales type agreements
(136)
(252)
(259)
(647)
Option contracts
(322)
(1)
(184)
(507)
Foreign exchange contracts
-
15
2
17
Foreign exchange option contracts
-
-
Total excluding credit risk adjustment
(2)(1,779)
(2)(332)
Interest rate swaps – Gold(2,231)
(41)
-(4,342)
21(1)
(20)Represent deliverable call options sold. A deliverable option is an option in terms of which the delivery quantity is fixed regardless of the market price
Interest rate swaps – Non-gold
-
-
(2)
(2)
Total (499)
(238)
(424)
(1,161)on the exercise date. In the event that the market price is lower than the strike price, gold is sold to the counterpart at the ruling spot price.
F-56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
26.
F-59
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
Derivatives maturityMaturity profile of on-balance sheet derivatives, at carrying value
Total
$
20052008
Assets
$
Liabilities
$
Total (935)
713
(1,648)
Less: Amounts to mature within twelve months of balance
sheet date
446(1,187)
(675)571
1,121(1,758)
Amounts maturing between one and two years
162(49)
-
(30)
192(49)
Amounts maturing between two and five years
249(81)
-
(8)
257(81)
Amounts to mature thereafter
(78)
-
-
-
(78)Total
(1,317) 571
(1,888)
Total
$
20042007
Assets
$
Liabilities
$
Total (662)
678
(1,340)
Less: Amounts to mature within twelve months of balance
sheet date
115(2,226)
516
(491)
606(2,782)
Amounts maturing between one and two years
284(148)
-
(128)
412(148)
Amounts maturing between two and five years
153(123)
-
(59)
212(123)
Amounts to mature thereafter
(110)
(26)
-
(26)
(110)Total
(2,563) 516
(3,079)
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Receivables,Cash restricted for use, cash and cash equivalents and other current liabilitiesshort-term debt
The fair value of listed fixed rate debt and the convertible bonds are shown at their quoted market value. The remainder
of the carrying amounts approximate fair value because of the short-term duration of these instruments.
Long-term debt
The fair value of listed fixed ratelong-term debt and the Convertible Bonds are shown at their market value. The remainder of debt
re-prices on a short-term floating rate basis, and accordingly the carrying amount is consideredapproximates to approximate
fair value.
Derivatives
The fair value of volatility-based instrumentsinstruments(i.e. options) are estimated based on market prices, volatilities, credit risk
and interest rates, while the
fair value of forward sales and purchases are estimated based on the quoted market priceprices
and credit risk for the contracts at
December 31, 20052008 and 2004.2007. The Company uses the Black-Scholes option pricing
formula to value option contracts. The amounts disclosed include those contracts accounted for as normal purchases purchase
and sales.sale exemption derivatives.
27.
Sensitivity analysis
Derivatives
A principal part of the Company's management of risk is to monitor the sensitivity of derivative positions in the hedge
book to changes in the underlying factors, including commodity prices, foreign exchange rates and interest rates under
varying scenarios.
The following table discloses the approximate sensitivities of the US dollars fair value of the hedge book to key
underlying factors at December 31, 2008 (actual changes in the timing and amount of the following variables may differ
from the assumed changes below).
The table also sets out the impact on the fair value of the hedge book of an incremental parallel fall or rise in the
respective yield curves at the beginning of each month, quarter or year (as is appropriate) from January 1, 2009. The
yield curves match the maturity dates of the individual derivative positions in the hedge book. These figures incorporate
the impact of any option features in the underlying exposures.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-60
25.
FINANCIAL RISK MANAGEMENT ACTIVITIES (continued)
2008
US dollars
Change in
rate (+)
Normal sale
exempted
(million)
Cash flow
hedge
accounted
(million)
Non-hedge
accounted
(million)
Total change
in fair value
(million)
Currency(R/$) Spot(+1)
-
(1)
2
1
Currency(A$/$) Spot(+0.25)
43
-
132
175
Currency(BRL/$) Spot(+0.25)
-
(1)
(4)
(5)
Gold price($/oz)
Spot(+200)
(546)
(58)
(449)
(1,053)
USD interest rate (%)
IR(+0.1)
(15)
-
(33)
(48)
ZAR interest rate (%)
IR(+1.5)
-
-
-
-
AUD interest rate (%)
IR(+1.5)
(1)
-
(1)
(2)
Gold interest rate (%)
IR(+0.5)
22
1
43
66
2008
US dollars
Change in
rate(-)
Normal sale
exempted
(million)
Cash flow
hedge
accounted
(million)
Non-hedge
accounted
(million)
Total change
in fair value
(million)
Currency(R/$) Spot(-1)
-
1
(4)
(3)
Currency(A$/$) Spot(-0.25)
(43)
-
(130)
(173)
Currency(BRL/$) Spot(-0.25)
-
1
5
6
Gold price($/oz)
Spot(-200)
541
58
376
975
USD interest rate (%)
IR(-0.1)
15
-
35
50
ZAR interest rate (%)
IR(-1.5)
-
-
-
-
AUD interest rate (%)
IR(-1.5)
1
-
1
2
Gold interest rate (%)
IR(-0.5)
(23)
(1)
(44)
(68)
IR represents interest rate.
26.
ADDITIONAL CASH FLOW INFORMATION
2005
$
2004
$
2003
$
Non-cash items
2008
$
2007
$
2006
$
Reported as non-cash items in the statements of consolidated cash flows are
the following:
Amortization:
Mining assetsflows:
494
351
165
Acquired properties
99
94
82
593
445
247
Impairment:
Mining assets
43
1
44
Acquired properties
74
-
25
Goodwill, other intangibles and non-marketable equity investments
24
2
6
141
3
75
Interest paid during
93 71 82
Taxation paid
125 180 110
Non-cash items not reported in the year
57
59
32statements of consolidated cash flows:
Taxation paid during the year
22
28Shares issued to acquire Golden Cycle Gold Corporation
100
118
F-57-
Shares issued to acquire São Bento Gold Company Limited
70
-
-
Exercise of share entitlements
16
7
-
27.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28. EMPLOYEE BENEFIT PLANS
Defined Benefit PlansPROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS
The group has made provision for pension and post-retirement medical schemes covering substantially all employees. funding represents the provision for health care and pension
benefits for employees, retired employees and their dependants.
Defined benefit plans
The retirement
schemes as at December 31, 2005, 20042008, 2007 and 2003,2006, consists of the following which reflects the following
provision values:
2005
$
2004
$
2003
$
AngloGold Ashanti Pension Fund liability/(asset)
(8)11
(8)(36)
-(38)
Post Retirement medical scheme for AngloGold Ashanti South African
employees
188115
152168
128159
Other defined benefit plans
1011
199
811
Sub Total
190137
163141
136132
Transferred to other non-current assets
AngloGold Ashanti Pension Fund
8-
836
-38
Post retirement medical scheme for Rand Refinery employees
2
23
-2
Total Provision
200139
173180
136172
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-61
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
South Africa Defined Benefit Pension Funddefined benefit pension fund
The plan is evaluated by independent actuaries on an annual basis as at December 31, of each year and a formal31. The previous statutory
valuation required by legislation as athad an effective date of December 31, 2005, and was completed in June 2006. The next statutory valuation
will have an effective date no later than December 31, 2008 and will be completed during 2009. The valuation as at
December 31, 2008 was completed at the first six monthsbeginning of 2006. In arriving2009. The accumulated benefit obligation at
at their valuation, the actuaries took into account reasonable long-term estimates of inflation, increases in wages, salaries
and pension as well as returns on investments.December 31, 2008 is $170 million.
All South African pension funds are governed by the Pension Funds Act of 1956 as amended.
Information with respect to the Defined Benefit Fund,defined benefit fund, which includes benefits for AngloGold Ashanti employees,
for the year ended December 31, is set forth in the table below:
Pension benefits
2005
$2008
2004$
$2007
2003$
$2006
$
Change in benefit obligation
Benefit obligation at January 1,
216257
162224
100222
Service cost
66
47
7
Interest cost
141417
1318
16
Plan participants’ contributions
2
2
2
Plan amendmentActuarial loss
16
11
12
Increase as a result of transfers into the fund
-
22
Actuarial loss
31
101
-
Benefits paid
(24)
(13)
(10) (12) (14)
Translation
(23) 35(75) 6
31
(21)
Benefit obligation at December 31,
222199
216257
162224
Change in plan assets
Fair value of plan assets at January 1,
204293
137262
93230
ExpectedActual return on plan assets
16(7)
3427
16
Actuarial gain
41-
-62
Company contributions
135
126
86
Plan participants’ contributions
2
2
2
Increase as a result of transfers into the fund
-
1
-
Benefits paid
(24)
(13)
(10) (12) (14)
Translation
(22) 32(81) 7
28
(24)
Fair value of plan assets at December 31,
230188
204293
137262
Funded status at end of year
8(11)
(12)36
(25)
Unrecognized net actuarial loss
-
20
2538
Net amount recognized
8(11)
836
-38
Components of net periodic benefit cost
Service cost
66
47
7
Interest cost
14 1417
1318
16
Actuarial gains and losses
49
12
(28)
Expected return on assets
(16)
(15)
(12)
Amortization of prior service cost
-
-
2
Amortization of actuarial gains and losses
-
1
-(26) (28) (22)
Net periodic benefit cost
446
69
7
(27)F-58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28. EMPLOYEE BENEFIT PLANS (continued)Assumptions
Pension benefits
2005
$
2004
$
2003
$
Assumptions
Weighted-average assumptions used to determine benefit obligations
at December 31,
Discount rate
7.75%
7.5%
8.5%7.25% 8.25% 8.00%
Rate of compensation increase
(1)
5.00% 5.0%5.25%
5.0%6.00%
5.50%
Weighted-average assumptions used to determine the net periodic
benefit cost for the
years ended December 31,
Discount rate
7.75%
7.5%
8.5%7.25% 8.25% 8.00%
Expected long-term return on plan assets
10.14%9.28%
7.5%11.14%
8.5%10.50%
Rate of compensation increase
(1)
5.00%5.25%
5.0%6.00%
5.0%5.50%
Pension increase
4.05%3.60% 4.73% 4.28%
2.9%
3.6%(1)
(1)
The short-term compensation rate increase is 5%10% (2007: 8%) and the long-term compensation rate increase is
5.25% (2007: 6%).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-62
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
The expected long-term return on plan assets is determined using the after
tax return of RSA Government long bond
yields as a guide.
Pension
benefits
2008
$
2007
$
Plan assets
AngloGold Ashanti’s pension plan weighted-average asset allocations at
December 31, 2005 and 2004, by asset category are as follows:
AngloGold Ashanti’s pension plan asset allocations at December 31, 2008 and 2007, by asset
category are as follows:
Asset Category
category
Equity securities
69%
65%58% 68%
Debt securities
30%
32%37% 27%
Other
1% 3%5% 5%
100% 100%
Fair value of plan assets
2008
$
2007
$
Domestic equity securities
81 167
Foreign equity securities
28 33
Domestic fixed interest bonds
60 73
Foreign fixed interest bonds
10 7
Cash
9 13
188 293
Fair value is based on quoted market prices as at December 31, 2008 and 2007. The value of the securities in the
Company’s employee pension plans have been adversely impacted by market volatility in 2008. The declines have had
a substantial impact on the funded status of the plans.
Investment Policypolicy
The Trustees have adopted a long-term horizon in formulating the Fund’s investment strategy, which is consistent with
the term of the Fund’s liabilities. The investment strategy aims to provide a reasonable return relative to inflation across
across a range of market conditions.
The Trustees have adopted different strategic asset allocations for the assets backing pensioner and active member
liabilities. The strategic asset allocation defines what proportion of the Fund’s assets should be invested in each major
asset class. The Trustees have then selected specialist investment managers to manage the assets in each asset
class according to specific performance mandates instituted by the Trustees.
The Trustees have also put in place a detailed Statement of Investment Principles that sets out the Fund’s overall
investment philosophy and strategy.
Fund returns are calculated on a monthly basis, and the performance of the managers and Fund as a whole is formally
reviewed by the Fund’s Investment Sub-Committee at least every six months.
20052008 2007
2004
No. of
Shares
Percentage of
total assets
Fair Value
$
No. of
Shares
Percentage of
total assets
Fair
Value
$
Related Parties
parties
Investments held in related parties are
summarized as follows:
Equity securities
Equity Securities
With holding Company
Anglo American plc
821,513
11.9%
27
2.2%
AngloGold Ashanti Limited
115,970
1.6%
3
88,458
1.3%
4
With AngloGold Ashanti and fellow subsidiaries of AA
plc
Anglo American Platinum Group
432,310
13.5%
31
0.1%
-
AngloGold Ashanti
36,936
0.8%
2
0.3%
1
Tongaat Hulett Group
189,975
1.1%
3
-
-
63 5
Other investments exceeding 5% of
total plan assets
Bonds
RSA 2015R157 Government Bonds 13.5%
-
5.4%
1816
IFM Corporate Bond Unit Trust
117,299,950
6.6%
12
-
Allan Gray Orbis Global Equity Fund
316,082
13.4%
25
-
RSA 2010 Government Bonds 13%
7.8%
1237
8.5%
17
30 1716
F-59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28.
F-63
27.
EMPLOYEE BENEFIT PLANS PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS(continued)
Cash Flowsflows
Contributions
The Company expects to contribute $7$4 million (2004: $11(2008: $6 million) to its
pension plan in 2006 the reduction arises as additional contributions
may no longer be required as the fund is likely to be fully funded at its
next regulatory actuarial valuation.2009.
2005
$
$
million
Estimated future benefit payments
The following pension benefit payments, which reflect the expected future service, as appropriate, are
expected to be
paid:
2006
15
2007
15
2008
15
2009
15
2010
15
Thereafter2011
147
15
2012
14
2013
14
2014 – 2018
69
South Africa post-retirement medical benefits
The provision for post-retirement medical funding represents the provision for health care benefits for employees and
retired
employees and their registered dependants.
The post-retirement benefit costs are assessed in accordance with
the advice of independent professionally qualified
actuaries. The actuarial method used is the projected unit credit
funding method. This scheme is unfunded.
The last actuarial valuation was performed at December 31, 2005.
2008.
Information with respect to the defined benefit liability, which includes post-retirement medical benefits for
AngloGold Ashanti South Africa employees, for the year ended December 31, is set forth in the table below:
Other benefits
2005
$2008
2004$
$2007
2003$
$2006
$
Change in benefit obligation
Benefit obligation at January 1,
166168
128159
125188
Service cost
1
1
1
Interest cost
11
12
13
12
Plan participants contributions
4
5
10
10
Amendments
-
(28)
(1)5
Benefits paid
(15) (16)
(24)
(18) (17)
Actuarial loss/(gain)/loss
38(8) 1
15
(9)(14)
Translation (18)
23(46) 6
35
(17)
Benefit obligation at December 31,
188115
166168
128159
FundedUnfunded status of the end of the year
(188)(115)
(166)(168)
(128)
Unrecognized actuarial loss
-
14
-(159)
Net amount recognized
(188)
(152)
(128)
(1)
Amendments include the reversal of the liability of $44 million
which in prior years represented the excess liability not covered by
members’ contributions. With the transfer of the scheme to an
outside service provider, this liability is to be borne by the service
provider and not by AngloGold Ashanti.(115) (168) (159)
F-60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28. EMPLOYEE BENEFIT PLANS (continued)
Other benefits
2005
$
2004
$
2003
$
Components of net periodic benefit cost
Service cost
1
1
1
Interest cost
11
12
13
12Actuarial gains and losses
Amortization of prior service cost(8) 1
(14)
4
14
-
1
18
13
15 31
The assumptions used in calculating the above amounts are:
Discount rate
7.75%
9%
10.0%7.25% 8.25% 8.00%
Expected increase in health care costs
5.00%5.50%
5%6.75%
5.5%4.75%
Assumed health care cost trend rates at December 31,
5.50%
6.75%
4.75%
Health care cost trend assumed for next year
5.00%5.50%
5.0%6.75%
5.5%4.75%
Rate to which the cost trend is assumed to decline (the ultimate trend
rate)
5.00%
5.0% 5.0%
Year that the rate reaches the ultimate trend
N/A
N/A
2005
Assumed health care cost trend rates have a significant effect on the
amounts reported for
health care plans. A one percentage-point
change in assumed health care cost trend rates
would have the
following effect:
1-percentage point
increase
1-percentage point
decrease
Effect on total service and interest cost
21
(1)
Effect on post-retirement benefit obligation
1911
(16)(10)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-64
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
Cash flows
Post-retirement medical plan
AngloGold Ashanti
The Company expects to contribute $13$22 million (2005: $12(2008: $28 million) to
the post-retirement medical plan in 2006.2009.
$
million
Estimated future benefit payments
$
The following medical benefit payments, which reflect the expected future service, as
appropriate, are expected to be
paid:
2006
2009
13
2007
14
2008
14
2009
15
2010
16
Thereafter
113
Other Defined Benefit Plans
13
2011
13
2012
13
2013
13
2014 – 2018
50
Other defined benefit plans
Other defined benefit plans compriseinclude the followingAshanti Retired Staff Pension Plan, the Obuasi Mines Staff Pension Scheme,
the Post-retirement medical scheme for Rand Refinery employees, the Retiree Medical Plan for North American
employees, the Supplemental Employee Retirement Plan for North America (USA) Inc. employees and hasthe Nuclear
Fuels South Africa (NUFCOR) – Retiree Medical Plan for Nufcor South African employees.
Information in respect of other defined benefit plans for the years ended December 31, 2008, 2007 and 2006 have been
aggregated in the tables of change in benefit obligations, change in plan
assets and components of Net Periodic Benefit Cost.
F-61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28. EMPLOYEE BENEFIT PLANS (continued)
Information with respect to the South American Brasil Fundambrás pension plan, for the year ended December 31,
as follows:
On November 30, 1998 the defined benefit fund was converted to a defined contribution fund with an actuarial net liability of
$6 million. This liability is revised annually by independent actuaries. The transfer of funds has been approved by the
governmental SPC agency and the actuarial net liability was transferred to a defined contribution plan on
September 30, 2005.
2005
$
2004
$
2003
$
Assumptions
Weighted-average assumptions used to determine benefit obligations
at December 31,
Discount rate
N/A 11.3%
11.3%
Rate of compensation increase
N/A
7.1%
7.1%
Weighted-average assumptions used to determine net periodic benefit
cost at December 31,
Discount rate
N/A 11.3%
11.3%
Expected long-term return on plan assets
N/A
11.3%
11.3%
Rate of compensation increase
N/A
7.1%
7.1%
Pension increase
N/A
5.0%
5.0%
No valuation is necessary at December 31, 2005 as the fund has converted
during the year to a defined contribution plan.
Plan assets
The Brasil Fundambrás defined benefit pension plan weighted-average
asset allocations at December 31, 2005 and 2004, by asset category are as
follows:
Asset Category
Debt securities
- 95%
Property
- 4%
Cash
-1%
- 100%
Information with respect to the Ashanti Retired Staff pension plan, for the year ended December 31, is as follows:
The pension scheme provides a retirement benefit to former Ashanti employees that were based at the former London
office. The scheme is closed to new members and participants are either retired or deferred members. The plan is
evaluated by actuaries on an annual basis using the projected unit credit funding method. The contributions are made to
the plan and it is funded with a marginal shortfall of $0.2 million, R1 million.
2005
$
2004
$
2003
$
Assumptions
Weighted-average assumptions used to determine benefit obligations
at December 31,
Discount rate
5.00%
5.8%
-
Rate of compensation increase
N/A
N/A
-
Weighted-average assumptions used to determine net periodic benefit
cost at December 31,
Discount rate
5.00%
5.8%
-
Expected long-term return on plan assets
6.07%
5.8%
-
Rate of compensation increase
N/A
N/A
-
Pension increase
2.50%
2.5%
-
The expected long-term return on plan assets is determined using the after
tax return of domestic bonds, fixed deposits and equity securities
F-62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28. EMPLOYEE BENEFIT PLANS (continued)
2005
$
2004
$
2003
$
Plan assets
The Ashanti Retired Staff defined benefit pension plan weighted-average
asset allocations at December 31, 2005 and 2004, by asset category are
as follows:
Asset Category
Equity securities
51%
53%
Debt securities
41%
43%
Cash
6% 4%
Property
2% -
100% 100%
Information with respect to the Obuasi Mines Staff Pension Scheme, for the year ended December 31, is as follows:
The scheme provides monthly payments in Ghanaian currency (indexed to the US dollar) to retirees until death. The
benefits for the scheme are based on the years of service and the compensation levels of the covered retirees. The
scheme is closed to new members and all the scheme participants are retired. The scheme is unfunded and accordingly,
no assets related to the scheme are recorded.
2005
$
2004
$
2003
$
Assumptions
Weighted-average assumptions used to determine benefit obligations
at December 31,
Discount rate
4.00%
4.0%
-
Rate of compensation increase
N/A
N/A
-
Weighted-average assumptions used to determine net periodic benefit
cost at December 31,
Discount rate
4.00%
4.0%
-
Rate of compensation increase
N/A
N/A
-
Pension increase
3.00%
4.5%
-
F-63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28. EMPLOYEE BENEFIT PLANS (continued)
Information with respect to the Retiree Medical Plan, which includes benefits for AngloGold Ashanti USA
employees, for the year ended December 31, is as follows:
North America Retiree Medical Plan – AngloGold Ashanti USA provides health care and life insurance benefits for certain
retired employees under the AngloGold North America Retiree Medical Plan (the “Retiree Medical Plan”). With effect
December 31, 1999, no additional employees were eligible to receive post-retirement benefits under the Retiree Medical
Plan. Curtailment accounting was applied at December 31, 1999.
The Retiree Medical Plan is a non-contributory defined benefit plan. This plan was last evaluated by independent actuaries
in December 2005 who took into account reasonable long-term estimates of increases in health care costs and mortality
rates in determining the obligations of AngloGold Ashanti USA under the Retiree Medical Plan. The evaluation of the
Retiree Medical Plan reflected liabilities of $2 million (2004: $2 million, 2003: $2 million). The Retiree Medical Plan is an
unfunded plan. The Retiree Medical Plan is evaluated on an annual basis using the projected benefit method.
Other
benefits
2005
$
Other
benefits
2004
$
Other
benefits
2003
$
The assumptions used in calculating the benefit obligations at
December 31,
Discount rate
5.50%
6.0%
6.25%
Expected return on plan assets
N/A
N/A
N/A
Rate of compensation increase
N/A
N/A
N/A
Information with respect to the Nufcor South Africa Retiree Medical Plan, which includes benefits for the Nufcor
South Africa past employees, for the year ended December 31, is as follows:
Other
benefits
2005
$
Other
benefits
2004
$
Other
benefits
2003
$
Assumptions
Weighted-average assumptions used to determine benefit obligations
at December 31,
Discount rate
7.75%
11.0%
N/A
Expected increase in health care costs
5.75%
9.0%
N/A
Expected return on plan assets
7.75%
11.0%
N/A
Plan Assets
The weighted-average asset allocation of the Nufcor South Africa post
retirement medical fund at December 31, 2005 by asset category are as
follows:
Asset Category
Unit Trust Investment Funds
100%
100%
N/A
100% 100%
N/A
F-64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28. EMPLOYEE BENEFIT PLANS (continued)
Information with respect to the Post Retirement Medical Plan and Obligation for the Rand Refinery Ltd employees,
for the year ended December 31, is as follows:
Other
benefits
2005
$
Other
benefits
2004
$
Other
benefits
2003
$
Assumptions
Weighted-average assumptions used to determine benefit obligations at
December 31,
Discount rate
7.75% 10.0%
N/A
Expected increase in health care costs
5.75%
8.0%
N/A
Expected return on plan assets
7.26%
10.0%
N/A
Plan Assets
The weighted-average asset allocation of the Rand Refinery post retirement
medical fund at December 31, 2005 by asset category are as follows:
Asset Category
Debt securities
75% 90%
N/A
Cash
25% 10%
N/A
100% 100%
N/A
2005
$
2004
$
2003
$
North America Supplemental Employee Retirement Plan (SERP)
Certain former employees of Minorco (USA) Inc. were covered under the Minorco
(USA) Inc. Supplemental Employee Retirement Plan (the SERP), a non-
contributory defined benefit plan. The SERP was last evaluated by independent
actuaries in 2005 who took into account long-term estimates of inflation, mortality
rates in determining the obligation of AngloGold Ashanti USA under the SERP.
This evaluation of the SERP reflected plan liabilities of $1million
(2004: $1 million, 2003: $1 million). The SERP is an unfunded plan and is
evaluated by actuaries on an annual basis using the projected benefit method.
Weighted-average assumptions used to determine benefit obligations at
the end of the year are as follows:
Discount rate
5.5% 6.0%
6.25%
Expected return on plan assets
N/A
N/A
N/A
Rate of compensation increase
N/A
N/A
N/A
Weighted-average assumptions used to determine the net periodic benefit
cost of the year:
Discount rate
5.50% 6.00%
6.25%
Expected return on plan assets
N/A
N/A
N/A
Rate of compensation increase
N/A
N/A
N/A
Pension increase
(1)
N/A N/A
N/A
(1)
Pension benefits are fixed and pension inflation thus not relevant
Aggregated information in respect of the other defined benefit plans, for the year ended December 31, is set
forth
in the table below:
20052008
$
20042007
$
20032006
$
Change in benefit obligations
Balance at beginning of year
42January 1,
18
1319
Acquisition of subsidiary
- 14
-
Transfer in
- 3
-18
Interest cost
2 2-
1
-
Actuarial loss
- 3
-
2
Settlements and CurtailmentsBenefits paid
(25)(1) (1) (1)
Translation
-
(1)
-
Balance at December 31,
17
18
19
Change in plan assets
Fair value of plan assets at January 1,
9
8
8
Actual return on plan assets
(1)
-
-
Benefits paidTranslation
(2) (1)
1
-
TranslationFair value of plan assets at December 31,
1 26
29
Balance8
Unfunded status at end of year
18 41(11) (9) (11)
18Net amount recognized
(11) (9) (11)
Components of net periodic benefit cost
Interest cost
-
1
-
Actuarial gains and losses
1
-
2
1
1
2
F-65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28. EMPLOYEE BENEFIT PLANS (continued)
2005F-65
27.
$PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
2004
$
2003
$
Change in plan assets
Fair value of plan assets at beginning of year
23
14
8
Transfer in
- 5
-
Expected return on plan assets
1
3
2
Settlements and curtailments
(15)
-
-
Benefit paid
(1) (1)
-
Translation
- 2
1
Fair value of plan assets at end of year
8
23
11
Funded status at end of year
(10)
(18)
(7)
Unrecognized net actuarial gain
-
(1)
(1)
Net amount recognized
(10)
(19)
(8)
Components of net periodic benefit cost
Interest cost
2 2
1
Expected return on plan assets
(1)
(1)
(1)
Amortization of actuarial gains and losses
-
(2)
3
1 (1)
3
Cash flows
The other retirement defined benefit plans are all closed to new members and the current members are either retired or
deferred members. The groupCompany does not make a contribution to these plans.
$
million
Estimated Future Benefit Paymentsfuture benefit payments
The following futurepension benefit payments, which reflect the expected future service, lives, as appropriate, are expected to be
paid:
2006
1
2007
1
2008
1
2009
1
2010
1
Thereafter2011
131
2012
1
2013
1
2014 – 2018
5
Defined Contribution Fundscontribution funds
Contributions to the various retirement schemes are fully expensed during the year in which they are funded and the cost of
contributions to
retirement benefits for the year amounted to $31$49 million (2004:(2007: $51 million, 2006: $40 million, 2003: $25 million).
Australia (Boddington and Sunrise Dam)
The region contributes to the Australian Retirement Fund for the provision of benefits to employees and their
dependants on
retirement, disability or death. The fund is a multi-industry national fund with defined contribution
arrangements.
Contribution rates by the operation on behalf of employees varies, with minimum contributions meeting
compliance
requirements under the Superannuation Guarantee legislation. Members also have the option of
contributing to approved
personal superannuation funds. The contributions by the operation are legally enforceable to
the extent required by the
Superannuation Guarantee legislation and relevant employment agreements.
F-66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) The cost to the
28. EMPLOYEE BENEFIT PLANS (continued)Company of all these contributions amounted to $3 million (2007: $3 million, 2006: $2 million).
Namibia (Navachab)
Navachab employees are members of a defined contribution provident fund. The fund is administered by the Old
Mutual
insurance Insurance Company. Both the Company and the employees make contributionscontribute to this fund. AngloGold Ashanti Limited
seconded
employees at Navachab remain members of the applicable pension or retirement fund in terms of their
conditions of
employment with AngloGold Ashanti.Ashanti Limited. The cost of providing retirement benefits for the year
amounted to $1 million (2004:
$1(2007: $1 million, 2003:2006: $1 million).
Mali (Sadiola, Yatela and Morila)
The Malian operations do not have retirement schemes for employees. All employees (local and expatriate) contribute
towards the Government social security fund, and the Company also makes a contribution towards this fund. On
retirement, Malian employees are entitled to a retirement benefit from the Malian Government. Expatriate employees are
reimbursed only their contributions to the social security fund. AngloGold Ashanti seconded employees in Mali remain
members of the applicable pension or retirement fund in terms of their conditions of employment with AngloGold Ashanti.
The cost of providing retirement benefits for the year amounted to $2 million (2004: $4 million, 2003: $1 million). The
Sadiola, Yatela and Morila Joint Ventures are equity accounted. Refer to Note 15.
Tanzania (Geita)
Geita does not have a retirement scheme for employees. Tanzanian nationals contribute to the National Social Security
Fund (NSSF) or the Parastatal Provident Fund (PPF), depending on the employee'semployee’s choice, and the Company also
makes a
contribution on the employee'semployee’s behalf to the same fund. On leaving the Company, employees may withdraw
their
contribution from the fund. From July 2005, the Company contributes tohas set up a supplemental provident fund which has beenis
opened withadministered by the Parastatal Provident Fund (PPF). with membership available to permanent national employees on a
voluntary basis. The Company makes no contribution towards any retirement schemes
for contracted expatriate employees that are members of a pension or provident fund. Contracted expatriate employees
that are not members of a pension or provident fund contribute to the National Social Security Fund (NSSF) and the
Company also makes a contribution to the same fund on behalf of these employe es.employees. AngloGold Ashanti Limited employees seconded
employees in Tanzania remain members of the applicable pension or
retirement fund in terms of their conditions of
employment with AngloGold Ashanti.
Ashanti Limited. The Company contributes to
the National Social Security Fund (NSSF) on behalf of expatriate employees. On termination of employment the
Company may apply for a refund of contributions from the NSSF.
North America (Cripple Creek & Victor)
AngloGold Ashanti USA sponsors a 401(k) savings plan whereby employees may contribute up to 1760 percent of their
salary, of which up to 5 percent is matched at a rate of 150 percent by AngloGold Ashanti USA. AngloGold Ashanti
USA's
contributions were $2 million (2004:(2007: $1 million, 2006: $2 million, 2003: $2 million) during the years ended December 31, 2005 and 2004..
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-66
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
South America (AngloGold Ashanti Brasil Mineração, Cerro Vanguardia and Serra Grande)
The AngloGold Ashanti South America region operates a number of defined contribution arrangements for their employees.employees in Brazil.
These arrangements are funded by the operations (basic plan) and operations/employees (optional supplementary
plan)
and are embodied in a pension plan entity, Fundambrás Sociedade de Previdéncia Privada, which is responsible for
administering the funds and making arrangements to pay the benefits. In December 2001, contributions commenced to a
. A PGBL fund, a plan similar to the American 401 (k) type of plan.
This plan is administeredwas started in December 2001. Administered by
Bradesco Previdencia e Seguros (who(which assumes the risk for any eventual actuarial liabilities). In
2005, the local authorities approved the withdrawal of sponsorship to the previous portfolio administrator, Fundambras
Sociedade de Previdencia Privada. With, this scheme, the actuarial risk is carried by the sponsors, and AngloGold Ashanti
mines in Brazil provided funding of $10 million in cash in order to have the process completed by September 29, 2005.
From October 1, 2005, the PGBL fund is the soleonly private
pension plan sponsored by the group andCompany in the costcountry. Employees in Argentina contribute 11 percent of providingtheir salaries
retirement benefits fortowards the yearArgentinean government pension fund. The Company makes a contribution of 17 percent of an employee’s
salary on beha lf of employees to the same fund. Contributions amounted to $1 $3 million (2004: $1(2007: $5 million, 2003: $1
2006: $2 million).
Ghana and Guinea (Iduapriem, Obuasi and Siguiri)
Ghana and Guinea contribute to provident plans for their employees which are defined contribution plans. The funds
are
administered by Boards of Trustees and invested mainly in Ghana and Guinea governments’government treasury instruments,
fixed
interest deposits and other projects. The costs of these contributions for the year amounted to $4 million
(2007: $4 million, 2006: $3 million (2004: $2 million,million).
2003: not applicable).
South Africa (Great Noligwa, Kopanang, Moab Khotsong, Mponeng, Savuka, Tau Lekoa and TauTona)
South Africa contributes to various industry-based pension and provident retirement plans which coverscover substantially all
employees and are defined contribution plans. These plans are all funded and the assets of the schemes are held in
administrated funds separately from the group'sCompany's assets. The cost of providing these benefits amounted to $19
$36 million (2004:
$29(2007: $36 million, 2003: $202006: $29 million) during the year.
.
F-6728.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
29.SEGMENT AND GEOGRAPHICAL INFORMATION
The Company produces gold as its primary product and does not have distinct divisional segments in terms of principal
business activity, but manages its business on the basis of different geographic segments. Therefore information regarding
separate geographic segments is provided. This information is consistent
with the information used by the Company’s chief
operating decision makersChief Operating Decision Maker in evaluating operating performance of,
and making resource allocation decisions among, operations.
operations.
Business segment data
Year ended December 31
Business segment data
2005
$
2004
$
2003
$
2008
$
2007
$
2006
$
Revenues
Revenues from product sales:
South Africa
1,153986
1,1181,472
1,1061,513
Argentina
10198
97129
77118
Australia
213214
172378
157307
Brazil
172272
158323
147258
Ghana
314307
206364
-330
Guinea
127253
44223
-167
Mali
242186
182278
205317
Namibia
3639
2752
2650
Tanzania
233120
207219
107199
USA
104123
105179
128124
Zimbabwe
-2,598
43,617
-
2,695
2,320
1,9533,383
Less: Equity method investments included above
(242)(186)
(224)(278)
(312)(317)
Plus/less: Loss/(gain) on realized non-hedge derivatives included above
1,243
(291)
(383)
Total revenues from product sales
2,4533,655
2,0963,048
1,6412,683
Depreciation and amortization expense
South Africa
248
192
111
Argentina
22
28
28
Australia
35
30
30
Brazil
33
27
28
Ghana
113
70
-
Guinea
39
10
-
Mali
60
57
62
Namibia
7
5
3
Tanzania
56
47
12
USA
40
40
47
Zimbabwe
-
1
-
653
507
321
Less: Equity method investments included above
(60)
(62)
(74)
Total depreciation and amortization expense
593
445
247
Segment (loss)/income
South Africa
(38)
77
169
Argentina
37
24
20
Australia
39
54
9
Brazil
60
103
70
Ghana
(96)
(11)
-
Guinea
7
(19)
-
Mali
39
13
48
Namibia
11
2
8
Tanzania
(35)
14
23
USA
(21)
(7)
3
Other, including Corporate and Non-gold producing subsidiaries
(48)
(4)
50
Total segment (loss)/income
(45)
246
400
F-68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
29.
F-67
28.
SEGMENT AND GEOGRAPHICAL INFORMATION(continued)
Business segment data
Year ended December 31
Business segment data
20052008
$
20042007
$
20032006
$
Reconciliation of segment (loss)/income to Net income
Segment totalDepreciation and amortization expense
(45)
246
400
Exploration costs
(44)
(44)
(40)
General and administrative expenses
(71)
(58)
(43)
Market development costs
(13)
(15)
(19)
Non-hedge derivative (loss)/gains
(151)
(131)
114
Taxation benefit/(expensed)
121
132
(143)
Discontinued operations
(44)
(11)
(2)
Minority interest
(23)
(22)
(17)
Cumulative effect of accounting change
(22)
-
(3)
Net (loss)/income
(292)
97
247
Segment assets
South Africa
3,019256
3,431301
3,039324
Argentina
24817
26018
26435
Australia
73747
71154
64939
Brazil
37159
34050
28635
Ghana
2,104110
2,12691
-
Guinea
349
325
-
Mali
309
(1)
344
(1)
332
(1)
Namibia
51
38
30
Tanzania
1,281
1,065
171
(1)
USA
429
408
416
Other, including Corporate, Assets held for sale and Non-gold
producing subsidiaries
215
348
156
Total segment assets
9,113
9,396
5,343
Expenditure for additions to long-lived assets
South Africa
347
333
242
Argentina
15
13
10
Australia
38
28
21
Brazil
85
40
36
Ghana
90
42
-119
Guinea
36
5745
-52
Mali
1246
1123
1450
Namibia
54
216
27
Tanzania
7855
1358
49
USA
31
32
39
661
678
749
Less: Equity method investments included above
(46)
(23)
(50)
Total depreciation and amortization expense
615
655
699
Segment income/(loss)
South Africa
480
283
359
Argentina
(13)
66
43
Australia
(22)
132
82
Brazil
115
70
92
Ghana
(89)(34) (65)
Guinea
121
(2)
(16)
Mali
(100)
91
126
Namibia
(1)
10
19
Tanzania
(510)(150) (132)
USA
8
16
27
Zimbabwe
-138
1
(13)
-
Other, including Corporate and Non-gold producing subsidiaries
8(89)
8(82)
(54)
Total segment income
30
385
441
1
722
583
363
Less: Equity method investments included above
(12)
(12)
(24)
Total expenditure for additionsReconciliation of segment income/(loss) to long-lived assets
710
571Net loss
339
Geographical area data
Total revenues
Segment total
30
385
441
Exploration costs
(126) (117) (58)
General and administrative expenses
(136)
(130)
(140)
Market development costs
(13)(16) (16)
Non-hedge derivative loss
(258) (808) (208)
Other operating items
(19) 16
(16)
Taxation expense
(22) (118) (122)
Discontinued operations
23
2
6
Minority interest
(42)(28) (29)
Net loss
(563)(814) (142)
Segment assets
South Africa
1,165(1)
1,1432,497
3,353
1,1283,108
Argentina
103227
100236
254
Australia
(2)
1,279
1,183
805
Brazil
801
674
544
Ghana
(3)
2,075
2,155
2,061
Guinea
359
371
357
Mali
239
291
280
Namibia
61
76
Australia
215
172
157
Brazil
178
173
151
Ghana
314
209
-
Guinea
127
44
-
Mali
236
181
207
Namibia
36
28
2864
Tanzania
233848
2081,343
1071,382
USA
106689
106528
507
129
Zimbabwe
-
4
-
Other, including Corporate, Assets held for sale
(4)
and Non-gold producing subsidiaries
8376
6171
151
Total segment assets
9,451
10,381
9,513
1(1)
2,721Includes assets held for sale of Weltevreden of $nil million (2007: $15 million, 2006: $15 million) and properties held for sale by Rand Refinery Limited
2,374of $1 million (2007: $1 million, 2006: $nil million).
1,984(2)
Less: Equity method investments included aboveIncludes assets held for sale of Boddington of $781 million in 2008.
(236)(3)
(223)Includes Central African Gold plc held for sale investment of $3 million in 2006.
(4)
Includes exploration properties acquired from Trans-Siberian Gold plc of $15 million in 2007.
(314)
Total revenues
2,485
2,151
1,670
(1)
Investment held.
F-69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
29.
F-68
28.
SEGMENT AND GEOGRAPHICAL INFORMATION(continued)
Business segment data
Year ended December 31
Business segment data
2005
$
2004
$
2003
$2008
Long-lived assets by area
South Africa$
2,4822007
2,789$
2,2102006
$
Expenditure for additions to long-lived assets
South
Africa
347
411
321
Argentina
20016
179 19120
19
Australia
606439
629 568281
86
Brazil
299148
223 189141
186
Ghana
2,002166
2,036 -119
97
Guinea
28622
288 -21
16
Mali
3097
(1)9
344
(1)
332
(1)6
Namibia
2512
27 76
5
Tanzania
1,07953
979 17126
(1)67
USA
34727
286 30023
13
Other, including Corporate Assets held for sale and Non-gold
producing subsidiaries
772
1992
741
1,239
1,059
817
Less: Equity method investments included above
(7)
(9)
(6)
Total expenditure for additions to long-lived assets
1,232
1,050
811
Geographical area data
Total revenues
South
Africa
1,041
1,504
1,531
Argentina
99
130
118
Australia
217
379
309
Brazil
285
319
260
Ghana
309
364
330
Guinea
258
224
164
Mali
181
280
321
Namibia
42
54
51
Tanzania
112
224
198
USA
124
180
124
Other, including Corporate and Non-gold producing subsidiaries
-
8
13
2,668
3,666
3,419
Less: Equity method investments included above
(181)
(280)
(321)
Plus/less: Loss/(gain) on realized non-hedge derivatives included above
1,243
(291)
(383)
Total revenues
3,730
3,095
2,715
Long-lived assets by area
South
Africa
1,811
2,506
2,370
Argentina
162
166
183
Australia
294
975
650
Brazil
665
568
454
Ghana
1,862
1,928
1,875
Guinea
211
235
254
Mali
239
291
281
Namibia
20
23
22
Tanzania
609
1,105
1,121
USA
572
396
367
Other, including Corporate and Non-gold producing subsidiaries
59
75
60
Total long-lived assets
7,7126,504
7,9798,268
4,0427,637
(1)
Investment held.29.
30.ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS
The Company has adopted the disclosure-only provisions of SFAS123 and applies Accounting Principles Board Opinion
No. 25 (APB No. 25) and related interpretations in accounting for its employee stock-based compensation plans.
Employee share incentive scheme
At a general meeting held on June 4, 1998, shareholders approved the introduction of the AngloGold Limited Share
Incentive Scheme (“Share Incentive Scheme”) for the purpose of providing an incentive to executive directors and
senior employees of the Company
and its subsidiaries to identify themselves more closely with the fortunes of the group and its continued growth,
Company and also to
promote the retention of such employees by giving them an opportunity to acquire shares in the
Company. Employees
participate in the scheme to the extent that they are granted options and accept them.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-69
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
At a general meeting held on April 30, 2002, it was approved that the rules of the Share Incentive Scheme be amended
to
provide for the exercise of options to be based on a condition, related to the performance of the Company, as
determined
by the directors and which will be objective and specified. An employee would only be able to exercise his
options after the
date upon which he has received written notification from the directors that the previously specified
performance condition
has been fulfilled or waived. The options which have been granted prior to May 1, 2002 remained subject to the
conditions
under which they were granted. Although there are no automatically convertible unsecured debentures
(1)
currently in issue
under the rules of the Share Incentive Scheme, consequential amendments were approved to the
rules of the scheme
schem e which effectively made the conversion of debentures subject to the same terms as the exercise of
options.
At December 31, 2005,2008, the maximum number of ordinary shares that may be allocated for the purposes of the scheme
is
7,285,807 9,720,794 (December 31, 2004: 7,272,730)2007: 7,630,080), equivalent to 2.75 percent of the total number of ordinary shares in issue
at
that date.
At the annual general meeting held on April 29, 2005, shareholders approved the amendment to the maximum
aggregate
number of ordinary shares which may be acquired by any one participant in the scheme from 300,000 to
5 percent of the
2.75 percent attributable to all schemes and plans adopted by shareholders (or 0.1375 percent of the
total number of
ordinary shares in issue at any one time).
At December 31, 2008 the maximum aggregate number of
ordinary shares which may be acquired by any one participant in the scheme was 486,040 shares.
Ordinary shares issued in terms of the Share Incentive Scheme shall, subjectsub ject to the provisions of the Share Incentive
Scheme, rank pari passu with issued shares in all respects, including participation in dividends declared by the Company.
dividends.
Non-executive directors are not eligible for participation in the Share Incentive Scheme.
F-70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Total plan employee costs(continued)
30. ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
On December 31, 2008, the Company has five stock-based compensation plans, which are described below. Total
compensation cost charged against income for these plans was $40 million, $33 million and $42 million for 2008, 2007
and 2006, respectively.
At the year end, the unallocated balance of shares subject to the Share Incentive Scheme amounts to 6,278,998
(2007: 4,315,827).
Options
An option may only be granted to an employee to purchase a certain number of shares, specified by the directors, at the
option price payable in accordance with the rules of the Share Incentive Scheme. It is personal to the employee to whom it is addressed
and may only be accepted by him or his family, or his Company or his family trust.
(1)
The debenture incentive options were cancelled on June 30, 2001 in exchange for stock incentive options.
The Share Incentive Scheme provides for the granting of options based on two separatesep arate criteria:
•
·Time related options
As approved by shareholders at the general meeting held on June 4, 1998 and amended by shareholders at the
general meeting held on April 30, 2002, timeTime related options may be exercised over a five year period from date of
grant, and may be exercised in
tranches of 20 percent each in years 2, 3 and 4 and 40 percent in year five.
No further options will be granted under this plan which will terminate on February 1, 2012, being the date on
which the
last options granted under this plan, may be exercised or will expire.
Resulting from the rights offer made to ordinary shareholders, which was finalized during July 2008, additional
options were awarded to existing option holders in terms of the anti-dilution provision of the original grant. As the
employees did not receive any benefit in excess of the original grant value, no additional compensation cost was
recognized. Approximately one option was awarded for every four held at an exercise price of R194.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-70
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
A summary of time related options showing movement from the beginning of the year to the end of the year, is
presented below:
20052008
Options
(000)
2005
Weighted-
average
exercise price
R
2004
Options
(000)
2004
Weighted-
average
exercise price
R
2003
Options
(000)
20032008
Weighted-
average
exercise price
R
Outstanding at the beginning of the
year 1,391
126
1,604
125
2,159207
125
Granted -as a result of rights offer
-42
-
-
-
-194
Exercised (472)
126(129)
(193)
116
(508)
123125
Forfeited (terminations)
(54)(4)
122194
(20)
131
(47)
128
Outstanding at the end of the year
865116
127140
1,391
126
1,604
125
Exercisable at the end of the year
758116
124140
904
118
733
115
Weighted-average fair
The total intrinsic value of
options grantedoutstanding at year-end was R13 million (2007: R35 million), with a weighted
average remaining contractual term of 1.7 years (2007: 2.4 years). The intrinsic value of options exercised during
the years ended December 31, 2008, 2007 and 2006 was R15 million, R48 million and R76 million, respectively.
During the years ended December 31, 2007 and 2006 the Company recognized compensation expense related to
time-based awards of less than $1 million and $1 million, respectively. There was no income statement charge for
the current year, as the total compensation cost was expensed up to date of vesting in 2007.
- -•
-
Performance related options
As approved by shareholders at the general meeting held on April 30, 2002, performancePerformance related options granted vest
in full, three years after date of grant, provided that the conditions on
which the options were granted, namely related
to the performance of the Company (growth in an adjusted
earnings per share) as determined by the directors, are met.
If the performance conditions are not met at the end
of the first three year period, then performance is re-tested each year over the ten year life of the option on a
rolling three year basis. Options are normally exercisable, subject to satisfaction of the performance conditions,
between three and ten years from date of grant. As none of the performance criteria of the options issued in 2002
and 2003 were met in the initial three years, the grantor decided to roll the schemes forward on a “roll over reset”
basis to be reviewed annually. The performance criteria of th e options issued in 2002, 2003 and 2004 were
achieved during 2006.
The performance related options are accounted for as variableoptions’ compensation awards, accordingly the compensation
expense is calculatedfixed at the end of each reporting period untilgrant date and recorded when it is probable
that the performance obligation has been met or waived.
Compensation expensecriteria will vary based onbe met.
Resulting from the fluctuationsrights offer made to ordinary shareholders, which was finalized during July 2008, additional
options were awarded to existing option holders in terms of the underlying stock priceanti-dilution provision of the original grant. As the
employees did not receive any benefit in excess of the original grant value, no additional compensation cost was
recognized. Approximately one option was awarded for every four held at an exercise price.
price of R194.
No further performance related options will be granted and all options granted hereunder will terminate on
November
1, 2014, being the date on which the last options granted under thisthese criteria may be exercised or will
expire.
F-71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
30.
F-71
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
A summary of performance related options showing movement from the beginning of the year to the end of the
year, is
presented below:
20052008
Options
(000)
2005
Weighted-
average
exercise price
R
2004
Options
(000)
2004
Weighted-
average
exercise price
R
2003
Options
(000)
20032008
Weighted-
average
exercise price
R
Outstanding at the beginning of the
year 3,426
2481,638
2,316249
259Granted as a result of rights offer
313
194
1,179Exercised
300(385)
Granted-
-
1,201
228
1,240
222
Exercised(3)
224
-
-
-
-237
Forfeited (terminations)
(526)(176)
248254
(91)
258
(103)
287
Outstanding at the end of the year
2,8971,390
248239
3,426
248
2,316
259
Exercisable at the end of the year
-1,390
-239
-
-
-
-
Weighted-average fairThe total intrinsic value of
options grantedoutstanding at year-end was R18 million (2007: R72 million), with a weighted
average remaining contractual term of 5 years (2007: 6 years). The intrinsic value of options exercised during the year
-95
78
years ended December 31, 2008, 2007 and 2006 was R3 million, R53 million and less than R1 million for 2006,
respectively.
All options which have not been exercised within ten years from the date on which they were granted automatically
expire.
At the year end, the unallocated balance of shares subject to the Share Incentive Scheme amounts to 3,524,097 (2004:
2,455,770).
During the years ended December 31, 2005, 20042007 and 2003 there2006 the Company recognized $3 million and $29 million,
respectively, compensation expense related to performance related awards. There was no compensation expense recognized related toincome statement
time-based awardscharge for the current year, as the exercise price of all awardstotal compensation cost was greater than or equalexpensed up to the fair market value of the underlying
stock of the date of grants. As of December 31, 2005 no compensation expense was recognized related to the performancevesting in 2007.
awards under APB No. 25.
During 20052008, a total of 475,250513,444 common shares were issued under the share incentive scheme in terms of time-basedtime-
based and
performance awards.
As of December 31, 2008, there was no unrecognized compensation cost related to unvested stock options.
The weighted average of all options outstanding as at December 31, 20052008, is as follows:
Range of exercise
Prices
R
Quantity of options within
within range
(000)
Weighted average
exercise price
R
Weighted average
contractual life
Years
95 -– 143
70579
118122
3.751.8
144 -– 211
140305
157192
5.394.5
212 -– 300
2,9171,122
248250
7.544.6
3,7621,506
(1)
212 6.54231
(1)3.7
(1)
Represents a total of 864,710116,491 time related options and 2,897,0001,389,833 performance related options outstanding as at December 31, 2005.outstanding.
No options expired during the year ended December 31, 2005.
2008.
Since December 31, 20052008 to and including JanuaryMarch, 31, 2006, 110,1002009, 525,515 options (granted in respect of time and
performance related options) have been exercised and nil options haveexercised.
lapsed.
Pro forma information regarding net income and earnings per share is required by SFAS123, and has been determined as if
On January 1, 2006, the Company had accounted for its employee stock options underadopted the fair value recognition provisions of SFAS No. 123(R), “Share-
Based Payment”, using the modified prospective transition method. Under this method, compensation cost
recognized in the year ended December 31, 2006 includes: a) compensation cost for all share-based payments
granted prior to, but not yet vested as of that Statement. No grants were
made with respect toJanuary 1, 2006, based on the time related scheme options and performance related options during 2005. Thegrant-date fair value for
options granted during 2004 was estimated at the date of grant using a Black-Scholes option pricing modelin
accordance with the
following weighted-average assumptions, respectively: risk-free interest rates original provisions of 8.18 percent; dividend yields of 2.27SFAS123, and b) compensation cost for all share-based payments
percent; volatility factors ofgranted subsequent to January 1, 2006, based on the expected market price of the Company’s common stock of 0.300 and a weighted-average
expected life of the option of 7.0 years in respect of performance based scheme options.
The Black-Scholes option valuation model was developed for use in estimating thegrant-date fair value estimated in accordance with the
provisions of traded options whichSFAS123(R). Th e results for prior periods have
no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company’s employee stock options have
characteristics significantly different from those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.been restated.
F-72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
30.
F-72
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’
vesting period. The pro forma option expense in 2005 may not be indicative of pro forma option expense in future years.
The Company’s pro forma information follows (in millions except for per share information):
2005
$
2004
$
2003
$
Pro forma net (loss)/income
(292)
90
239
Pro forma (loss)/earnings per common share
Basic (cents)
(110)
36
107
Diluted (cents)
(1)
(110) 36 107
(1)
The calculation of diluted (loss)/earnings per common share for 2005 and 2004 did not assume the effect of 15,384,615 shares
issuable upon the exercise of Convertible Bonds as their effects are anti-dilutive for these periods. The calculation of diluted
(loss)/earnings per common share for 2005 did not assume the effect of 601,315 shares issuable upon the exercise of stock
incentive options as their effects are anti-dilutive for this period.
Acacia Employee Option Plan
The Company’s wholly-owned subsidiary, AngloGold Australia Limited (formerly AngloGold Australasia Limited and
originally Acacia Resources Limited) operated the Acacia Employee Option Plan for certain of its employees. In terms of
this plan, on exercising of options, a ratio of 7 AngloGold ordinary shares for every 100 options held was applied. The issue
price of the AngloGold shares was calculated using the A$/R exchange rate ruling on the date of allotment. As at
December 31, 2003, all options granted in terms of the Acacia Employee Option Plan had been exercised or lapsed and the
plan has been terminated.
Bonus Share Plan (BSP) and Long-Term Incentive Plan (LTIP)
At the annual general meeting held on April 29, 2005, shareholders approved the introduction of the BSP and LTIP and
the
discontinuation of the currentprevious share incentive scheme. Options which have been granted under the currentprevious share incentive
scheme will remain subject to the conditions under which they were originally granted.
Bonus Share Plan (BSP)
The BSP is intended to provide effective incentives to eligible employees. An eligible employee is one who devotes
substantially the whole of his working time to the business of the Company, any subsidiary of the Company or a Company
company under the control of AngloGold Ashanti, unless the board of directors (the board) excludes such a Company.Ashanti. An award in
terms of the BSP may be made at any date at the
discretion of the board.board, the only vesting condition being three years’ service for awards granted prior to 2008. For all
BSP awards granted from 200 8, 40 percent will vest after one year and the remaining 60 percent will vest after two
years. An additional 20 percent of the original award will be granted to employees if the full award remains unexercised
after three years. The board is required to determine a BSP award
value and this will be converted to a ‘share’share amount
based on the closing price of the Company shares on the JSE on the
last business day prior to the date of grant.
During 20052008 a total of 288115,458 common shares were issued under the share incentive scheme in terms of the BSP.
The AngloGold Ashanti Remuneration Committee has at their discretion, the rightBSP rules.
During 2008, additional BSP awards were made to pay dividends, or dividend equivalents,
to theall scheme participants as a result of the BSP.rights offer to ordinary
shareholders. The award was made in terms of the anti-dilution provision of the original grant. Employees did not
receive any benefit in excess of the original grant value and no additional compensation cost was recognized.
For awards made, the following information is presented:
Award date
2008 2007
2006
Calculated fair value of each BSP is R197.50 per share, including dividends, or R190.76 per share,
excluding dividends, having no history of any discretionary dividend payments. The higher fair value was used to determine
the income statement expense. The fair value is equal to the award value determined by the board. The awards vest on
May 4, 2008 and will expire if not exercised by May 3, 2015.
267.05
322.00
308.00
Vesting date
January 1, 2011
January 1, 2010
March 8, 2009
Expiry date
December 31, 2017
December 31, 2016
March 7, 2016
A summary of time related equity settled compensation scheme showing movement from the beginning of the
year to
the end of the year, is presented below:
20052008
Options
(000)
Outstanding at the beginning of the year
686
Granted
390
Granted as a result of rights offer
75
Exercised
(116)
Forfeited (terminations)
(90)
Outstanding at the end of the year
945
Exercisable at the end of the year
136
The total intrinsic value of awards outstanding at year-end was R238 million (2007: R201 million), with a weighted
average remaining contractual term of 8 years (2007: 8 years). The intrinsic value of awards exercised during the years
ended December 31, 2008, 2007 and 2006 was R28 million, R13 million and R1 million, respectively. BSP awards are
issued with no exercise price.
Long-Term Incentive Plan (LTIP)
The LTIP is an equity settled share-based payment arrangement, intended to provide effective incentives for executives
to earn shares in the Company based on the achievement of stretched Company performance conditions. Participation
in the LTIP will be offered to executive directors, executive officers/management and selected members of senior
management. An award in terms of the LTIP may be granted at any date during the year that the board of the Company
determine and ma y even be more than once a year. The board is required to determine an LTIP award value and this
will be converted to a share amount based on the closing price of the Company shares on the JSE on the last business
day prior to the date of grant.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-73
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
The main performance conditions in terms of the LTIP issued in 2006 and 2007 are:
•
up to 40 percent of an award will be determined by the performance of total shareholder returns (TSR) compared
with that of a group of comparative gold-producing companies;
•
up to 30 percent of an award will be determined by an adjusted earnings per share compared to a planned
adjusted earnings per share over the performance period;
•
up to 30 percent of an award will be dependent on the achievement of strategic performance measures which will
be set by the Remuneration Committee; and
•
three year’s service is required.
The main performance conditions in terms of the LTIP issued in 2008 are:
•
up to 30 percent of an award will be determined by the performance of total shareholder returns (TSR) compared
with that of a group of comparative gold-producing companies;
•
up to 30 percent of an award will be determined by real growth (above US inflation) in adjusted earnings per share
over the performance period;
•
up to 40 percent of an award will be dependent on the achievement of strategic performance measures which will
be set by the Remuneration Committee; and
•
three-year’s service is required.
During 2008, additional LTIP awards were made to all scheme participants as a result of the rights offer to ordinary
shareholders. The award was made in terms of the anti-dilution provision of the original grant. Employees did not
receive any benefit in excess of the original grant value and no additional compensation cost was recognized.
For awards made, the following information is presented:
Award date
2008 2007
2006
Calculated fair value
267.05
322.00
327.00
Vesting date
January 1, 2011
January 1, 2010
August 1, 2009
Expiry date
December 31, 2017
December 31, 2016
July 31, 2016
A summary of time related equity settled compensation scheme showing movement from the beginning of the year to
the end of the year, is presented below:
2008
Options
(000)
Outstanding at the beginning of the year
783
Granted
497
Granted as a result of rights offer
75
Exercised
(44)
Forfeited (terminations)
(321)
Outstanding at the end of the year
990
Exercisable at the end of the year
65
The total intrinsic value of awards outstanding at year-end was R250 million (2007: R230 million), with a weighted
average remaining contractual term of 8 years (2007: 8 years). The intrinsic value of awards exercised during the year
ended December 31, 2008 was R11 million. No awards were exercised during 2007 and 2006. LTIP awards are issued
with no exercise price.
During the years ended December 31, 2008, 2007 and 2006 the Company recognized a compensation expense of
$20 million, $12 million and $9 million, respectively, related to BSP and LTIP awards.
As of December 31, 2008, there was $12 million of unrecognized compensation cost related to unvested awards of the
BSP and LTIP plans. This cost is expected to be recognized over a weighted-average period of approximately 2 years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-74
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
Employee Share Ownership Plan (ESOP)
On December 12, 2006, AngloGold Ashanti announced the finalization of the Bokamoso Employee Share Ownership
Plan (Bokamoso ESOP) for employees of the South African operations. The Bokamoso ESOP creates an opportunity
for AngloGold Ashanti and the unions to ensure a closer alignment of the interest between South African based
employees and the Company. Participation is restricted to those employees not eligible for participation in any other
South African share incentive plan.
In order to facilitate these transactions the Company established a trust to acquire and administer the ESOP shares.
AngloGold Ashanti allotted and issued free ordinary shares to the trust and also created, allotted and issued E ordinary
shares to the trust for th e benefit of employees. The Company also undertook an empowerment transaction with a
Black Economic Empowerment investment vehicle, Izingwe Holdings (Proprietary) Limited (Izingwe) and recorded a
cost of $19 million during 2006, which was included in general and administrative expenses. The Company also
created, allotted and issued E ordinary shares to Izingwe. The key terms of the E ordinary share are:
•AngloGold Ashanti will have the right to cancel the E ordinary shares, or a portion of them, in accordance with the
ESOP and Izingwe cancellation formula, respectively;
• the E ordinary shares will not be listed;
• the E ordinary shares which are not cancelled will be converted into ordinary shares; and
• the E ordinary shares will each be entitled to receive a cash dividend equal to one-half of the dividend per ordinary
share declared by the Company from time to time and a further one-half is included in the calculation of the strike
price calculation.
The award of free shares to employees:
The fair value of each free share awarded in 2008 is R188 (2007: R306 and 2006: R320). The fair value is equal to the
market value at the date-of-grant. Dividends declared and paid to the trust will accrue and be paid to ESOP members,
pro rata to the number of shares allocated to them. An equal number of shares vests in 2009, and each subsequent
year up to expiry date of November 1, 2013.
A summary of time related equity settled compensation scheme showing movement from the beginning of the year to
the end of the year, is presented below:
2008
Options
(000)
Outstanding at the beginning of the year
910
Granted
58
Exercised
(58)
Forfeited (terminations)
(54)
Outstanding at the end of the year
856
Exercisable at the end of the year
-
The total intrinsic value of awards outstanding at year-end was R216 million (2007: R267 million), with a weighted
average remaining contractual term of 3 years (2007: 4 years). The intrinsic value of awards exercised during the years
ended December 31, 2008 and 2007 was R14 million and R14 million, respectively. No awards were exercised during
2006.
The Company awarded the right to acquire approximately one AngloGold Ashanti ordinary share for every four free
ordinary shares held in the rights offer finalized during July 2008. The benefit to employees were in terms of the anti-
dilution provision of the original grant and no additional compensation cost was recognized.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-75
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
The award of E ordinary shares to the employees:
The average fair value of the E ordinary shares awarded to employees in 2008 was R13 (2007: R79 and 2006: R105)
per share. Dividends declared in respect of the E ordinary shares will firstly be allocated to cover administration
expenses of the trust, whereafter it will accrue and be paid to ESOP members, pro rata to the number of shares
allocated to them. At each anniversary over a five year period commencing on the third anniversary of the original 2006
award, the Company will cancel the relevant number of E ordinary shares as stipulated by a cancellation formula. Any
E ordinary shares remaining in the tranche will be converted to ordinary shares for the benefit of the employees. All
unexercised awards will be cancelled on May 1, 2014.
The value of each share granted is estimated on the date of grant using the Black-Scholes option-pricing model. The
Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the
option award and stock price volatility. These estimates involve inherent uncertainties and the application of
management judgment. In addition, the Company is required to estimate the expected forfeiture rate and only
recognize expense for those options expected to vest. As a result, if other assumptions had been used, the Company’s
recorded compensation expense could have been different from that reported.
The Black-Scholes option-pricing model used the following assumptions, at grant date:
2008 2007
2006
Risk-free interest rate
7.00%
7.00%
7.00%
Dividend yield
1.39%
2.06%
2.30%
Volatility factor of market share price
35.00%
33.00%
36.00%
A summary of E ordinary shares, awarded to employees, showing movement from the beginning of the year to the end
of the year, is presented below:
2008
Options
(000)
2005
Weighted-
average
exercise price
R
2004
(000)
20042008
Weighted-
average
exercise price
R
Outstanding at the beginning of the year
-2,731
-
-
-307
Granted 284
198172
-324
Converted
(11)
-
Exercised -
-
-
-310
Forfeited (terminations)
(12)(163)
198316
-Cancelled
(162)
318
-
Outstanding at the end of the year
2722,567
198
-327
-
Exercisable at the end of the year
-
-
-
The options outstanding at year-end had no intrinsic value as the share price at year-end of R252 was lower than the
weighted average exercise price of R327 (2007: total intrinsic value of awards outstanding totaled Rnil million). The
options have a weighted average remaining contractual term of 3 years (2007: 4 years). The intrinsic value of options
exercised during the years ended December 31, 2008 and 2007 was less than R1 million. No awards were exercised
during 2006.
-Weighted average exercise price is calculated as the initial grant price of R288 plus interest factor less dividend
apportionment. This value will change on a monthly basis.
During the years ended December 31, 2008, 2007 and 2006, the Company recognized a compensation expense of
$14 million, $18 million and $3 million, respectively, related to the ESOP scheme.
In addition to the above share scheme expenses relating to the Bokamoso ESOP plan, the Company awarded the right
to acquire approximately one AngloGold Ashanti ordinary share for every four E ordinary shares held in the rights offer
finalized during July 2008. The benefit to employees was in excess of the anti-dilution provision of the original grant and
additional compensation cost was recognized. The fair value at grant date of these rights awarded to Bokamoso was
calculated at R76 per right. The income statement charge relating to the rights offer to Bokamoso participants was
$6 million in 2008. As the rights were issued as fully vested, the expense was recorded immediately.
As of December 31, 2008, there was $14 million of unrecognized compensation cost related to unvested awards of the
ESOP scheme. This cost is expected to be recognized over the remaining scheme term of 5 years.
F-73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
30. ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
F-76
30.
Long-Term Incentive Plan (LTIP)SUBSEQUENT EVENTS
Repayment of convertible bond
The LTIP is an equity settled share-based payment, intended to provide effective incentives for executives to earn shares in
$1.0 billion convertible bond matured on February 27, 2009 and was redeemed by the Company based onusing the achievement of stretched
proceeds from the Standard Chartered Term Facility that had been arranged for this purpose. The Company performance conditions. Participation inhas
signed an agreement with Standard Chartered amending the LTIP will be
offered to executive directors, executive officers and selected senior management of participating companies. Participating
companies include AngloGold Ashanti, any subsidiary of AngloGold Ashanti or a Company under the control of AngloGold
Ashanti unless the board excludes such a Company. An award in terms of the LTIP mayTerm Facility signed in November 2008. The
amendment, which comes into effect upon repayment of $750 million of the facility prior to August 26, 2009 will, in
addition to the outstanding balance of $250 million allow the Company to retain revolving access to a further
$250 million. The margin over the bank’s capped cost of funds will now remain fixed at 4.25 percent for the full two year
period of the facility.
Sale of AngloGold Ashanti’s 33.33 percent joint venture interest in Boddington Gold Mine to Newmont Mining
Corporation
On January 28, 2009, AngloGold Ashanti announced that it had agreed to sell its indirect 33.33 percent joint venture
interest in the Boddington Gold Mine in Western Australia to Newmont Mining Corporation (Newmont). Consideration
for the sale consists of:
•
$750 million payable in cash upon the fulfillment of all conditions precedent expected to be grantedfulfilled by
June 30, 2008;
•
$240 million that will be settled in December 2009, payable in cash and/or Newmont shares, at any date duringNewmont’s option;
and
•
A royalty capped at $100 million, calculated as the product of, 50 percent of the amount by which the average spot
yeargold price in each quarter exceeds the costs applicable to sales of the Boddington Gold Mine, as reported by
Newmont, by $600 per ounce and, one-third of total gold production from the Boddington Gold Mine in that
quarter. The royalty is payable in each quarter from and after the second quarter in 2010 that the boardabove threshold
is achieved.
AngloGold Ashanti will be reimbursed for all contributions made to the joint venture after January 1, 2009 and
AngloGold Ashanti will pay Newmont $8 million in respect of its share of working capital at January 1, 2009.
Sale of Tau Lekoa mine
On February 17, 2009, AngloGold Ashanti announced that it had agreed to sell, with effect from January 1, 2010 (or
after), the Tau Lekoa mine together with the adjacent Weltevreden and Goedgenoeg project areas to Simmer and Jack
Mines Limited (Simmers) for an aggregate consideration of:
•
R600 million less an offset up to a maximum of R150 million for un-hedged free cash flow (net cash inflow from
operating activities less stay-in-business capital expenditure) generated by the Tau Lekoa mine in the period
between January 1, 2009 and December 31, 2009, as well as an offset for un-hedged free cash flow generated by
the Tau Lekoa mine in the period between January 1, 2010 and the effective date of the Company determinesale. Simmers shall
endeavor to settle the full amount in cash, however it may issue to AngloGold Ashanti ordinary shares in Simmers
up to a maximum value of R150 million, with the remainder payable in cash; and may even be more than once
•
a year.royalty (Royalty), determined at 3 percent of the net revenue (being gross revenue less state royalties)
generated by the Tau Lekoa mine and any operations as developed at Weltevreden and Goedgenoeg. The board is required to
determine an LTIP award value and thisRoyalty will be converted to a ‘share’ amount based onpayable quarterly for each quarter commencing from January 1, 2010 until the closing price oftotal production
upon which the Company
shares on the JSE on the last business day prior to the date of grant.
The AngloGold Ashanti Remuneration Committee has at their discretion, the right to pay dividends, or dividend equivalents,
to the participants of the LTIP. The fair value of each LTIPRoyalty is R197.50 per share, including dividends, or R190.76 per share,
excluding dividends, having no history of any discretionary dividend payments. The higher fair value was used to expense
the service cost of employees. The fair valuepaid is equal to 1.5 million ounces and provided that the award value determined by the board. The awards vest onaverage quarterly rand price of
May 4, 2008 and will expire if not exercised by May 3, 2015.gold is equal to or exceeds R180,000 per kg (in January 1, 2010 terms).
The main performance conditions in termsAs at December 31, 2008, the carrying amounts of the LTIP are:
·
up to 40 percentmajor classes of an award will be determined by the performanceassets and liabilities of total shareholder returns (TSR) compared with
that of a group of comparator gold-producing companies;
·
up to 40 percent of an award will be determined by real growth (above US inflation) in earnings per share (EPS) over
the performance period;
·
up to 20 percent of an award will be dependent on the achievement of strategic performance measures which will be
set by the Remuneration Committee; and
·
three-years’ service is required.
A summary of variable equity settled compensation scheme showing movement from the beginning of the
year to the end of the year, is presented below:
2005
(000)
2005
Weighted-
average
exercise price
R
2004
(000)
2004
Weighted-
average
exercise price
R
Outstanding at the beginning of the year
-
-
-
-
Granted 369
198
-Tau Lekoa included:
-
Exercised -
-
-
-
Forfeited (terminations)
(5)
198
-
-
Outstanding at the end of the year
364
198
-
-
Exercisable at the end of the year
-
-
-
-
During the year ended December 31, 2005 the Company recognized a compensation expense of $2 million related to BSP
and LTIP awards.
F-74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
31. MINERAL AND PETROLEUM RESOURCES DEVELOPMENT ACT
AngloGold Ashanti’s right to own and exploit mineral reserves and deposits are governed by the laws and regulations of the
jurisdictions in which the mineral properties are located. Currently, a significant portion of the Company’s mineral reserves
and deposits are located in South Africa.
The MPRDA vests custodianship of South Africa's mineral rights in the State. The State issues prospecting rights or mining
rights to applicants. Prospecting, mining and mineral rights formerly regulated under Act 50 of the Minerals Act of 1991 and
common law are now known as old order rights and the transitional arrangements provided in Schedule II to the MPRDA
give holders of such old order rights the opportunity to convert their old order rights into new order rights within specified
time frames.
The Department of Minerals and Energy has published, pursuant to the MPRDA, the Broad-Based Socio-Economic
Empowerment Charter for the South African Mining Industry (the Charter). The objectives of the Charter are to:
· promote equitable access to the nation's mineral resources to all the people of South Africa;
· substantially and meaningfully expand opportunities for HDSAs (that is, any person, category of persons or communities,
disadvantaged by unfair discrimination before the Constitution of the Republic of South Africa of 1993 came into
operation) including women, to enter the mining and minerals industry and to benefit from the exploitation of the nation's
mineral resources;
·utilize the existing skills base for the empowerment of HDSAs;
·expand the skills base of HDSAs in order to serve the community;
· promote employment and advance the social and economic welfare of mining communities and the major labor sending
areas; and
· promote beneficiation of South Africa's mineral commodities.
The Charter, compliance with which is measured using a designated Scorecard, requires that every mining Company
achieve 15 percent ownership by HDSAs of its South African mining assets by May 1, 2009, and 26 percent ownership by
May 1, 2014.
The Scorecard allows for a portion of "offset" against these HDSA equity participation requirements insofar as companies
have facilitated downstream, value-adding activities in respect of the products they mine. The Company carries out such
downstream activities and the Company believe these will be recognized in terms of a framework currently being devised
by the South African government.
The Company has completed a number of asset sales to companies owned by HDSAs in the past seven years. The
Company estimates that these sales transferred 20 percent of the Company’s attributable production in South Africa to
HDSAs. In addition, the Company is continuing to evaluate alternative ways in which to further achieve the objectives of
the Charter. On June 8, 2005, the Company announced that it was considering establishing an ESOP with a value
equivalent to approximately 6 percent of the Company’s South African assets, consistent with the Company's stated
strategic intention to develop means of promoting broad-based equity participation in the Company’s Company by HDSAs.
The scope and terms of the program remain under consideration and, once finalized, an announcement will be made and, if
appropriate, the terms will be put to shareholders for their approval. The Company believes that it has made significant
progress towards meeting the requirements of the Charter and the Scorec ard in terms of human resource development,
employment equity, mine community and rural development, housing and living conditions, procurement and beneficiation,
including the implementation of programs to help achieve the requirement of having 40% of HDSAs in management roles
by 2010. The Company may incur expenses in giving further effect to the Charter and the Scorecard.
The Company was informed on August 1, 2005 by the Director General of Minerals and Energy that the Company’s
applications to convert the Company’s old order mining rights to new order mining rights for the Company’s West Wits and Vaal River operations, as well as the Company’s applications for new mining rights to extend the Company’s mining areas at the Company’s TauTona and Kopanang Mines had been successful. These applications relate to all of the Company’s existing
operations in South Africa. The Company is in the process of reviewing certain draft notarial rights agreements, which the
Company recently received from the Department of Minerals and Energy relating to the various rights, and will lodge these
for registration with the Mining Titles Registration Office in due course.
F-75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
31. MINERAL AND PETROLEUM RESOURCES DEVELOPMENT ACT (continued)
The Company submitted two applications to the Department of Minerals and Energy for the conversion of two unused old
order prospecting rights to new order prospecting rights, one of which applications the Company has withdrawn. The
Department of Minerals and Energy is considering the remaining application. The notarial agreement for the West Wits
operations has subsequently been executed and was lodged for registration on February 9, 2006.
Even where new order mining rights are obtained under the MPRDA, these rights may not be equivalent to the old order mining rights.
The duration of the new rights will no longer be perpetual as was the case under old order rights but rather will be granted
for a maximum period of 30 years, with renewals of up to 30 years each and, in the case of prospecting rights, a maximum
period of five years with one renewal of up to three years. The MPRDA provides for a retention period after prospecting of
up to three years with one renewal of up to two years, subject to certain conditions, such as non-concentration of resources,
fair competition and non-exclusion of others. In addition, the new order rights will only be transferable subject to the
approval of the Minister of Minerals and Energy.
The new order mining rights can be suspended or cancelled by the Minister of Minerals and Energy if, upon notice of a breach from
the Minister, the entity breaching its obligations in terms of the guidelines issued for converted mining rights fails to heal
such breach.
The MPRDA also imposes additional responsibilities on mining companies relating to environmental management and to
environmental damage, degradation or pollution resulting from their prospecting or mining activities. The Company has a
policy of evaluating, minimizing and addressing the environmental consequences of the Company’s activities and,
consistent with this policy and the MPRDA, conduct an annual review of the environmental costs and liabilities associated
with the Company’s South African operations in light of the new, as well as existing, environmental requirements.
The South African government has announced that it is considering new legislation, whereby the new order mining rights will be
subject to a State royalty. The extent and basis of that royalty are unknown at present. The draft Mineral and Petroleum
Royalty Bill was released in March 2003 for comments and proposed a royalty payment of 3 percent of gross revenue per
annum, payable quarterly, in the case of gold. The draft provided that the royalty payments would have commenced upon
the conversion and granting of a new mining right.
The Company and other members of the South African mining community have submitted comments on the draft bill to the
relevant authorities. These comments included recommendations for a profit-based, rather than a revenue-based, royalty
and in order not to delay the conversion of mineral rights from old into new order mining rights, it was recommended that the
proposed royalty should only become payable from May 1, 2009, which date is the final date for conversion of the old order
into new order mining rights in terms of the MPRDA. In addition, a reduction in the royalty rate from that proposed in the
draft Mineral and Petroleum Royalty Bill has been proposed. On February 18, 2004, in the Budget Speech for the 2004
fiscal year, the South African Minister of Finance proposed several refinements to the draft Mineral and Petroleum Royalty
Bill. These included a delay in the introduction of the royalty to May 1, 2009, and confirmation of the South African
government's preference for a revenue-based royalty. It was further indicated that the royalty regime would take
cognizance of the mining sector's diverse production and profitability dynamics with differential rates to apply to marginal
mining operations.
The introduction of the proposed royalty would have an adverse impact upon the Company’s profitability, as currently no
royalty is payable to the State. However, the Minister of Finance announced also that due to the new regulatory system for
the mining rights under the MPRDA and accompanying royalty dispensation under the draft Mineral and Petroleum Royalty
Bill, it has become imperative to reassess the current fiscal regime as applicable to the mining and petroleum industries in
South Africa, including tax, depreciation, rate differentiation for mining sectors, allowable deductions and exemptions from
secondary tax on companies in terms of South Africa's income tax laws. Also due for review is the gold mining tax formula,
which provides income tax exemption and relief from secondary tax on companies for gold mines, despite the existence of
profit. The impact of these proposed reviews is unknown at this stage, but they may have an adverse effect on the
Company’s results of operations and the Company’s fi nancial condition.
F-76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
32. CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT AND SUPPLEMENTAL CONDENSED
CONSOLIDATING FINANCIAL INFORMATION
These parent-only-financial statements and supplemental condensed consolidating financial information should be read in
conjunction with the Company’s consolidated financial statements.
Transfer of certain of AngloGold Ashanti’s operations located outside South Africa to wholly-owned subsidiary
With effect from October 1, 2004, AngloGold Ashanti has transferred certain of its operations and assets located outside
South Africa (excluding certain operations and assets in the United States, Australia and Africa) to AngloGold Ashanti
Holdings plc (originally SMI Holdings Limited and formerly AngloGold Holdings plc) (“IOMco”), its wholly-owned subsidiary.
IOMco is an Isle of Man registered Company.
IOMco has issued debt securities which are fully and unconditionally guaranteed by AngloGold Ashanti Limited (being the
“Guarantor”). Refer to Note 20. The following is condensed financial information of the registrant and consolidating
financial information for the group as of December 31, 2005 and 2004 and for the years ended December 31, 2005, 2004
and 2003, with a separate column for each of IOMco as Issuer, AngloGold Ashanti Limited as Guarantor and the other
businesses of the group combined (the “Non-Guarantor Subsidiaries”). For the purposes of the condensed consolidating
financial information, the Company carries its investments under the equity method.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
32.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT AND SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
ANGLOGOLD ASHANTI LIMITED
Condensed consolidating statements of income
FOR THE YEAR ENDED DECEMBER 31,
(In millions, except share information)
2005
$
AngloGold Ashanti
2005
$
IOMco
2005
$
Other subsidiaries
2005
$
Cons adjustments
2005
$
Total
(the “Guarantor”)
(the “Issuer”)
(the “Non-Guarantor
subsidiaries”)
Sales and other income 1,170221,318(25)2,485
Product sales1,153-1,300-2,453
Interest, dividends and other172218(25)32
Costs and expenses 1,292761,512(32)2,848
Production costs785-853-1,638
Exploration costs5-39-44
Related party transactions39-2-41
General and administrative58398(34)71
Royalties paid/(received)--39-39
Market development costs8-5-13
Depreciation, depletion and amortization218-375-593
Impairment of assets80-61-141
Interest expense283517-80
Accretion expense4-1-5
Employment severance costs25-1-26
(Profit)/loss on sale of assets-(10)7-(3)
Mining contractor termination costs--9-9
Non-hedge derivative loss4212952151
(Loss)/income before income tax provision (122)(54)(194)7(363)
Taxation benefit/(expensed)48(1)74-121
Minority interest--(23)-(23)
Equity income/(loss) in affiliates40(1)--39
Equity (loss)/income in subsidiaries(180)--180-
(Loss)/income from continuing operations (214)(56)(143)187(226)
Discontinued operations(44)---(44)
(Loss)/income after discontinued operations (258)(56)(143)187(270)
Preferred stock dividends(12)-(13)25-
(Loss)/income before cumulative effect of accounting change (270)(56)(156)212(270)
Cumulative effect of accounting change(22)---(22)
Net (loss)/income applicable to common stockholders (292)(56)(156)212(292)
The accompanying notes are an integral part of these Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
32.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT AND SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
ANGLOGOLD ASHANTI LIMITED
Condensed consolidating statements of income
FOR THE YEAR ENDED DECEMBER 31,
(In millions, except share information)
2004
$
AngloGold Ashanti
2004
$
IOMco
2004
$
Other subsidiaries
2004
$
Cons adjustments
2004
$
Total
(the “Guarantor”)
(the “Issuer”)
(the “Non-Guarantor
subsidiaries”)
Sales and other income
1,153
6
1,013
(21)
2,151
Product sales
1,118
-
978
-
2,096
Interest, dividends and other
35
6
35
(21)
55
Costs and expenses
1,183
17
976
-
2,176
Production costs
783
-
557
-
1,340
Exploration costs
6
-
38
-
44
Related party transactions
43
-
2
-
45
General and administrative
44
1
13
-
58
Royalties paid/(received)
-
-
27
-
27
Market development costs
11
-
4
-
15
Depreciation, depletion and amortization
164
-
281
-
445
Impairment of assets
2
-
1
-
3
Interest expense
24
22
21
-
67
Accretion expense
7
-
1
-
8
Employment severance costs
6
-
1
-
7
Profit on sale of assets
(1)
-
(13)
-
(14)
Non-hedge derivative loss/(gains)
94
(6)
43
-
131
(Loss)/income before income tax provision
(30)
(11)
37
(21)
(25)
Taxation benefit/(expensed)
150
-
(18)
-
132
Minority interest
-
-
(22)
-
(22)
Equity income in affiliates
23
-
-
-
23
Equity (loss)/income in subsidiaries
(25)
-
-
25
-
Income/(loss) from continuing operations
118
(11)
(3)
4
108
Discontinued operations
(11)
-
-
-
(11)
Income/(loss) after discontinued operations
107
(11)
(3)
4
97
Preferred stock dividends
(10)
-
(11)
21
-
Income/(loss) before cumulative effect of accounting change
97
(11)
(14)
25
97
Cumulative effect of accounting change
-
-
-
-
-
Net income/(loss) applicable to common stockholders
97
(11)
(14)
25
97
F-78
The accompanying notes are an integral part of these Consolidated Financial Statements-.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
32.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT AND SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
ANGLOGOLD ASHANTI LIMITED
Condensed consolidating statements of income
FOR THE YEAR ENDED DECEMBER 31,
(In millions, except share information)
2003
$
AngloGold Ashanti
2003
$
IOMco
2003
$
Other subsidiaries
2003
$
Cons adjustments
2003
$
Total
(the “Guarantor”)
(the “Issuer”)
(the “Non-Guarantor
subsidiaries”)
Sales and other income
1,179
- 551
(60)
1,670
Product sales
1,106
- 535
-
1,641
Interest, dividends and other
73
- 16
(60)
29
Costs and expenses
943
- 386
-
1,329
Production costs
704
- 288
-
992
Exploration costs
4
- 36
-
40
Related party transactions
37
- -
-
37
General and administrative
41
- 2
-
43
Royalties paid/(received)
69
- (58)
-
11
Market development costs
15
- 4
-
19
Depreciation, depletion and amortization
91
- 156
-
247
Impairment of assets
69
- 6
-
75
Interest expense
21
- 7
-
28
Accretion expense
1
-
1
-
2
Employment severance costs
4
-
-
-
4
Profit on sale of assets
(2)
- (53)
-
(55)
Non-hedge derivative gains
(111)
- (3)
-
(114)
Income/(loss) before equity income and income tax
236
- 165
(60)
341
Taxation expensed
(109)
- (34)
-
(143)
Minority interest
-
- (17)
-
(17)
Equity income in affiliates
71
- -
-
71
Equity income/(loss) in subsidiaries
59
- -
(59)
-
Income/(loss) from continuing operations
257
- 114
(119)
252
Discontinued operations
(2)
- -
-
(2)
Income/(loss) after discontinued operations
255
- 114
(119)
250
Preferred stock dividends
(8)
- (52) 60
-
Income/(loss) before cumulative effect of accounting change
247
- 62
(59)
250
Cumulative effect of accounting change
-
-
(3)
-
(3)
Net income/(loss) applicable to common stockholders
247
-
59
(59)
247
The accompanying notes are an integral part of these Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
32.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT AND SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
ANGLOGOLD ASHANTI LIMITED
Condensed consolidating balance sheets
AT DECEMBER 31,
(In millions, except share information)
2005
$
AngloGold Ashanti
2005
$
IOMco
2005
$
Other subsidiaries
2005
$
Cons adjustments
2005
$
Total
(the “Guarantor”)
(the “Issuer”)
(the “Non-Guarantor
subsidiaries”)
ASSETS
Current Assets
897
1,978
4,436
(5,910)
1,401
Cash and cash equivalents
2
36
158
-
196
Restricted cash
1
-
7
-
8
Receivables
825
1,942
4,027
(5,910)
884
Trade and other receivables
62
15
132
-
209
Inter-group balances
433
1,927
3,550
(5,910)
-
Derivatives
330
-
345
-
675
Inventories
53
-
207
-
260
Materials on the leach pad
-
-
37
-
37
Assets held for sale
16
-
-
-
16
Property, plant and equipment, net
1,897
-
3,130
-
5,027
Acquired properties, net
170
-
1,242
-
1,412
Goodwill
-
247
536
(259)
524
Other intangibles, net
-
-
26
-
26
Derivatives
37
-
1
-
38
Other long term inventory
-
-
32
-
32
Materials on the leach pad
-
-
116
-
116
Other long-term assets and deferred taxation assets
2,835
2,471
294
(5,063)
537
Total assets
5,836
4,696
9,813
(11,232)
9,113
LIABILITIES AND STOCKHOLDERS’ EQUITYmillion
Inventories
Current liabilities
1,449
64
6,174
(5,813)
1,874
Accounts payable and other current liabilities
161
-
221
98
480
Inter-group balances
526
50
5,335
(5,911)
-
Derivatives
530
-
591
-
1,121
Short-term debt
138
12
10
-
160
Tax payable
88
2
17
-
107
Liabilities held for sale
6
-Property, plant and equipment
-
-
6
Other non-current liabilities
-
-
14
-
14
Long-term debt
315
1,300
164
-
1,779
Derivatives
122
-
405
-
527
Deferred taxation liabilities
454
-
794
(96)
1,152
Provision for environmental rehabilitation
145
-
180
-
325
Other accrued liabilities
-
-45
19
-
19
Provision for pension and other post-retirement medical benefits
188
-
12
-
200
Minority interest
-
-Acquired properties
604
-
60
Commitments and contingencies
-
-
-
-
-
Stockholders’ equity
3,163
3,332
1,991
(5,323)
3,163
Stock issued
10
3,295
315
(3,610)
10
Additional paid in capital
4,972
1
667
(668)
4,972
Accumulated (deficit)/profit
(1,143)
36
7
(43)
(1,143)
Accumulated other comprehensive income
(676)
-
1,002
(1,002)
(676)
F-80
Total liabilities and stockholders’ equity
5,836
4,696 9,813
(11,232)
9,113
The accompanying notes are an integral part of these Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
32.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT AND SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
ANGLOGOLD ASHANTI LIMITED
Condensed consolidating balance sheets
AT DECEMBER 31,
(In millions, except share information)
2004
$
AngloGold Ashanti
2004
$
IOMco
2004
$
Other subsidiaries
2004
$
Cons adjustments
2004
$
Total
(the “Guarantor”)
(the “Issuer”)
(the “Non-Guarantor
subsidiaries”)
ASSETS
Current Assets
1,027
1,188
4,781
(5,579)
1,417
Cash and cash equivalents
17
53
206
-
276
Restricted cash
1
-
25
-
26
Receivables
898
1,135
4,282
(5,579)
736
Trade and other receivablespayables
95
34(2)
116
-
245
Inter-group balances
402
1,101
4,076
(5,579)
-
Derivatives
401
-
90
-
491
Inventories
92
-
163
-
255
Materials on the leach pad
-
-
105
-
105
Assets held for sale
19
-
-
-
19
Property, plant and equipment, net
1,942
-
3,058
-
5,000
Acquired properties, net
324
-
1,330
-
1,654
Goodwill
-
247
555
(259)
543
Other intangibles, net
-
-
48
-
48
Derivatives
171
-
16
-
187
Other long-term inventory
-
-
13
-
13
Materials on the leach pad
-
-
22
-
22
Other long-term assets and deferred taxation assets
3,107
2,919
188
(5,702)
512
Total assets
6,571
4,354
10,011
(11,540)
9,396
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
1,265
72
5,653
(5,521)
1,469
Accounts payable and other current liabilities
239
10
191
36
476
Inter-group balances
482
44
5,031
(5,557)
-
Derivatives
456
10
140
-
606
Short-term debt
29
8
278
-
315
Tax payable
52
-
13
-
65
Liabilities held for sale
7
-
-
-
7
Other non-current liabilities
-
-
4
-
4
Long-term debt
354
1,000
17
-
1,371
Derivatives
164
-
570
-
734
Deferred taxation liabilities
681
-
871
(34)
1,518
Provision for environmental rehabilitation
93
-
116
-
209
Other accrued liabilities
-
-
13
-
13
Provision for pension and other post-retirement medical benefits
152
-
21
-
173
Minority interest
16
-
43
-
59
Commitments and contingencies
-
-
-
-
-
Stockholders’ equity
3,846
3,282
2,703
(5,985)
3,846
Stock issued
10
3,294
318
(3,612)
10
Additional paid in capital
4,961
1
665
(666)
4,961
Accumulated (deficit)/profit
(702)
(11)
134
(123)
(702)
Accumulated other comprehensive income
(423)
(2)
1,586
(1,584)
(423)
F-81
Total liabilities and stockholders’ equity
6,571
4,354 10,011
(11,540)
9,396
The accompanying notes are an integral part of these Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
32.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT AND SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
ANGLOGOLD ASHANTI LIMITED
Condensed consolidating statements of cash flows
FOR THE YEAR ENDED DECEMBER 31,
(In millions, except share information)
2005
$
AngloGold Ashanti
2005
$
IOMco
2005
$
Other subsidiaries
2005
$
Cons adjustments
2005
$
Total
(the “Guarantor”)
(the “Issuer”)
(the “Non-Guarantor
subsidiaries”)
Net cash provided by/(used) in operating activities
258
(327)
441
(25)
347
Net (loss)/income – applicable to common stockholders
(292)
(56)
(156)
212
(292)
Reconciled to net cash provided by/(used) in operations:
Cumulative effect of accounting change
22
-
-
-
22
(Profit)/loss on sale of assets
-
(10)
7
-
(3)
Depreciation, depletion and amortization
218
-
375
-
593
Deferred stripping costs
-
-
(28)
-
(28)
Impairment of assets
80
-
61
-
141
Deferred taxation
(88)
2
(105)
-
(191)
Other non cash items
272
(18)
80
(237)
97
Net increase in provision for environmental rehabilitation and
pension and other post-retirement medical benefits
16
1
35
-
52
Effect of changes in operating working capital items:
Net movement inter-group receivables and payables
75
(265)
190
-
-
Receivables
(1)
(2)
11
-
8
Inventories
20
-
(78)
-
(58)
Accounts payable and other current liabilities
(33)
21
49
-
37
Net cash provided by/(used) in continuing operations289(327)441(25)378
Net cash used in by discontinued operations(31)---(31)
Net cash (used)/generated in investing activities (295)10(339)-(624)
Increase in non-current investments-(15)(12)-(27)
Additions to property, plant and equipment(349)-(361)-(710)
Proceeds on sale of mining assets-10(2)-8
Proceeds of sale of discontinued assets4---4
Proceeds on sale of investments--1-1
Cash effects from hedge restructuring55-29-84
Net loans (advanced)/repaid(5)15(11)-(1)
Change in restricted cash--17-17
Net cash generated/(used) in financing activities 6300(131)25200
Net repayments of short-term debt126-(273)-(147)
Insurance of stock9---9
Net proceeds of long-term debt1300151-452
Cash effects from hedge restructuring31-24-55
Dividends paid(161)-(33)25(169)
Net decrease in cash and cash equivalents (31)(17)(29)-(77)
Effect of exchange rate changes on cash 16-(19)-(3)
Cash and cash equivalents – January 1 1753206-276
Cash and cash equivalents – December 31, 236158-196
The accompanying notes are an integral part of these Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
32.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT AND SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
ANGLOGOLD ASHANTI LIMITED
Condensed consolidating statements of cash flows
FOR THE YEAR ENDED DECEMBER 31,
(In millions, except share information)
2004
$
AngloGold Ashanti
2004
$
IOMco
2004
$
Other subsidiaries
2004
$
Cons adjustments
2004
$
Total
(the “Guarantor”)
(the “Issuer”)
(the “Non-Guarantor
subsidiaries”)
Net cash provided by/(used) in operating activities
570
(735)
699
(21)
513
Net income/(loss) – applicable to common stockholders
97
(11)
(14)
25
97
Reconciled to net cash provided by/(used) in operations:
Cumulative effect of accounting change
-
-
-
-
-
Profit on sale of assets
(1)
-
(13)
-
(14)
Depreciation, depletion and amortization
164
-
281
-
445
Deferred stripping costs
-
-
(28)
-
(28)
Impairment of assets
2
-
1
-
3
Deferred taxation
(193)
-
(7)
-
(200)
Other non cash items
180
10
90
(46)
234
Net increase/(decrease) in provision for environmental rehabilitation and pension
and other post-retirement medical benefits
7
(2)
(20)
-
(15)
Effect of changes in operating working capital items:
Net movement inter-group receivables and payables 272 (727) 455 - -
Receivables (16) (2) (6) - (24)
Inventories 18 - (57) - (39)
Accounts payable and other current liabilities
42 (3) 17 - 56
Net cash provided by/(used) in continuing operations
572 (735) 699 (21) 515
Net cash used by discontinued operations (2) - - - (2)
Net cash used in investing activities
(630)
(200)
(165)
-
(995)
Cash acquired in acquisitions
- - 56 - 56
Increase in non-current investments - (16) (14) - (30)
Additions to property, plant and equipment (340) - (231) - (571)
Proceeds on sale of mining assets 1 - 9 - 10
Cash effects from hedge restructuring (310) - - - (310)
Cash consideration for acquisitions or disposals (43) (184) - - (227)
Net loans repaid 62 - 21 - 83
Change in restricted cash - - (6) - (6)
Net cash (used)/generated in financing activities
(226)
988
(507)
21
276
Net repayments of short-term debt
(267)
-
(254)
-
(521)
Insurance of stock
3
-
-
-
3
Net proceeds of long-term debt
-
988
(199)
-
789
Cash outflows from derivatives relating to acquisitions
-
-
(24)
-
(24)
Cash effects from hedge restructuring
227
-
-
-
227
Dividends paid
(189)
-
(30)
21
(198)
Net (decrease)/increase in cash and cash equivalents
(286)
53
27
-
(206)
Effect of exchange rate changes on cash
17
-
(4)
-
13
Cash and cash equivalents – January 1
286
-
183
-
469
Cash and cash equivalents – December 31,
17
53
206
-
276
The accompanying notes are an integral part of these Consolidated Financial Statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
32.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT AND SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (continued)
ANGLOGOLD ASHANTI LIMITED
Condensed consolidating statements of cash flows
FOR THE YEAR ENDED DECEMBER 31,
(In millions, except share information)
2003
$
AngloGold Ashanti
2003
$
IOMco
2003
$
Other subsidiaries
2003
$
Cons adjustments
2003
$
Total
(the “Guarantor”)
(the “Issuer”)
(the “Non-Guarantor
subsidiaries”)
Net cash provided by/(used) in operating activities 305 - 172 (60) 417
Net income/(loss) – applicable to common stakeholders 247 - 59 (59) 247
Reconciled to net cash provided by/(used) in operations:
Cumulative effect of accounting change - - 3 - 3
Profit on sale of assets (2) - (53) - (55)
Depreciation, depletion and amortization 91 - 156 - 247
Deferred stripping costs - - (32) - (32)
Impairment of assets 66 - 9 - 75
Deferred taxation 92 - (20) - 72
Other non cash items (145) - 212 (1) 66
Net decrease in provision for environmental rehabilitation and pension and other
post-retirement medical benefits &nb sp; (82) - (21) - (103)
(3)
Effect of changes in operating working capital items:
Net movement inter-group receivables and payables 124 - (124) - -
Receivables (69) - 14 - (55)
Inventories & nbsp; (45) - (33) - (78)
Accounts payable and other current liabilities 27 - 2 - 29
Net cash provided by/(used) in continuing operations
304 - 172 (60) 416
Net cash provided by discontinued operations
1 - - - 1
Net cash used in investing activities
(236) - (27) - (263)
Cash acquired in acquisitions
9 - - - 9
Additions to property, plant and equipment
(246) - (93) - (339)
Proceeds on sale of mining assets
2 - 4 - 6
Proceeds on sale of investments
- - 56 - 56
Cash consideration for acquisitions or disposals
- - 1 - 1
Net loans(advanced)/repaid
(1) - 1 - -
Change in restricted cash
- - 4 - 4
Net cash (used)/generated in financing activities
(14) - (125) 60 (79)
Net repayments of short-term debt
10 - (36) - (26)
Insurance of stock
10 - - - 10
Net proceeds of long-term debt
270 - (19) - 251
Dividends paid
(304) - (70) 60 (314)46
F-77
Net increase in cash and cash equivalents
55 - 20 - 75
Effect of exchange rate changes on cash
45 - 7 - 52
Cash and cash equivalents – January 1
186 - 156 - 342
Cash and cash equivalents – December 31,
286 - 183 - 469
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-85
SOCIÉTÉ DES MINES DE MORILA S.A.
FINANCIAL STATEMENTS
for the year ended December 31, December 20052008
Registration number: 15430
Incorporated in the Republic of Mali
F-86
F-78
Société des Mines de Morila S.A.
Financial Statements
for the year ended December 31, 2008
Statement of responsibility by the board of directors
Report of Independent Registered Public Accounting Firm
Income statement
Balance sheet
Statement of changes in shareholders’ equity
Cash flow statement
Notes to the financial statements
F-79
Statement of Responsibility by the Board of Directors
For the year ended December 31, 2008
The directors are responsible for the preparation, integrity and fair presentation of the financial statements of Société des
Mines de Morila S.A.. The financial statements presented on pages 5 to 33 have been prepared in accordance with
International Financial Reporting Standards as issued by the IASB, and include amounts based on judgments and estimates
made by management.
The directors are also responsible for the Company’s system of internal financial controls. These are designed to provide
reasonable, but not absolute, assurance as to the reliability of the financial statements and to adequately safeguard, verify and
maintain accountability of assets, and to prevent and detect misstatement and loss. Nothing has come to the attention of the
directors to indicate that any material breakdown in the functioning of these controls, pr ocedures and systems has occurred
during the year under review.
The going concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that
the Company will not be a going concern in the foreseeable future based on forecasts and available cash resources. These
financial statements support the viability of the Company.
F-80
Report of the Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
To the Members of Société des Mines de Morila S.A.
We have audited the accompanying balance sheetssheet of Société des Mines de Morila S.A. (the "Company")Company) as of
December 31, 2005 and 2004,2008, and the related statementsstatement of income, shareholders’ equity, and cash flows and changes in shareholders’ equity
for each of the three years in the period ended December 31, 2005.year then ended. These
financial statements are the responsibility
of the Company'sCompany’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
audit.
We conducted our audit in accordance with International Standards on Auditing and the standards of the Public
Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. Our audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of express ing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such
opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and disclosuredisclosures in the financial statements. An
audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well
asand evaluating the
overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Société
the Company as ofdes Mines de Morila S.A. at December 31, 20052008 and 2004 and of the results of its operations and its cash flows for eachthe year then ended, in
conformity with International Financial Reporting Standards as issued by the IASB.
BDO Stoy Hayward LLP
London, England
April 22, 2009
F-81
Report of the Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Société des Mines de Morila S.A.
three years
We have audited the accompanying balance sheet of Société des Mines de Morila S.A. (the Company) as of
December 31, 2006, and the related statement of income, shareholders’ equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for desig ning audit
procedures that are appropriate in the period endedcircumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Société
des Mines de Morila S.A. at December 31, 2005,2006 and the results of its operations and its cash flows for the year then ended, in
conformity with International Financial Reporting Standards.
International Financial Reporting Standards vary in certain significant respects from accounting principles generally
accepted in the United States of America. Information relating to the nature and effect of such differences is presented
in note 22 to the financial statements.
Ernst & Young Inc. PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants and Auditors
Sunninghill,Auditor
Johannesburg, Republic of South Africa
March 9, 2006June 15, 2007
F-87
F-82
Société des Mines de Morila S.A.
Statement of Operations
Income Statements
for the years ended December 31,
Note
2005Note
2008
$’000
2004Unaudited
2007
$’000
20032006
$’000
Restated
(Note 2.5)
Revenue
13370,586
295 909319,218
189 740
273 931
314,878
Operating costs
(162 819)(188,174) (170,332) (156,552)
(119 612)
(101 835)
182,412
148,886
158,326
Other (expenditure) / income – net
(5,108)
(990)
2,718
Operating profit
1413
133 090177,304
147,896
70 128
172 096161,044
Finance income
21
Other expenditure246
362
651
Finance costs
21
(2,450)
(3,392)
(3,739)
Finance costs – net
21
(4 860)(2,204)
(3,030)
(6 566)
(10 771)
- interest received
435
92
291
- finance charges
(3 811)
(4 252)
(5 113)
- other (expenses) / income, net
(1 484)
(2 406)
(5 949)
(3,088)
Profit before taxation
128 230175,100
144,866
63 562
161 325
157,956
Taxation 14
15(57,971)
(10(52,058)
837)
-
-
(57,717)
Net profit attributable to Equity Shareholders
117,129
92,808
100,239
The accompanying notes are an integral part of the financial statements.
F-83
117 393
63 562
161 325
See notes to the financial statements
F-88
Société des Mines de Morila S.A.
Balance sheetsheets
At December 31,
Note
20052008
$’000
2004Unaudited
Note2007
$’000
$’000
ASSETS
Non-current assets
Non current assets
177 195
168 719
Mining assets
8
101 580
117 754
Deferred stripping
9
5 945
20 830
Long-term ore stockpiles
10
69 670
30 135
Current assets
123 334
97 110197,891 213,409
Deferred strippingProperty, plant and equipment
9
2 81765,829
15 92577,159
InventoriesDeferred tax asset
8
3,897
5,408
Non-current receivables
12
6,087
28,822
Long-term
ore
stockpiles
10
56 863
25 332
Accounts receivable
11
49 939
44 891
Prepaid expenses
9 811
8 922
Cash and equivalents
3 904
2 040 122,078 102,020
TotalCurrent assets
147,550 120,020
300 529
265 829
Inventories
10 95,917 72,061
Accounts
receivable
12 15,728 33,952
Prepaid expenses
8,429
14,007
Cash and cash equivalents
27,476
-
Total assets
345,441 333,429
EQUITY
AND
LIABILITIES
Capital and reserves
Share
capital
3
4 16 16
16
Distributable reserves
241 340
213 647282,386 266,257
Other reservesShareholder’s equity
-
-
Retained income
241 340
213 647282,402 266,273
Shareholder’s equityNon-current liabilities
241 356
213 66321,259 22,808
Non-current liabilitiesDeferred tax liability
27 5753,025
26 8112,324
Shareholder’s
loan
5 4,040 3,860
Environmental rehabilitation provision
6
10,984
11,218
Interest bearing borrowings
7
3,210
5,406
Shareholder’s subordinated loan
4
3 525
3 369
Environmental rehabilitation provision
5
9 889
9 252
Long term liabilities
6
11 142
14 190
Deferred tax liability
7
3 019
-
Current liabilities
31 598
25 35541,780 44,348
Accounts
payable
13
21 706
22 46411 16,608 22,495
Taxation payable
6 84422,976
6,574
Short-term portion of interest bearing
borrowings
7 2,196 2,715
Bank overdrafts
-
Short term portion of long term liabilities
6
3 048
2 89112,564
Total shareholders’ equity and liabilities
345,441 333,429
The accompanying notes are an integral part of the financial statements.
F-84
300 529
265 829
See notes to the financial statements
F-89
Société des Mines de Morila S.A.
Statement
Statements of changes in shareholders’ equity
for the years ended December 31,
Share
capitalShare
Capital
$’000
Retained
incomeIncome
$’000
OtherTotal
Reserves
$’000
Total
$’000
Balance at January 1, 20032005
16
169 760221,710
(20 733)
149 043
221,726
Net profit for the year
-
161 325100,239
-
161 325
Movement in cash flow hedges
-
-
2 225
2 225
100,239
Dividends declared and paid
-
(174 000)(76,000)
-
(174 000)(76,000)
Balance at December 31, 20032006
16
157 085245,949
(18 508)
138 593
245,965
Net profit for the year
-
63 56292,808
-
63 562
Movement in cash flow hedges
-
-
18 508
18 508
92,808
Dividends declared and paid
-
(7 000)(72,500)
-
(7 000)(72,500)
Balance at December 31, 20042007
16
213 647266,257
-
213 663
266,273
Net profit for the year
-
117 393117,129
117 393
117,129
Dividends declared and paid
-
(89 700)(101,000)
-
(89 700)(101,000)
Balance at December 31, 20052008
16
241 340282,386
-282,402
241 356
The accompanying notes are an integral part of the financial statements.
F-85
See notes to the financial statements
F-90
Société des Mines de Morila S.A.
Cash flow statementstatements
for the years ended December 31,
Note
20052008
2004$’000
2003Unaudited
2007
Note$’000
2006
$’000
$’000Restated
$’000(Note 2.5)
Cash flows from operating activities
Profit after taxation
Cash flows from operating activities
117,129
92,808
100,239
Adjustments:
- Tax expense
57,971
52,058
57,717
- Net finance charges
2,203
3,030
2,495
- Depreciation
13,397
13,566
15,583
- Provision for bad debt
-
(1,364)
1,137
190,700
160,098
177,171
Cash generated by operating activities before
Effects of changes in operating working capital
16.1
184 161
83 690
177 264 items
Cash utilized by changes in working capital
16.2
(81 791)
(48 937)
(8 244)- Receivables
19,591
(33,149)
(21,680)
- Inventories and ore stockpiles
(43,913)
(39,092)
(29,441)
- Accounts payable and accrued liabilities
(5,887)
5,437
(5,103)
Cash generated from operations before interest and tax
102 370160,940
93,895
34 753
169 020121,540
Taxation
paid
16.315
(974)(12,412)
-(30,592)
-(36,960)
Interest received
246
362
651
Interest paid -net–net
(2 586)(2,449)
(3,392)
(3 451)
(4 223)2,982 )
Net cash flows generated byfrom operating activities
146,505
60,445
98 810
31 302
164 79782,249
Cash flows from investing activities
Decrease in restricted cash
-
9 705
1 610
Additions to mining assets
(4 355)(2,750)
(4 640)(1,694)
(11 907)(2,900)
Dividends paidNet cash flows utilized in investing activities
(89 700)(2,750)
(1,694)
(7 000)
(174 000)2,900 )
Net cash flows generated from / (utilized in)
investing activities
(94 055)
(1 935)
(184 297)
Cash flows from financing activities
Long term liabilities repaid
(2,715) (3,243)
(2 891)(2,825)
(20 748)Increase in shareholder loan
(21 098)
Shareholder loan (repaid)/increase180
171
-
(16 331)
-Dividends paid
(101,000) (72,500)
(76,000)
Net cash flows utilized in financing activities
(2 891)(103,535)
(75,572)
(37 079)
(21 098)
78,825 )
Net increase/(decrease)/increase in cash and equivalents
1 86440,040
(16,992)
(7 712)
(40 598)
524
Cash and equivalents at beginning of year
2 040(12,564)
4,428
9 752
50 350
3,904
Cash and equivalents at end of year
27,476
3 904(12,564)
4,428
Cash at bank and in hand
2 04027,476
(12,564)
4,428
The principal non-cash transactions are the acquisition of mining assets through finance leases (note 7) and the off-set of
income taxes against indirect tax receivables (note 15).
The accompanying notes are an integral part of the financial statements.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-86
9 752
1.
See notes to the consolidated financial statements
F-91
1.
Nature of operations
Société des Mines de Morila S.A. (the “Company”) owns the Morila gold mine in Mali. The Company is owned 80% by
Morila Limited and 20% by the StateGovernment of Mali. Randgold Resources Limited and AngloGold Ashanti Limited (formerly
(formerly AngloGold Limited) each own 50% of Morila Limited. The Company is engaged in gold mining and related
activities,
including exploration, extraction, processing and smelting. Gold bullion, the Company’s principal product, is
currently
produced and sold in Mali.
2.
Significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These
policies have been consistently applied to all the years presented.presented and are consistent with prior years, except for the
change in accounting policy relating to stripping costs. Refer note 2.5.
2.1
2.1
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (IASB). The financial statements have been
prepared under the historical cost convention, as modified by available-
for-salecertain financial assets and financial assets and financial liabilities (including
(including derivative instruments), which are carried
at fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates.
It also requires management to exercise its judgmentjudgement in the process of applying the Company’s company’s
accounting policies. The areas involving a high degree of judgement or complexity, or areas where assumptions
and estimates are significant to the financial statements, are disclosed in note 3.
2.2
General
The financial statements are measured and presented in US dollars, as it is the primary measurement currency
in which
transactions are undertaken. Monetary assets and liabilities in foreign currencies are translated to
US dollars at rates of
exchange ruling at the end of the financial period. Translation gains and losses arising at
period-end, as well as those
arising on the translation of settled transactions occurring in currencies other than
the functional currency, are included
in net income.
2.3
Foreign currency translation
(a) MeasurementFunctional and presentation currency
The consolidated financial statements are presented in United States Dollars,US dollars, which is the Company’s measurementfunctional and
and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing
at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and
from the translation at year-end exchange rates of monetary assets and liabilities denominated
in foreign currencies are
recognized in the income statement.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-87
2.
Significant accounting policies (continued)
2.4
Property, plant and equipment
a)
(a) Undeveloped properties
Undeveloped properties upon which the Company has not performed sufficient exploration work to determine
whether
significant mineralization exists, are carried at original cost. Where the directors consider that there is
little likelihood of
the properties being exploited, or the valuevalues of the exploitable rights have diminished below
cost, an impairment is recorded.
recorded.
(b) Long-lived assets
b) Development costs and mine plant facilities
Mine
Long-lived assets including development costs and mine plant facilities are initially recorded at cost. Where
relevant the estimated cost whereafter itof dismantling the asset and remediating the site is included in the cost of property,
plant and equipment, subsequently they are measured at cost less
accumulated depreciationamortisation and impairment.
Development costs and mine plant facilities relating to existing and new
mines are capitalized.capitalised. Development
costs consist primarily of direct expenditure incurred to evaluate and develop new
orebodies, to define mineralization in existing orebodies and to establish or expand productive capacity, and isare
capitalizedcapitalised until saleable mineralscommercial levels of production are extracted from the orebody atachieved, after which point the costs are depreciated over the lifeamortised.
of the mine. Ongoing costs to maintain production are expensed as incurred.
(c) Short-lived assetsF-92
2. Significant accounting policies (continued)
c) Non-mining property, plant and equipment
Other
Short-lived assets including non-mining property, plant and equipmentassets are shown at cost less accumulated depreciation.
d)depreciation and impairment.
(d) Depreciation and amortization
Long-lived assets include mining properties, mine development costs and mine plant facilities. TheseDepreciation and
amortization in respect of long-lived assets have
useful economic lives which exceed that of the life of the mine. Depreciation and amortization are therefore charged
over the life of the mine based on estimated ore tons
contained in proven and probable reserves. Proven and probable
ore reserves reflect estimated quantities of
economically recoverable reserves, which can be recovered in the future
from known mineral deposits. Short-livedShort-
lived assets, which include motor vehicles, office equipment and computer
equipment, are depreciated over
estimated useful lives of between two to five years, using the straight-line method.
e) Mining property evaluations
method but limited to the life of mine.
(e) Impairment
The carrying amountamounts of the long-lived assetsproperty, plant an d equipment of the Company are annually compared to the recoverable
amount of the
assets or whenever events or changes in circumstances indicate that the net book value may not be
recoverable. The
recoverable amount is the higher of value in use and net selling price.
fair value less cost to sell.
In assessing the value in use, the expected future cash flows from the asset is determined by applying a
discount rate
to the anticipated pre-tax future cash flows. The discount rate used is derived from the Company’s weighted average
cost of capital.credit-adjusted risk-free rate. Revenue for pit optimization assumptions are based on a gold price of $400 (2004: $375)$650
(2007: $550) and the extraction of proven and
probable reserves as per the approved mine plan. Working costs
and sustaining capital expenditure are estimated
based on the approved mine plan. An impairment is
recognized in the income statement to the extent that the carrying
amount exceeds the assets’ recoverable
amount. The revised carrying amounts are depreciated in line with accounting policies.
policies.
A previously recognized impairment loss is reversed if the recoverable amount increases as a result of a reversal
of the
conditions that originally resulted in the impairment. This reversal is recognized in the income statement
and is limited to
the carrying amount that would have been determined, net of depreciation, had no impairment
loss been recognized in
prior years.
The estimates of future discounted cash flows are subject to risks and uncertainties including the future gold
price. It is
therefore reasonably possible that changes could occur which may affect the recoverability of mining
assets.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-88
2.
2.5Significant accounting policies (continued)
2.5
DeferredStripping costs
All stripping costs
In general, mining incurred (costs incurred in removing overburden to expose the ore) during the production
phase of a mine are treated as variable production costs and as a result are included in the cost of inventory
produced during the period that the stripping costs are allocated to production costs, inventories and ore stockpiles, and are charged to mineincurred.
production costs when the gold is sold. However, at the Company’s open pit mines, which have diverse grades and
waste-to-ore ratios over the mine, the Company defers the costs of waste stripping in excess of the expected pit life
average stripping ratio. These mining costs, which are commonly referred to as “deferred stripping” costs, are incurred
in mining activities that are generally associated with removal of waste rock. The deferred stripping method is generally
accepted in the mining industry where mining operations have diverse grades and waste-to-ore ratios; however industry
practice does vary. Stripping cost (including any adjustment through the deferred stripping asset) is treated as
production cost and included in its valuation of inventory.
The expected pit life stripping ratios are recalculated annually in light of additional knowledge and changes in estimates.
These ratios are calculated as the ratio of the total of waste tonnes deferred at the calculation date and future
anticipated waste to be mined, to anticipated future ore to be mined. Changes in the mine plan, which will include
changes in future ore and waste tonnes to be mined, will therefore result in change of the expected pit life average
stripping ratio, which will impact prospectively on amounts deferred or written back.2.6
This method of accounting has the effect of smoothing costs over the life of the project. The Company believes that the
method we use is the same as the method used by many mining companies in the industry with open pit mines.
2.6
Inventories
Inventories, which include consumable stores, gold in process and ore stockpiled, are stated at the lower of cost
or net
realizable value. The cost of ore stockpiles and gold produced is determined principally by the weighted
average cost
method using related production costs. Costs of gold inventories include all costs incurred up until in gold
production of an
ounce of gold such as milling costs, mining costs and directly attributable mine general mine and administration costs but excluding turnover,
exclude transport costs, refining costs and taxes.
F-93
2. Significant accounting policies (continued)
Stockpiles consistroyalties.
Net realizable value is determined with reference to current market prices. A selective mining process is used
and a number of two types of ore, high grade and medium grade ore, which will be processed through the
processing plant. Highcategories exist. Full grade ore is defined as ore above 5g/1.4g/t and mediummarginal ore is
defined a sore between 1.0g/t and 1.4g/t. Mineralised waste is between 0.7g/t and 1.0g/t and was being less
than 0.7g/t. Full grade ore and margina l ore form part of inventory. Under present market conditions the
mineralised waste is definedclassified as ore above 1.4g/t. Bothwaste.
high and medium grade stockpiles
All stockpile grades are currently being processed and all ore is expected to be fully processed within the
life of mine.processed. This does not
include high grade tailings, which are carried at zero value due to uncertainty as to whether
they will be processed.
processed through the plant.
The processing of ore in stockpiles occurs in accordance with the life of mine processing plan
that has been
optimized based on the known mineral reserves, current plant capacity and mine design.
Consumable stores are valued at average cost after appropriate provision for redundant and slow moving items
have
been made.
2.7
Interest and borrowing cost
Interest and borrowing cost is recognised on a time proportion basis, taking into account the principal
outstanding and the effective rate over the period to maturity. Borrowing cost is expensed as incurred except to
the extent that it relates directly to the construction of property, plant and equipment during the time that is
required to complete and prepare the asset for its intended use, when it is capitalised as part of property, plant
and equipment. Borrowing cost is capitalised as part of the cost of the asset where it is probable that the asset
will result in economic benefit and where the borrowing cost can be measured reliably.
2.8
Financial instruments
Financial instruments are initially measured at cost, including transaction costs. Subsequent to initial recognition these
instruments are measured as set outindicated below. Financial instruments carried on the balance sheet
include cash and cash
equivalents, receivables, accounts payable borrowings and derivative financial instruments.borrowings.
2.9 Derivatives
DerivativesReceivables
Receivables are recognised initially recognized at fair value onvalue. There is a rebuttable presumption that the date a derivative contracttransaction price is entered into and are subsequently
remeasured at their fair value unless they meet the criteria for the normal purchases normal sales exemption.
On the date a derivative contract is entered into, the Company designates the derivative for accounting purposes as
either a hedge of the fair value of a recognized asset or liability (fair value hedge) or a hedge of a forecasted transaction
(cash flow hedge). Certain derivative transactions, while providing effective economic hedges under the Company's risk
management policies, do not qualify for hedge accounting.
Changes in the fair value of a derivative that is highly effective, and that is designated and qualifies as a cash flow
hedge, are recognized directly in equity. Amounts deferred in equity are included in the income statement in the same
periods during which the hedged firm commitment or forecasted transaction affects net profit or loss.
Recognition of derivatives which meet the criteria for the normal purchases, normal sales exemption are deferred until
settlement. Under these contracts the group must physically deliver a specified quantity of gold at a future date at a
specified pricethis could be refuted by reference to the contracted counter party.
Changes in the fair value of derivatives that do not qualify for hedge accountingmarket indicators. Subsequently, receivables are recognized in the income
statement.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge transactions. This process includes linking
derivatives designed as hedges to specific assets and liabilities or to specific high probable forecasted transactions. The
Company formally assesses, both at the hedge inception and on an ongoing basis, whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in the fair value or cash flows of the hedged item.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction
is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is immediately transferred to the income statement.
2.10 Receivables
Receivables are recognized initially at fair value and subsequently measured at amortizedamortised cost using the effective interest method, less provision for impairment.
impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the company
Group will not be able to collect all amounts due according to the original terms of receivables.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-89
2.
Significant accounting policies (continued)
Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is
impaired. The amount of the
provision is the difference between the asset’s carrying amount and the present
value of estimated future cash flows,
discounted at the effective interest rate. The amount of the provision is recognized
recognised in the income statement.
2.11 2.10 Cash and cash equivalents
Cash and cash equivalents include allare carried in the balance sheet at cost. For the purpose of the cash flow statement,
cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short term highly liquid
investments with a maturity of three months or less at the date of purchase and bank overdrafts. In the balance
purchase.sheet, bank overdrafts are included in current liabilities.
2.11 Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently
stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption
value is recognized in the income statement over the period of the borrowings using the effective interest
method.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement
of the liability for at least 12 months after the balance sheet date.
2.12 Accounts payable
Accounts payable and other short-term monetary liabilities, are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
2.13 Rehabilitation costs
The net present value of estimated future rehabilitation cost estimates is recognized and provided for in the
financial
statements and capitalized to mining assets on initial recognition. Initial recognition is at the time of the
disturbance
occurring and thereafter as and when additional environmental disturbances are created. The
estimates are reviewed
annually to take into account the effects of inflation and changes in estimates and are
discounted using rates that reflect
the time value of money.
F-94
2. Significant accounting policies (continued)
Annual increases in the provision are charged to income and consist of finance costs relating to the change in
present
value of the provision and inflationary increases in the provision estimate. The present value of
additional environmental
disturbances created are capitalized to mining assets against an increase in the
rehabilitation provision. The
rehabilitation asset is amortizeddepreciated as notednot ed previously. Rehabilitation projects
undertaken, included in the estimates, are
charged to the provision as incurred.
Environmental liabilities, other than rehabilitation costs, which relate to liabilities arising from specific events, are
expensed when they are known, probable and may be reasonably estimated.
2.14 2.13 Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of past
events
where it is probable that an outflow of resources embodying economic benefits will be required to settle
the obligation,
and a reliable estimate of the amount of the obligation can be made.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-90
2.
2.14 BorrowingsSignificant accounting policies (continued)
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized
in the income statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
2.152.15 Accounts payable
Accounts payable are stated at cost adjusted for payments made to reflect the value of the anticipated economic
outflow of resources.
2.17 Employee benefits
(a) Post retirement employee employment benefits
The Company has a defined contribution plan. A defined contribution plan is a plan under which the Company
pays
fixed contributions. The Company has no legal or constructive obligations to pay further contributions if the
fund does
not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
employees.
Retirement benefits for employees of the Company are provided by the Mali stateGovernment social security system
to which the
Company and its employees contribute a fixed percentage of payroll costs each month. The
Company has no further
payment obligations once the contributions have been paid. The contributions are
recognized as employee benefit
expense when they are due.
(b) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or
whenever an
employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes
termination benefits
when it is demonstrably committed to either: terminating the employment of current
employees according to a detailed
formal plan without possibility of withdrawal; or providing termination benefits
as a result of an offer made to encourage
voluntary redundancy. Benefits falling due more than 12 months after
balance sheet date are discounted to present value.
value.
2.16 2.18 Finance Leases
Leases of plant and equipment where the Company assumes a significant portion of risks and rewards of
ownership are
classified as a finance lease. Finance leases are capitalized at the estimated present value of the
underlying lease
payments. Each lease payment is allocated between the liability and the finance charges to
achieve a constant rate on
the finance balance outstanding. The interest portion of the finance payment is
charged to the income statement over
the lease period. The plant and equipment acquired under the finance
lease are depreciated over the shorter of the lease term or the useful lives of the assets.
assets.
F-95
2.17 2. Significant
accounting policies (continued)
2.19 Revenue recognition
Revenue is recognized as follows:
a)
a) Gold sales - Revenue arising from gold sales is recognized when the risks and rewards of ownership and
title pass
to the buyer under the terms of the applicable contract and the pricing is fixed and determinable.
These are met when the gold and silver leaves the mine’s smelthouse.
As gold sales are subject to customer survey adjustment, sales are initially recorded on a provisional basis
using
the Company’s best estimate of contained metal. Subsequently adjustments are recorded in turnover
within a matter of days to take into
account final assay and weight certificates from the refinery, if different
from the initial certificates. Historically the
differences between the estimated and actual contained gold
have not been significant.
b) Interest income - Interest is recognized on a time proportion basis, taking into account the principal
outstanding and
the effective rate over the period to maturity. Interest income is included within finance
income.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-91
2.
2.20Significant accounting policies (continued)
2.18 Exploration costs
The Company expenses all exploration and evaluation expenditures until the directors conclude that a future
economic
benefit is more likely than not of being realized,realised, i.e. “probable.”“probable”. In evaluating if expenditures meet this
criterion to be
capitalized, capitalised, the Company utilizeddirectors utilise several different sources of information depending on the level of
exploration. While
the criteria for concluding that expenditure should be capitalizedcapitalised is always probable, the
information that the Company
directors use to make that determination depends on the level of exploration.
a)
a) Exploration and evaluation expenditure on greenfieldsbrownfield sites, being those adjacent to mineral deposits which
are already being mined or developed, is expensed as incurred until the directors are able to demonstrate
that future economic benefits are probable through the completion of a prefeasibility study, after which the
expenditure is capitalised as a mine development cost. A ‘prefeasibility study’ consists of a comprehensive
study of the viability of a mineral project that has advanced to a stage where the mining method, in the case
of underground mining, or the pit configuration, in the case of an open pit, has been established, and which,
if an effective method of mineral processing has been determined, includes a financial analysis based on
reasonable assumptions of technical, engineering, operating economic factors and the evaluation of other
relevant factors. The prefeasibility study, when combined with existing knowledge of the mineral property
that is adjacent to mineral deposits that are already being mined or developed, allow the directors to
conclude that it is more likely than not that the company will obtain future economic benefit from the
expenditures.
b)
Exploration and evaluation expenditure on greenfield sites, being those where the Companycompany does not have
any
mineral deposits which are already being mined or developed, is expensed as incurred until a final
feasibility study
has been completed, after which the expenditure is capitalizedcapitalised within development costs if
the final feasibility study
demonstrates that future economic benefits are probable.
b) Exploration and evaluation expenditure on brownfields sites, being those adjacent to mineral deposits which are
c)
already being mined or developed, is expensed as incurred until the directors are able to demonstrate that future
economic benefits are probable through the completion of a pre-feasibility study, after which the expenditure is
capitalized as a mine development cost. A “pre-feasibility study” consists of a comprehensive study of the viability
of a mineral project that has advanced to stage where the mining method, in the case of underground mining, or
the pit configuration, in the case of an open pit, has been established, and which, if an effective method of mineral
processing has been determined, includes a financial analysis based on reasonable assumptions of technical,
engineering, operating economic factors and the evaluation of other relevant factors. The pre-feasibility study,
when combined with existing knowledge of the mineral property that is adjacent to mineral deposits that are already
being mined or developed, allow the directors to conclude that it is more likely than not that the Company will
obtain future economic benefit from the expenditures.
b) Exploration and evaluation expenditure relating to extensions of mineralsmineral deposits which are already being
mined
or developed, including expenditure on the definition of mineralizationmineralisation of such mineral deposits, is capitalized
capitalised as a mine
development cost following the completion of an economic evaluation equivalent to a pre-feasibility
prefeasibility study. This
economic evaluation is distinguished from a pre-feasibilityprefeasibility study in that some of the
information that would normally
be determined in a pre-feasibilityprefeasibility study is instead obtained from the existing
mine or development. This information
when combined with existing knowledge of the mineral property
already being mined or developed, allow the
directors to conclude that it is more likely than not that the Companygroup will
obtain future economic benefit from the
expenditures.
Costs relating to property acquisitionacquisitions are also capitalized.
capitalised. These costs are capitalizedcapitalised within developmentdevelopm ent costs.
F-96
2.19 2. Significant accounting policies (continued)Current taxation
2.21
Current tax is the tax expected to be payable on the taxable income for the year calculated using rates (and
laws) that have been enacted or substantively enacted by the balance sheet date. It includes adjustments for tax
expected to be payable or recoverable in respect of previous periods.
2.20 TaxationDeferred taxation
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases
bases of assets and liabilities and their carrying amounts in the consolidated financial statements. CurrentlyHowever, if the
temporary difference arise from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not
accounted for.
Deferred tax is determined using tax rates (and laws) that have been enacted or substantially
substantively enacted by the
balance sheet date and are expected to apply when the related deferred tax rates are used inasset is realised or the determination of deferred income tax.
tax
liability is settled. Deferred tax assets are recognizedrecognised to the extent that it is probable that future taxable profit will
be available against which the
temporary differences can be utilized.utilised.
Deferred 
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-92
2.
Significant accounting policies (continued)
2.21 Recent accounting pronouncements
The following standards and interpretations which have been recently issued or revised have not been adopted
early by the group. Their expected impact is discussed below:
• Amendment to IAS 23 Borrowing Costs (effective for annual periods beginning on or after
1 January 2009).
The amendment removes the option of immediately recognising as an expense borrowing costs that relate to
qualifying assets (assets that take a substantial period of time to get ready for use or sale). Instead, an entity will
be required to capitalise borrowing costs whenever the conditions for capitalisation are met. The company will
apply amendments to IAS 23 from 1 January 2009, but it is not expected to have any significant impact on the
accounts of the company.
• Amendment to IFRS 2 Share-based Payment: Vesting Conditions and cancellations (effective for
annual periods beginning on or after 1 January 2009).
This amendment clarifies that vesting conditions are service conditions and performance conditions only. Other
features of a share-based payment are not vesting conditions. The purpose of making the distinction is so as to
be able to address the accounting for non-vesting conditions, which were not previously covered by IFRS 2. The
guidance in IFRS 2 covering the accounting for vesting conditions is not affected by the amendment. The
amendment also specifies that all cancellations, whether by the entity or by other parties, should receive the
same accounting treatment. The amendment is likely to have a particular impact on entities operating Save As
You Earn (SAYE) schemes because it results in an immediate acceleration of the IFRS 2 expense if an
employee decides to stop contributing to the savings plan, as well as a potential revision to the fair value of the
awards granted to factor in the probability of employe es withdrawing from such a plan. The company will apply
amendments to IFRS 2 from 1 January 2009, but it is not expected to have any significant impact on the
accounts of the company.
• Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation (effective for
annual periods beginning on or after 1 January 2009).
The amendment to IAS 1 affects the presentation of owner changes in equity and of comprehensive income. An
entity will be required to present, in a statement of changes in equity, all owner changes in equity. All non-owner
changes in equity (i.e. comprehensive income) are required to be presented in one statement of comprehensive
income taxor in two statements (a separate income statement and a statement of comprehensive income). The
standard does not change the recognition, measurement or disclosure of specific transactions and other events
required by other IFRSs. The company will apply amendments to IAS 1 from 1 January 2009, but it is not
expected to have any significant impact on the accounts of the company.
• Amendments to IAS 27 Consolidated and Separate Financial Statements (effective for annual periods
beginning on or after 1 July 2009).
This amendment relates in particular to acquisitions of subsidiaries achieved in stages and disposals of interests,
with significant differences in the accounting depending on whether control is gained or not, or a transaction
simply results in a change in the percentage of the controlling interest. The amendment does not require the
restatement of previous transactions. The amendment to IAS 27 must be adopted at the same time as IFRS 3
Revised. The company will apply amendments to IAS 27 from 1 July 2009, but it is not expected to have any
significant impact on the accounts of the company.
•Amendments to IAS 32 and IAS 1 Puttable Financial Instruments and Obligations Arising on
Liquidation (effective for annual periods beginning on or after 1 January 2009).
This amendment results in certain types of financial instrument that meet the definition of a liability, but represent
the residual interest in the net assets of the entity, being classified as equity. The amendment requires entities
to classify the following types of financial instruments as equity, provided they have particular features and meet
specific conditions: (a) Puttable financial instruments; and, (b) instruments, or components of instruments, that
impose on temporary differences arising the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only
on liquidation. The company will apply amendments to IAS 32 from 1 January 2009, but it is not expected to
have any significant impact on the accounts of the company.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-93
2.
Significant accounting policies (continued)
• Amendments to IFRS 1 and IAS 27 Cost of an Investment in a subsidiary, jointly-controlled entity or
associate (effective for annual periods beginning on or after 1 January 2009).
This amendment allows a first-time adopter that, in its separate financial statements, elects to measure its
investments in subsidiaries, jointly controlled entities or associates at cost to initially recognise these investments
either at cost determined in accordance with IAS 27 or deemed cost (being either its fair value at the date of
transition to IFRSs or its previous GAAP carrying amount at that date). The company will apply amendments to
IFRS 1 and jointIAS 27 from 1 January 2009, but it is not expected to have any impact on the accounts of the
ventures,company.
• Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items
(effective for annual periods beginning on or after 1 July 2009).
This amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is
eligible for designation should be applied in the designation of a one-sided risk in a hedged item, and inflation in
a financial hedged item. The company will apply amendments to IAS 39 from 1 July 2009, but it is not expected
to have any impact on the accounts of the company.
• IFRIC 13 Customer Loyalty Programmes (effective for annual periods beginning on or after 1 July 2008).
The Interpretation addresses accounting by entities that grant loyalty award credits (such as ‘points’ or travel
miles) to customers who buy other goods or services. Specifically, it explains how such entities should account
for their obligations to provide free or discounted goods or services (‘awards’) to customers who redeem award
credits. The Interpretation requires entities to allocate some of the proceeds of the initial sale to the award
credits and recognise these proceeds as revenue only when they have fulfilled their obligations. They may fulfil
their obligations by supplying awards themselves or engaging (and paying) a third party to do so. The company
will apply IFRIC 13 from 1 January 2009, but it is not expected to have any impact on the accounts of the
company.
•IFRIC 15 Agreements for the Construction of Real Estate (effective for annual periods beginning on or
after 1 January 2009).
This Interpretation clarifies the definition of a construction contract, the interaction between IAS 11 and IAS 18
and provides guidance on how to account for revenue when the agreement for the construction of real estate
falls within the scope of IAS 18. For some entities, the Interpretation may give rise to a shift from the recognition
of revenue using the percentage of completion method to the recognition of revenue at a single time (e.g. at
completion, upon or after delivery). Affected agreements will be mainly those accounted for in accordance with
IAS 11 that do not meet the definition of a construction contract as interpreted by the IFRIC and do not result in a
‘continuous transfer’ (i.e. agreements in which the entity transfers to the buyer control and the significant risks
and rewards of ownership of the work in progress in its current state as construction progresses). The company
will apply IFRIC 15 from 1 January 2009, but it is not expected to have any significant impact on the accounts of
the company.
•IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective for annual periods beginning on
or after 1 October 2008).
IFRIC 16 clarifies that: (a) The presentation currency does not create an exposure to which an entity may apply
hedge accounting. Consequently, a parent entity may designate as a hedged risk only the foreign exchange
differences arising from a difference between its own functional currency and that of its foreign operation. (b) The
hedging instrument(s) may be held by any entity or entities within the group, other than the entity being hedged.
(c) While IAS 39 Financial Instruments: Recognition and Measurement must be applied to determine the amount
that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the
hedging instrument, IAS 21 The Effects of Changes in Foreign Exchange Rates must be applied in respect of the
hedged item. IFRIC 16 applies prospectively from its effective date. The company will apply IFRIC 16 from
1 January 2009, but it is not expected to have any impact on the accounts of the company.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-94
2.
Significant accounting policies (continued)
•IFRIC 17 Distributions of Non-cash Assets to Owners Estate (effective for annual periods beginning on
or after 1 July 2009).
Prior to this interpretation, IFRSs did not address how an entity should measure distributions of assets other than
cash when it pays dividends. Dividends payable were sometimes recognised at the carrying amount of the
assets to be distributed and sometimes at their fair value. The Interpretation clarifies that: a dividend payable
should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the
entity; that an entity should measure the dividend payable at the fair value of the net assets to be distributed;
and, that an entity should recognise the difference between the dividend paid and the carrying amount of the net
assets distributed in profit or loss. The Interpretation also requires an entity to provide additional disclosures if
the net assets being held for distribution to owners meet the definition of a discontinued operation. IFRIC 17
applies to pro rata distributions of non-cash assets except f or common control transactions. It does not have to
be applied retrospectively. The company will apply IFRIC 17 from 1 January 2010, but it is not expected to have
any impact on the accounts of the company.
• IFRS 8 Operating Segments Estate (effective for annual periods beginning on or after 1 January 2009).
This standard requires an entity to adopt the ‘management approach’ to reporting on the financial performance of
its operating segments. Generally, the information to be reported would be what management uses internally for
evaluating segment performance and deciding how to allocate resources to operating segments. Such
information may be different from what is used to prepare the income statement and balance sheet. The
standard also requires explanations of the basis on which the segment information is prepared and
reconciliations to the amounts recognised in the income statement and balance sheet. The company will apply
IFRS 8 from 1 January 2009, but it is not expected to have any significant impact on the accounts of the
company.
•Improvements to IFRSs (effective for annual periods beginning on or after 1 January 2009).
This amendment takes various forms, including the clarification of the requirements of IFRSs and the elimination
of inconsistencies between Standards. The most significant changes cover the following issues: The
classification of assets and liabilities as held for sale where a non-controlling interest is retained; accounting by
companies that routinely sells assets previously held for rental to others; accounting for loans given at a nil or
below market rate of interest; the reversal of impairments against investments in associates accounted for using
the equity method; the timing of expense recognition for costs incurred on advertising and other promotional
activity; and, accounting for properties in the course of construction. The company will apply improvements to
IFRSs from 1 January 2009, but it is not expected to have any significant impact on the accounts of the
company.
•Revised IFRS 1 First-time Adoption of international Financial Reporting Standards (effective for
annual periods beginning on or after 1 January 2009).
The revised version of IFRS 1 has an improved structure but does not contain any technical changes. This
revision is not applicable to the company, as it already prepares it financial statements under IFRS.
• Revised IFRS 3 Business Combinations (effective for annual periods beginning o or after 1 July 2009).
The basic approach of the existing IFRS 3 to apply acquisition accounting in all cases and identify an acquirer is
retained in this revised version of the standard. This includes much of the current guidance for the identification
and recognition of intangible assets separately from goodwill. However, in some respects the revised standard
may result in very significant changes, including: The requirement to write of all acquisition costs to profit or loss
instead of including them in the cost of investment; the requirement to recognise an intangible asset even if it
cannot be reliably measured; and, an option to gross up the balance sheet for goodwill attributable to minority
interests (which are renamed ‘non-controlling interests’). The revised standard does not require the restatement
of previous business combinations. Revised IFRS 3 must be adopted at the same time as the amendment to
IAS 27. The company will apply revised IFRS 3 from 1 January 2009, but it is not expected to have any
significant impact on the accounts of the company.
The company has adopted the following standards which is effective for the first time this year. The impact is
discussed below:
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-95
2.
Significant accounting policies (continued)
• IFRIC INTERPRETATION 11 IFRS 2 SHARE-BASED PAYMENT - GROUP AND TREASURY SHARE
TRANSACTIONS (effective for annual periods beginning on or after 1 March 2007)
This interpretation addresses the classification of a share based payment transaction (as equity or cash-settled),
in which equity instruments of the parent or another group entity are transferred, in the financial statements of
the entity receiving accounts of the company or group. The company has applied IFRIC Interpretation 11 from
1 January 2008, but it has not had any impact on the accounts of the company.
• IFRIC INTERPRETATION 12 SERVICE CONCESSION ARRANGEMENTS (effective for annual periods
beginning on or after 1 January 2008)
This interpretation provides guidance to private sector entities on certain recognition and measurement issues
that arise in accounting for public to private service concession arrangements. The company has applied IFRIC
Interpretation 12 from 1 January 2008, but it has not had any impact on the accounts of the company.
• IFRIC 14 AND IAS 19 THE LIMITS ON DEFINED ASSET, MINIMUM FUNDING REQUIREMENTS AND
THEIR INTERACTION (for annual periods beginning on or after 1 January 2008).
This interpretation clarifies when refunds or reductions in future contributions should be regarded as available in
accordance with paragraph 58 of IAS 19, how a minimum funding requirement might affect the availability of
reductions in future contributions and when a funding requirement might give rise to a liability. The company has
applied IFRIC Interpretation 14 from 1 January 2008, but it has not had any impact on the accounts of the
company.
•AMENDMENTS TO IAS 39 AND IFRS7: RECLASSIFICATION OF FINANCIAL INSTRUMENTS
(effective 1 July 2008) AMENDMENTS TO IAS 39 AND IFRS7: RECLASSIFICATION OF FINANCIAL
INSTRUMENTS – EFFECTIVE DATE AND TRANSITION (effective 1 July 2008)
This amendment permits an entity to reclassify non-derivative financial assets (other than those designated at
fair value through profit or loss by the entity upon initial recognition) out of the fair value through profit or loss
category in particular circumstances. The amendment also permits an entity to transfer from the available-for-
sale category to the loans and receivables category a financial asset that would have met the definition of loans
and receivables (if the financial asset had not been designated as available for sale), if the entity has the
intention and ability to hold that financial asset for the foreseeable future. The company has applied the
amendment to IAS39 and IFRS7 from 1 July 2008, but it has not had any impact on the accounts of the
company.
3.
Critical accounting estimates and judgements
Some of the accounting policies require the application of significant judgement by management in selecting the
appropriate assumptions for calculating financial estimates. By their nature, these judgements are subject to an inherent
degree of uncertainty and are based on historical experience, terms of existing contracts, management’s view on trends
in the gold mining industry and information from outside sources.
Key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are:
Future rehabilitation obligations
The net present value of current rehabilitation estimates have been discounted to their present value at 3.5% per annum
(2007: 4%), being an estimate of the prevailing interest rates. Expe nditure is expected to be incurred at the end of the
mine life. For further information, including the carrying amounts of the liabilities, refer to note 6. A 1% change in the
discount rate of the company’s rehabilitation estimates would result in a US$0.7 million (2007: US$0.7 million) impact on
the provision for environmental rehabilitation.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-96
3.
Critical accounting estimates and judgements (continued)
Determination of ore reserves
The company estimates its ore reserves and mineral resources based on information compiled by Competent Persons
as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and ore
Reserves of December 2004 (the JORC code). Reserves determined in this way are used in the calculation of
depreciation, amortization and impairment charges, as well as the assessment of the carrying value of mining assets.
There are numerous uncertainties inherent in estimating ore reserves and assumptions that are valid at the time of
estimation may change significantly when new information becomes available. Changes in the forecast prices of
commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and
may, ulti mately, result in the reserves being restated.
Gold price assumptions
The gold price used in the mineral reserves optimization calculation is US$650 (2007: US$525). Changes in the gold
price used could result in changes in the mineral reserve optimization calculations. Mine modeling is a complex process
and hence it is not feasible to perform sensitivities on gold price assumptions.
Indirect taxes receivable
Given their slow moving nature, the group has had to apply judgement in determining when amounts will be recovered
with respect to indirect taxes owing by the Mali Government. The amounts reflected in the financial statements are
based on the directors’ best estimate of the timing of the reversalrecovery of these amounts. For further information, including
carrying amounts of the temporary difference can be controlled, and it is probableassets, refer to note 12.
Areas of judgement made in applying specific accounting policies that
have the temporary difference will not reversemost significant effect on the amounts
recognized in the foreseeable future.financial statements are:
Exploration and evaluation expenditure
The Company has to apply judgement in determining whether exploration and evaluation expenditure should be
capitilised or expensed, under the policy described in note 2. Management exercises this jdugement based on the
results of economic evaluation, prefeasibility or feasibility studies. Costs are capitalized where those studies conclude
the more likely than not that the company will obtain future economic benefit from the expenditures.
Depreciation
There are several methods for calculating depreciation, i.e. the straight-line method, the units of production method
using ounces produced and the units of production method using tonnes milled. The directors believe that the tonnes
milled method is the best indication of plant and infrastructure usage.
Carrying values of property, plant and equipment
The company assess at each reporting period whether there is any ind ication that these assets may be impaired. If
such indication exists, the company estimates the recoverable amount of the asset. The recoverable amount is
assessed by reference to the higher of “value in use” (being the net present value of expected future cash flows of the
relevant cash generating unit) and “fair value less cost to sell” . The estimates used for impairment reviews are based
on detailed mine plans and operating plans. Future cash flows are based on estimates of:
•The quantities of the reserves and mineral resources for which there is a high degree of confidence in economic
extraction;
• Future production levels;
• Future commodity prices;
• Future cash cost of production, capital expenditure, close down, restoration and environmental clean up; and
• Future gold prices (a US$800 gold price was used for the current year’s impairment calculations).
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-97
3. 4. Sharecapital
Share capital consists of the following authorized and issued ordinary par value shares with a nominal value of
Communauté Financière Africaine franc (“CFA”) 10 000 ($16.356) each:
Number of
shares Shares
authorized and
and issued
2005Unaudited
2008
$’000
2004Unaudited
2007
$’000
Morila
Limited
800 13
13
13
Government of MaliAngloGold Ashanti Limited
200115,970
1.6%
3
388,458
1.3%
4
1000
Other investments exceeding 5% of
total plan assets
Bonds
RSA R157 Government Bonds 13.5%
-
5.4%
16
IFM Corporate Bond Unit Trust
117,299,950
6.6%
12
-
Allan Gray Orbis Global Equity Fund
316,082
13.4%
25
-
37
16
4.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-63
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
Cash flows
Contributions
The Company expects to contribute $4 million (2008: $6 million) to its pension plan in 2009.
$
million
Estimated future benefit payments
The following pension benefit payments, which reflect the expected future service, as appropriate, are expected to be
paid:
2009
15
2010
15
2011
15
2012
14
2013
14
2014 – 2018
69
South Africa post-retirement medical benefits
The provision for post-retirement medical funding represents the provision for health care benefits for employees and
retired employees and their registered dependants. The post-retirement benefit costs are assessed in accordance with
the advice of independent professionally qualified actuaries. The actuarial method used is the projected unit credit
funding method. This scheme is unfunded. The last actuarial valuation was performed at December 31, 2008.
Information with respect to the defined benefit liability, which includes post-retirement medical benefits for
AngloGold Ashanti South Africa employees, for the year ended December 31, is set forth in the table below:
Other benefits
2008
$
2007
$
2006
$
Change in benefit obligation
Benefit obligation at January 1,
168
159
188
Service cost
1
1
1
Interest cost
11
12
13
Plan participants contributions
4
5
5
Benefits paid
(15) (16) (17)
Actuarial (gain)/loss
(8) 1
(14)
Translation
(46) 6
(17)
Benefit obligation at December 31,
115
168
159
Unfunded status of the end of the year
(115)
(168)
(159)
Net amount recognized
(115) (168) (159)
Components of net periodic benefit cost
Service cost
1
1
1
Interest cost
11
12
13
Actuarial gains and losses
(8) 1
(14)
4
14
-
The assumptions used in calculating the above amounts are:
Discount rate
7.25% 8.25% 8.00%
Expected increase in health care costs
5.50%
6.75%
4.75%
Assumed health care cost trend rates at December 31,
5.50%
6.75%
4.75%
Health care cost trend assumed for next year
5.50%
6.75%
4.75%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)
Assumed health care cost trend rates have a significant effect on the amounts reported for
health care plans. A one percentage-point change in assumed health care cost trend rates
would have the following effect:
1-percentage point
increase
1-percentage point
decrease
Effect on total service and interest cost
1
(1)
Effect on post-retirement benefit obligation
11
(10)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-64
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
Cash flows
Post-retirement medical plan
The Company expects to contribute $22 million (2008: $28 million) to the post-retirement medical plan in 2009.
$
million
Estimated future benefit payments
The following medical benefit payments, which reflect the expected future service, as appropriate, are expected to be
paid:
2009
13
2010
13
2011
13
2012
13
2013
13
2014 – 2018
50
Other defined benefit plans
Other defined benefit plans include the Ashanti Retired Staff Pension Plan, the Obuasi Mines Staff Pension Scheme,
the Post-retirement medical scheme for Rand Refinery employees, the Retiree Medical Plan for North American
employees, the Supplemental Employee Retirement Plan for North America (USA) Inc. employees and the Nuclear
Fuels South Africa (NUFCOR) – Retiree Medical Plan for Nufcor South African employees.
Information in respect of other defined benefit plans for the years ended December 31, 2008, 2007 and 2006 have been
aggregated in the tables of change in benefit obligations, change in plan assets and components of net periodic benefit
cost as follows:
Aggregated information in respect of the other defined benefit plans, for the year ended December 31, is set
forth in the table below:
2008
$
2007
$
2006
$
Change in benefit obligations
Balance at January 1,
18
19
18
Interest cost
-
1
-
Actuarial loss
-
-
2
Benefits paid
(1) (1) (1)
Translation
-
(1)
-
Balance at December 31,
17
18
19
Change in plan assets
Fair value of plan assets at January 1,
9
8
8
Actual return on plan assets
(1)
-
-
Translation
(2)
1
-
Fair value of plan assets at December 31,
6
9
8
Unfunded status at end of year
(11) (9) (11)
Net amount recognized
(11) (9) (11)
Components of net periodic benefit cost
Interest cost
-
1
-
Actuarial gains and losses
1
-
2
1
1
2
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-65
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
Cash flows
The other retirement defined benefit plans are all closed to new members and current members are either retired or
deferred members. The Company does not make a contribution to these plans.
$
million
Estimated future benefit payments
The following pension benefit payments, which reflect the expected future service, as appropriate, are expected to be
paid:
2009
1
2010
1
2011
1
2012
1
2013
1
2014 – 2018
5
Defined contribution funds
Contributions to the various retirement schemes are fully expensed during the year and the cost of contributions to
retirement benefits for the year amounted to $49 million (2007: $51 million, 2006: $40 million).
Australia (Boddington and Sunrise Dam)
The region contributes to the Australian Retirement Fund for the provision of benefits to employees and their
dependants on retirement, disability or death. The fund is a multi-industry national fund with defined contribution
arrangements. Contribution rates by the operation on behalf of employees varies, with minimum contributions meeting
compliance requirements under the Superannuation Guarantee legislation. Members also have the option of
contributing to approved personal superannuation funds. The contributions by the operation are legally enforceable to
the extent required by the Superannuation Guarantee legislation and relevant employment agreements. The cost to the
Company of all these contributions amounted to $3 million (2007: $3 million, 2006: $2 million).
Namibia (Navachab)
Navachab employees are members of a defined contribution provident fund. The fund is administered by the Old
Mutual Insurance Company. Both the Company and the employees contribute to this fund. AngloGold Ashanti Limited
seconded employees at Navachab remain members of the applicable pension or retirement fund in terms of their
conditions of employment with AngloGold Ashanti Limited. The cost of providing retirement benefits for the year
amounted to $1 million (2007: $1 million, 2006: $1 million).
Tanzania (Geita)
Geita does not have a retirement scheme for employees. Tanzanian nationals contribute to the National Social Security
Fund (NSSF) or the Parastatal Provident Fund (PPF), depending on the employee’s choice, and the Company also
makes a contribution on the employee’s behalf to the same fund. On leaving the Company, employees may withdraw
their contribution from the fund. From July 2005, the Company has set up a supplemental provident fund which is
administered by the Parastatal Provident Fund (PPF) with membership available to permanent national employees on a
voluntary basis. The Company makes no contribution towards any retirement schemes for contracted expatriate
employees. AngloGold Ashanti Limited employees seconded in Tanzania remain members of the applicable pension or
retirement fund in terms of their conditions of employment with AngloGold Ashanti Limited. The Company contributes to
the National Social Security Fund (NSSF) on behalf of expatriate employees. On termination of employment the
Company may apply for a refund of contributions from the NSSF.
North America (Cripple Creek & Victor)
AngloGold Ashanti USA sponsors a 401(k) savings plan whereby employees may contribute up to 60 percent of their
salary, of which up to 5 percent is matched at a rate of 150 percent by AngloGold Ashanti USA. AngloGold Ashanti
USA's contributions were $2 million (2007: $1 million, 2006: $2 million).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-66
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
South America (AngloGold Ashanti Brasil Mineração, Cerro Vanguardia and Serra Grande)
The AngloGold Ashanti South America region operates defined contribution arrangements for their employees in Brazil.
These arrangements are funded by the operations (basic plan) and operations/employees (optional supplementary
plan). A PGBL fund, similar to the American 401 (k) type of plan was started in December 2001. Administered by
Bradesco Previdencia e Seguros (which assumes the risk for any eventual actuarial liabilities), this is the only private
pension plan sponsored by the Company in the country. Employees in Argentina contribute 11 percent of their salaries
towards the Argentinean government pension fund. The Company makes a contribution of 17 percent of an employee’s
salary on beha lf of employees to the same fund. Contributions amounted to $3 million (2007: $5 million,
2006: $2 million).
Ghana and Guinea (Iduapriem, Obuasi and Siguiri)
Ghana and Guinea contribute to provident plans for their employees which are defined contribution plans. The funds
are administered by Boards of Trustees and invested mainly in Ghana and Guinea government treasury instruments,
fixed interest deposits and other projects. The costs of these contributions for the year amounted to $4 million
(2007: $4 million, 2006: $3 million).
South Africa (Great Noligwa, Kopanang, Moab Khotsong, Mponeng, Savuka, Tau Lekoa and TauTona)
South Africa contributes to various industry-based pension and provident retirement plans which cover substantially all
employees and are defined contribution plans. These plans are all funded and the assets of the schemes are held in
administrated funds separately from the Company's assets. The cost of providing these benefits amounted to
$36 million (2007: $36 million, 2006: $29 million).
28.
SEGMENT AND GEOGRAPHICAL INFORMATION
The Company produces gold as its primary product and does not have distinct divisional segments in terms of principal
business activity, but manages its business on the basis of different geographic segments. This information is consistent
with the information used by the Company’s Chief Operating Decision Maker in evaluating operating performance of,
and making resource allocation decisions among, operations.
Business segment data
Year ended December 31
2008
$
2007
$
2006
$
Revenues
Revenues from product sales:
South Africa
986
1,472
1,513
Argentina
98
129
118
Australia
214
378
307
Brazil
272
323
258
Ghana
307
364
330
Guinea
253
223
167
Mali
186
278
317
Namibia
39
52
50
Tanzania
120
219
199
USA
123
179
124
2,598
3,617
3,383
Less: Equity method investments included above
(186)
(278)
(317)
Plus/less: Loss/(gain) on realized non-hedge derivatives included above
1,243
(291)
(383)
Total revenues from product sales
3,655
3,048
2,683
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-67
28.
SEGMENT AND GEOGRAPHICAL INFORMATION(continued)
Business segment data
Year ended December 31
2008
$
2007
$
2006
$
Depreciation and amortization expense
South Africa
256
301
324
Argentina
17
18
35
Australia
47
54
39
Brazil
59
50
35
Ghana
110
91
119
Guinea
36
45
52
Mali
46
23
50
Namibia
4
6
7
Tanzania
55
58
49
USA
31
32
39
661
678
749
Less: Equity method investments included above
(46)
(23)
(50)
Total depreciation and amortization expense
615
655
699
Segment income/(loss)
South Africa
480
283
359
Argentina
(13)
66
43
Australia
(22)
132
82
Brazil
115
70
92
Ghana
(89)(34) (65)
Guinea
121
(2)
(16)
Mali
(100)
91
126
Namibia
(1)
10
19
Tanzania
(510)(150) (132)
USA
138
1
(13)
Other, including Corporate and Non-gold producing subsidiaries
(89)
(82)
(54)
Total segment income
30
385
441
Reconciliation of segment income/(loss) to Net loss
Segment total
30
385
441
Exploration costs
(126) (117) (58)
General and administrative expenses
(136)
(130)
(140)
Market development costs
(13)(16) (16)
Non-hedge derivative loss
(258) (808) (208)
Other operating items
(19) 16
(16)
Taxation expense
(22) (118) (122)
Discontinued operations
23
2
6
Minority interest
(42)(28) (29)
Net loss
(563)(814) (142)
Segment assets
South Africa
(1)
2,497
3,353
3,108
Argentina
227
236
254
Australia
(2)
1,279
1,183
805
Brazil
801
674
544
Ghana
(3)
2,075
2,155
2,061
Guinea
359
371
357
Mali
239
291
280
Namibia
61
76
64
Tanzania
848
1,343
1,382
USA
689
528
507
Other, including Corporate, Assets held for sale
(4)
and Non-gold producing subsidiaries
376
171
151
Total segment assets
9,451
10,381
9,513
(1)
Includes assets held for sale of Weltevreden of $nil million (2007: $15 million, 2006: $15 million) and properties held for sale by Rand Refinery Limited
of $1 million (2007: $1 million, 2006: $nil million).
(2)
Includes assets held for sale of Boddington of $781 million in 2008.
(3)
Includes Central African Gold plc held for sale investment of $3 million in 2006.
(4)
Includes exploration properties acquired from Trans-Siberian Gold plc of $15 million in 2007.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-68
28.
SEGMENT AND GEOGRAPHICAL INFORMATION(continued)
Business segment data
Year ended December 31
2008
$
2007
$
2006
$
Expenditure for additions to long-lived assets
South
Africa
347
411
321
Argentina
16
20
19
Australia
439
281
86
Brazil
148
141
186
Ghana
166
119
97
Guinea
22
21
16
Mali
7
9
6
Namibia
12
6
5
Tanzania
53
26
67
USA
27
23
13
Other, including Corporate and Non-gold producing subsidiaries
2
2
1
1,239
1,059
817
Less: Equity method investments included above
(7)
(9)
(6)
Total expenditure for additions to long-lived assets
1,232
1,050
811
Geographical area data
Total revenues
South
Africa
1,041
1,504
1,531
Argentina
99
130
118
Australia
217
379
309
Brazil
285
319
260
Ghana
309
364
330
Guinea
258
224
164
Mali
181
280
321
Namibia
42
54
51
Tanzania
112
224
198
USA
124
180
124
Other, including Corporate and Non-gold producing subsidiaries
-
8
13
2,668
3,666
3,419
Less: Equity method investments included above
(181)
(280)
(321)
Plus/less: Loss/(gain) on realized non-hedge derivatives included above
1,243
(291)
(383)
Total revenues
3,730
3,095
2,715
Long-lived assets by area
South
Africa
1,811
2,506
2,370
Argentina
162
166
183
Australia
294
975
650
Brazil
665
568
454
Ghana
1,862
1,928
1,875
Guinea
211
235
254
Mali
239
291
281
Namibia
20
23
22
Tanzania
609
1,105
1,121
USA
572
396
367
Other, including Corporate and Non-gold producing subsidiaries
59
75
60
Total long-lived assets
6,504
8,268
7,637
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS
Employee share incentive scheme
At a general meeting held on June 4, 1998, shareholders approved the introduction of the AngloGold Limited Share
Incentive Scheme (“Share Incentive Scheme”) for the purpose of providing an incentive to executive directors and
senior employees of the Company and its subsidiaries to identify themselves more closely with the fortunes of the
Company and also to promote the retention of such employees by giving them an opportunity to acquire shares in the
Company. Employees participate in the scheme to the extent that they are granted options and accept them.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-69
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
At a general meeting held on April 30, 2002, it was approved that the rules of the Share Incentive Scheme be amended
to provide for the exercise of options to be based on a condition, related to the performance of the Company, as
determined by the directors and which will be objective and specified. An employee would only be able to exercise his
options after the date upon which he has received written notification from the directors that the previously specified
performance condition has been fulfilled or waived. The options granted prior to May 1, 2002 remained subject to the
conditions under which they were granted. Although there are no automatically convertible unsecured debentures
currently in issue under the rules of the Share Incentive Scheme, consequential amendments were approved to the
rules of the schem e which effectively made the conversion of debentures subject to the same terms as the exercise of
options.
At December 31, 2008, the maximum number of ordinary shares that may be allocated for the purposes of the scheme
is 9,720,794 (December 31, 2007: 7,630,080), equivalent to 2.75 percent of the total number of ordinary shares in issue
at that date.
At the annual general meeting held on April 29, 2005, shareholders approved the amendment to the maximum
aggregate number of ordinary shares which may be acquired by any one participant in the scheme from 300,000 to
5 percent of the 2.75 percent attributable to all schemes and plans adopted by shareholders (or 0.1375 percent of the
total number of ordinary shares in issue at any one time). At December 31, 2008 the maximum aggregate number of
ordinary shares which may be acquired by any one participant in the scheme was 486,040 shares.
Ordinary shares issued in terms of the Share Incentive Scheme shall, sub ject to the provisions of the Share Incentive
Scheme, rank pari passu with issued shares in all respects, including participation in dividends.
Non-executive directors are not eligible for participation in the Share Incentive Scheme.
Total plan employee costs
On December 31, 2008, the Company has five stock-based compensation plans, which are described below. Total
compensation cost charged against income for these plans was $40 million, $33 million and $42 million for 2008, 2007
and 2006, respectively.
At the year end, the unallocated balance of shares subject to the Share Incentive Scheme amounts to 6,278,998
(2007: 4,315,827).
Options
An option may only be granted to an employee to purchase a certain number of shares, specified by the directors, at the
option price payable in accordance with the rules of the Share Incentive Scheme.
The Share Incentive Scheme provides for the granting of options based on two sep arate criteria:
•
Time related options
Time related options may be exercised over a five year period from date of grant, and may be exercised in
tranches of 20 percent each in years 2, 3 and 4 and 40 percent in year five.
No further options will be granted under this plan which will terminate on February 1, 2012, being the date on
which the last options granted under this plan, may be exercised or will expire.
Resulting from the rights offer made to ordinary shareholders, which was finalized during July 2008, additional
options were awarded to existing option holders in terms of the anti-dilution provision of the original grant. As the
employees did not receive any benefit in excess of the original grant value, no additional compensation cost was
recognized. Approximately one option was awarded for every four held at an exercise price of R194.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-70
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
A summary of time related options showing movement from the beginning of the year to the end of the year, is
presented below:
2008
Options
(000)
2008
Weighted-
average
exercise price
R
Outstanding at the beginning of the year
207
125
Granted as a result of rights offer
42
194
Exercised
(129)
125
Forfeited (terminations)
(4)
194
Outstanding at the end of the year
116
140
Exercisable at the end of the year
116
140
The total intrinsic value of options outstanding at year-end was R13 million (2007: R35 million), with a weighted
average remaining contractual term of 1.7 years (2007: 2.4 years). The intrinsic value of options exercised during
the years ended December 31, 2008, 2007 and 2006 was R15 million, R48 million and R76 million, respectively.
During the years ended December 31, 2007 and 2006 the Company recognized compensation expense related to
time-based awards of less than $1 million and $1 million, respectively. There was no income statement charge for
the current year, as the total compensation cost was expensed up to date of vesting in 2007.
•
Performance related options
Performance related options granted vest in full, three years after date of grant, provided that the conditions on
which the options were granted, namely related to the performance of the Company (growth in an adjusted
earnings per share) as determined by the directors, are met. If the performance conditions are not met at the end
of the first three year period, then performance is re-tested each year over the ten year life of the option on a
rolling three year basis. Options are normally exercisable, subject to satisfaction of the performance conditions,
between three and ten years from date of grant. As none of the performance criteria of the options issued in 2002
and 2003 were met in the initial three years, the grantor decided to roll the schemes forward on a “roll over reset”
basis to be reviewed annually. The performance criteria of th e options issued in 2002, 2003 and 2004 were
achieved during 2006.
The performance related options’ compensation expense is fixed at grant date and recorded when it is probable
that the performance criteria will be met.
Resulting from the rights offer made to ordinary shareholders, which was finalized during July 2008, additional
options were awarded to existing option holders in terms of the anti-dilution provision of the original grant. As the
employees did not receive any benefit in excess of the original grant value, no additional compensation cost was
recognized. Approximately one option was awarded for every four held at an exercise price of R194.
No further performance related options will be granted and all options granted hereunder will terminate on
November 1, 2014, being the date on which the last options granted under these criteria may be exercised or will
expire.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-71
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
A summary of performance related options showing movement from the beginning of the year to the end of the
year, is presented below:
2008
Options
(000)
2008
Weighted-
average
exercise price
R
Outstanding at the beginning of the year
1,638
249
Granted as a result of rights offer
313
194
Exercised
(385)
237
Forfeited (terminations)
(176)
254
Outstanding at the end of the year
1,390
239
Exercisable at the end of the year
1,390
239
The total intrinsic value of options outstanding at year-end was R18 million (2007: R72 million), with a weighted
average remaining contractual term of 5 years (2007: 6 years). The intrinsic value of options exercised during the
years ended December 31, 2008, 2007 and 2006 was R3 million, R53 million and less than R1 million for 2006,
respectively.
All options which have not been exercised within ten years from the date on which they were granted automatically
expire.
During the years ended December 31, 2007 and 2006 the Company recognized $3 million and $29 million,
respectively, compensation expense related to performance related awards. There was no income statement
charge for the current year, as the total compensation cost was expensed up to date of vesting in 2007.
During 2008, a total of 513,444 common shares were issued under the share incentive scheme in terms of time-
based and performance awards.
As of December 31, 2008, there was no unrecognized compensation cost related to unvested stock options.
The weighted average of all options outstanding as at December 31, 2008, is as follows:
Range of exercise
Prices
R
Quantity of options
within range
(000)
Weighted average
exercise price
R
Weighted average
contractual life
Years
95 – 143
79
122
1.8
144 – 211
305
192
4.5
212 – 300
1,122
250
4.6
1,506
(1)
231
3.7
(1)
Represents a total of 116,491 time related options and 1,389,833 performance related options outstanding.
No options expired during the year ended December 31, 2008.
Since December 31, 2008 to and including March, 31, 2009, 525,515 options (granted in respect of time and
performance related options) have been exercised.
On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “Share-
Based Payment”, using the modified prospective transition method. Under this method, compensation cost
recognized in the year ended December 31, 2006 includes: a) compensation cost for all share-based payments
granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS123, and b) compensation cost for all share-based payments
granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of SFAS123(R). Th e results for prior periods have not been restated.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-72
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
Bonus Share Plan (BSP) and Long-Term Incentive Plan (LTIP)
At the annual general meeting held on April 29, 2005, shareholders approved the introduction of the BSP and LTIP and
the discontinuation of the previous share incentive scheme. Options granted under the previous share incentive
scheme will remain subject to the conditions under which they were originally granted.
Bonus Share Plan (BSP)
The BSP is intended to provide effective incentives to eligible employees. An eligible employee is one who devotes
substantially the whole of his working time to the business of the Company, any subsidiary of the Company or a
company under the control of AngloGold Ashanti. An award in terms of the BSP may be made at any date at the
discretion of the board, the only vesting condition being three years’ service for awards granted prior to 2008. For all
BSP awards granted from 200 8, 40 percent will vest after one year and the remaining 60 percent will vest after two
years. An additional 20 percent of the original award will be granted to employees if the full award remains unexercised
after three years. The board is required to determine a BSP award value and this will be converted to a share amount
based on the closing price of the Company shares on the JSE on the last business day prior to the date of grant.
During 2008 a total of 115,458 common shares were issued in terms of the BSP rules.
During 2008, additional BSP awards were made to all scheme participants as a result of the rights offer to ordinary
shareholders. The award was made in terms of the anti-dilution provision of the original grant. Employees did not
receive any benefit in excess of the original grant value and no additional compensation cost was recognized.
For awards made, the following information is presented:
Award date
2008 Shareholder’s loan2007
20052006
Calculated fair value
267.05
322.00
308.00
Vesting date
January 1, 2011
January 1, 2010
March 8, 2009
Expiry date
December 31, 2017
December 31, 2016
March 7, 2016
A summary of time related equity settled compensation scheme showing movement from the beginning of the year to
the end of the year, is presented below:
2008
Options
(000)
Outstanding at the beginning of the year
686
Granted
390
Granted as a result of rights offer
75
Exercised
(116)
Forfeited (terminations)
(90)
Outstanding at the end of the year
945
Exercisable at the end of the year
136
The total intrinsic value of awards outstanding at year-end was R238 million (2007: R201 million), with a weighted
average remaining contractual term of 8 years (2007: 8 years). The intrinsic value of awards exercised during the years
ended December 31, 2008, 2007 and 2006 was R28 million, R13 million and R1 million, respectively. BSP awards are
issued with no exercise price.
Long-Term Incentive Plan (LTIP)
The LTIP is an equity settled share-based payment arrangement, intended to provide effective incentives for executives
to earn shares in the Company based on the achievement of stretched Company performance conditions. Participation
in the LTIP will be offered to executive directors, executive officers/management and selected members of senior
management. An award in terms of the LTIP may be granted at any date during the year that the board of the Company
determine and ma y even be more than once a year. The board is required to determine an LTIP award value and this
will be converted to a share amount based on the closing price of the Company shares on the JSE on the last business
day prior to the date of grant.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-73
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
The main performance conditions in terms of the LTIP issued in 2006 and 2007 are:
•
up to 40 percent of an award will be determined by the performance of total shareholder returns (TSR) compared
with that of a group of comparative gold-producing companies;
•
up to 30 percent of an award will be determined by an adjusted earnings per share compared to a planned
adjusted earnings per share over the performance period;
•
up to 30 percent of an award will be dependent on the achievement of strategic performance measures which will
be set by the Remuneration Committee; and
•
three year’s service is required.
The main performance conditions in terms of the LTIP issued in 2008 are:
•
up to 30 percent of an award will be determined by the performance of total shareholder returns (TSR) compared
with that of a group of comparative gold-producing companies;
•
up to 30 percent of an award will be determined by real growth (above US inflation) in adjusted earnings per share
over the performance period;
•
up to 40 percent of an award will be dependent on the achievement of strategic performance measures which will
be set by the Remuneration Committee; and
•
three-year’s service is required.
During 2008, additional LTIP awards were made to all scheme participants as a result of the rights offer to ordinary
shareholders. The award was made in terms of the anti-dilution provision of the original grant. Employees did not
receive any benefit in excess of the original grant value and no additional compensation cost was recognized.
For awards made, the following information is presented:
Award date
2008 2007
2006
Calculated fair value
267.05
322.00
327.00
Vesting date
January 1, 2011
January 1, 2010
August 1, 2009
Expiry date
December 31, 2017
December 31, 2016
July 31, 2016
A summary of time related equity settled compensation scheme showing movement from the beginning of the year to
the end of the year, is presented below:
2008
Options
(000)
Outstanding at the beginning of the year
783
Granted
497
Granted as a result of rights offer
75
Exercised
(44)
Forfeited (terminations)
(321)
Outstanding at the end of the year
990
Exercisable at the end of the year
65
The total intrinsic value of awards outstanding at year-end was R250 million (2007: R230 million), with a weighted
average remaining contractual term of 8 years (2007: 8 years). The intrinsic value of awards exercised during the year
ended December 31, 2008 was R11 million. No awards were exercised during 2007 and 2006. LTIP awards are issued
with no exercise price.
During the years ended December 31, 2008, 2007 and 2006 the Company recognized a compensation expense of
$20 million, $12 million and $9 million, respectively, related to BSP and LTIP awards.
As of December 31, 2008, there was $12 million of unrecognized compensation cost related to unvested awards of the
BSP and LTIP plans. This cost is expected to be recognized over a weighted-average period of approximately 2 years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-74
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
Employee Share Ownership Plan (ESOP)
On December 12, 2006, AngloGold Ashanti announced the finalization of the Bokamoso Employee Share Ownership
Plan (Bokamoso ESOP) for employees of the South African operations. The Bokamoso ESOP creates an opportunity
for AngloGold Ashanti and the unions to ensure a closer alignment of the interest between South African based
employees and the Company. Participation is restricted to those employees not eligible for participation in any other
South African share incentive plan.
In order to facilitate these transactions the Company established a trust to acquire and administer the ESOP shares.
AngloGold Ashanti allotted and issued free ordinary shares to the trust and also created, allotted and issued E ordinary
shares to the trust for th e benefit of employees. The Company also undertook an empowerment transaction with a
Black Economic Empowerment investment vehicle, Izingwe Holdings (Proprietary) Limited (Izingwe) and recorded a
cost of $19 million during 2006, which was included in general and administrative expenses. The Company also
created, allotted and issued E ordinary shares to Izingwe. The key terms of the E ordinary share are:
•AngloGold Ashanti will have the right to cancel the E ordinary shares, or a portion of them, in accordance with the
ESOP and Izingwe cancellation formula, respectively;
• the E ordinary shares will not be listed;
• the E ordinary shares which are not cancelled will be converted into ordinary shares; and
• the E ordinary shares will each be entitled to receive a cash dividend equal to one-half of the dividend per ordinary
share declared by the Company from time to time and a further one-half is included in the calculation of the strike
price calculation.
The award of free shares to employees:
The fair value of each free share awarded in 2008 is R188 (2007: R306 and 2006: R320). The fair value is equal to the
market value at the date-of-grant. Dividends declared and paid to the trust will accrue and be paid to ESOP members,
pro rata to the number of shares allocated to them. An equal number of shares vests in 2009, and each subsequent
year up to expiry date of November 1, 2013.
A summary of time related equity settled compensation scheme showing movement from the beginning of the year to
the end of the year, is presented below:
2008
Options
(000)
Outstanding at the beginning of the year
910
Granted
58
Exercised
(58)
Forfeited (terminations)
(54)
Outstanding at the end of the year
856
Exercisable at the end of the year
-
The total intrinsic value of awards outstanding at year-end was R216 million (2007: R267 million), with a weighted
average remaining contractual term of 3 years (2007: 4 years). The intrinsic value of awards exercised during the years
ended December 31, 2008 and 2007 was R14 million and R14 million, respectively. No awards were exercised during
2006.
The Company awarded the right to acquire approximately one AngloGold Ashanti ordinary share for every four free
ordinary shares held in the rights offer finalized during July 2008. The benefit to employees were in terms of the anti-
dilution provision of the original grant and no additional compensation cost was recognized.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-75
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
The award of E ordinary shares to the employees:
The average fair value of the E ordinary shares awarded to employees in 2008 was R13 (2007: R79 and 2006: R105)
per share. Dividends declared in respect of the E ordinary shares will firstly be allocated to cover administration
expenses of the trust, whereafter it will accrue and be paid to ESOP members, pro rata to the number of shares
allocated to them. At each anniversary over a five year period commencing on the third anniversary of the original 2006
award, the Company will cancel the relevant number of E ordinary shares as stipulated by a cancellation formula. Any
E ordinary shares remaining in the tranche will be converted to ordinary shares for the benefit of the employees. All
unexercised awards will be cancelled on May 1, 2014.
The value of each share granted is estimated on the date of grant using the Black-Scholes option-pricing model. The
Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the
option award and stock price volatility. These estimates involve inherent uncertainties and the application of
management judgment. In addition, the Company is required to estimate the expected forfeiture rate and only
recognize expense for those options expected to vest. As a result, if other assumptions had been used, the Company’s
recorded compensation expense could have been different from that reported.
The Black-Scholes option-pricing model used the following assumptions, at grant date:
2008 2007
2006
Risk-free interest rate
7.00%
7.00%
7.00%
Dividend yield
1.39%
2.06%
2.30%
Volatility factor of market share price
35.00%
33.00%
36.00%
A summary of E ordinary shares, awarded to employees, showing movement from the beginning of the year to the end
of the year, is presented below:
2008
Options
(000)
2008
Weighted-
average
exercise price
R
Outstanding at the beginning of the year
2,731
307
Granted
172
324
Converted
(11)
310
Forfeited (terminations)
(163)
316
Cancelled
(162)
318
Outstanding at the end of the year
2,567
327
Exercisable at the end of the year
-
-
The options outstanding at year-end had no intrinsic value as the share price at year-end of R252 was lower than the
weighted average exercise price of R327 (2007: total intrinsic value of awards outstanding totaled Rnil million). The
options have a weighted average remaining contractual term of 3 years (2007: 4 years). The intrinsic value of options
exercised during the years ended December 31, 2008 and 2007 was less than R1 million. No awards were exercised
during 2006.
Weighted average exercise price is calculated as the initial grant price of R288 plus interest factor less dividend
apportionment. This value will change on a monthly basis.
During the years ended December 31, 2008, 2007 and 2006, the Company recognized a compensation expense of
$14 million, $18 million and $3 million, respectively, related to the ESOP scheme.
In addition to the above share scheme expenses relating to the Bokamoso ESOP plan, the Company awarded the right
to acquire approximately one AngloGold Ashanti ordinary share for every four E ordinary shares held in the rights offer
finalized during July 2008. The benefit to employees was in excess of the anti-dilution provision of the original grant and
additional compensation cost was recognized. The fair value at grant date of these rights awarded to Bokamoso was
calculated at R76 per right. The income statement charge relating to the rights offer to Bokamoso participants was
$6 million in 2008. As the rights were issued as fully vested, the expense was recorded immediately.
As of December 31, 2008, there was $14 million of unrecognized compensation cost related to unvested awards of the
ESOP scheme. This cost is expected to be recognized over the remaining scheme term of 5 years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-76
30.
SUBSEQUENT EVENTS
Repayment of convertible bond
The $1.0 billion convertible bond matured on February 27, 2009 and was redeemed by the Company using the
proceeds from the Standard Chartered Term Facility that had been arranged for this purpose. The Company has
signed an agreement with Standard Chartered amending the terms of the Term Facility signed in November 2008. The
amendment, which comes into effect upon repayment of $750 million of the facility prior to August 26, 2009 will, in
addition to the outstanding balance of $250 million allow the Company to retain revolving access to a further
$250 million. The margin over the bank’s capped cost of funds will now remain fixed at 4.25 percent for the full two year
period of the facility.
Sale of AngloGold Ashanti’s 33.33 percent joint venture interest in Boddington Gold Mine to Newmont Mining
Corporation
On January 28, 2009, AngloGold Ashanti announced that it had agreed to sell its indirect 33.33 percent joint venture
interest in the Boddington Gold Mine in Western Australia to Newmont Mining Corporation (Newmont). Consideration
for the sale consists of:
•
$750 million payable in cash upon the fulfillment of all conditions precedent expected to be fulfilled by
June 30, 2008;
•
$240 million that will be settled in December 2009, payable in cash and/or Newmont shares, at Newmont’s option;
and
•
A royalty capped at $100 million, calculated as the product of, 50 percent of the amount by which the average spot
gold price in each quarter exceeds the costs applicable to sales of the Boddington Gold Mine, as reported by
Newmont, by $600 per ounce and, one-third of total gold production from the Boddington Gold Mine in that
quarter. The royalty is payable in each quarter from and after the second quarter in 2010 that the above threshold
is achieved.
AngloGold Ashanti will be reimbursed for all contributions made to the joint venture after January 1, 2009 and
AngloGold Ashanti will pay Newmont $8 million in respect of its share of working capital at January 1, 2009.
Sale of Tau Lekoa mine
On February 17, 2009, AngloGold Ashanti announced that it had agreed to sell, with effect from January 1, 2010 (or
after), the Tau Lekoa mine together with the adjacent Weltevreden and Goedgenoeg project areas to Simmer and Jack
Mines Limited (Simmers) for an aggregate consideration of:
•
R600 million less an offset up to a maximum of R150 million for un-hedged free cash flow (net cash inflow from
operating activities less stay-in-business capital expenditure) generated by the Tau Lekoa mine in the period
between January 1, 2009 and December 31, 2009, as well as an offset for un-hedged free cash flow generated by
the Tau Lekoa mine in the period between January 1, 2010 and the effective date of the sale. Simmers shall
endeavor to settle the full amount in cash, however it may issue to AngloGold Ashanti ordinary shares in Simmers
up to a maximum value of R150 million, with the remainder payable in cash; and
•
a royalty (Royalty), determined at 3 percent of the net revenue (being gross revenue less state royalties)
generated by the Tau Lekoa mine and any operations as developed at Weltevreden and Goedgenoeg. The
Royalty will be payable quarterly for each quarter commencing from January 1, 2010 until the total production
upon which the Royalty is paid is equal to 1.5 million ounces and provided that the average quarterly rand price of
gold is equal to or exceeds R180,000 per kg (in January 1, 2010 terms).
As at December 31, 2008, the carrying amounts of major classes of assets and liabilities of Tau Lekoa included:
$
million
Inventories
2
Property, plant and equipment
45
Acquired properties
4
Trade and other payables
(2)
Provision for environmental rehabilitation
(3)
46
F-77
SOCIÉTÉ DES MINES DE MORILA S.A.
FINANCIAL STATEMENTS
for the year ended December 31, 2008
Registration number: 15430
Incorporated in the Republic of Mali
F-78
Société des Mines de Morila S.A.
Financial Statements
for the year ended December 31, 2008
Statement of responsibility by the board of directors
Report of Independent Registered Public Accounting Firm
Income statement
Balance sheet
Statement of changes in shareholders’ equity
Cash flow statement
Notes to the financial statements
F-79
Statement of Responsibility by the Board of Directors
For the year ended December 31, 2008
The directors are responsible for the preparation, integrity and fair presentation of the financial statements of Société des
Mines de Morila S.A.. The financial statements presented on pages 5 to 33 have been prepared in accordance with
International Financial Reporting Standards as issued by the IASB, and include amounts based on judgments and estimates
made by management.
The directors are also responsible for the Company’s system of internal financial controls. These are designed to provide
reasonable, but not absolute, assurance as to the reliability of the financial statements and to adequately safeguard, verify and
maintain accountability of assets, and to prevent and detect misstatement and loss. Nothing has come to the attention of the
directors to indicate that any material breakdown in the functioning of these controls, pr ocedures and systems has occurred
during the year under review.
The going concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that
the Company will not be a going concern in the foreseeable future based on forecasts and available cash resources. These
financial statements support the viability of the Company.
F-80
Report of the Independent Registered Public Accounting Firm
To the Members of Société des Mines de Morila S.A.
We have audited the accompanying balance sheet of Société des Mines de Morila S.A. (the Company) as of
December 31, 2008, and the related statement of income, shareholders’ equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. Our audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of express ing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Société
des Mines de Morila S.A. at December 31, 2008 and the results of its operations and its cash flows for the year then ended, in
conformity with International Financial Reporting Standards as issued by the IASB.
BDO Stoy Hayward LLP
London, England
April 22, 2009
F-81
Report of the Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Société des Mines de Morila S.A.
We have audited the accompanying balance sheet of Société des Mines de Morila S.A. (the Company) as of
December 31, 2006, and the related statement of income, shareholders’ equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for desig ning audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Société
des Mines de Morila S.A. at December 31, 2006 and the results of its operations and its cash flows for the year then ended, in
conformity with International Financial Reporting Standards.
Ernst & Young Inc. Registered Auditor
Johannesburg, Republic of South Africa
June 15, 2007
F-82
Société des Mines de Morila S.A.
Income Statements
for the years ended December 31,
Note
2008
$’000
2004Unaudited
$’000
Government of Mali
3 525
3 369
3 525
3 369
Made up of:
Principal
2 622
2 622
Deferred interest
903
747
3 525
3 369
The shareholder loan is denominated in US dollars and interest accrues at a LIBOR dollar rate plus 2% per annum. The
weighted average interest rate as at December 31, 2005 on the shareholders’ subordinated loans was 5.29%
(December 31, 2004: 4.19%).
5.
Environmental rehabilitation provision
20052007
$’000
2004
$’000
Opening balance
9 252
8 809
Accretion expense
637
443
9 889
9 252
F-97
5.
Environmental rehabilitation provision (continued)
The provisions for close down and restoration costs include estimates for the effect of future inflation and have been
discounted to their present value at 6% per annum, being an estimate of the risk free pre-tax, cost of borrowing.
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, the Company has estimated
that the remaining costs for Morila, in current monetary terms, will be $12.2 million (December 31, 2004: $12.2 million),
the majority of which will only be expended over the life of mine.
Although limited environmental rehabilitation regulations currently exist in Mali to govern the mines, management has
based the environmental rehabilitation provision using the standards as set by the World Bank which require an
environmental management plan, an annual environmental report, a closure plan, an up-to-date register of plans of the
facility, preservation of public safety on closure, carrying out rehabilitation works and ensuring sufficient funds exist for
the closure works. However, it is reasonably possible that the Company’s estimate of its ultimate rehabilitation liabilities
could change as a result of changes in regulations or cost estimates.
The Company is committed to rehabilitation of its properties and to ensure that it is adequately provided to do so it
makes use of independent environmental consultants to advise it. It also uses past experience in similar situations to
ensure that the provisions for rehabilitation are adequate.
There are no unasserted claims reflected in the provision.
While the ultimate closure costs may be uncertain, there are no uncertainties with respect to joint and several liability
that may affect the magnitude of the contingency as these are clearly defined in the Company’s mining convention.
There are no other potentially responsible parties to consider for cost sharing arrangements.
The Company carries insurance against pollution including cost of cleanup. At present, there are no losses and or
claims outstanding.
6.
Long term liabilities
20052006
$’000
2004Restated
(Note 2.5)
Revenue
370,586
319,218
314,878
Operating costs
(188,174) (170,332) (156,552)
182,412
148,886
158,326
Other (expenditure) / income – net
(5,108)
(990)
2,718
Operating profit
13
177,304
147,896
161,044
Finance income
21
246
362
651
Finance costs
21
(2,450)
(3,392)
(3,739)
Finance costs – net
21
(2,204)
(3,030)
(3,088)
Profit before taxation
175,100
144,866
157,956
Taxation 14
(57,971)
(52,058)
(57,717)
Net profit attributable to Equity Shareholders
117,129
92,808
100,239
The accompanying notes are an integral part of the financial statements.
F-83
Société des Mines de Morila S.A.
Balance sheets
At December 31,
Note
2008
$’000
a) Rolls Royce finance leaseUnaudited
11 9802007
14 468$’000
b) Morila Air Liquide finance lease
2 210
2 613
14 190
17 081
Less: Current portion of long term liabilities:ASSETS
a) Rolls Royce finance lease
2 633Non-current assets
2 489197,891 213,409
b) Morila Air Liquide finance lease
415
402
Property, plant and equipment
9
65,829
77,159
Deferred tax asset
8
3,897
5,408
Non-current receivables
12
6,087
28,822
Long-term
ore
stockpiles
10 122,078 102,020
Current assets
147,550 120,020
Inventories
10 95,917 72,061
Accounts
receivable
12 15,728 33,952
Prepaid expenses
8,429
14,007
Cash and cash equivalents
27,476
-
Total assets
345,441 333,429
EQUITY
AND
LIABILITIES
Capital and reserves
Share
capital
4 16 16
Distributable reserves
282,386 266,257
Shareholder’s equity
282,402 266,273
Non-current liabilities
21,259 22,808
Deferred tax liability
3,025
2,324
Shareholder’s
loan
5 4,040 3,860
Environmental rehabilitation provision
6
10,984
11,218
Interest bearing borrowings
7
3,210
5,406
Current liabilities
41,780 44,348
Accounts
payable
11 14216,608 22,495
14 190Taxation payable
a)
22,976
6,574
Short-term portion of interest bearing
borrowings
7 2,196 2,715
Bank overdrafts
-
12,564
Rolls Royce finance leaseTotal shareholders’ equity and liabilities
345,441 333,429
The accompanying notes are an integral part of the financial statements.
F-84
Société des Mines de Morila finance lease relates to five generators leased from Rolls Royce. The lease is repayable over tenS.A.
Statements of changes in shareholders’ equity
for the years ended December 31,
commencing April
Share
Capital
$’000
Retained
Income
$’000
Total
$’000
Balance at January 1, 20012005
16
221,710
221,726
Net profit for the year
-
100,239
100,239
Dividends declared and bears interest at a variable rate which aspaid
-
(76,000)
(76,000)
Balance at December 31, 2005 was
approximately 20% per annum based on2006
16
245,949
245,965
Net profit for the lease contract. The lease is collateralized by plantyear
-
92,808
92,808
Dividends declared and equipment
whose net book valuepaid
-
(72,500)
(72,500)
Balance at December 31, 2005 amounted to $12.1 million (2004: $14.1 million). Average lease2007
16
266,257
266,273
Net profit for the year
-
117,129
117,129
Dividends declared and paid
-
(101,000)
(101,000)
Balance at December 31, 2008
16
282,386
282,402
payment of $3.8 millionThe accompanying notes are payable in instalments over the terman integral part of the lease. Twofinancial statements.
F-85
Société des Mines de Morila S.A.
Cash flow statements
for the years ended December 31,
Note
2008
$’000
Unaudited
2007
$’000
2006
$’000
Restated
(Note 2.5)
Cash flows from operating activities
Profit after taxation
117,129
92,808
100,239
Adjustments:
- Tax expense
57,971
52,058
57,717
- Net finance charges
2,203
3,030
2,495
- Depreciation
13,397
13,566
15,583
- Provision for bad debt
-
(1,364)
1,137
190,700
160,098
177,171
Effects of changes in operating working capital items
- Receivables
19,591
(33,149)
(21,680)
- Inventories and ore stockpiles
(43,913)
(39,092)
(29,441)
- Accounts payable and accrued liabilities
(5,887)
5,437
(5,103)
Cash generated from operations before interest and tax
160,940
93,895
121,540
Taxation paid
15
(12,412)
(30,592)
(36,960)
Interest received
246
362
651
Interest paid –net
(2,449)
(3,392)
(2,982 )
Net cash generated from operating activities
146,505
60,445
82,249
Cash flows from investing activities
Additions to mining assets
(2,750)
(1,694)
(2,900)
Net cash flows utilized in investing activities
(2,750)
(1,694)
(2,900 )
Cash flows from financing activities
Long term liabilities repaid
(2,715) (3,243)
(2,825)
Increase in shareholder loan
180
171
-
Dividends paid
(101,000) (72,500)
(76,000)
Net cash flows utilized in financing activities
(103,535)
(75,572)
(78,825 )
Net increase/(decrease) in cash and equivalents
40,040
(16,992)
524
Cash and equivalents at beginning of year
(12,564)
4,428
3,904
Cash and equivalents at end of year
27,476
(12,564)
4,428
Cash at bank and in hand
27,476
(12,564)
4,428
The principal non-cash transactions are the acquisition of mining assets through finance leases (note 7) and the off-set of
income taxes against indirect tax receivables (note 15).
The accompanying notes are an integral part of the Company’s ultimatefinancial statements.
shareholders, being
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-86
1.
Nature of operations
Société des Mines de Morila S.A. (the “Company”) owns the Morila gold mine in Mali. The Company is owned 80% by
Morila Limited and 20% by the Government of Mali. Randgold Resources Limited and AngloGold Ashanti Limited jointly guaranteed
(formerly AngloGold Limited) each own 50% of Morila Limited. The Company is engaged in gold mining and related
activities, including exploration, extraction, processing and smelting. Gold bullion, the Company’s principal product, is
repaymentcurrently produced and sold in Mali.
2.
Significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These
policies have been consistently applied to all the lease.years presented and are consistent with prior years, except for the
change in accounting policy relating to stripping costs. Refer note 2.5.
2.1
b)
Morila Air Liquide finance leaseBasis of preparation
Morila Air Liquide finance lease relates to three oxygen generating units leased from Air Liquide for Morila. The
lease is payable over 10 years commencing December 1, 2000 and bears interest at a variable rate which
These financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as at
December 31, 2005 was approximately 3.09% per annum. The lease is collateralizedissued by the production units
whose net book value at December 31, 2005 amounted to $1.9 million (2004: $2.5 million)International Accounting Standards Board (IASB).
Finance lease liabilities – minimum lease payments:
F-98
6.
Long term liabilities (continued)
2005
$’000
2004
$’000
Not later than 1 year
5 349
5 645
Later than 1 year and not later than 5 years
16 017
17 751
Later than 5 years
834
4 449
22 200
27 845
Future finance costs of finance leases
(8 010)
(10 764)
Present value of finance lease liabilities
14 190
17 081
The present value of the finance lease liabilities is as follows:
Not later than 1 year
3 048
2 891
Later than 1 year and not later than 5 years
10 556
10 980
Later than 5 years
586
3 210
14 190
17 081
7. Deferred taxation
Deferred tax is calculated in full on temporary differencesfinancial statements have been
prepared under the liability method usinghistorical cost convention, as modified by certain financial assets and financial liabilities
(including derivative instruments), which are carried at fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the company’s
accounting policies. The areas involving a principal taxhigh degree of judgement or complexity, or areas where assumptions
35% (2004: 35%).and estimates are significant to the financial statements, are disclosed in note 3.
2.2
General
The movement on deferred taxationfinancial statements are measured and presented in US dollars, as it is a follows:
2005
$’000
2004
$’000
At beginning of the year
-
-
Income statement charge
3 019
-
At end of year
3 019
-
Deferred taxationprimary measurement currency
in which transactions are undertaken. Monetary assets and liabilities comprisein foreign currencies are translated to
US dollars at rates of exchange ruling at the end of the followingfinancial period. Translation gains and losses arising at
period-end, as well as those arising on the translation of settled transactions occurring in currencies other than
the functional currency, are included in net income.
2.3
Foreign currency translation
Deferred stripping(a) Functional and presentation currency
The consolidated financial statements are presented in US dollars, which is the Company’s functional and
presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognized in the income statement.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-87
2.
Significant accounting policies (continued)
2.4
Property, plant and equipment
(a) Undeveloped properties
Undeveloped properties upon which the Company has not deductible for taxperformed sufficient exploration work to determine
whether significant mineralization exists, are carried at original cost. Where the directors consider that there is
little likelihood of the properties being exploited, or the values of the exploitable rights have diminished below
cost, an impairment is recorded.
(b) Long-lived assets
3 067
-
Deferred taxation liability
3 067
-
Decelerated tax depreciation
(48)
-
Deferred taxation asset
(48)
-
Net deferred taxation liability
3 019
-
8. Mining assets
2005
$’000
2004
$’000
Opening carrying amount
117 754
130 505
Additions
4 358
6 002
Depreciation
(20 532)
(18 753)
Closing carrying amount
101 580
117 754
Cost
198 545
194 187
Accumulated depreciation
(96 965)
(76 433)
Carrying amount
101 580
117 754
Long-lived assets
Long-lived assets including development costs and mine plant facilities are thoseinitially recorded at cost. Where
relevant the estimated cost of dismantling the asset and remediating the site is included in the cost of property,
plant and equipment, subsequently they are measured at cost less accumulated amortisation and impairment.
Development costs and mine plant facilities relating to existing and new mines are capitalised. Development
costs consist primarily of direct expenditure incurred to establish or expand productive capacity, and are
capitalised until commercial levels of production are achieved, after which the costs are amortised.
(c) Short-lived assets
Short-lived assets whichincluding non-mining assets are amortizedshown at cost less accumulated depreciation and impairment.
(d) Depreciation and amortization
Long-lived assets include mining properties, mine development costs and mine plant facilities. Depreciation and
amortization in respect of long-lived assets are charged over the life of the mine based on estimated ore tons
contained in proven and probable reserves. Proven and probable ore reserves reflect estimated quantities of
economically recoverable reserves, which can be recovered in the future from known mineral deposits. Short-
lived assets, which include motor vehicles, office equipment and computer equipment, are compriseddepreciated over
estimated useful lives of between two to five years, using the straight-line method but limited to the life of mine.
(e) Impairment
The carrying amounts of the metallurgical
property, plant tailings and raw water dams, power plant and mine infrastructure. Thean d equipment of the Company are compared to the recoverable
amount of the assets whenever events or changes in circumstances indicate that the net book value may not be
recoverable. The recoverable amount is the higher of value in use and fair value less cost to sell.
In assessing the value in use, the expected future cash flows from the asset is determined by applying a
discount rate to the anticipated pre-tax future cash flows. The discount rate used is derived from the Company’s
credit-adjusted risk-free rate. Revenue for pit optimization assumptions are based on a gold price of $650
(2007: $550) and the extraction of proven and probable reserves as per the approved mine plan. Working costs
and sustaining capital expenditure are estimated based on the approved mine plan. An impairment is
recognized in the income statement to the extent that the carrying amount exceeds the assets’ recoverable
amount. The revised carrying amounts are depreciated in line with accounting policies.
A previously recognized impairment loss is reversed if the recoverable amount increases as a result of a reversal
of the conditions that originally resulted in the impairment. This reversal is recognized in the income statement
and is limited to the carrying amount that would have been determined, net of depreciation, had no impairment
loss been recognized in prior years.
The estimates of future discounted cash flows are subject to risks and uncertainties including the future gold
price. It is therefore reasonably possible that changes could occur which may affect the recoverability of mining
assets.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-88
2.
Significant accounting policies (continued)
2.5
Stripping costs
All stripping costs incurred (costs incurred in removing overburden to expose the ore) during the production
phase of a mine are treated as variable production costs and as a result are included in the cost of inventory
produced during the period that the stripping costs are incurred.
2.6
Inventories
Inventories, which include consumable stores, gold in process and ore stockpiled, are stated at the lower of cost
or net realizable value. The cost of ore stockpiles and gold produced is determined principally by the weighted
average cost method using related production costs. Costs of gold inventories include all costs incurred in gold
production such as milling costs, mining costs and directly attributable mine general and administration costs but
exclude transport costs, refining costs and royalties.
Net realizable value is determined with reference to current market prices. A selective mining process is used
and a number of grade categories exist. Full grade ore is defined as ore above 1.4g/t and marginal ore is
defined a sore between 1.0g/t and 1.4g/t. Mineralised waste is between 0.7g/t and 1.0g/t and was being less
than 0.7g/t. Full grade ore and margina l ore form part of inventory. Under present market conditions the
mineralised waste is classified as waste.
All stockpile grades are currently being processed and all ore is expected to be fully processed. This does not
include high grade tailings, which are carried at zero value due to uncertainty as to whether they will be
processed through the plant.
The processing of ore in stockpiles occurs in accordance with the life of mine processing plan that has been
optimized based on the known mineral reserves, current plant capacity and mine design.
Consumable stores are valued at average cost after appropriate provision for redundant and slow moving items
have been made.
2.7
Interest and borrowing cost
Interest and borrowing cost is recognised on a time proportion basis, taking into account the principal
outstanding and the effective rate over the period to maturity. Borrowing cost is expensed as incurred except to
the extent that it relates directly to the construction of property, plant and equipment during the time that is
required to complete and prepare the asset for its intended use, when it is capitalised as part of property, plant
and equipment. Borrowing cost is capitalised as part of the cost of the asset where it is probable that the asset
will result in economic benefit and where the borrowing cost can be measured reliably.
2.8
Financial instruments
Financial instruments are measured as indicated below. Financial instruments carried on the balance sheet
include cash and cash equivalents, receivables, accounts payable and borrowings.
2.9
Receivables
Receivables are recognised initially at fair value. There is a rebuttable presumption that the transaction price is
fair value unless this could be refuted by reference to market indicators. Subsequently, receivables are
measured at amortised cost using the effective interest method, less provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the company
will not be able to collect all amounts due according to the original terms of receivables.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-89
2.
Significant accounting policies (continued)
Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is
impaired. The amount of the provision is the difference between the asset’s carrying amount and the present
value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is
recognised in the income statement.
2.10 Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of the cash flow statement,
cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short term highly liquid
investments with a maturity of three months or less at the date of purchase and bank overdrafts. In the balance
sheet, bank overdrafts are included in current liabilities.
2.11 Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently
stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption
value is recognized in the income statement over the period of the borrowings using the effective interest
method.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement
of the liability for at least 12 months after the balance sheet date.
2.12 Accounts payable
Accounts payable and other short-term monetary liabilities, are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
2.13 Rehabilitation costs
The net present value of estimated future rehabilitation cost estimates is recognized and provided for in the
financial statements and capitalized to mining assets on initial recognition. Initial recognition is at the time of the
disturbance occurring and thereafter as and when additional environmental disturbances are created. The
estimates are reviewed annually to take into account the effects of inflation and changes in estimates and are
discounted using rates that reflect the time value of money.
Annual increases in the provision are charged to income and consist of finance costs relating to the change in
present value of the provision and inflationary increases in the provision estimate. The present value of
additional environmental disturbances created are capitalized to mining assets against an increase in the
rehabilitation provision. The rehabilitation asset is depreciated as not ed previously. Rehabilitation projects
undertaken, included in the estimates, are charged to the provision as incurred.
Environmental liabilities, other than rehabilitation costs, which relate to liabilities arising from specific events, are
expensed when they are known, probable and may be reasonably estimated.
2.14 Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of past
events where it is probable that an outflow of resources embodying economic benefits will be required to settle
the obligation, and a reliable estimate of the amount of the obligation can be made.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-90
2.
Significant accounting policies (continued)
2.15 Employee benefits
(a) Post employment benefits
The Company has a defined contribution plan. A defined contribution plan is a plan under which the Company
pays fixed contributions. The Company has no legal or constructive obligations to pay further contributions if the
fund does not hold sufficient assets to pay all employees.
Retirement benefits for employees of the Company are provided by the Mali Government social security system
to which the Company and its employees contribute a fixed percentage of payroll costs each month. The
Company has no further payment obligations once the contributions have been paid. The contributions are
recognized as employee benefit expense when they are due.
(b) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes
termination benefits when it is demonstrably committed to either: terminating the employment of current
employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits
as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after
balance sheet date are discounted to present value.
2.16 Finance Leases
Leases of plant and equipment where the Company assumes a significant portion of risks and rewards of
ownership are classified as a finance lease. Finance leases are capitalized at the estimated present value of the
underlying lease payments. Each lease payment is allocated between the liability and the finance charges to
achieve a constant rate on the finance balance outstanding. The interest portion of the finance payment is
charged to the income statement over the lease period. The plant and equipment acquired under the finance
lease are depreciated over the shorter of the lease term or the useful lives of the assets.
2.17 Revenue recognition
Revenue is recognized as follows:
a)
Gold sales - Revenue arising from gold sales is recognized when the risks and rewards of ownership and
title pass to the buyer under the terms of the applicable contract and the pricing is fixed and determinable.
These are met when the gold and silver leaves the mine’s smelthouse.
As gold sales are subject to customer survey adjustment, sales are initially recorded on a provisional basis
using the Company’s best estimate of contained metal. Subsequently adjustments are recorded in turnover
within a matter of days to take into account final assay and weight certificates from the refinery, if different
from the initial certificates. Historically the differences between the estimated and actual contained gold
have not been significant.
b) Interest income - Interest is recognized on a time proportion basis, taking into account the principal
outstanding and the effective rate over the period to maturity. Interest income is included within finance
income.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-91
2.
Significant accounting policies (continued)
2.18 Exploration costs
The Company expenses all exploration and evaluation expenditures until the directors conclude that a future
economic benefit is more likely than not of being realised, i.e. “probable”. In evaluating if expenditures meet this
criterion to be capitalised, the directors utilise several different sources of information depending on the level of
exploration. While the criteria for concluding that expenditure should be capitalised is always probable, the
information that the directors use to make that determination depends on the level of exploration.
a)
Exploration and evaluation expenditure on brownfield sites, being those adjacent to mineral deposits which
are already being mined or developed, is expensed as incurred until the directors are able to demonstrate
that future economic benefits are probable through the completion of a prefeasibility study, after which the
expenditure is capitalised as a mine development cost. A ‘prefeasibility study’ consists of a comprehensive
study of the viability of a mineral project that has advanced to a stage where the mining method, in the case
of underground mining, or the pit configuration, in the case of an open pit, has been established, and which,
if an effective method of mineral processing has been determined, includes a financial analysis based on
reasonable assumptions of technical, engineering, operating economic factors and the evaluation of other
relevant factors. The prefeasibility study, when combined with existing knowledge of the mineral property
that is adjacent to mineral deposits that are already being mined or developed, allow the directors to
conclude that it is more likely than not that the company will obtain future economic benefit from the
expenditures.
b)
Exploration and evaluation expenditure on greenfield sites, being those where the company does not have
any mineral deposits which are already being mined or developed, is expensed as incurred until a final
feasibility study has been completed, after which the expenditure is capitalised within development costs if
the final feasibility study demonstrates that future economic benefits are probable.
c)
Exploration and evaluation expenditure relating to extensions of mineral deposits which are already being
mined or developed, including expenditure on the definition of mineralisation of such mineral deposits, is
capitalised as a mine development cost following the completion of an economic evaluation equivalent to a
prefeasibility study. This economic evaluation is distinguished from a prefeasibility study in that some of the
information that would normally be determined in a prefeasibility study is instead obtained from the existing
mine or development. This information when combined with existing knowledge of the mineral property
already being mined or developed, allow the directors to conclude that more likely than not the group will
obtain future economic benefit from the expenditures. Costs relating to property acquisitions are also
capitalised. These costs are capitalised within developm ent costs.
2.19 Current taxation
Current tax is the tax expected to be payable on the taxable income for the year calculated using rates (and
laws) that have been enacted or substantively enacted by the balance sheet date. It includes adjustments for tax
expected to be payable or recoverable in respect of previous periods.
2.20 Deferred taxation
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the
temporary difference arise from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not
accounted for.
Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the
balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax
liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will
be available against which the temporary differences can be utilised.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-92
2.
Significant accounting policies (continued)
2.21 Recent accounting pronouncements
The following standards and interpretations which have been recently issued or revised have not been adopted
early by the group. Their expected impact is discussed below:
• Amendment to IAS 23 Borrowing Costs (effective for annual periods beginning on or after
1 January 2009).
The amendment removes the option of immediately recognising as an expense borrowing costs that relate to
qualifying assets (assets that take a substantial period of time to get ready for use or sale). Instead, an entity will
be required to capitalise borrowing costs whenever the conditions for capitalisation are met. The company will
apply amendments to IAS 23 from 1 January 2009, but it is not expected to have any significant impact on the
accounts of the company.
• Amendment to IFRS 2 Share-based Payment: Vesting Conditions and cancellations (effective for
annual periods beginning on or after 1 January 2009).
This amendment clarifies that vesting conditions are service conditions and performance conditions only. Other
features of a share-based payment are not vesting conditions. The purpose of making the distinction is so as to
be able to address the accounting for non-vesting conditions, which were not previously covered by IFRS 2. The
guidance in IFRS 2 covering the accounting for vesting conditions is not affected by the amendment. The
amendment also specifies that all cancellations, whether by the entity or by other parties, should receive the
same accounting treatment. The amendment is likely to have a particular impact on entities operating Save As
You Earn (SAYE) schemes because it results in an immediate acceleration of the IFRS 2 expense if an
employee decides to stop contributing to the savings plan, as well as a potential revision to the fair value of the
awards granted to factor in the probability of employe es withdrawing from such a plan. The company will apply
amendments to IFRS 2 from 1 January 2009, but it is not expected to have any significant impact on the
accounts of the company.
• Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation (effective for
annual periods beginning on or after 1 January 2009).
The amendment to IAS 1 affects the presentation of owner changes in equity and of comprehensive income. An
entity will be required to present, in a statement of changes in equity, all owner changes in equity. All non-owner
changes in equity (i.e. comprehensive income) are required to be presented in one statement of comprehensive
income or in two statements (a separate income statement and a statement of comprehensive income). The
standard does not change the recognition, measurement or disclosure of specific transactions and other events
required by other IFRSs. The company will apply amendments to IAS 1 from 1 January 2009, but it is not
expected to have any significant impact on the accounts of the company.
• Amendments to IAS 27 Consolidated and Separate Financial Statements (effective for annual periods
beginning on or after 1 July 2009).
This amendment relates in particular to acquisitions of subsidiaries achieved in stages and disposals of interests,
with significant differences in the accounting depending on whether control is gained or not, or a transaction
simply results in a change in the percentage of the controlling interest. The amendment does not require the
restatement of previous transactions. The amendment to IAS 27 must be adopted at the same time as IFRS 3
Revised. The company will apply amendments to IAS 27 from 1 July 2009, but it is not expected to have any
significant impact on the accounts of the company.
•Amendments to IAS 32 and IAS 1 Puttable Financial Instruments and Obligations Arising on
Liquidation (effective for annual periods beginning on or after 1 January 2009).
This amendment results in certain types of financial instrument that meet the definition of a liability, but represent
the residual interest in the net assets of the entity, being classified as equity. The amendment requires entities
to classify the following types of financial instruments as equity, provided they have particular features and meet
specific conditions: (a) Puttable financial instruments; and, (b) instruments, or components of instruments, that
impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only
on liquidation. The company will apply amendments to IAS 32 from 1 January 2009, but it is not expected to
have any significant impact on the accounts of the company.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-93
2.
Significant accounting policies (continued)
• Amendments to IFRS 1 and IAS 27 Cost of an Investment in a subsidiary, jointly-controlled entity or
associate (effective for annual periods beginning on or after 1 January 2009).
This amendment allows a first-time adopter that, in its separate financial statements, elects to measure its
investments in subsidiaries, jointly controlled entities or associates at cost to initially recognise these investments
either at cost determined in accordance with IAS 27 or deemed cost (being either its fair value at the date of
transition to IFRSs or its previous GAAP carrying amount at that date). The company will apply amendments to
IFRS 1 and IAS 27 from 1 January 2009, but it is not expected to have any impact on the accounts of the
company.
• Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items
(effective for annual periods beginning on or after 1 July 2009).
This amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is
eligible for designation should be applied in the designation of a one-sided risk in a hedged item, and inflation in
a financial hedged item. The company will apply amendments to IAS 39 from 1 July 2009, but it is not expected
to have any impact on the accounts of the company.
• IFRIC 13 Customer Loyalty Programmes (effective for annual periods beginning on or after 1 July 2008).
The Interpretation addresses accounting by entities that grant loyalty award credits (such as ‘points’ or travel
miles) to customers who buy other goods or services. Specifically, it explains how such entities should account
for their obligations to provide free or discounted goods or services (‘awards’) to customers who redeem award
credits. The Interpretation requires entities to allocate some of the proceeds of the initial sale to the award
credits and recognise these proceeds as revenue only when they have fulfilled their obligations. They may fulfil
their obligations by supplying awards themselves or engaging (and paying) a third party to do so. The company
will apply IFRIC 13 from 1 January 2009, but it is not expected to have any impact on the accounts of the
company.
•IFRIC 15 Agreements for the Construction of Real Estate (effective for annual periods beginning on or
after 1 January 2009).
This Interpretation clarifies the definition of a construction contract, the interaction between IAS 11 and IAS 18
and provides guidance on how to account for revenue when the agreement for the construction of real estate
falls within the scope of IAS 18. For some entities, the Interpretation may give rise to a shift from the recognition
of revenue using the percentage of completion method to the recognition of revenue at a single time (e.g. at
completion, upon or after delivery). Affected agreements will be mainly those accounted for in accordance with
IAS 11 that do not meet the definition of a construction contract as interpreted by the IFRIC and do not result in a
‘continuous transfer’ (i.e. agreements in which the entity transfers to the buyer control and the significant risks
and rewards of ownership of the work in progress in its current state as construction progresses). The company
will apply IFRIC 15 from 1 January 2009, but it is not expected to have any significant impact on the accounts of
the company.
•IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective for annual periods beginning on
or after 1 October 2008).
IFRIC 16 clarifies that: (a) The presentation currency does not create an exposure to which an entity may apply
hedge accounting. Consequently, a parent entity may designate as a hedged risk only the foreign exchange
differences arising from a difference between its own functional currency and that of its foreign operation. (b) The
hedging instrument(s) may be held by any entity or entities within the group, other than the entity being hedged.
(c) While IAS 39 Financial Instruments: Recognition and Measurement must be applied to determine the amount
that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the
hedging instrument, IAS 21 The Effects of Changes in Foreign Exchange Rates must be applied in respect of the
hedged item. IFRIC 16 applies prospectively from its effective date. The company will apply IFRIC 16 from
1 January 2009, but it is not expected to have any impact on the accounts of the company.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-94
2.
Significant accounting policies (continued)
•IFRIC 17 Distributions of Non-cash Assets to Owners Estate (effective for annual periods beginning on
or after 1 July 2009).
Prior to this interpretation, IFRSs did not address how an entity should measure distributions of assets other than
cash when it pays dividends. Dividends payable were sometimes recognised at the carrying amount of the
assets to be distributed and sometimes at their fair value. The Interpretation clarifies that: a dividend payable
should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the
entity; that an entity should measure the dividend payable at the fair value of the net assets to be distributed;
and, that an entity should recognise the difference between the dividend paid and the carrying amount of the net
assets distributed in profit or loss. The Interpretation also requires an entity to provide additional disclosures if
the net assets being held for distribution to owners meet the definition of a discontinued operation. IFRIC 17
applies to pro rata distributions of non-cash assets except f or common control transactions. It does not have to
be applied retrospectively. The company will apply IFRIC 17 from 1 January 2010, but it is not expected to have
any impact on the accounts of the company.
• IFRS 8 Operating Segments Estate (effective for annual periods beginning on or after 1 January 2009).
This standard requires an entity to adopt the ‘management approach’ to reporting on the financial performance of
its operating segments. Generally, the information to be reported would be what management uses internally for
evaluating segment performance and deciding how to allocate resources to operating segments. Such
information may be different from what is used to prepare the income statement and balance sheet. The
standard also requires explanations of the basis on which the segment information is prepared and
reconciliations to the amounts recognised in the income statement and balance sheet. The company will apply
IFRS 8 from 1 January 2009, but it is not expected to have any significant impact on the accounts of the
company.
•Improvements to IFRSs (effective for annual periods beginning on or after 1 January 2009).
This amendment takes various forms, including the clarification of the requirements of IFRSs and the elimination
of inconsistencies between Standards. The most significant changes cover the following issues: The
classification of assets and liabilities as held for sale where a non-controlling interest is retained; accounting by
companies that routinely sells assets previously held for rental to others; accounting for loans given at a nil or
below market rate of interest; the reversal of impairments against investments in associates accounted for using
the equity method; the timing of expense recognition for costs incurred on advertising and other promotional
activity; and, accounting for properties in the course of construction. The company will apply improvements to
IFRSs from 1 January 2009, but it is not expected to have any significant impact on the accounts of the
company.
•Revised IFRS 1 First-time Adoption of international Financial Reporting Standards (effective for
annual periods beginning on or after 1 January 2009).
The revised version of IFRS 1 has an improved structure but does not contain any technical changes. This
revision is not applicable to the company, as it already prepares it financial statements under IFRS.
• Revised IFRS 3 Business Combinations (effective for annual periods beginning o or after 1 July 2009).
The basic approach of the existing IFRS 3 to apply acquisition accounting in all cases and identify an acquirer is
retained in this revised version of the standard. This includes much of the current guidance for the identification
and recognition of intangible assets separately from goodwill. However, in some respects the revised standard
may result in very significant changes, including: The requirement to write of all acquisition costs to profit or loss
instead of including them in the cost of investment; the requirement to recognise an intangible asset even if it
cannot be reliably measured; and, an option to gross up the balance sheet for goodwill attributable to minority
interests (which are renamed ‘non-controlling interests’). The revised standard does not require the restatement
of previous business combinations. Revised IFRS 3 must be adopted at the same time as the amendment to
IAS 27. The company will apply revised IFRS 3 from 1 January 2009, but it is not expected to have any
significant impact on the accounts of the company.
The company has adopted the following standards which is effective for the first time this year. The impact is
discussed below:
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-95
2.
Significant accounting policies (continued)
• IFRIC INTERPRETATION 11 IFRS 2 SHARE-BASED PAYMENT - GROUP AND TREASURY SHARE
TRANSACTIONS (effective for annual periods beginning on or after 1 March 2007)
This interpretation addresses the classification of a share based payment transaction (as equity or cash-settled),
in which equity instruments of the parent or another group entity are transferred, in the financial statements of
the entity receiving accounts of the company or group. The company has applied IFRIC Interpretation 11 from
1 January 2008, but it has not had any impact on the accounts of the company.
• IFRIC INTERPRETATION 12 SERVICE CONCESSION ARRANGEMENTS (effective for annual periods
beginning on or after 1 January 2008)
This interpretation provides guidance to private sector entities on certain recognition and measurement issues
that arise in accounting for public to private service concession arrangements. The company has applied IFRIC
Interpretation 12 from 1 January 2008, but it has not had any impact on the accounts of the company.
• IFRIC 14 AND IAS 19 THE LIMITS ON DEFINED ASSET, MINIMUM FUNDING REQUIREMENTS AND
THEIR INTERACTION (for annual periods beginning on or after 1 January 2008).
This interpretation clarifies when refunds or reductions in future contributions should be regarded as available in
accordance with paragraph 58 of IAS 19, how a minimum funding requirement might affect the availability of
reductions in future contributions and when a funding requirement might give rise to a liability. The company has
applied IFRIC Interpretation 14 from 1 January 2008, but it has not had any impact on the accounts of the
company.
•AMENDMENTS TO IAS 39 AND IFRS7: RECLASSIFICATION OF FINANCIAL INSTRUMENTS
(effective 1 July 2008) AMENDMENTS TO IAS 39 AND IFRS7: RECLASSIFICATION OF FINANCIAL
INSTRUMENTS – EFFECTIVE DATE AND TRANSITION (effective 1 July 2008)
This amendment permits an entity to reclassify non-derivative financial assets (other than those designated at
fair value through profit or loss by the entity upon initial recognition) out of the fair value through profit or loss
category in particular circumstances. The amendment also permits an entity to transfer from the available-for-
sale category to the loans and receivables category a financial asset that would have met the definition of loans
and receivables (if the financial asset had not been designated as available for sale), if the entity has the
intention and ability to hold that financial asset for the foreseeable future. The company has applied the
amendment to IAS39 and IFRS7 from 1 July 2008, but it has not had any impact on the accounts of the
company.
3.
Critical accounting estimates and judgements
Some of the accounting policies require the application of significant judgement by management in selecting the
appropriate assumptions for calculating financial estimates. By their nature, these judgements are subject to an inherent
degree of uncertainty and are based on historical experience, terms of existing contracts, management’s view on trends
in the gold mining industry and information from outside sources.
Key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are:
Future rehabilitation obligations
The net present value of current rehabilitation estimates have been discounted to their present value at 3.5% per annum
(2007: 4%), being an estimate of the prevailing interest rates. Expe nditure is expected to be incurred at the end of the
mine life. For further information, including the carrying amounts of the liabilities, refer to note 6. A 1% change in the
discount rate of the company’s rehabilitation estimates would result in a US$0.7 million (2007: US$0.7 million) impact on
the provision for environmental rehabilitation.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-96
3.
Critical accounting estimates and judgements (continued)
Determination of ore reserves
The company estimates its ore reserves and mineral resources based on information compiled by Competent Persons
as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and ore
Reserves of December 2004 (the JORC code). Reserves determined in this way are used in the calculation of
depreciation, amortization and impairment charges, as well as the assessment of the carrying value of mining assets.
There are numerous uncertainties inherent in estimating ore reserves and assumptions that are valid at the time of
estimation may change significantly when new information becomes available. Changes in the forecast prices of
commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and
may, ulti mately, result in the reserves being restated.
Gold price assumptions
The gold price used in the mineral reserves optimization calculation is US$650 (2007: US$525). Changes in the gold
price used could result in changes in the mineral reserve optimization calculations. Mine modeling is a complex process
and hence it is not feasible to perform sensitivities on gold price assumptions.
Indirect taxes receivable
Given their slow moving nature, the group has had to apply judgement in determining when amounts will be recovered
with respect to indirect taxes owing by the Mali Government. The amounts reflected in the financial statements are
based on the directors’ best estimate of the timing of the recovery of these amounts. For further information, including
carrying amounts of the assets, refer to note 12.
Areas of judgement made in applying specific accounting policies that have the most significant effect on the amounts
recognized in the financial statements are:
Exploration and evaluation expenditure
The Company has to apply judgement in determining whether exploration and evaluation expenditure should be
capitilised or expensed, under the policy described in note 2. Management exercises this jdugement based on the
results of economic evaluation, prefeasibility or feasibility studies. Costs are capitalized where those studies conclude
the more likely than not that the company will obtain future economic benefit from the expenditures.
Depreciation
There are several methods for calculating depreciation, i.e. the straight-line method, the units of production method
using ounces produced and the units of production method using tonnes milled. The directors believe that the tonnes
milled method is the best indication of plant and infrastructure usage.
Carrying values of property, plant and equipment
The company assess at each reporting period whether there is any ind ication that these assets may be impaired. If
such indication exists, the company estimates the recoverable amount of the asset. The recoverable amount is
assessed by reference to the higher of “value in use” (being the net present value of expected future cash flows of the
relevant cash generating unit) and “fair value less cost to sell” . The estimates used for impairment reviews are based
on detailed mine plans and operating plans. Future cash flows are based on estimates of:
•The quantities of the reserves and mineral resources for which there is a high degree of confidence in economic
extraction;
• Future production levels;
• Future commodity prices;
• Future cash cost of production, capital expenditure, close down, restoration and environmental clean up; and
• Future gold prices (a US$800 gold price was $97.8used for the current year’s impairment calculations).
Société des Mines de Morila S.A.
million as atNotes to the financial statements
for the year ended December 31, 2005 (2004: $112.5 million).2006, 2007 and 2008
F-97
Short-lived assets4. Sharecapital
Short-lived assets are those assets which are amortized over their useful life
Share capital consists of the following authorized and are comprised of motor vehicles and
other equipment. The net bookissued ordinary par value shares with a nominal value of these assets was $3.8 million as at December 31, 2005 (2004: $5.3 million).
Communauté Financière Africaine franc (“CFA”) 10 000 ($16.356) each:F-99
9.Number of Shares
Deferred strippingauthorized and
2005issued
Unaudited
2008
$’000
2004Unaudited
2007
$’000
Opening balance
36 755
26 298
Additions during the year
-
10 457
Utilized during the year
(27 993)
-
Short-term portion
(2 817)
(15 925)
5 945
20 830
In terms of the life of mine plan, pre-stripping is performed in the earlier years. This results in the cost associated with
waste stripped at a rate higher than the expected pit life average stripping ratio, being deferred to later years. These
costs will be released in the period where the actual stripping ratio decreases to below such expected pit life ratio. The
expected pit life average stripping ratios used to calculate the deferred stripping were 4.36 in 2005, 3.35 in 2004 and
3.68 in 2003. The change in the average stripping ratio was due to a change in the expected average life-of-mine
stripping ratio in 2005 compared to 2004. $28.0 million in costs were utilized. The deferred/released stripping costs,
were calculated taking into account the actual strip ratios achieved of 2.47 for 2005, 4.98 for 2004 and 4.77 in 2003.
In addition to the above, preproduction stripping costs $8 million were capitalized as part of mining assets on initial
commissioning of the mine.
10. Inventories
2005
$’000
2004
$’000
Consumables stores
22 141
14 778
Gold in process
2 282
3 629
Short-term portion of ore stockpiles
32 440
6 925
56 863
25 332
Long-term portion of ore stockpiles
69 670
30 135
126 533
55 467
Ore stockpiles have been split between long and short-term based on the current life of mine plan estimates.
11.
Accounts receivable
2005
$’000
2004
$’000
Related party receivables
-
Randgold ResourcesMorila Limited
-800
213
-13
AngloGold Ashanti Limited
-115,970
221.6%
3
88,458
1.3%
4
Other investments exceeding 5% of
total plan assets
Bonds
RSA R157 Government Bonds 13.5%
-
AngloGold Services Mali S.A.
5.4%
16
IFM Corporate Bond Unit Trust
117,299,950
6.6%
12
-
111Allan Gray Orbis Global Equity Fund
316,082
13.4%
25
-
Societe d’ Exploitation des Mines d’Or de Sadiola S.A.
37
16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-63
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
Cash flows
Contributions
The Company expects to contribute $4 million (2008: $6 million) to its pension plan in 2009.
$
million
Estimated future benefit payments
The following pension benefit payments, which reflect the expected future service, as appropriate, are expected to be
paid:
2009
15
2010
15
2011
15
2012
14
2013
14
2014 – 2018
69
South Africa post-retirement medical benefits
The provision for post-retirement medical funding represents the provision for health care benefits for employees and
retired employees and their registered dependants. The post-retirement benefit costs are assessed in accordance with
the advice of independent professionally qualified actuaries. The actuarial method used is the projected unit credit
funding method. This scheme is unfunded. The last actuarial valuation was performed at December 31, 2008.
Information with respect to the defined benefit liability, which includes post-retirement medical benefits for
AngloGold Ashanti South Africa employees, for the year ended December 31, is set forth in the table below:
Other benefits
2008
$
2007
$
2006
$
Change in benefit obligation
Benefit obligation at January 1,
168
159
188
Service cost
1
1
1
Interest cost
11
12
13
Plan participants contributions
4
5
5
Benefits paid
(15) (16) (17)
Actuarial (gain)/loss
(8) 1
(14)
Translation
(46) 6
(17)
Benefit obligation at December 31,
115
168
159
Unfunded status of the end of the year
(115)
(168)
(159)
Net amount recognized
(115) (168) (159)
Components of net periodic benefit cost
Service cost
1
1
1
Interest cost
11
12
13
Actuarial gains and losses
(8) 1
(14)
4
14
-
95
The assumptions used in calculating the above amounts are:
Discount rate
7.25% 8.25% 8.00%
Expected increase in health care costs
5.50%
6.75%
4.75%
Assumed health care cost trend rates at December 31,
5.50%
6.75%
4.75%
Health care cost trend assumed for next year
5.50%
6.75%
4.75%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)
Assumed health care cost trend rates have a significant effect on the amounts reported for
health care plans. A one percentage-point change in assumed health care cost trend rates
would have the following effect:
1-percentage point
increase
1-percentage point
decrease
Effect on total service and interest cost
1
(1)
Effect on post-retirement benefit obligation
11
(10)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-64
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
Cash flows
Post-retirement medical plan
The Company expects to contribute $22 million (2008: $28 million) to the post-retirement medical plan in 2009.
$
million
Estimated future benefit payments
The following medical benefit payments, which reflect the expected future service, as appropriate, are expected to be
paid:
2009
13
2010
13
2011
13
2012
13
2013
13
2014 – 2018
50
Other defined benefit plans
Other defined benefit plans include the Ashanti Retired Staff Pension Plan, the Obuasi Mines Staff Pension Scheme,
the Post-retirement medical scheme for Rand Refinery employees, the Retiree Medical Plan for North American
employees, the Supplemental Employee Retirement Plan for North America (USA) Inc. employees and the Nuclear
Fuels South Africa (NUFCOR) – Retiree Medical Plan for Nufcor South African employees.
Information in respect of other defined benefit plans for the years ended December 31, 2008, 2007 and 2006 have been
aggregated in the tables of change in benefit obligations, change in plan assets and components of net periodic benefit
cost as follows:
Aggregated information in respect of the other defined benefit plans, for the year ended December 31, is set
forth in the table below:
2008
$
2007
$
2006
$
Change in benefit obligations
Balance at January 1,
18
19
18
Interest cost
-
Boart Long Year Mali1
-
Actuarial loss
-
-
2
-Benefits paid
AngloGold Mines de Siguiri Guinea(1) (1) (1)
Translation
-
176
Gold sales trade receivable
8 991
9 886
Value added tax
24 763
13 297
Custom duties receivable
17 206
16 695
MDM receivable
2 522(1)
-
OtherBalance at December 31,
17
18
19
Change in plan assets
Fair value of plan assets at January 1,
9
8
8
Actual return on plan assets
(1)
-
-
Translation
(2)
1
-
Fair value of plan assets at December 31,
6
9
8
Unfunded status at end of year
(11) (9) (11)
Net amount recognized
(11) (9) (11)
Components of net periodic benefit cost
Interest cost
-
1
-
Actuarial gains and losses
1
-
2 047
1
1
2
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-65
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
Cash flows
The other retirement defined benefit plans are all closed to new members and current members are either retired or
deferred members. The Company does not make a contribution to these plans.
$
million
Estimated future benefit payments
The following pension benefit payments, which reflect the expected future service, as appropriate, are expected to be
paid:
2009
1
2010
1
2011
1
2012
1
2013
1
2014 – 2018
5
Defined contribution funds
Contributions to the various retirement schemes are fully expensed during the year and the cost of contributions to
retirement benefits for the year amounted to $49 million (2007: $51 million, 2006: $40 million).
Australia (Boddington and Sunrise Dam)
The region contributes to the Australian Retirement Fund for the provision of benefits to employees and their
dependants on retirement, disability or death. The fund is a multi-industry national fund with defined contribution
arrangements. Contribution rates by the operation on behalf of employees varies, with minimum contributions meeting
compliance requirements under the Superannuation Guarantee legislation. Members also have the option of
contributing to approved personal superannuation funds. The contributions by the operation are legally enforceable to
the extent required by the Superannuation Guarantee legislation and relevant employment agreements. The cost to the
Company of all these contributions amounted to $3 million (2007: $3 million, 2006: $2 million).
Namibia (Navachab)
Navachab employees are members of a defined contribution provident fund. The fund is administered by the Old
Mutual Insurance Company. Both the Company and the employees contribute to this fund. AngloGold Ashanti Limited
seconded employees at Navachab remain members of the applicable pension or retirement fund in terms of their
conditions of employment with AngloGold Ashanti Limited. The cost of providing retirement benefits for the year
amounted to $1 million (2007: $1 million, 2006: $1 million).
Tanzania (Geita)
Geita does not have a retirement scheme for employees. Tanzanian nationals contribute to the National Social Security
Fund (NSSF) or the Parastatal Provident Fund (PPF), depending on the employee’s choice, and the Company also
makes a contribution on the employee’s behalf to the same fund. On leaving the Company, employees may withdraw
their contribution from the fund. From July 2005, the Company has set up a supplemental provident fund which is
administered by the Parastatal Provident Fund (PPF) with membership available to permanent national employees on a
voluntary basis. The Company makes no contribution towards any retirement schemes for contracted expatriate
employees. AngloGold Ashanti Limited employees seconded in Tanzania remain members of the applicable pension or
retirement fund in terms of their conditions of employment with AngloGold Ashanti Limited. The Company contributes to
the National Social Security Fund (NSSF) on behalf of expatriate employees. On termination of employment the
Company may apply for a refund of contributions from the NSSF.
North America (Cripple Creek & Victor)
AngloGold Ashanti USA sponsors a 401(k) savings plan whereby employees may contribute up to 60 percent of their
salary, of which up to 5 percent is matched at a rate of 150 percent by AngloGold Ashanti USA. AngloGold Ashanti
USA's contributions were $2 million (2007: $1 million, 2006: $2 million).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-66
27.
PROVISION FOR PENSION AND OTHER POST-RETIREMENT MEDICAL BENEFITS (continued)
South America (AngloGold Ashanti Brasil Mineração, Cerro Vanguardia and Serra Grande)
The AngloGold Ashanti South America region operates defined contribution arrangements for their employees in Brazil.
These arrangements are funded by the operations (basic plan) and operations/employees (optional supplementary
plan). A PGBL fund, similar to the American 401 (k) type of plan was started in December 2001. Administered by
Bradesco Previdencia e Seguros (which assumes the risk for any eventual actuarial liabilities), this is the only private
pension plan sponsored by the Company in the country. Employees in Argentina contribute 11 percent of their salaries
towards the Argentinean government pension fund. The Company makes a contribution of 17 percent of an employee’s
salary on beha lf of employees to the same fund. Contributions amounted to $3 million (2007: $5 million,
2006: $2 million).
Ghana and Guinea (Iduapriem, Obuasi and Siguiri)
Ghana and Guinea contribute to provident plans for their employees which are defined contribution plans. The funds
are administered by Boards of Trustees and invested mainly in Ghana and Guinea government treasury instruments,
fixed interest deposits and other projects. The costs of these contributions for the year amounted to $4 million
(2007: $4 million, 2006: $3 million).
South Africa (Great Noligwa, Kopanang, Moab Khotsong, Mponeng, Savuka, Tau Lekoa and TauTona)
South Africa contributes to various industry-based pension and provident retirement plans which cover substantially all
employees and are defined contribution plans. These plans are all funded and the assets of the schemes are held in
administrated funds separately from the Company's assets. The cost of providing these benefits amounted to
$36 million (2007: $36 million, 2006: $29 million).
28.
SEGMENT AND GEOGRAPHICAL INFORMATION
The Company produces gold as its primary product and does not have distinct divisional segments in terms of principal
business activity, but manages its business on the basis of different geographic segments. This information is consistent
with the information used by the Company’s Chief Operating Decision Maker in evaluating operating performance of,
and making resource allocation decisions among, operations.
Business segment data
Year ended December 31
2008
$
2007
$
2006
$
Revenues
Revenues from product sales:
South Africa
986
1,472
1,513
Argentina
98
129
118
Australia
214
378
307
Brazil
272
323
258
Ghana
307
364
330
Guinea
253
223
167
Mali
186
278
317
Namibia
39
52
50
Tanzania
120
219
199
USA
123
179
124
2,598
3,617
3,383
Less: Equity method investments included above
(186)
(278)
(317)
Plus/less: Loss/(gain) on realized non-hedge derivatives included above
1,243
(291)
(383)
Total revenues from product sales
3,655
3,048
2,683
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-67
28.
SEGMENT AND GEOGRAPHICAL INFORMATION(continued)
Business segment data
Year ended December 31
2008
$
2007
$
2006
$
Depreciation and amortization expense
South Africa
256
301
324
Argentina
17
18
35
Australia
47
54
39
Brazil
59
50
35
Ghana
110
91
119
Guinea
36
45
52
Mali
46
23
50
Namibia
4
6 165
7
Tanzania
55 529
46 451
Impairment provision
(5 590)
(1 560)58
49 939
44 891USA
31
32
39
661
678
749
Less: Equity method investments included above
(46)
(23)
(50)
Total depreciation and amortization expense
615
655
699
Segment income/(loss)
South Africa
480
283
359
Argentina
(13)
66
43
Australia
(22)
132
82
Brazil
115
70
92
Ghana
(89)(34) (65)
Guinea
121
(2)
(16)
Mali
(100)
91
126
Namibia
(1)
10
19
Tanzania
(510)(150) (132)
USA
138
1
(13)
Other, including Corporate and Non-gold producing subsidiaries
(89)
(82)
(54)
Total segment income
30
385
441
Reconciliation of segment income/(loss) to Net loss
Segment total
30
385
441
Exploration costs
(126) (117) (58)
General and administrative expenses
(136)
(130)
(140)
Market development costs
(13)(16) (16)
Non-hedge derivative loss
(258) (808) (208)
Other operating items
(19) 16
(16)
Taxation expense
(22) (118) (122)
Discontinued operations
23
2
6
Minority interest
(42)(28) (29)
Net loss
(563)(814) (142)
Segment assets
South Africa
(1)
2,497
3,353
3,108
Argentina
227
236
254
Australia
(2)
1,279
1,183
805
Brazil
801
674
544
Ghana
(3)
2,075
2,155
2,061
Guinea
359
371
357
Mali
239
291
280
Namibia
61
76
64
Tanzania
848
1,343
1,382
USA
689
528
507
Other, including Corporate, Assets held for sale
(4)
and Non-gold producing subsidiaries
376
171
151
Total segment assets
9,451
10,381
9,513
(1)
Includes assets held for sale of Weltevreden of $nil million (2007: $15 million, 2006: $15 million) and properties held for sale by Rand Refinery Limited
of $1 million (2007: $1 million, 2006: $nil million).
(2)
Includes assets held for sale of Boddington of $781 million in 2008.
(3)
Includes Central African Gold plc held for sale investment of $3 million in 2006.
(4)
Includes exploration properties acquired from Trans-Siberian Gold plc of $15 million in 2007.
F-100NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-68
28.
SEGMENT AND GEOGRAPHICAL INFORMATION(continued)
Business segment data
Year ended December 31
2008
$
2007
$
2006
$
Expenditure for additions to long-lived assets
South
Africa
347
411
321
Argentina
16
20
19
Australia
439
281
86
Brazil
148
141
186
Ghana
166
119
97
Guinea
22
21
16
Mali
7
9
6
Namibia
12
6
5
Tanzania
53
26
67
USA
27
23
13
Other, including Corporate and Non-gold producing subsidiaries
2
2
1
1,239
1,059
817
Less: Equity method investments included above
(7)
(9)
(6)
Total expenditure for additions to long-lived assets
1,232
1,050
811
Geographical area data
Total revenues
South
Africa
1,041
1,504
1,531
Argentina
99
130
118
Australia
217
379
309
Brazil
285
319
260
Ghana
309
364
330
Guinea
258
224
164
Mali
181
280
321
Namibia
42
54
51
Tanzania
112
224
198
USA
124
180
124
Other, including Corporate and Non-gold producing subsidiaries
-
8
13
2,668
3,666
3,419
Less: Equity method investments included above
(181)
(280)
(321)
Plus/less: Loss/(gain) on realized non-hedge derivatives included above
1,243
(291)
(383)
Total revenues
3,730
3,095
2,715
Long-lived assets by area
South
Africa
1,811
2,506
2,370
Argentina
162
166
183
Australia
294
975
650
Brazil
665
568
454
Ghana
1,862
1,928
1,875
Guinea
211
235
254
Mali
239
291
281
Namibia
20
23
22
Tanzania
609
1,105
1,121
USA
572
396
367
Other, including Corporate and Non-gold producing subsidiaries
59
75
60
Total long-lived assets
6,504
8,268
7,637
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS
Employee share incentive scheme
At a general meeting held on June 4, 1998, shareholders approved the introduction of the AngloGold Limited Share
Incentive Scheme (“Share Incentive Scheme”) for the purpose of providing an incentive to executive directors and
senior employees of the Company and its subsidiaries to identify themselves more closely with the fortunes of the
Company and also to promote the retention of such employees by giving them an opportunity to acquire shares in the
Company. Employees participate in the scheme to the extent that they are granted options and accept them.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-69
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
At a general meeting held on April 30, 2002, it was approved that the rules of the Share Incentive Scheme be amended
to provide for the exercise of options to be based on a condition, related to the performance of the Company, as
determined by the directors and which will be objective and specified. An employee would only be able to exercise his
options after the date upon which he has received written notification from the directors that the previously specified
performance condition has been fulfilled or waived. The options granted prior to May 1, 2002 remained subject to the
conditions under which they were granted. Although there are no automatically convertible unsecured debentures
currently in issue under the rules of the Share Incentive Scheme, consequential amendments were approved to the
rules of the schem e which effectively made the conversion of debentures subject to the same terms as the exercise of
options.
At December 31, 2008, the maximum number of ordinary shares that may be allocated for the purposes of the scheme
is 9,720,794 (December 31, 2007: 7,630,080), equivalent to 2.75 percent of the total number of ordinary shares in issue
at that date.
At the annual general meeting held on April 29, 2005, shareholders approved the amendment to the maximum
aggregate number of ordinary shares which may be acquired by any one participant in the scheme from 300,000 to
5 percent of the 2.75 percent attributable to all schemes and plans adopted by shareholders (or 0.1375 percent of the
total number of ordinary shares in issue at any one time). At December 31, 2008 the maximum aggregate number of
ordinary shares which may be acquired by any one participant in the scheme was 486,040 shares.
Ordinary shares issued in terms of the Share Incentive Scheme shall, sub ject to the provisions of the Share Incentive
Scheme, rank pari passu with issued shares in all respects, including participation in dividends.
Non-executive directors are not eligible for participation in the Share Incentive Scheme.
Total plan employee costs
On December 31, 2008, the Company has five stock-based compensation plans, which are described below. Total
compensation cost charged against income for these plans was $40 million, $33 million and $42 million for 2008, 2007
and 2006, respectively.
At the year end, the unallocated balance of shares subject to the Share Incentive Scheme amounts to 6,278,998
(2007: 4,315,827).
Options
An option may only be granted to an employee to purchase a certain number of shares, specified by the directors, at the
option price payable in accordance with the rules of the Share Incentive Scheme.
The Share Incentive Scheme provides for the granting of options based on two sep arate criteria:
•
Time related options
Time related options may be exercised over a five year period from date of grant, and may be exercised in
tranches of 20 percent each in years 2, 3 and 4 and 40 percent in year five.
No further options will be granted under this plan which will terminate on February 1, 2012, being the date on
which the last options granted under this plan, may be exercised or will expire.
Resulting from the rights offer made to ordinary shareholders, which was finalized during July 2008, additional
options were awarded to existing option holders in terms of the anti-dilution provision of the original grant. As the
employees did not receive any benefit in excess of the original grant value, no additional compensation cost was
recognized. Approximately one option was awarded for every four held at an exercise price of R194.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-70
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
A summary of time related options showing movement from the beginning of the year to the end of the year, is
presented below:
2008
Options
(000)
2008
Weighted-
average
exercise price
R
Outstanding at the beginning of the year
207
125
Granted as a result of rights offer
42
194
Exercised
(129)
125
Forfeited (terminations)
(4)
194
Outstanding at the end of the year
116
140
Exercisable at the end of the year
116
140
The total intrinsic value of options outstanding at year-end was R13 million (2007: R35 million), with a weighted
average remaining contractual term of 1.7 years (2007: 2.4 years). The intrinsic value of options exercised during
the years ended December 31, 2008, 2007 and 2006 was R15 million, R48 million and R76 million, respectively.
During the years ended December 31, 2007 and 2006 the Company recognized compensation expense related to
time-based awards of less than $1 million and $1 million, respectively. There was no income statement charge for
the current year, as the total compensation cost was expensed up to date of vesting in 2007.
•
Performance related options
Performance related options granted vest in full, three years after date of grant, provided that the conditions on
which the options were granted, namely related to the performance of the Company (growth in an adjusted
earnings per share) as determined by the directors, are met. If the performance conditions are not met at the end
of the first three year period, then performance is re-tested each year over the ten year life of the option on a
rolling three year basis. Options are normally exercisable, subject to satisfaction of the performance conditions,
between three and ten years from date of grant. As none of the performance criteria of the options issued in 2002
and 2003 were met in the initial three years, the grantor decided to roll the schemes forward on a “roll over reset”
basis to be reviewed annually. The performance criteria of th e options issued in 2002, 2003 and 2004 were
achieved during 2006.
The performance related options’ compensation expense is fixed at grant date and recorded when it is probable
that the performance criteria will be met.
Resulting from the rights offer made to ordinary shareholders, which was finalized during July 2008, additional
options were awarded to existing option holders in terms of the anti-dilution provision of the original grant. As the
employees did not receive any benefit in excess of the original grant value, no additional compensation cost was
recognized. Approximately one option was awarded for every four held at an exercise price of R194.
No further performance related options will be granted and all options granted hereunder will terminate on
November 1, 2014, being the date on which the last options granted under these criteria may be exercised or will
expire.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-71
29.
12.ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
A summary of performance related options showing movement from the beginning of the year to the end of the
year, is presented below:
2008
Options
(000)
2008
Weighted-
average
exercise price
R
Outstanding at the beginning of the year
1,638
249
Granted as a result of rights offer
313
194
Exercised
(385)
237
Forfeited (terminations)
(176)
254
Outstanding at the end of the year
1,390
239
Exercisable at the end of the year
1,390
239
The total intrinsic value of options outstanding at year-end was R18 million (2007: R72 million), with a weighted
average remaining contractual term of 5 years (2007: 6 years). The intrinsic value of options exercised during the
years ended December 31, 2008, 2007 and 2006 was R3 million, R53 million and less than R1 million for 2006,
respectively.
All options which have not been exercised within ten years from the date on which they were granted automatically
expire.
During the years ended December 31, 2007 and 2006 the Company recognized $3 million and $29 million,
respectively, compensation expense related to performance related awards. There was no income statement
charge for the current year, as the total compensation cost was expensed up to date of vesting in 2007.
During 2008, a total of 513,444 common shares were issued under the share incentive scheme in terms of time-
based and performance awards.
As of December 31, 2008, there was no unrecognized compensation cost related to unvested stock options.
The weighted average of all options outstanding as at December 31, 2008, is as follows:
Range of exercise
Prices
R
Quantity of options
within range
(000)
Weighted average
exercise price
R
Weighted average
contractual life
Years
95 – 143
79
122
1.8
144 – 211
305
192
4.5
212 – 300
1,122
250
4.6
1,506
(1)
231
3.7
(1)
Represents a total of 116,491 time related options and 1,389,833 performance related options outstanding.
No options expired during the year ended December 31, 2008.
Since December 31, 2008 to and including March, 31, 2009, 525,515 options (granted in respect of time and
performance related options) have been exercised.
On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), “Share-
Based Payment”, using the modified prospective transition method. Under this method, compensation cost
recognized in the year ended December 31, 2006 includes: a) compensation cost for all share-based payments
granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS123, and b) compensation cost for all share-based payments
granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of SFAS123(R). Th e results for prior periods have not been restated.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-72
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
Bonus Share Plan (BSP) and Long-Term Incentive Plan (LTIP)
At the annual general meeting held on April 29, 2005, shareholders approved the introduction of the BSP and LTIP and
the discontinuation of the previous share incentive scheme. Options granted under the previous share incentive
scheme will remain subject to the conditions under which they were originally granted.
Bonus Share Plan (BSP)
The BSP is intended to provide effective incentives to eligible employees. An eligible employee is one who devotes
substantially the whole of his working time to the business of the Company, any subsidiary of the Company or a
company under the control of AngloGold Ashanti. An award in terms of the BSP may be made at any date at the
discretion of the board, the only vesting condition being three years’ service for awards granted prior to 2008. For all
BSP awards granted from 200 8, 40 percent will vest after one year and the remaining 60 percent will vest after two
years. An additional 20 percent of the original award will be granted to employees if the full award remains unexercised
after three years. The board is required to determine a BSP award value and this will be converted to a share amount
based on the closing price of the Company shares on the JSE on the last business day prior to the date of grant.
During 2008 a total of 115,458 common shares were issued in terms of the BSP rules.
During 2008, additional BSP awards were made to all scheme participants as a result of the rights offer to ordinary
shareholders. The award was made in terms of the anti-dilution provision of the original grant. Employees did not
receive any benefit in excess of the original grant value and no additional compensation cost was recognized.
For awards made, the following information is presented:
Award date
2008 2007
Accounts payable2006
Calculated fair value
267.05
322.00
308.00
Vesting date
January 1, 2011
January 1, 2010
March 8, 2009
Expiry date
December 31, 2017
December 31, 2016
March 7, 2016
A summary of time related equity settled compensation scheme showing movement from the beginning of the year to
the end of the year, is presented below:
2008
Options
(000)
Outstanding at the beginning of the year
686
Granted
390
Granted as a result of rights offer
75
Exercised
(116)
Forfeited (terminations)
(90)
Outstanding at the end of the year
945
Exercisable at the end of the year
136
The total intrinsic value of awards outstanding at year-end was R238 million (2007: R201 million), with a weighted
average remaining contractual term of 8 years (2007: 8 years). The intrinsic value of awards exercised during the years
ended December 31, 2008, 2007 and 2006 was R28 million, R13 million and R1 million, respectively. BSP awards are
issued with no exercise price.
Long-Term Incentive Plan (LTIP)
The LTIP is an equity settled share-based payment arrangement, intended to provide effective incentives for executives
to earn shares in the Company based on the achievement of stretched Company performance conditions. Participation
in the LTIP will be offered to executive directors, executive officers/management and selected members of senior
management. An award in terms of the LTIP may be granted at any date during the year that the board of the Company
determine and ma y even be more than once a year. The board is required to determine an LTIP award value and this
will be converted to a share amount based on the closing price of the Company shares on the JSE on the last business
day prior to the date of grant.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-73
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
The main performance conditions in terms of the LTIP issued in 2006 and 2007 are:
•
up to 40 percent of an award will be determined by the performance of total shareholder returns (TSR) compared
with that of a group of comparative gold-producing companies;
•
up to 30 percent of an award will be determined by an adjusted earnings per share compared to a planned
adjusted earnings per share over the performance period;
•
up to 30 percent of an award will be dependent on the achievement of strategic performance measures which will
be set by the Remuneration Committee; and
•
three year’s service is required.
The main performance conditions in terms of the LTIP issued in 2008 are:
•
up to 30 percent of an award will be determined by the performance of total shareholder returns (TSR) compared
with that of a group of comparative gold-producing companies;
•
up to 30 percent of an award will be determined by real growth (above US inflation) in adjusted earnings per share
over the performance period;
•
up to 40 percent of an award will be dependent on the achievement of strategic performance measures which will
be set by the Remuneration Committee; and
•
three-year’s service is required.
During 2008, additional LTIP awards were made to all scheme participants as a result of the rights offer to ordinary
shareholders. The award was made in terms of the anti-dilution provision of the original grant. Employees did not
receive any benefit in excess of the original grant value and no additional compensation cost was recognized.
For awards made, the following information is presented:
Award date
2008 2007
20052006
Calculated fair value
267.05
322.00
327.00
Vesting date
January 1, 2011
January 1, 2010
August 1, 2009
Expiry date
December 31, 2017
December 31, 2016
July 31, 2016
A summary of time related equity settled compensation scheme showing movement from the beginning of the year to
the end of the year, is presented below:
2008
Options
(000)
Outstanding at the beginning of the year
783
Granted
497
Granted as a result of rights offer
75
Exercised
(44)
Forfeited (terminations)
(321)
Outstanding at the end of the year
990
Exercisable at the end of the year
65
The total intrinsic value of awards outstanding at year-end was R250 million (2007: R230 million), with a weighted
average remaining contractual term of 8 years (2007: 8 years). The intrinsic value of awards exercised during the year
ended December 31, 2008 was R11 million. No awards were exercised during 2007 and 2006. LTIP awards are issued
with no exercise price.
During the years ended December 31, 2008, 2007 and 2006 the Company recognized a compensation expense of
$20 million, $12 million and $9 million, respectively, related to BSP and LTIP awards.
As of December 31, 2008, there was $12 million of unrecognized compensation cost related to unvested awards of the
BSP and LTIP plans. This cost is expected to be recognized over a weighted-average period of approximately 2 years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-74
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
Employee Share Ownership Plan (ESOP)
On December 12, 2006, AngloGold Ashanti announced the finalization of the Bokamoso Employee Share Ownership
Plan (Bokamoso ESOP) for employees of the South African operations. The Bokamoso ESOP creates an opportunity
for AngloGold Ashanti and the unions to ensure a closer alignment of the interest between South African based
employees and the Company. Participation is restricted to those employees not eligible for participation in any other
South African share incentive plan.
In order to facilitate these transactions the Company established a trust to acquire and administer the ESOP shares.
AngloGold Ashanti allotted and issued free ordinary shares to the trust and also created, allotted and issued E ordinary
shares to the trust for th e benefit of employees. The Company also undertook an empowerment transaction with a
Black Economic Empowerment investment vehicle, Izingwe Holdings (Proprietary) Limited (Izingwe) and recorded a
cost of $19 million during 2006, which was included in general and administrative expenses. The Company also
created, allotted and issued E ordinary shares to Izingwe. The key terms of the E ordinary share are:
•AngloGold Ashanti will have the right to cancel the E ordinary shares, or a portion of them, in accordance with the
ESOP and Izingwe cancellation formula, respectively;
• the E ordinary shares will not be listed;
• the E ordinary shares which are not cancelled will be converted into ordinary shares; and
• the E ordinary shares will each be entitled to receive a cash dividend equal to one-half of the dividend per ordinary
share declared by the Company from time to time and a further one-half is included in the calculation of the strike
price calculation.
The award of free shares to employees:
The fair value of each free share awarded in 2008 is R188 (2007: R306 and 2006: R320). The fair value is equal to the
market value at the date-of-grant. Dividends declared and paid to the trust will accrue and be paid to ESOP members,
pro rata to the number of shares allocated to them. An equal number of shares vests in 2009, and each subsequent
year up to expiry date of November 1, 2013.
A summary of time related equity settled compensation scheme showing movement from the beginning of the year to
the end of the year, is presented below:
2008
Options
(000)
Outstanding at the beginning of the year
910
Granted
58
Exercised
(58)
Forfeited (terminations)
(54)
Outstanding at the end of the year
856
Exercisable at the end of the year
-
The total intrinsic value of awards outstanding at year-end was R216 million (2007: R267 million), with a weighted
average remaining contractual term of 3 years (2007: 4 years). The intrinsic value of awards exercised during the years
ended December 31, 2008 and 2007 was R14 million and R14 million, respectively. No awards were exercised during
2006.
The Company awarded the right to acquire approximately one AngloGold Ashanti ordinary share for every four free
ordinary shares held in the rights offer finalized during July 2008. The benefit to employees were in terms of the anti-
dilution provision of the original grant and no additional compensation cost was recognized.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-75
29.
ANGLOGOLD LIMITED SHARE INCENTIVE SCHEME AND PLANS (continued)
The award of E ordinary shares to the employees:
The average fair value of the E ordinary shares awarded to employees in 2008 was R13 (2007: R79 and 2006: R105)
per share. Dividends declared in respect of the E ordinary shares will firstly be allocated to cover administration
expenses of the trust, whereafter it will accrue and be paid to ESOP members, pro rata to the number of shares
allocated to them. At each anniversary over a five year period commencing on the third anniversary of the original 2006
award, the Company will cancel the relevant number of E ordinary shares as stipulated by a cancellation formula. Any
E ordinary shares remaining in the tranche will be converted to ordinary shares for the benefit of the employees. All
unexercised awards will be cancelled on May 1, 2014.
The value of each share granted is estimated on the date of grant using the Black-Scholes option-pricing model. The
Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the
option award and stock price volatility. These estimates involve inherent uncertainties and the application of
management judgment. In addition, the Company is required to estimate the expected forfeiture rate and only
recognize expense for those options expected to vest. As a result, if other assumptions had been used, the Company’s
recorded compensation expense could have been different from that reported.
The Black-Scholes option-pricing model used the following assumptions, at grant date:
2008 2007
2006
Risk-free interest rate
7.00%
7.00%
7.00%
Dividend yield
1.39%
2.06%
2.30%
Volatility factor of market share price
35.00%
33.00%
36.00%
A summary of E ordinary shares, awarded to employees, showing movement from the beginning of the year to the end
of the year, is presented below:
2008
Options
(000)
2008
Weighted-
average
exercise price
R
Outstanding at the beginning of the year
2,731
307
Granted
172
324
Converted
(11)
310
Forfeited (terminations)
(163)
316
Cancelled
(162)
318
Outstanding at the end of the year
2,567
327
Exercisable at the end of the year
-
-
The options outstanding at year-end had no intrinsic value as the share price at year-end of R252 was lower than the
weighted average exercise price of R327 (2007: total intrinsic value of awards outstanding totaled Rnil million). The
options have a weighted average remaining contractual term of 3 years (2007: 4 years). The intrinsic value of options
exercised during the years ended December 31, 2008 and 2007 was less than R1 million. No awards were exercised
during 2006.
Weighted average exercise price is calculated as the initial grant price of R288 plus interest factor less dividend
apportionment. This value will change on a monthly basis.
During the years ended December 31, 2008, 2007 and 2006, the Company recognized a compensation expense of
$14 million, $18 million and $3 million, respectively, related to the ESOP scheme.
In addition to the above share scheme expenses relating to the Bokamoso ESOP plan, the Company awarded the right
to acquire approximately one AngloGold Ashanti ordinary share for every four E ordinary shares held in the rights offer
finalized during July 2008. The benefit to employees was in excess of the anti-dilution provision of the original grant and
additional compensation cost was recognized. The fair value at grant date of these rights awarded to Bokamoso was
calculated at R76 per right. The income statement charge relating to the rights offer to Bokamoso participants was
$6 million in 2008. As the rights were issued as fully vested, the expense was recorded immediately.
As of December 31, 2008, there was $14 million of unrecognized compensation cost related to unvested awards of the
ESOP scheme. This cost is expected to be recognized over the remaining scheme term of 5 years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-76
30.
SUBSEQUENT EVENTS
Repayment of convertible bond
The $1.0 billion convertible bond matured on February 27, 2009 and was redeemed by the Company using the
proceeds from the Standard Chartered Term Facility that had been arranged for this purpose. The Company has
signed an agreement with Standard Chartered amending the terms of the Term Facility signed in November 2008. The
amendment, which comes into effect upon repayment of $750 million of the facility prior to August 26, 2009 will, in
addition to the outstanding balance of $250 million allow the Company to retain revolving access to a further
$250 million. The margin over the bank’s capped cost of funds will now remain fixed at 4.25 percent for the full two year
period of the facility.
Sale of AngloGold Ashanti’s 33.33 percent joint venture interest in Boddington Gold Mine to Newmont Mining
Corporation
On January 28, 2009, AngloGold Ashanti announced that it had agreed to sell its indirect 33.33 percent joint venture
interest in the Boddington Gold Mine in Western Australia to Newmont Mining Corporation (Newmont). Consideration
for the sale consists of:
•
$750 million payable in cash upon the fulfillment of all conditions precedent expected to be fulfilled by
June 30, 2008;
•
$240 million that will be settled in December 2009, payable in cash and/or Newmont shares, at Newmont’s option;
and
•
A royalty capped at $100 million, calculated as the product of, 50 percent of the amount by which the average spot
gold price in each quarter exceeds the costs applicable to sales of the Boddington Gold Mine, as reported by
Newmont, by $600 per ounce and, one-third of total gold production from the Boddington Gold Mine in that
quarter. The royalty is payable in each quarter from and after the second quarter in 2010 that the above threshold
is achieved.
AngloGold Ashanti will be reimbursed for all contributions made to the joint venture after January 1, 2009 and
AngloGold Ashanti will pay Newmont $8 million in respect of its share of working capital at January 1, 2009.
Sale of Tau Lekoa mine
On February 17, 2009, AngloGold Ashanti announced that it had agreed to sell, with effect from January 1, 2010 (or
after), the Tau Lekoa mine together with the adjacent Weltevreden and Goedgenoeg project areas to Simmer and Jack
Mines Limited (Simmers) for an aggregate consideration of:
•
R600 million less an offset up to a maximum of R150 million for un-hedged free cash flow (net cash inflow from
operating activities less stay-in-business capital expenditure) generated by the Tau Lekoa mine in the period
between January 1, 2009 and December 31, 2009, as well as an offset for un-hedged free cash flow generated by
the Tau Lekoa mine in the period between January 1, 2010 and the effective date of the sale. Simmers shall
endeavor to settle the full amount in cash, however it may issue to AngloGold Ashanti ordinary shares in Simmers
up to a maximum value of R150 million, with the remainder payable in cash; and
•
a royalty (Royalty), determined at 3 percent of the net revenue (being gross revenue less state royalties)
generated by the Tau Lekoa mine and any operations as developed at Weltevreden and Goedgenoeg. The
Royalty will be payable quarterly for each quarter commencing from January 1, 2010 until the total production
upon which the Royalty is paid is equal to 1.5 million ounces and provided that the average quarterly rand price of
gold is equal to or exceeds R180,000 per kg (in January 1, 2010 terms).
As at December 31, 2008, the carrying amounts of major classes of assets and liabilities of Tau Lekoa included:
$
million
Inventories
2
Property, plant and equipment
45
Acquired properties
4
Trade and other payables
(2)
Provision for environmental rehabilitation
(3)
46
F-77
SOCIÉTÉ DES MINES DE MORILA S.A.
FINANCIAL STATEMENTS
for the year ended December 31, 2008
Registration number: 15430
Incorporated in the Republic of Mali
F-78
Société des Mines de Morila S.A.
Financial Statements
for the year ended December 31, 2008
Statement of responsibility by the board of directors
Report of Independent Registered Public Accounting Firm
Income statement
Balance sheet
Statement of changes in shareholders’ equity
Cash flow statement
Notes to the financial statements
F-79
Statement of Responsibility by the Board of Directors
For the year ended December 31, 2008
The directors are responsible for the preparation, integrity and fair presentation of the financial statements of Société des
Mines de Morila S.A.. The financial statements presented on pages 5 to 33 have been prepared in accordance with
International Financial Reporting Standards as issued by the IASB, and include amounts based on judgments and estimates
made by management.
The directors are also responsible for the Company’s system of internal financial controls. These are designed to provide
reasonable, but not absolute, assurance as to the reliability of the financial statements and to adequately safeguard, verify and
maintain accountability of assets, and to prevent and detect misstatement and loss. Nothing has come to the attention of the
directors to indicate that any material breakdown in the functioning of these controls, pr ocedures and systems has occurred
during the year under review.
The going concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that
the Company will not be a going concern in the foreseeable future based on forecasts and available cash resources. These
financial statements support the viability of the Company.
F-80
Report of the Independent Registered Public Accounting Firm
To the Members of Société des Mines de Morila S.A.
We have audited the accompanying balance sheet of Société des Mines de Morila S.A. (the Company) as of
December 31, 2008, and the related statement of income, shareholders’ equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. Our audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of express ing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Société
des Mines de Morila S.A. at December 31, 2008 and the results of its operations and its cash flows for the year then ended, in
conformity with International Financial Reporting Standards as issued by the IASB.
BDO Stoy Hayward LLP
London, England
April 22, 2009
F-81
Report of the Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Société des Mines de Morila S.A.
We have audited the accompanying balance sheet of Société des Mines de Morila S.A. (the Company) as of
December 31, 2006, and the related statement of income, shareholders’ equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for desig ning audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Société
des Mines de Morila S.A. at December 31, 2006 and the results of its operations and its cash flows for the year then ended, in
conformity with International Financial Reporting Standards.
Ernst & Young Inc. Registered Auditor
Johannesburg, Republic of South Africa
June 15, 2007
F-82
Société des Mines de Morila S.A.
Income Statements
for the years ended December 31,
Note
2008
$’000
2004Unaudited
2007
$’000
2006
$’000
Restated
(Note 2.5)
Revenue
370,586
319,218
314,878
Operating costs
(188,174) (170,332) (156,552)
182,412
148,886
158,326
Other (expenditure) / income – net
(5,108)
(990)
2,718
Operating profit
13
177,304
147,896
161,044
Finance income
21
246
362
651
Finance costs
21
(2,450)
(3,392)
(3,739)
Finance costs – net
21
(2,204)
(3,030)
(3,088)
Profit before taxation
175,100
144,866
157,956
Taxation 14
(57,971)
(52,058)
(57,717)
Net profit attributable to Equity Shareholders
117,129
92,808
100,239
The accompanying notes are an integral part of the financial statements.
F-83
Société des Mines de Morila S.A.
Balance sheets
At December 31,
Note
2008
$’000
Unaudited
2007
$’000
ASSETS
Non-current assets
197,891 213,409
Property, plant and equipment
9
65,829
77,159
Deferred tax asset
8
3,897
5,408
Non-current receivables
12
6,087
28,822
Long-term
ore
stockpiles
10 122,078 102,020
Current assets
147,550 120,020
Inventories
10 95,917 72,061
Accounts
receivable
12 15,728 33,952
Prepaid expenses
8,429
14,007
Cash and cash equivalents
27,476
-
Total assets
345,441 333,429
EQUITY
AND
LIABILITIES
Capital and reserves
Share
capital
4 16 16
Distributable reserves
282,386 266,257
Shareholder’s equity
282,402 266,273
Non-current liabilities
21,259 22,808
Deferred tax liability
3,025
2,324
Shareholder’s
loan
5 4,040 3,860
Environmental rehabilitation provision
6
10,984
11,218
Interest bearing borrowings
7
3,210
5,406
Current liabilities
41,780 44,348
Accounts
payable
11 16,608 22,495
Taxation payable
22,976
6,574
Short-term portion of interest bearing
borrowings
7 2,196 2,715
Bank overdrafts
-
12,564
Total shareholders’ equity and liabilities
345,441 333,429
The accompanying notes are an integral part of the financial statements.
F-84
Société des Mines de Morila S.A.
Statements of changes in shareholders’ equity
for the years ended December 31,
Share
Capital
$’000
Retained
Income
$’000
Total
$’000
Balance at January 1, 2005
16
221,710
221,726
Net profit for the year
-
100,239
100,239
Dividends declared and paid
-
(76,000)
(76,000)
Balance at December 31, 2006
16
245,949
245,965
Net profit for the year
-
92,808
92,808
Dividends declared and paid
-
(72,500)
(72,500)
Balance at December 31, 2007
16
266,257
266,273
Net profit for the year
-
117,129
117,129
Dividends declared and paid
-
(101,000)
(101,000)
Balance at December 31, 2008
16
282,386
282,402
The accompanying notes are an integral part of the financial statements.
F-85
Société des Mines de Morila S.A.
Cash flow statements
for the years ended December 31,
Note
2008
$’000
Unaudited
2007
$’000
2006
$’000
Restated
(Note 2.5)
Cash flows from operating activities
Profit after taxation
117,129
92,808
100,239
Adjustments:
- Tax expense
57,971
52,058
57,717
- Net finance charges
2,203
3,030
2,495
- Depreciation
13,397
13,566
15,583
- Provision for bad debt
-
(1,364)
1,137
190,700
160,098
177,171
Effects of changes in operating working capital items
- Receivables
19,591
(33,149)
(21,680)
- Inventories and ore stockpiles
(43,913)
(39,092)
(29,441)
- Accounts payable and accrued liabilities
(5,887)
5,437
(5,103)
Cash generated from operations before interest and tax
160,940
93,895
121,540
Taxation paid
15
(12,412)
(30,592)
(36,960)
Interest received
246
362
651
Interest paid –net
(2,449)
(3,392)
(2,982 )
Net cash generated from operating activities
146,505
60,445
82,249
Cash flows from investing activities
Additions to mining assets
(2,750)
(1,694)
(2,900)
Net cash flows utilized in investing activities
(2,750)
(1,694)
(2,900 )
Cash flows from financing activities
Long term liabilities repaid
(2,715) (3,243)
(2,825)
Increase in shareholder loan
180
171
-
Dividends paid
(101,000) (72,500)
(76,000)
Net cash flows utilized in financing activities
(103,535)
(75,572)
(78,825 )
Net increase/(decrease) in cash and equivalents
40,040
(16,992)
524
Cash and equivalents at beginning of year
(12,564)
4,428
3,904
Cash and equivalents at end of year
27,476
(12,564)
4,428
Cash at bank and in hand
27,476
(12,564)
4,428
The principal non-cash transactions are the acquisition of mining assets through finance leases (note 7) and the off-set of
income taxes against indirect tax receivables (note 15).
The accompanying notes are an integral part of the financial statements.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-86
1.
Nature of operations
Société des Mines de Morila S.A. (the “Company”) owns the Morila gold mine in Mali. The Company is owned 80% by
Morila Limited and 20% by the Government of Mali. Randgold Resources Limited and AngloGold Ashanti Limited
(formerly AngloGold Limited) each own 50% of Morila Limited. The Company is engaged in gold mining and related
activities, including exploration, extraction, processing and smelting. Gold bullion, the Company’s principal product, is
currently produced and sold in Mali.
2.
Significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These
policies have been consistently applied to all the years presented and are consistent with prior years, except for the
change in accounting policy relating to stripping costs. Refer note 2.5.
2.1
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (IASB). The financial statements have been
prepared under the historical cost convention, as modified by certain financial assets and financial liabilities
(including derivative instruments), which are carried at fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the company’s
accounting policies. The areas involving a high degree of judgement or complexity, or areas where assumptions
and estimates are significant to the financial statements, are disclosed in note 3.
2.2
General
The financial statements are measured and presented in US dollars, as it is the primary measurement currency
in which transactions are undertaken. Monetary assets and liabilities in foreign currencies are translated to
US dollars at rates of exchange ruling at the end of the financial period. Translation gains and losses arising at
period-end, as well as those arising on the translation of settled transactions occurring in currencies other than
the functional currency, are included in net income.
2.3
Foreign currency translation
(a) Functional and presentation currency
The consolidated financial statements are presented in US dollars, which is the Company’s functional and
presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognized in the income statement.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-87
2.
Significant accounting policies (continued)
2.4
Property, plant and equipment
(a) Undeveloped properties
Undeveloped properties upon which the Company has not performed sufficient exploration work to determine
whether significant mineralization exists, are carried at original cost. Where the directors consider that there is
little likelihood of the properties being exploited, or the values of the exploitable rights have diminished below
cost, an impairment is recorded.
(b) Long-lived assets
Long-lived assets including development costs and mine plant facilities are initially recorded at cost. Where
relevant the estimated cost of dismantling the asset and remediating the site is included in the cost of property,
plant and equipment, subsequently they are measured at cost less accumulated amortisation and impairment.
Development costs and mine plant facilities relating to existing and new mines are capitalised. Development
costs consist primarily of direct expenditure incurred to establish or expand productive capacity, and are
capitalised until commercial levels of production are achieved, after which the costs are amortised.
(c) Short-lived assets
Short-lived assets including non-mining assets are shown at cost less accumulated depreciation and impairment.
(d) Depreciation and amortization
Long-lived assets include mining properties, mine development costs and mine plant facilities. Depreciation and
amortization in respect of long-lived assets are charged over the life of the mine based on estimated ore tons
contained in proven and probable reserves. Proven and probable ore reserves reflect estimated quantities of
economically recoverable reserves, which can be recovered in the future from known mineral deposits. Short-
lived assets, which include motor vehicles, office equipment and computer equipment, are depreciated over
estimated useful lives of between two to five years, using the straight-line method but limited to the life of mine.
(e) Impairment
The carrying amounts of the property, plant an d equipment of the Company are compared to the recoverable
amount of the assets whenever events or changes in circumstances indicate that the net book value may not be
recoverable. The recoverable amount is the higher of value in use and fair value less cost to sell.
In assessing the value in use, the expected future cash flows from the asset is determined by applying a
discount rate to the anticipated pre-tax future cash flows. The discount rate used is derived from the Company’s
credit-adjusted risk-free rate. Revenue for pit optimization assumptions are based on a gold price of $650
(2007: $550) and the extraction of proven and probable reserves as per the approved mine plan. Working costs
and sustaining capital expenditure are estimated based on the approved mine plan. An impairment is
recognized in the income statement to the extent that the carrying amount exceeds the assets’ recoverable
amount. The revised carrying amounts are depreciated in line with accounting policies.
A previously recognized impairment loss is reversed if the recoverable amount increases as a result of a reversal
of the conditions that originally resulted in the impairment. This reversal is recognized in the income statement
and is limited to the carrying amount that would have been determined, net of depreciation, had no impairment
loss been recognized in prior years.
The estimates of future discounted cash flows are subject to risks and uncertainties including the future gold
price. It is therefore reasonably possible that changes could occur which may affect the recoverability of mining
assets.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-88
2.
Significant accounting policies (continued)
2.5
Stripping costs
All stripping costs incurred (costs incurred in removing overburden to expose the ore) during the production
phase of a mine are treated as variable production costs and as a result are included in the cost of inventory
produced during the period that the stripping costs are incurred.
2.6
Inventories
Inventories, which include consumable stores, gold in process and ore stockpiled, are stated at the lower of cost
or net realizable value. The cost of ore stockpiles and gold produced is determined principally by the weighted
average cost method using related production costs. Costs of gold inventories include all costs incurred in gold
production such as milling costs, mining costs and directly attributable mine general and administration costs but
exclude transport costs, refining costs and royalties.
Net realizable value is determined with reference to current market prices. A selective mining process is used
and a number of grade categories exist. Full grade ore is defined as ore above 1.4g/t and marginal ore is
defined a sore between 1.0g/t and 1.4g/t. Mineralised waste is between 0.7g/t and 1.0g/t and was being less
than 0.7g/t. Full grade ore and margina l ore form part of inventory. Under present market conditions the
mineralised waste is classified as waste.
All stockpile grades are currently being processed and all ore is expected to be fully processed. This does not
include high grade tailings, which are carried at zero value due to uncertainty as to whether they will be
processed through the plant.
The processing of ore in stockpiles occurs in accordance with the life of mine processing plan that has been
optimized based on the known mineral reserves, current plant capacity and mine design.
Consumable stores are valued at average cost after appropriate provision for redundant and slow moving items
have been made.
2.7
Interest and borrowing cost
Interest and borrowing cost is recognised on a time proportion basis, taking into account the principal
outstanding and the effective rate over the period to maturity. Borrowing cost is expensed as incurred except to
the extent that it relates directly to the construction of property, plant and equipment during the time that is
required to complete and prepare the asset for its intended use, when it is capitalised as part of property, plant
and equipment. Borrowing cost is capitalised as part of the cost of the asset where it is probable that the asset
will result in economic benefit and where the borrowing cost can be measured reliably.
2.8
Financial instruments
Financial instruments are measured as indicated below. Financial instruments carried on the balance sheet
include cash and cash equivalents, receivables, accounts payable and borrowings.
2.9
Receivables
Receivables are recognised initially at fair value. There is a rebuttable presumption that the transaction price is
fair value unless this could be refuted by reference to market indicators. Subsequently, receivables are
measured at amortised cost using the effective interest method, less provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the company
will not be able to collect all amounts due according to the original terms of receivables.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-89
2.
Significant accounting policies (continued)
Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is
impaired. The amount of the provision is the difference between the asset’s carrying amount and the present
value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is
recognised in the income statement.
2.10 Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of the cash flow statement,
cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short term highly liquid
investments with a maturity of three months or less at the date of purchase and bank overdrafts. In the balance
sheet, bank overdrafts are included in current liabilities.
2.11 Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently
stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption
value is recognized in the income statement over the period of the borrowings using the effective interest
method.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement
of the liability for at least 12 months after the balance sheet date.
2.12 Accounts payable
Accounts payable and other short-term monetary liabilities, are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
2.13 Rehabilitation costs
The net present value of estimated future rehabilitation cost estimates is recognized and provided for in the
financial statements and capitalized to mining assets on initial recognition. Initial recognition is at the time of the
disturbance occurring and thereafter as and when additional environmental disturbances are created. The
estimates are reviewed annually to take into account the effects of inflation and changes in estimates and are
discounted using rates that reflect the time value of money.
Annual increases in the provision are charged to income and consist of finance costs relating to the change in
present value of the provision and inflationary increases in the provision estimate. The present value of
additional environmental disturbances created are capitalized to mining assets against an increase in the
rehabilitation provision. The rehabilitation asset is depreciated as not ed previously. Rehabilitation projects
undertaken, included in the estimates, are charged to the provision as incurred.
Environmental liabilities, other than rehabilitation costs, which relate to liabilities arising from specific events, are
expensed when they are known, probable and may be reasonably estimated.
2.14 Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of past
events where it is probable that an outflow of resources embodying economic benefits will be required to settle
the obligation, and a reliable estimate of the amount of the obligation can be made.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-90
2.
Significant accounting policies (continued)
2.15 Employee benefits
(a) Post employment benefits
The Company has a defined contribution plan. A defined contribution plan is a plan under which the Company
pays fixed contributions. The Company has no legal or constructive obligations to pay further contributions if the
fund does not hold sufficient assets to pay all employees.
Retirement benefits for employees of the Company are provided by the Mali Government social security system
to which the Company and its employees contribute a fixed percentage of payroll costs each month. The
Company has no further payment obligations once the contributions have been paid. The contributions are
recognized as employee benefit expense when they are due.
(b) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes
termination benefits when it is demonstrably committed to either: terminating the employment of current
employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits
as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after
balance sheet date are discounted to present value.
2.16 Finance Leases
Leases of plant and equipment where the Company assumes a significant portion of risks and rewards of
ownership are classified as a finance lease. Finance leases are capitalized at the estimated present value of the
underlying lease payments. Each lease payment is allocated between the liability and the finance charges to
achieve a constant rate on the finance balance outstanding. The interest portion of the finance payment is
charged to the income statement over the lease period. The plant and equipment acquired under the finance
lease are depreciated over the shorter of the lease term or the useful lives of the assets.
2.17 Revenue recognition
Revenue is recognized as follows:
a)
Gold sales - Revenue arising from gold sales is recognized when the risks and rewards of ownership and
title pass to the buyer under the terms of the applicable contract and the pricing is fixed and determinable.
These are met when the gold and silver leaves the mine’s smelthouse.
As gold sales are subject to customer survey adjustment, sales are initially recorded on a provisional basis
using the Company’s best estimate of contained metal. Subsequently adjustments are recorded in turnover
within a matter of days to take into account final assay and weight certificates from the refinery, if different
from the initial certificates. Historically the differences between the estimated and actual contained gold
have not been significant.
b) Interest income - Interest is recognized on a time proportion basis, taking into account the principal
outstanding and the effective rate over the period to maturity. Interest income is included within finance
income.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-91
2.
Significant accounting policies (continued)
2.18 Exploration costs
The Company expenses all exploration and evaluation expenditures until the directors conclude that a future
economic benefit is more likely than not of being realised, i.e. “probable”. In evaluating if expenditures meet this
criterion to be capitalised, the directors utilise several different sources of information depending on the level of
exploration. While the criteria for concluding that expenditure should be capitalised is always probable, the
information that the directors use to make that determination depends on the level of exploration.
a)
Exploration and evaluation expenditure on brownfield sites, being those adjacent to mineral deposits which
are already being mined or developed, is expensed as incurred until the directors are able to demonstrate
that future economic benefits are probable through the completion of a prefeasibility study, after which the
expenditure is capitalised as a mine development cost. A ‘prefeasibility study’ consists of a comprehensive
study of the viability of a mineral project that has advanced to a stage where the mining method, in the case
of underground mining, or the pit configuration, in the case of an open pit, has been established, and which,
if an effective method of mineral processing has been determined, includes a financial analysis based on
reasonable assumptions of technical, engineering, operating economic factors and the evaluation of other
relevant factors. The prefeasibility study, when combined with existing knowledge of the mineral property
that is adjacent to mineral deposits that are already being mined or developed, allow the directors to
conclude that it is more likely than not that the company will obtain future economic benefit from the
expenditures.
b)
Exploration and evaluation expenditure on greenfield sites, being those where the company does not have
any mineral deposits which are already being mined or developed, is expensed as incurred until a final
feasibility study has been completed, after which the expenditure is capitalised within development costs if
the final feasibility study demonstrates that future economic benefits are probable.
c)
Exploration and evaluation expenditure relating to extensions of mineral deposits which are already being
mined or developed, including expenditure on the definition of mineralisation of such mineral deposits, is
capitalised as a mine development cost following the completion of an economic evaluation equivalent to a
prefeasibility study. This economic evaluation is distinguished from a prefeasibility study in that some of the
information that would normally be determined in a prefeasibility study is instead obtained from the existing
mine or development. This information when combined with existing knowledge of the mineral property
already being mined or developed, allow the directors to conclude that more likely than not the group will
obtain future economic benefit from the expenditures. Costs relating to property acquisitions are also
capitalised. These costs are capitalised within developm ent costs.
2.19 Current taxation
Current tax is the tax expected to be payable on the taxable income for the year calculated using rates (and
laws) that have been enacted or substantively enacted by the balance sheet date. It includes adjustments for tax
expected to be payable or recoverable in respect of previous periods.
2.20 Deferred taxation
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the
temporary difference arise from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not
accounted for.
Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the
balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax
liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will
be available against which the temporary differences can be utilised.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-92
2.
Significant accounting policies (continued)
2.21 Recent accounting pronouncements
The following standards and interpretations which have been recently issued or revised have not been adopted
early by the group. Their expected impact is discussed below:
• Amendment to IAS 23 Borrowing Costs (effective for annual periods beginning on or after
1 January 2009).
The amendment removes the option of immediately recognising as an expense borrowing costs that relate to
qualifying assets (assets that take a substantial period of time to get ready for use or sale). Instead, an entity will
be required to capitalise borrowing costs whenever the conditions for capitalisation are met. The company will
apply amendments to IAS 23 from 1 January 2009, but it is not expected to have any significant impact on the
accounts of the company.
• Amendment to IFRS 2 Share-based Payment: Vesting Conditions and cancellations (effective for
annual periods beginning on or after 1 January 2009).
This amendment clarifies that vesting conditions are service conditions and performance conditions only. Other
features of a share-based payment are not vesting conditions. The purpose of making the distinction is so as to
be able to address the accounting for non-vesting conditions, which were not previously covered by IFRS 2. The
guidance in IFRS 2 covering the accounting for vesting conditions is not affected by the amendment. The
amendment also specifies that all cancellations, whether by the entity or by other parties, should receive the
same accounting treatment. The amendment is likely to have a particular impact on entities operating Save As
You Earn (SAYE) schemes because it results in an immediate acceleration of the IFRS 2 expense if an
employee decides to stop contributing to the savings plan, as well as a potential revision to the fair value of the
awards granted to factor in the probability of employe es withdrawing from such a plan. The company will apply
amendments to IFRS 2 from 1 January 2009, but it is not expected to have any significant impact on the
accounts of the company.
• Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation (effective for
annual periods beginning on or after 1 January 2009).
The amendment to IAS 1 affects the presentation of owner changes in equity and of comprehensive income. An
entity will be required to present, in a statement of changes in equity, all owner changes in equity. All non-owner
changes in equity (i.e. comprehensive income) are required to be presented in one statement of comprehensive
income or in two statements (a separate income statement and a statement of comprehensive income). The
standard does not change the recognition, measurement or disclosure of specific transactions and other events
required by other IFRSs. The company will apply amendments to IAS 1 from 1 January 2009, but it is not
expected to have any significant impact on the accounts of the company.
• Amendments to IAS 27 Consolidated and Separate Financial Statements (effective for annual periods
beginning on or after 1 July 2009).
This amendment relates in particular to acquisitions of subsidiaries achieved in stages and disposals of interests,
with significant differences in the accounting depending on whether control is gained or not, or a transaction
simply results in a change in the percentage of the controlling interest. The amendment does not require the
restatement of previous transactions. The amendment to IAS 27 must be adopted at the same time as IFRS 3
Revised. The company will apply amendments to IAS 27 from 1 July 2009, but it is not expected to have any
significant impact on the accounts of the company.
•Amendments to IAS 32 and IAS 1 Puttable Financial Instruments and Obligations Arising on
Liquidation (effective for annual periods beginning on or after 1 January 2009).
This amendment results in certain types of financial instrument that meet the definition of a liability, but represent
the residual interest in the net assets of the entity, being classified as equity. The amendment requires entities
to classify the following types of financial instruments as equity, provided they have particular features and meet
specific conditions: (a) Puttable financial instruments; and, (b) instruments, or components of instruments, that
impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only
on liquidation. The company will apply amendments to IAS 32 from 1 January 2009, but it is not expected to
have any significant impact on the accounts of the company.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-93
2.
Significant accounting policies (continued)
• Amendments to IFRS 1 and IAS 27 Cost of an Investment in a subsidiary, jointly-controlled entity or
associate (effective for annual periods beginning on or after 1 January 2009).
This amendment allows a first-time adopter that, in its separate financial statements, elects to measure its
investments in subsidiaries, jointly controlled entities or associates at cost to initially recognise these investments
either at cost determined in accordance with IAS 27 or deemed cost (being either its fair value at the date of
transition to IFRSs or its previous GAAP carrying amount at that date). The company will apply amendments to
IFRS 1 and IAS 27 from 1 January 2009, but it is not expected to have any impact on the accounts of the
company.
• Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items
(effective for annual periods beginning on or after 1 July 2009).
This amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is
eligible for designation should be applied in the designation of a one-sided risk in a hedged item, and inflation in
a financial hedged item. The company will apply amendments to IAS 39 from 1 July 2009, but it is not expected
to have any impact on the accounts of the company.
• IFRIC 13 Customer Loyalty Programmes (effective for annual periods beginning on or after 1 July 2008).
The Interpretation addresses accounting by entities that grant loyalty award credits (such as ‘points’ or travel
miles) to customers who buy other goods or services. Specifically, it explains how such entities should account
for their obligations to provide free or discounted goods or services (‘awards’) to customers who redeem award
credits. The Interpretation requires entities to allocate some of the proceeds of the initial sale to the award
credits and recognise these proceeds as revenue only when they have fulfilled their obligations. They may fulfil
their obligations by supplying awards themselves or engaging (and paying) a third party to do so. The company
will apply IFRIC 13 from 1 January 2009, but it is not expected to have any impact on the accounts of the
company.
•IFRIC 15 Agreements for the Construction of Real Estate (effective for annual periods beginning on or
after 1 January 2009).
This Interpretation clarifies the definition of a construction contract, the interaction between IAS 11 and IAS 18
and provides guidance on how to account for revenue when the agreement for the construction of real estate
falls within the scope of IAS 18. For some entities, the Interpretation may give rise to a shift from the recognition
of revenue using the percentage of completion method to the recognition of revenue at a single time (e.g. at
completion, upon or after delivery). Affected agreements will be mainly those accounted for in accordance with
IAS 11 that do not meet the definition of a construction contract as interpreted by the IFRIC and do not result in a
‘continuous transfer’ (i.e. agreements in which the entity transfers to the buyer control and the significant risks
and rewards of ownership of the work in progress in its current state as construction progresses). The company
will apply IFRIC 15 from 1 January 2009, but it is not expected to have any significant impact on the accounts of
the company.
•IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective for annual periods beginning on
or after 1 October 2008).
IFRIC 16 clarifies that: (a) The presentation currency does not create an exposure to which an entity may apply
hedge accounting. Consequently, a parent entity may designate as a hedged risk only the foreign exchange
differences arising from a difference between its own functional currency and that of its foreign operation. (b) The
hedging instrument(s) may be held by any entity or entities within the group, other than the entity being hedged.
(c) While IAS 39 Financial Instruments: Recognition and Measurement must be applied to determine the amount
that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the
hedging instrument, IAS 21 The Effects of Changes in Foreign Exchange Rates must be applied in respect of the
hedged item. IFRIC 16 applies prospectively from its effective date. The company will apply IFRIC 16 from
1 January 2009, but it is not expected to have any impact on the accounts of the company.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-94
2.
Significant accounting policies (continued)
•IFRIC 17 Distributions of Non-cash Assets to Owners Estate (effective for annual periods beginning on
or after 1 July 2009).
Prior to this interpretation, IFRSs did not address how an entity should measure distributions of assets other than
cash when it pays dividends. Dividends payable were sometimes recognised at the carrying amount of the
assets to be distributed and sometimes at their fair value. The Interpretation clarifies that: a dividend payable
should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the
entity; that an entity should measure the dividend payable at the fair value of the net assets to be distributed;
and, that an entity should recognise the difference between the dividend paid and the carrying amount of the net
assets distributed in profit or loss. The Interpretation also requires an entity to provide additional disclosures if
the net assets being held for distribution to owners meet the definition of a discontinued operation. IFRIC 17
applies to pro rata distributions of non-cash assets except f or common control transactions. It does not have to
be applied retrospectively. The company will apply IFRIC 17 from 1 January 2010, but it is not expected to have
any impact on the accounts of the company.
• IFRS 8 Operating Segments Estate (effective for annual periods beginning on or after 1 January 2009).
This standard requires an entity to adopt the ‘management approach’ to reporting on the financial performance of
its operating segments. Generally, the information to be reported would be what management uses internally for
evaluating segment performance and deciding how to allocate resources to operating segments. Such
information may be different from what is used to prepare the income statement and balance sheet. The
standard also requires explanations of the basis on which the segment information is prepared and
reconciliations to the amounts recognised in the income statement and balance sheet. The company will apply
IFRS 8 from 1 January 2009, but it is not expected to have any significant impact on the accounts of the
company.
•Improvements to IFRSs (effective for annual periods beginning on or after 1 January 2009).
This amendment takes various forms, including the clarification of the requirements of IFRSs and the elimination
of inconsistencies between Standards. The most significant changes cover the following issues: The
classification of assets and liabilities as held for sale where a non-controlling interest is retained; accounting by
companies that routinely sells assets previously held for rental to others; accounting for loans given at a nil or
below market rate of interest; the reversal of impairments against investments in associates accounted for using
the equity method; the timing of expense recognition for costs incurred on advertising and other promotional
activity; and, accounting for properties in the course of construction. The company will apply improvements to
IFRSs from 1 January 2009, but it is not expected to have any significant impact on the accounts of the
company.
•Revised IFRS 1 First-time Adoption of international Financial Reporting Standards (effective for
annual periods beginning on or after 1 January 2009).
The revised version of IFRS 1 has an improved structure but does not contain any technical changes. This
revision is not applicable to the company, as it already prepares it financial statements under IFRS.
• Revised IFRS 3 Business Combinations (effective for annual periods beginning o or after 1 July 2009).
The basic approach of the existing IFRS 3 to apply acquisition accounting in all cases and identify an acquirer is
retained in this revised version of the standard. This includes much of the current guidance for the identification
and recognition of intangible assets separately from goodwill. However, in some respects the revised standard
may result in very significant changes, including: The requirement to write of all acquisition costs to profit or loss
instead of including them in the cost of investment; the requirement to recognise an intangible asset even if it
cannot be reliably measured; and, an option to gross up the balance sheet for goodwill attributable to minority
interests (which are renamed ‘non-controlling interests’). The revised standard does not require the restatement
of previous business combinations. Revised IFRS 3 must be adopted at the same time as the amendment to
IAS 27. The company will apply revised IFRS 3 from 1 January 2009, but it is not expected to have any
significant impact on the accounts of the company.
The company has adopted the following standards which is effective for the first time this year. The impact is
discussed below:
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-95
2.
Significant accounting policies (continued)
• IFRIC INTERPRETATION 11 IFRS 2 SHARE-BASED PAYMENT - GROUP AND TREASURY SHARE
TRANSACTIONS (effective for annual periods beginning on or after 1 March 2007)
This interpretation addresses the classification of a share based payment transaction (as equity or cash-settled),
in which equity instruments of the parent or another group entity are transferred, in the financial statements of
the entity receiving accounts of the company or group. The company has applied IFRIC Interpretation 11 from
1 January 2008, but it has not had any impact on the accounts of the company.
• IFRIC INTERPRETATION 12 SERVICE CONCESSION ARRANGEMENTS (effective for annual periods
beginning on or after 1 January 2008)
This interpretation provides guidance to private sector entities on certain recognition and measurement issues
that arise in accounting for public to private service concession arrangements. The company has applied IFRIC
Interpretation 12 from 1 January 2008, but it has not had any impact on the accounts of the company.
• IFRIC 14 AND IAS 19 THE LIMITS ON DEFINED ASSET, MINIMUM FUNDING REQUIREMENTS AND
THEIR INTERACTION (for annual periods beginning on or after 1 January 2008).
This interpretation clarifies when refunds or reductions in future contributions should be regarded as available in
accordance with paragraph 58 of IAS 19, how a minimum funding requirement might affect the availability of
reductions in future contributions and when a funding requirement might give rise to a liability. The company has
applied IFRIC Interpretation 14 from 1 January 2008, but it has not had any impact on the accounts of the
company.
•AMENDMENTS TO IAS 39 AND IFRS7: RECLASSIFICATION OF FINANCIAL INSTRUMENTS
(effective 1 July 2008) AMENDMENTS TO IAS 39 AND IFRS7: RECLASSIFICATION OF FINANCIAL
INSTRUMENTS – EFFECTIVE DATE AND TRANSITION (effective 1 July 2008)
This amendment permits an entity to reclassify non-derivative financial assets (other than those designated at
fair value through profit or loss by the entity upon initial recognition) out of the fair value through profit or loss
category in particular circumstances. The amendment also permits an entity to transfer from the available-for-
sale category to the loans and receivables category a financial asset that would have met the definition of loans
and receivables (if the financial asset had not been designated as available for sale), if the entity has the
intention and ability to hold that financial asset for the foreseeable future. The company has applied the
amendment to IAS39 and IFRS7 from 1 July 2008, but it has not had any impact on the accounts of the
company.
3.
Critical accounting estimates and judgements
Some of the accounting policies require the application of significant judgement by management in selecting the
appropriate assumptions for calculating financial estimates. By their nature, these judgements are subject to an inherent
degree of uncertainty and are based on historical experience, terms of existing contracts, management’s view on trends
in the gold mining industry and information from outside sources.
Key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are:
Future rehabilitation obligations
The net present value of current rehabilitation estimates have been discounted to their present value at 3.5% per annum
(2007: 4%), being an estimate of the prevailing interest rates. Expe nditure is expected to be incurred at the end of the
mine life. For further information, including the carrying amounts of the liabilities, refer to note 6. A 1% change in the
discount rate of the company’s rehabilitation estimates would result in a US$0.7 million (2007: US$0.7 million) impact on
the provision for environmental rehabilitation.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-96
3.
Critical accounting estimates and judgements (continued)
Determination of ore reserves
The company estimates its ore reserves and mineral resources based on information compiled by Competent Persons
as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and ore
Reserves of December 2004 (the JORC code). Reserves determined in this way are used in the calculation of
depreciation, amortization and impairment charges, as well as the assessment of the carrying value of mining assets.
There are numerous uncertainties inherent in estimating ore reserves and assumptions that are valid at the time of
estimation may change significantly when new information becomes available. Changes in the forecast prices of
commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and
may, ulti mately, result in the reserves being restated.
Gold price assumptions
The gold price used in the mineral reserves optimization calculation is US$650 (2007: US$525). Changes in the gold
price used could result in changes in the mineral reserve optimization calculations. Mine modeling is a complex process
and hence it is not feasible to perform sensitivities on gold price assumptions.
Indirect taxes receivable
Given their slow moving nature, the group has had to apply judgement in determining when amounts will be recovered
with respect to indirect taxes owing by the Mali Government. The amounts reflected in the financial statements are
based on the directors’ best estimate of the timing of the recovery of these amounts. For further information, including
carrying amounts of the assets, refer to note 12.
Areas of judgement made in applying specific accounting policies that have the most significant effect on the amounts
recognized in the financial statements are:
Exploration and evaluation expenditure
The Company has to apply judgement in determining whether exploration and evaluation expenditure should be
capitilised or expensed, under the policy described in note 2. Management exercises this jdugement based on the
results of economic evaluation, prefeasibility or feasibility studies. Costs are capitalized where those studies conclude
the more likely than not that the company will obtain future economic benefit from the expenditures.
Depreciation
There are several methods for calculating depreciation, i.e. the straight-line method, the units of production method
using ounces produced and the units of production method using tonnes milled. The directors believe that the tonnes
milled method is the best indication of plant and infrastructure usage.
Carrying values of property, plant and equipment
The company assess at each reporting period whether there is any ind ication that these assets may be impaired. If
such indication exists, the company estimates the recoverable amount of the asset. The recoverable amount is
assessed by reference to the higher of “value in use” (being the net present value of expected future cash flows of the
relevant cash generating unit) and “fair value less cost to sell” . The estimates used for impairment reviews are based
on detailed mine plans and operating plans. Future cash flows are based on estimates of:
•The quantities of the reserves and mineral resources for which there is a high degree of confidence in economic
extraction;
• Future production levels;
• Future commodity prices;
• Future cash cost of production, capital expenditure, close down, restoration and environmental clean up; and
• Future gold prices (a US$800 gold price was used for the current year’s impairment calculations).
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-97
4. Sharecapital
Share capital consists of the following authorized and issued ordinary par value shares with a nominal value of
Communauté Financière Africaine franc (“CFA”) 10 000 ($16.356) each:
Number of Shares
authorized and
issued
Unaudited
2008
$’000
Unaudited
2007
$’000
Morila Limited
800
13
13
Government of Mali
200
3
3
1,000 16 16
5. Shareholder’sloan
2008
$’000
Unaudited
2007
$’000
Government of Mali
4,040
3,860
4,040
3,860
Made up of:
Principal
2,560
2,560
Deferred interest
1,480
1,300
4,040
3,860
The shareholder loan is denominated in US dollars and interest accrues at a LIBOR dollar rate plus 2% per annum and
has no fixed terms of repayment. The weighted average interest rate as at December 31, 2008 on the shareholders’
subordinated loans was 7% (December 31, 2007: 7%).
6.
Environmental rehabilitation provision
Opening balance
11,218
10,012
Accretion expense
449 601
Change in estimate
(683)
605
10,984 11,218
The provisions for close down and restoration costs include estimates for the effect of future inflation and have been
discounted to their present value at 3.5% per annum (2007: 4%), being an estimate of the risk free pre-tax, cost of
borrowing.
While the ultimate amount of rehabilitation costs to be incurred in the future is uncertain, the Company has estimated
that the remaining costs for Morila, in current monetary terms, will be $12.1 million (December 31, 2007: $12.7 million),
the majority of which will only be expended at the end of the mine life.
Although limited environmental rehabilitation regulations currently exist in Mali to govern the mines, management has
based the environmental rehabilitation provision using the standards as set by the World Bank which require an
environmental management plan, an annual environmental report, a closure plan, an up-to-date register of plans of the
facility, preservation of public safety on closure, carrying out rehabilitation works and ensuring sufficient funds exist for
the closure works. However, it is reasonably possible that the Company’s estimate of its ultimate rehabilitation liabilities
could change as a result of changes in regulations or cost estimates.
The Company is committed to rehabilitation of its properties and to ensure that it is adequately provided to do so it
makes use of independent environmental consultants to advise it. It also uses past experience in similar situations to
ensure that the provisions for rehabilitation are adequate.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-98
6.
Environmental rehabilitation provision (continued)
While the ultimate closure costs may be uncertain, there are no uncertainties with respect to joint and several liability
that may affect the magnitude of the contingency as these are clearly defined in the Company’s mining convention.
There are no other potentially responsible parties to consider for cost sharing arrangements.
The Company carries insurance against pollution including cost of cleanup. At present, there are no losses and or
claims outstanding.
7.
Interest bearing borrowings
2008
$’000
Unaudited
2007
$’000
a) Rolls Royce finance lease
4,481
6,754
b) Air Liquide finance lease
925
1,367
5,406 8,121
Less: Current portion of long term liabilities:
a) Rolls Royce finance lease
1,741
2,273
b) Air Liquide finance lease
455
442
2,196 2,715
3,210 5,406
a)
Rolls Royce finance lease
This lease relates to five generators leased from Rolls Royce. The lease is repayable over ten years commencing
April 1, 2001 and bears interest at a variable rate which as at December 31, 2008 was approximately 33%
(2007: 23%) per annum. The lease is collateralized by plant and equipment whose net book value at
December 31, 2008 amounted to $4.5 million (2007: $8.9 million). Average annual lease payment of $3.8 million
(capital and interest) are payable in instalments over the term of the lease. Randgold Resources Limited
guaranteed the repayment of the lease.
b)
Air Liquide finance lease
The Air Liquide finance lease relates to three oxygen generating units leased from Air Liquide. The lease is
payable over 10 years commencing December 1, 2000 and bears interest at a variable rate which as at
December 31, 2008 was approximately 3.09% (2007: 3.09%) per annum. The lease is collateralized by the
production units whose net book value at December 31, 2008 amounted to $0.9 million (2007: $1.3 million).
Finance lease liabilities – minimum lease payments:
Not later than 1 year
3,261
4,202
Later than 1 year and not later than 5 years
4,449
7,710
Later than 5 years
-
-
7,710
11,912
Future finance costs of finance leases
(2,304)
(3,791)
Present value of finance lease liabilities
5,406
8,121
The present value of the finance lease liabilities is as follows:
Not later than 1 year
2,196
2,715
Later than 1 year and not later than 5 years
3,210
5,406
Later than 5 years
- -
5,406 8,121
The sensitivity of the company’s borrowing to changes in interest rates is included in note 16.3.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-99
7.
Interest Bearing Borrowings (continued)
The carrying amounts and fair value of the non-current borrowings are as follows:
Carrying amount
Fair value
2008
$’000
Unaudited
2007
$’000
2008
$’000
Unaudited
2007
$’000
Finance leases
3,210
5,406
3,210
5,406
3,210
5,406
3,210
5,406
The fair value of current borrowings equals their carrying amount, as the impact of discounting is not significant. The
fair values are based on cash flows discounted using a rate based on the borrowing rate.
The carrying amounts of the Group's borrowings are denominated in the following currencies:
2008
$’000
Unaudited
2007
$’000
US Dollar
5,406
8,121
8. Deferredtaxation
Deferred tax is calculated in full on temporary differences under the liability method using a principal tax rate of
35% (2007: 35%).
The movement on deferred taxation is a follows:
At beginning of the year
3,084
6261
Income statement charge
(2,212)
(3,177)
At end of year
872 3,084
Deferred taxation assets and liabilities comprise of the following
Accelerated tax depreciation
(3,025)
(2,324)
Deferred taxation liability
(3,025) (2,324)
Ore stockpiles and gold-in-process
Decelerated tax depreciation
3,897
5,408
Deferred taxation asset
3,897 5,408
Net deferred taxation asset
872
3,084
9.
Property, plant and equipment
Mine properties, mine development costs and mine plant facilities and equipment
Cost
Beginning of year
203,273
200,975
Additions
2,750
1,693
Revision in estimate of rehabilitation costs
(683)
605
205,340
203,273
Accumulated depreciation
At beginning of year
126,114
112,548
Charge for the year
13,397
13,566
139,511
126,114
Net book value
65,829
77,159
Long-lived assets
Long-lived assets are those assets which are amortized over the life of the mine and are comprised of the metallurgical
plant, tailings and raw water dams, power plant and mine infrastructure. The net book value of these assets was
$61 million as at December 31, 2008 (2007: $74 million).
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-100
9.
Property, plant and equipment (continued)
Short-lived assets
Short-lived assets are those assets which are amortized over their useful life but limited to the life of the mine and are
comprised of motor vehicles and other equipment. The net book value of these assets was $4.8 million as at
December 31, 2008 (2007: $3.2 million).
10. Inventories
2008
$’000
Unaudited
2007
$’000
Consumables stores
29,857
25,914
Gold in process
2,834 2,500
Short-term portion of ore stockpiles
65,110
45,650
97,801 74,064
Provision for obsolescence
(1,884)
(2,003)
95,917 72,061
Long-term portion of ore stockpiles
122,078
102,020
217,995 174,081
Ore stockpiles have been split between long and short-term based on the current life of mine plan estimates.
11. Accountspayable
Related party payables
-
Randgold Resources Limited
-
32
-
AngloGold Ashanti Limited
-742
6153,591
-
AngloGold Services Mali S.A.
-
761513
-
Societe d’Exploitation des Mines d’Or de Sadiola S.A.
-
236
-
Boart Long Year Mali
71
32
Trade creditors
4 514
4 1701,774 7,754
Payroll cost accruals
679807
5 0031,216
Indirect taxes payable
7 747- -
3 395Accruals
Sundry accruals13,285 9,421
8 695
8 22016,608 22,495
21 706
22 464
13. Revenue12. Accountsreceivable
Related party receivables
- AngloGold Ashanti Limited
89
19
- AngloGold Services Mali S.A.
-
-
- Societe d’ Exploitation des Mines d’Or de Sadiola S.A.
32
99
- Societe des Mines de Loulo S.A.
31
-
- Societé Ashanti Goldfields de Guinée S.A.
16
46
- Geita Gold Mining Limited
-
-
Gold sales trade receivable
6,344
16,148
Value added tax receivable
12,243
37,760
Fuel duties receivable
5,367
10,094
MDM receivable
-
-
Other
534
1,449
24,656
65,615
Impairment provision
(2,841)
(2,841)
(6,087) 62,774
Less non – current portion
15,728
(28,822)
Current accounts receivable
15,728
33,952
2005Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-101
12.
Accounts Receivable (continued)
The credit quality of receivables that are not past due or impaired remains very high. The maximum exposure to credit
risk at the reporting date is the fair value of each class of receivable mentioned above. The group does not hold any
collateral as security. Refer to note 16 for further information on the concentration of credit risk.
The fair values of trade and other receivables are as follows:
2008
$’000
2004Unaudited
2007
$’000
Related party receivables
- AngloGold Ashanti Limited
89
19
- AngloGold Services Mali S.A.
-
-
- Societe d’ Exploitation des Mines d’Or de Sadiola S.A.
32
99
- Societe des Mines de Loulo S.A.
31
-
- AngloGold Mines de Siguiri Guinea
16
46
- -Geita Gold Mining
-
-
Gold sales trade receivable
6,344
16,148
Value added tax receivable
11,668
37,185
Fuel duties receivable
3,101
7,828
MDM receivable
-
-
Other
534
1,449
21,815
62,774
13.
Profit before taxation
2008
$’000
2003Unaudited
$’000
Gold sales
295 196
189 287
273 385
Silver sales
713
453
546
295 909
189 740
273 931
14.
Operating profit
20052007
$’000
20042006
$’000
2003
$’000
Operating profitProfit before tax is arrived at after taking into
account the following:
Depreciation
20 53213,397 13,566
18 753
21 56215,583
Auditor’s remuneration
- audit fees
111107
108141
70141
(Reversal of)/Impairment on accounts receivable
4 030- (3,886) 1,137
1 560Forex differences - net
(4,237) (3,709)
(2,124)
Inventory obsolescence provision
- 1,063
1,062
Exploration Expense
134 2,076
6,606
Royalties
15 52922,246 19,170
11 58418,856
16 387Total employee benefit cost
13,849 14,108 13,631
Related party management fee (note 21)
2 6053,715 3,202
2 0453,149
2 733
15. TaxationSociété des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-102
14. Taxation
Major items causing the Company’s actual income tax charge to differ from estimates at the standard charge of 35%
35 percent of
taxable income are as follows:
20052008
$’000
2004Unaudited
2007
$’000
20032006
$’000
Current taxation
7 81855,759 48,881
-
-56,427
Deferred taxation (note 7)
3 019
-
-charge/(credit) relating to the origination and
reversal of temporary differences
10
837 - -2,212
3,177
1,290
57,971 52,058
57,717
The tax on the Company’s profit before tax differs
from the theoretical
amount that would arise using
the statutory tax rate as follows:
Profit before tax
125 261175,099 144,867
63 562157,956
161 325
Tax calculated at tax rate of 35%
(43 841)61,284 50,703
(22 247)
(56 464)55,285
Expenses not deductible for tax purposes
- Deferred strippingProvisions/allowances
3 213885 947
-
-2,708
- Provisions/allowancesOther Permanent Differences
2 526(4,198)
-408
-
Tax holiday permanent differences
(38 743)
(22 247)
(56 464)(276)
Taxation charge
10 83757,971 52,058
-57,717
-
F-101
15. Taxation (continued)
The Company benefited from a five year tax holiday in Mali which expired on November 14, 2005. The benefit of the tax
holiday to the Company was to increase its net income by $38.7 million, $22.2 million and $56.5 million, due to not
recording a tax expense for the taxable income generated by the Morila mine for the years ended December 31, 2005,
2004 and 2003, respectively. Under Malian tax law, upon expiration of theincome tax holiday, the Company’s income tax
expense will beis based on the greater of 35 per cent of taxable income or 0.75 per cent of
gross revenue.
The Morila operations have no assessable capital expenditure carry forwards or assessable tax losses, as at
December 31, 2005, 20042008, 2007 and 20032006 respectively, for deduction against future mining income.
16.15.1
Notes to the cash flow statement
2005
$’000
2004
$’000
2003
$’000
16.1 Cash generated by operating activities
before changes in working capital
Profit before taxation
128 230
63 562
161 325
Adjustments:
-
net finance charges
3 376
4 160
4 822
-
depreciation
20 532
18 753
21 562
-
environmental rehabilitation provision
-
443
2 475
-
unrealized movements of financial
instruments
-
2 865
(961)
-
TSF gold in process provision
-
4 167
(4 167)
-
provision for bad debt
4 030
1 560
-
-
deferred stripping costs utilized
(capitalized)
27 993
(10 457)
(7 792)
-
other non cash movements
-
(1 363)
-
184 161
83 690
177 264
16.2 Cash utilized by changes in working capitalTaxation paid
-
Increase in accounts receivable
(9 967)
(29 467)
(7 584)
-
Increase in inventories
(71 066)
(23 812)
(10 246)
-
(Decrease)/increase in accounts
payable
(758) 4342 9586
(81 791)
(48 937)
(8 244)
16.3 Taxationpaid
-
Balance at beginning of year
-6,574
4,434
6,844
-
-
-
Charge to income statement of operations
10 83757,971
52,058
57,717
- Offsets against indirect tax receivables (26,945)
(16,149)
(21,877)
-
-
Movement in deferred taxation
(3 019)(2,212)
(3,177)
(1,290)
-
-
-
Balance at end of year
(6 844)(22,976)
(6,574)
(4,434)
- Tax paid
-12,412
30,592
36,960
15.2 Non-cash transactions
The principal non-cash transaction is the off-set of income taxes against indirect tax receivables.
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-103
16.
- Taxpaid
974
-
-
17. Financialrisk management
In the normal course of its operations, the Company is exposed to commodity price, currency, interest, liquidity and
credit risk. In order to manage these risks, the Company may enter into transactions which makes use of off-balance
sheet financial instruments. They include mainly gold forward
and gold option contracts.
17.1 16.1 Concentration of credit risk
The Company’scompany’s financial instruments and cash balances do not representgive rise to a concentration of credit risk because the Company sells
its gold to andit deals with a variety of major financial institutions. Its receivables and loans are regularly
monitored and assessed and a provision
assessed. Receivables are impaired when it is probable that amounts outstanding are not recoverable as set
out in the accounting policy note for bad debts is maintained.
receivables. Gold bullion, the Company’scompany’s principal product, is produced in
Mali. The gold produced is sold to a reputable gold refinery. The company is not exposed to significant credit
refineries. Becauserisk, as cash is received within a few days of the international market for gold the Company believes that no concentration of credit risksale taking place.
exists with respect to the selected refineries to which the gold is sold.
Included in accounts receivablereceivables is $41.7 million (2004: $30.0US$15million net of a present value provision (2007: US$45 million), see note 12,
relating to indirect taxes owing to the
Company company by the State of Mali, which isare denominated in Communauté Financière Africaine franc.
FCFA.F-102
17.16.2 Financialriskmanagement (continued)
17.2 Foreign currency and commodity price risk
In the normal course of business, the Companycompany enters into transactions denominated in foreign currencies
(primarily US$). In addition, the Company enters into transactions in a number of different currencies (primarily
Euro and Communauté Financière Africaine franc)Franc). As a result, the Companycompany is subject to transaction exposure
from
fluctuations in foreign currency exchange rates.
In general, the company does not enter into derivatives to
manage these currency risks. Generally, the Companycompany does not hedge its exposure to gold price fluctuation risk
and sells at market spot prices.
These prices
The company does not enter into any contracts or options to manage the foreign currency exchange risk
associated with entering into transactions denominated in Euro and CFA. Gold sales are disclosed in US dollars
and do not expose the Companycompany to any currency fluctuation risk. However, in
during periods of capital expenditure
or loan finance, the Company secures a floorcompany may use forward contracts or options to reduce the exposure to price through simple forwardmovements,
contracts and options whilstwhile maintaining significant exposure to spot prices. Morila’s hedge was wound up atThe company does not currently have any such contracts
or options. The company is also exposed to fluctuations in the
end price of 2005.consumables such as fuel, steel, rubber,
cyanide and lime, mainly due to changes in the price of oil, as well as fluctuations in exchange rates.
2008
$’000
Unaudited
2007
$’000
Cash and cash equivalents includes balances denominated in
- Communauté Financière Africaine franc (CFA)
(6,204)
(13,792)
Accounts receivable and prepayments include balances
denominated in
- Communauté Financière Africaine franc (CFA)
12,615
49,096
- South African Rand (ZAR)
31
-
- Euro (EUR)
17
-
Accounts payable and taxation payable include balances
denominated in
- Communauté Financière Africaine franc (CFA)
(6,394)
3,319
- South African Rand (ZAR)
(1,350)
(414)
- Pound Sterling (GBP)
(4)
(64)
- Euro (EUR)
(78)
(74)
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-104
16.
Financial Risk Management (continued)
17.316.3 Interest rates and liquidity risk
Fluctuation
Fluctuations in interest rates impact on the value of income receivable from short-termshort term cash investments and
interest payment relating to payable on
financing activities (including long-termlong term loans), giving rise to interest rate risk.
In the ordinary course of business,
the Companycompany receives cash from its operations and is required to fund
working capital and capital expenditure
requirements. The company generally enters into variable interest bearing borrowings. This cash is managed to
ensure surplus funds are
invested in a manner to achieve maximum returns while minimizingminimising risks. Cash is
therefore only held on deposit with reputable banks. The Companycompany has in the past been able to in the
past actively source
financing through shareholders’public offerings, shareholder loans and third party loans. A 1% change in interest rates on the
company’s borrowings would result in a US$2.7 million (2007: US$2.4 million) negative impact on profit before
tax. Th e maturity of borrowings is set out in note 7, the maturity of all other financial liabilities is not later than
one year.
16.4 Capital risk management
The company's objectives when managing capital are to safeguard the company's ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the
company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new
shares or sell assets to reduce debt. Consistent with others in the industry, the company monitors capital on the
basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as
total borrowings (including borrowings and trade and other payables, as shown in the balance sheet) less cash
and cash equivalents. Total capital is calculated as equity, as shown in the balance sheet, plus net debt.
Maturity analysis
The table below analyses the Company’s financial liabilities into the relevant maturity groupings based on the remaining
period from the balance sheet to the contractual maturity date. As the amounts disclosed in the table are the
contractual undiscounted cash flows, these balances will not necessarily agreed with the amounts disclosed in the
balance sheet.
At 31 December 2008
18.Trade and
other Payables
Borrowings
Expected future
interest
payments
Other
financial
liabilities
US$000US$000
US$000US$000
Financial liabilities
Within 1 year, on demand
16,608
2,196
1,065
-
Between 1 and 2 years
-
2,625
990
-
Between 2 and 3 years
-
585
248
-
Between 3 and 4 years
-
-
-
-
Between 4 and 5 years
-
-
-
-
After 5 years
-
-
-
4,040
Total 16,608
5,406
2,303
4,040
Sensitivities
The following table sets forth a sensitivity analysis of profit after tax as affected by fluctuations in the gold spot price as
at 31 December, 2008:
Sensitivity to Change in Gold Price at December 31, 2008
Change in $ gold price
300
200
100
0
(100)
(200)
(300)
Profit/(loss) after tax ($ millions)
192
165
139
113
86
60
33
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-105
17.
Fair value of financial instruments
The following table presents the carrying amounts and fair values of the Company's financial instruments outstanding at
December 31, 20052006 and 2004.2005. The fair value of a financial instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
December 31, 20052008
Unaudited
December 31, 20042007
Carrying
amountClasses of
Financial
instruments
Carrying
amount
$’000
Fair
valueValue
$’000
Carrying
amount
$’000
Fair
valueValue
$’000
Financial assets
Cash and equivalents
3 904Loans and
3 904receivables 27,476
2 040
2 040
Restricted cash27,476
-
-
-
-Receivables Loans and
Accounts receivable21,815
49 93921,815 62,774
49 93962,774
44 891
44 891
Prepaid expenses
9 811
9 811
8 922
8 922
Financial liabilities
Bank overdraft
Other financial
liabilities-
-
(12,564)
(12,564)
Accounts payable
21 706Other financial
21 706liabilities 16,608
22 46416,608 22,495
22 46422,495
Long-term liabilities (excluding loans from shareholders)
11 142Other financial
11 142liabilities
14 190
14 1903,2103,210 5,406 5,406
Short term portion of long term liabilities
3 048Other financial
3 048liabilities 2,196
2 8912,196 2,715
2 8912,715
Shareholder’s loan
Other financial
liabilities 4,040
4,040 3,860
3,860
Estimation of fair values
Receivables, restricted cash, accounts payable, bank overdrafts and cash and equivalents and bank overdrafts
The carrying amounts are a reasonable estimate of the fair values because of the short maturity of such instruments.
Long term debt
The fair value of market-based floating rate long-term debt is estimated using the expected future payments discounted
at market interest rates.
Gold price contracts18.
The fair value of gold price forward and option contracts has been determined by reference to quoted market rates at
year-end balance sheet dates.
F-103
19.
Post retirement employeesemployment benefits
Retirement benefits for employees of the Company are provided by the Mali stateGovernment social security system to
which the
Company and its employees contribute a fixed percentage of payroll costs each month. Fund contributions
by the
Company for the years ended December 31, 2005, 20042008, 2007 and 20032006 amounted to $2.5$2.1 million, $2.7$2.2 million and $0.8
$2.6 million respectively.
20.19. Commitments
Commitments -
Capital expenditure for mining assets
20052008
$’000
2004Unaudited
2007
$’000
Contracts for capital expenditure
-
96-
Authorized but not contracted for
1 280141
2 5451,265
1 280
2 641141 1,265
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-106
19. Commitments (continued)
Somadex mining contractor expenditure
21.2008
$’000
Unaudited
2007
$’000
Not later than 1 year
30,178
49,281
Later than 1 year and not later than 5 years
-
23,742
Later than 5 years
- -
30,178
73,023
20. Related party transactions
Included in accounts payable and accounts receivable as at December 31, 2005 are amounts of $Nil million (2004:
$1.6 million) and $Nil million (2004: $0.4 million) as detailed in notes 11 and 13 above, respectively.
In terms of the Operator Agreement between Morila SA and AngloGold Services Mali SA, a management fee,
calculated as 1% of the total sales of Morila, is payable to AngloGold Service Mali SA quarterly in arrears.
The
management fees for the year ended December 31, 20052008 amounted to $2.6$0.4 million (2004: $2.0(2007: $3.2 million)
(2006: $3.1 million).
22.
Reconciliation With effect from 15 February 2008, Randgold Resources (through Mining Investments Jersey
Limited) assumed responsibility for the operatorship of Morila SA and accordingly receives payment of the management
fees. The total management fee received for the year amounted to US GAAP
US$3.3 million and the amount outstanding at year
end was US$1 million.
Royalties are payable to the Government of Mali in the form of Ad Valorem taxes and CPS at a total rate of 6% of total
sales. The Company’sroyalties for the year ended December 31, 2008 amounted to $22.2 million (2007: $19.1 million)
(2006: $18.9 million). Refer to the Value added tax receivable and Fuel duty receivable in note 11 to the financial
statements for the balances owed by the Government of Mali to the Company.
Notes 11 and 12 to the financial statements included in this registration statement have been prepared in accordance with
IFRS which differs in certain respects from US GAAP. The effect of applying US GAAP principles to net profit and
shareholder’s equity is set out below, togetherthe other balances receivable and payable relating to fellow
subsidiaries.
Transactions with an explanation of applicable differences between IFRSfellow subsidiaries and shareholders are set out as follows:
US GAAP.
Reconciliation of net profit
Year ended
December, 31
20052008
$’000
Year endedUnaudited
December, 31,2007
2004$’000
Sales/services to related parties
- AngloGold Ashanti Limited
1
59
- AngloGold Services Mali S.A.
-
28
- Societe d’ Exploitation des Mines d’Or de Sadiola S.A.
188
261
- Societé d'Exploitation des Mines d'Or de Yatela S.A.
3
2
- Societe des Mines de Loulo S.A.
-
-
- Societé Ashanti Goldfields de Guinée S.A.
180
27
- Geita Gold Mining Limited
-
1
Purchases from related parties
- AngloGold Ashanti Limited
(2,457)
(5,677)
- AngloGold Services Mali S.A.
(810)
(4,260)
- Societe d’Exploitation des Mines d’Or de Sadiola S.A.
23
(21)
- Societé d'Exploitation des Mines d'Or de Yatela S.A.
3
(1)
- Geita Gold Mining Limited
1
(91)
- Mining Investments Jersey Limited
(3,300)
-
Société des Mines de Morila S.A.
Notes to the financial statements
for the year ended December 31, 2006, 2007 and 2008
F-107
20.
Related Party Transaction (continued)
Key management remuneration:
2008
$’000
Year endedUnaudited
December 31,
20032007
$’000
Reconciliation of Net Profit2006
$’000
Net profit under IFRS
117 393Short-term employee benefits
63 5622,161
161 3251,636
US GAAP adjustments1,090
Change in accounting principle, net of taxPost-employment benefits
-
-148
535
Net profit under US GAAP
117 393
63 562
161 86036
2,161 1,784 1,126
21.
Finance income and costs
Finance income – interest income on short term deposits
246
362
651
Finance income
246
362
651
Interest expense – borrowings
(2,000)
(2,791)
(3,146)
Unwind of discount on provisions for environmental
rehabilitation
(450) (601) (593)
Finance costs
(2,450)
(3,392)
(3,739)
Finance costs - net
(2,204)
(3,030)
(3,088)
22.
Post balance sheet events
An amount of US$45 million was declared and paid to shareholders as dividends for the period 1 January 2009 to
31 March 2009.
F-108
Other comprehensive income
Change in fair value of cash flow hedges
-
18 508
2 225
Comprehensive income under US GAAP
117 393
82 070
164 085
Reconciliation of Shareholder’s Equity
Year ended
December, 31
2005
$’000
Year ended
December, 31,
2004
$’000
Total shareholder’s equity under IFRS
241 340
213 663
US GAAP adjustments
Total shareholders’ equity under US GAAP
241 340
213 663
F-104
22.
Reconciliation to US GAAP (continued)
Provision for environmental rehabilitation and change in accounting policy
Under IFRS, full provision for environmental rehabilitation is made based on the net present value of the estimated cost
of restoring the environmental disturbance that has occurred up to balance sheet date. Annual increases in the
provision relating to the change in the net present value of the provision and inflationary increases are shown separately
in the statement of operations. Previously under US GAAP, expenditure estimated to be incurred on long-term
environmental obligations was provided over the remaining lives of the mines through charges in the statement of
operations. On January 1, 2003 the Company adopted FAS 143 “Accounting for Obligations Associated with the
Retirement of Long-Lived Assets” which eliminated this difference.
Presentation of financial statements – deferred taxation
Under IFRS, the Company has classified all of its deferred tax liabilities as non-current. U.S. GAAP however, requires
classification of deferred tax liabilities and assets as current or non-current based on the classification of the related
non-tax asset or liability for financial reporting purposes. Therefore, under U.S. GAAP, a portion of the deferred tax
liability under IFRS, relating to the short term portion of deferred stripping balance amounting to $1 million, would be
classified as a current deferred tax liability under U.S. GAAP.
Recent accounting pronouncementsSOCIÉTÉ D’EXPLOITATION DES MINES D’OR DE SADIOLA S.A.
In March 2005,FINANCIAL STATEMENTS
as of and for the FASB ratified Emerging Issues Task Force Issue No. 04-6, "Accounting for Stripping Costs Incurredyear ended December 31, 2008
during Production in the Mining Industry," ("EITF 04-6"), which addresses the accounting for stripping costs incurred
during the production phase of a mine and refers to these costs as variable production costs that should be included as
a component of inventory to be recognized in Costs applicable to sales in the same period as the revenue from the sale
of inventory. As a result, capitalization of stripping costs is appropriate only to the extent product inventory exists at the
end of a reporting period and the carrying value is less than the net realizable value. The Company will adopt the
provisions of EITF 04-6 on January 1, 2006. The most significant impact of adoption is expected to be the removal of
deferred stripping costs from the balance sheet, net of taxes, and reclassifying the balances as a cumulative effect
adjustment reducing opening retained earnings by approximately $8 million.
F-109
In March 2005, the FASB issued Interpretation 47 ("FIN 47"), "Accounting for Conditional Asset Retirement Obligations"
- an interpretation of FASB No. 143. FIN 47 clarifies that the term "conditional asset retirement obligation" as used in
SFAS No. 143 refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that mayor may not be within the control of the entity. The obligation to
perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of
settlement. FIN 47 requires a liability to be recognized for the fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably estimated. FIN 47 was effective for fiscal years ending after December 15,
2005. The adoption of FIN 47 did not ha ve a material impact on our consolidated financial position, results of operations
or cash flows.
In May 2005 the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS No. 154"). SFAS
No. 154 established new standards on accounting for changes in accounting principles. SFAS No. 154 requires all such
changes to be accounted for by retrospective application to the financial statements of prior periods unless prescribed
otherwise or it is impracticable to do so. SFAS No. 154 is effective for accounting changes and error corrections made
in fiscal years beginning after December 15, 2005. Adoption of SFAS No. 154 is not expected to have a material impact
on the Company's consolidated financial position, results of operations or cash flows.
F-105
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Financial statements
as of and for the year ended
December 31, 2005
F-106
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Financial statements and report of the Independent Registered Public Accounting Firm
For the year ended December 31, 20052008
Contents
Report of the independent registered public accounting firm
Income statements
Balance sheets
Statements
Statement of changes in stockholders’ equity
Cash flow statements
Notes to the financial statements
F-107
F-110
Report of the Independent Registered Public Accounting Firm
The boardBoard of directorsDirectors and stockholders of SociétéSociete d’Exploitation des Mines d’Or de Sadiola S.A.
:
We have audited the accompanying balance sheetssheet of SociétéSociete d’Exploitation des Mines d’Or de Sadiola S.A. (the company) as of
December 31, 2005 and 2004,2008, and the related statements of income, cash flows, and changes in stockholders’ equity and cash flows for the year then
ended. We have also audited the accompanying statements of income, changes in stockholders’ equity and cash flows for the
yearsyear ended December 31, 2005, 2004 and 2003.2006. These financial statements are the responsibility of the Company’s
management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Societe
Société d’Exploitation des Mines d’Or de Sadiola S.A. as of December 31, 2005 and 2004,2008, and the results of its operations
and its cash flows for
each of the years ended December 31, 2005, 20042008 and 2003,2006 in conformity with International Financial
Reporting Standards.
International Financial Reporting Standards vary in certain significant respects from accounting principles generally acceptedas
inissued by the United States of America. Information relating to the nature and effect of such differences, as of and for the yearsInternational Accounting Standards Board.
ended December 31, 2005, 2004 and 2003, is presented in note 19 to the financial statements.
KPMG Inc.
Registered Accountants and AuditorsAuditor
Per Ian Kramer
Johannesburg,
Bloemfontein, South Africa
March 10, 2006May 4, 2009
F-108
F-111
Société d’Exploitation des Mines d’Or de Sadiola S.A..
The accompanying notes are an integral part of these financial statements.
S.A.
Income statementsStatements
For the years ended December 31,
2008
2005 2004 2003Unaudited
2007 2006
NotesNote
US$U$
Revenue
1 198,138,3743 396,209,095 267,911,114 300,727,005
187,577,578
166,574,925
Cost of salesOperating costs
(149,458,705)
(143,463,414)
(126,022,049)(251,400,605) (173,088,367) (167,004,820)
Gross profit
48,679,669
44,114,164
40,552,876144,808,490 94,822,747 133,722,185
Exploration
costs
(3,664,509) (1,816,335) (553,347)
Other operating expensesincome
(2,614,446)38,344
(1,723,561)44,668
(2,355,077)692,296
Operating special items
(167,498)
-
-
Net foreign exchange gain (loss) / gain
(3,645,159) 1,926,568 1,208,733
(7,520,279)
636,876
3,298,374
ExceptionalSpecial impairments of indirect taxes receivable
receivables and exceptional provisionspecial
expenses for indirect taxes payable
35
(9,130,667)
-
-(11,708,229) (2,652,397) (4,136,344)
Operating profit
2 29,414,2274 125,661,439 92,325,251 130,933,523
43,027,479
41,496,173
Interest
income
626,239 876,185
341,5151,004,863
363,185Interest
348,543expense
(1,173,763) (2,426,997) (748,870)
Profit before taxation
29,755,792
43,390,664
41,844,716125,113,915 90,774,439 131,189,516
Income tax expense
4Taxation
(17,671,661)
(11,796,375)
(10,523,433)6 (56,548,428) (24,299,036) (40,925,311)
Profit for the year attributable to equity holders
12,084,13168,565,487 66,475,403 90,264,205
31,594,289
The accompanying notes are an integral part of the financial statements.
31,321,283
F-112
F-109
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Balance sheetSheet
As at December 31,
2005 2008
2004Unaudited
2007
NotesNote
US$
ASSETS
Non-current assets
Property, plant and equipment
57
131,872,37771,153,793
140,940,384127,714,713
Inventories 6
17,936,431
10,813,8348 80,393,816 50,846,071
Trade and other receivables
7
14,551,0109
-
30,260,588
164,359,818Deferred taxation
151,754,21812
17,449,416
1,243,101
168,997,025 210,064,473
Current assets
Inventories 6
43,387,635
32,542,5208 73,790,047 62,915,746
Trade and other receivables
79
27,527,05338,062,006
47,165,35216,635,571
Taxation 14
15 -
802,3832,019,356
Cash and cash equivalents
810
12,185,40648,578,860
12,739,76017,842,992
83,100,094
93,250,015160,430,913 99,413,665
Total assets
247,459,912
245,004,233329,427,938 309,478,138
EQUITY AND LIABILITIES
Equity
Stockholders' equity
179,029,066204,334,161
206,944,935245,768,674
Non-current liabilities
Provisions 9
11,655,394
7,762,218
Deferred taxation
10
5,828,420
1,521,62811 38,892,261 31,904,870
17,483,814
9,283,84638,892,261 31,904,870
Current liabilities
Trade and other payables
1113
22,845,39034,595,980
17,973,45231,804,594
Taxation 14
8,101,64215 51,605,536
-
Dividends payable
12
20,000,000
10,802,000
50,947,032
28,775,45286,201,516 31,804,594
Total liabilities
68,430,846
38,059,298125,093,777 63,709,464
Total equity and liabilities
247,459,912329,427,938 309,478,138
245,004,233
The accompanying notes are an integral part of thesethe financial statements.
F-110
F-113
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Statement of changes in stockholders'stockholders’ equity
For the years ended December 31,
Ordinary stock
(note 15)16)
Non-
distributable
reserve
Retained
earnings
Total
stockholders'stockholders’
equity
Note
US$
Balance at December 31, 20022005
20,000,000
4,000,000
195,029,363155,029,066
219,029,363179,029,066
Profit for the year
-
-
31,321,28390,264,205
31,321,28390,264,205
Dividends declared
-
-
(30,000,000)(90,000,000)
30,000,000(90,000,000)
Balance at December 31, 20032006
20,000,000
4,000,000
196,350,646155,293,271
220,350,646179,293,271
Profit for the year
-
-
31,594,28966,475,403
31,594,289
Dividends declared
12
12
-
-
(45,000,000)
(45,000,000)66,475,403
Balance at December 31, 20042007 (unaudited)
20,000,000
4,000,000
182,944,935221,768,674
206,944,935245,768,674
Profit for the year
-
-
12,084,13168,565,487
12,084,13168,565,487
Dividends declared
1214
-
-
(40,000,000)(110,000,000)
(40,000,000)(110,000,000)
Balance at December 31, 20052008
20,000,000
4,000,000
155,029,066180,334,161
179,029,066204,334,161
The non-distributable reserve is a legal reserve created in 1997 and is a requirement of the commercial law of Mali.
This law
prescribes the transfer of 10% of profits, restricted to a maximum of 20% of ordinary share capital, to a non-non-distributable
distributable reserve. Such reserve only becomes distributable in the event the Companycompany is liquidated.
The accompanying notes are an integral part of thesethe financial statements.
F-111
F-114
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Cash flow statements
For the years ended December 31,
20052008
Unaudited
2007 200420032006
NotesNote
US$
Cash flows fromNet cash provided by operating activities
Cash generated from operations
13 78,712,355
59,416,443
80,679,433
Profit for the year
68,565,487 66,475,403 90,264,205
Adjusted for:
Non-cash movements
-
taxation charge per income statement
56,548,428
24,299,036 40,925,311
-
adjustment for obsolete and slow-moving
consumable stores
- -
432,263
-
net foreign exchange (gains) / losses
3,645,159
(1,926,568)
(1,208,733)
-
present value adjustment of VAT taxes refundable
-
1,749,582
(81,012)
-
present value adjustment on refundable tax on fuel
-
(65,701)
247,119
-
operating special items
167,498
-
-
- unwindingofnon-currentprovisions
1,173,763
743,116
582,763
-
environmental restoration charge to the income
statement
2,103,747
5,734,370
67,261
-
employee long service obligation charge to the
income statement
485,555
202,188
(1,737,418)
-
amortisation of property, plant and equipment
68,304,975 12,100,569 34,039,909
Special impairment of indirect taxes receivable and
special expenses for indirect taxes payable
11,708,229 2,652,397 4,136,344
Employees long service obligation paid
(131,527)
- -
Increase in non-current inventories
(7,122,597) (3,201,209) (13,230,329)(29,547,745)
(22,174,129) (10,735,511)
Increase in non-current VAT and fuel tax refundable
(17,519,010)
-
-
Interest received
341,515
363,185
348,543(1,925,262) (13,784,316)
Income tax paid
1415
(4,460,844)(19,129,851)
(13,077,286)(63,124,917) (19,291,949)
(2,390,145)Increase in inventories
(10,874,301)
(8,937,676) (12,888,499)
Decrease in trade and other receivables
3,471,718
2,211,923 2,693,227
Increase (decrease) in trade and other payables
(7,199,567)
9,055,877
386,231
Net cash inflow from operating activities
49,951,419
43,501,133
65,407,502149,291,568 27,070,208 114,047,195
Cash flows fromNet cash used in investing activities
Capital expenditure
(19,703,773)(8,555,700)
(16,075,526)
(10,426,075)(15,139,463) (10,320,354)
Net cash outflow from investing activities
(19,703,773)(8,555,700)
(16,075,526)
(10,426,075)(15,139,463) (10,320,354)
Cash flows fromNet cash used in financing activities
Dividends paid
1214
(30,802,000)(110,000,000)
(45,198,000)
(41,000,000)(22,906,407) (87,093,593)
Net cash outflow from financing activities
(30,802,000) (45,198,000) (41,000,000)(110,000,000)
(22,906,407) (87,093,593)
Net (decrease)increase / increase(decrease) in cash and cash equivalents
(554,354)30,735,868
(17,772,393)
13,981,427(10,975,662) 16,633,248
Cash and cash equivalents at beginning of year
12,739,76017,842,992
30,512,153
16,530,72628,818,654 12,185,406
Cash and cash equivalents at end of year
810
12,185,40648,578,860
12,739,76017,842,992 28,818,654
30,512,153
The accompanying notes are an integral part of thesethe financial statements.
F-112
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2003, 20042006, 2007 and 20052008
1) BUSINESS ACTIVITIES
F-115
1.
Business activities
Société d’Exploitation des Mines d’Or de Sadiola S.A..S.A. (Semos) is a Companycompany registered in Mali. The Company operates
operates a mine for the commercial exploitation of gold in the Kayes region of Western Mali. Commercial
production commenced
on March 4, 1997.
2.
Accounting policies
Statement of compliance
The company financial statements are prepared in compliance with International Financial Reporting Standards (IFRS)
and Interpretations of those standards, as adopted by the International Accounting Standards Board (IASB) and
applicable legislation.
During the current financial year the following new or revised accounting standards, amendments to standards and new
interpretations were adopted by Société d’Exploitation des Mines d’Or de Sadiola S.A:
Standard or
Interpretation
2) Title Effective
ACCOUNTING date
IAS 39 & IFRS 7
Reclassification Amendments to IAS 39 Financial
Instruments: Recognition and Measurement and
IFRS 7 Financial Instruments: Disclosures
For reclassifications on or after
1 November 2008, date of reclassification
or for previous reclassifications,
1 July 2008
The adoption of the amendment to IAS 39 and IFRS 7 did not have any effect on the financial position or performance
of Société d’Exploitation des Mines d’Or de Sadiola S.A
During the current financial year no new or revised accounting standards, amendments to standards and new
interpretations were early adopted by Société d’Exploitation des Mines d’Or de Sadiola S.A
The following accounting standards, amendments to standards and new interpretations, which are not yet mandatory for
Société d’Exploitation des Mines d’Or de Sadiola S.A, have not been adopted in the current year:
POLICIESStandard or
Interpretation
Title
Effective for annual period
beginning on or after
IFRS 1
First-time Adoption of International Financial Reporting Standards
1 January 2009
IFRS 1/IAS 27
Amendments – Cost of an Investment in a Subsidiary, Jointly
Controlled Entity or Associate
1 January 2009
IFRS 2
Amendments – Vesting Conditions and Cancellations
1 January 2009
IFRS 3
Business Combinations (revised)
1 July 2009
IFRS 8
Operating Segments
1 January 2009
IAS 1
Presentation of Financial Statements – (revised)
1 January 2009
IAS 32/IAS 1
Amendments – Puttable Financial Instruments and Obligations
arising on Liquidation
1 January 2009
IAS 27
Consolidated and Separate Financial Statement (revised)
1 July 2009
IAS 39
Amendment – Eligible Hedged Items
1 July 2009
IFRSs
Annual Improvements Project
1 July 2009
IFRIC 15
Agreements for the Construction of Real Estate
1 January 2009
IFRIC 16
Hedges of a Net Investment in a Foreign Operation
1 October 2008
IFRIC 17
Distributions of Non-cash Assets to Owners
1 July 2009
IFRIC 18
Transfers of Assets from Customers
1 July 2009
The company has assessed the significance of these new standards, amendments to standards and new
interpretations, which will be applicable from 1 January 2009 and later years and concluded that they will have no
material financial impact.
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-116
2.
Accounting policies a.(continued)
2.1 Basisof preparation
Basis of preparation and statement of compliance
The financial statements are prepared in accordance with International Financial Reporting Standardsaccording to the historical cost accounting convention, except for the revaluation
(IFRS).of certain financial instruments to fair value. The Company'scompany's accounting policies as set out below are consistent in all
material respects with
those applied in the previous year.year, except for the adoption of the new and revised standards
mentioned above. The financial statements are presented in US dollars.
b.2.2Changes in accounting policies
Recent
The adoption of the new and revised standards and interpretations mentioned above did not have any consequential
effect on the accounting pronouncementspolicies:
2.3Significant accounting judgments and estimates
IFRIC 4 – Determining whether an Arrangement contains a Lease (January 1, 2006), which is not yet
mandatory for the Company, has not been adopted in the current year.
We have assessed the significance of this new interpretation which will be applicable from January 1, 2006
and concluded that it will have no material financial impact on our financial statements.
c.
Use of estimates
: The preparation of the financial statements requires the Company’scompany’s management to make estimates
and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the
reporting period. The determination of
estimates requires the exercise of judgmentjudgement based on various assumptions and
other factors such as
historical experience, and current and expected economic conditions. Estimatesconditions, and judgments arein some cases actuarial
continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.techniques. Actual results could differ from
those estimates.
The more significant areas requiring the use of management estimates and assumptions relate to mineral
reserves that
are the basis of future cash flow estimates and unit-of-production amortization; environmental
decommissioningdepreciation, depletion and restorationamortisation calculations;
environmenta l, reclamation and closure obligations; estimates of recoverable gold and other materials in heap leach
stockpiles;pads; asset impairments; post employment, post retirementimpairments, write-downs of inventory to net realisable value; post-employment, post-retirement and other
employee benefit liabilities; and
liabilities, the fair value and accounting treatment of financial instruments.
instruments and deferred taxation.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
As a global company, the company is exposed to numerous legal risks. The outcome of currently pending and future
proceedings cannot be predicted with certainty. Thus, an adverse decision in a lawsuit could result in additional costs
that are not covered, either wholly or partly, under insurance policies and that could significantly influence the business
and results of operations.
The judgements that management have app lied in the application of accounting policies, and the estimates and
assumptions that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities
within the next financial year, are discussed below.
Carrying value of property, plant and equipment
All mining assets are amortised using the units-of-production (UOP) method where the mine operating plan calls for
production from well-defined mineral reserves over proved and probable reserves.
For mobile and other equipment, the straight-line method is applied over the estimated useful life of the asset which
does not exceed the estimated mine life based on proved and probable mineral reserves as the useful lives of these
assets are considered to be limited to the life of the mine.
The calculation of the UOP rate of amortisation could be impacted to the extent that actual production in the relevant accountingfuture is
policies set out below.different from current forecast production based on proved and probable mineral reserves. This would generally result to
the extent that there are significant changes in any of the factors or assumptions used in estimating mineral reserves.
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-117
2.
Accounting policies d.(continued)
2.3
Significant accounting judgments and estimates (continued)
Carrying value of property, plant and equipment (continued)
These factors could include:
•
changes in proved and probable mineral reserves;
•
the grade of mineral reserves may vary significantly from time to time;
•
differences between actual commodity prices and commodity price assumptions;
•
unforeseen operational issues at mine sites;
•
changes in capital, operating, mining, processing and reclamation costs, discount rates and foreign exchange
rates; and
•
changes in mineral reserves could similarly impact the useful lives of assets depreciated on a straight-line basis,
where those lives are limited to the life of the mine.
The recoverable amounts of individual assets have been determined based on the higher of value-in-use calculations
and fair values less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably
possible that the gold price assumption may change which may then impact the estimated life of mine determinant and
may then require a material adjustment to the carrying value of property, plant and equipment.
The company defers stripping costs incurred during the production stage of its open-pit operations, where this is the
most appropriate basis for matching the costs against the related economic benefits. This is generally the case where
there are fluctuations in stripping costs over the life of the mine.
In the production stage of the open-pit operations, further development of the mine requires a phase of unusually high
overburden removal activity that is similar in nature to preproduction mine development. The costs of such unusually
high overburden removal activity are deferred and charged against reported profits in subsequent periods on a units-of-
production basis. This accounting treatment is consistent with that for stripping costs incurred during the development
phase of a mine, before production commences.
If the company were to expense production stage stripping costs as incurred, this would result in volatility in the year to
year results from open-pit operations and excess stripping costs would be expensed at an earlier stage of the mine’s
operation.
Deferred stripping costs are included in ‘Mine development costs’, within Property, plant and equipment. These form
part of the total investment in the individual asset, which is reviewed for impairment if events or a change in
circumstances indicate that the carrying value may not be recoverable. Amortisation of deferred stri pping costs is
included in operating costs.
The company reviews and tests the carrying value of assets when events or changes in circumstances suggest that the
carrying amount may not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are
largely independent of cash flows of other assets. If there are indications that impairment may have occurred, estimates
are prepared of expected future cash flows for each group of assets.
Expected future cash flows used to determine the value in use of property, plant and equipment are inherently uncertain
and could materially change over time. They are significantly affected by a number of factors including published
reserves, resources, exploration potential and production estimates, together with economic factors such as spot and
future gold prices, discount rates, foreign currency exchange rates, estimates of costs to produce reserves and future
capital expenditure.
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-118
2.
Accounting policies (continued)
2.3
Significant accounting judgments and estimates (continued)
Production start date
The company assesses the mine construction project to determine when it moves into the production stage. The criteria
used to assess the start date are determined based on the unique nature of the construction project such as the
complexity of a plant and its location. The company considers various relevant criteria to assess when the mine is
substantially complete and ready for its intended use and moves into the production stage. Some of the criteria would
include, but, are not limited to, the following:
•the level of capital expenditure compared to the construction cost estimates;
• �� completion of a reasonable period of testing of the mine plant and equipment;
•ability to produce gold in saleable form (within specifications and with insignificant revenue);
•ability to sustain ongoing production of gold.
When a mine construction project moves into the production stage, the capitalisation of certain mine construction costs
ceases and costs are either regarded as inventory or expensed, except for capitalisable costs related to mining asset
additions or improvements or reserve development.
Income taxes
The company is subject to income tax. Significant judgement is required in determining the provision for income taxes
due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax
determination is uncertain during the ordinary course of business. The company recognises liabilities for anticipated tax
audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such differences will impact th e income tax and deferred tax
provisions in the period in which such determination is made.
The company recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable
that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred
income tax assets requires the company to make significant estimates related to expectations of future taxable income.
Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax
laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the
ability of the company to realise the net deferred tax assets recorded at the balance sheet date could be impacted.
Additionally, future changes in tax laws in the jurisdiction in which the company operates could limit the ability of the
company to obtain tax deductions in fut ure periods.
Provision for environmental rehabilitation obligations
The company’s mining and exploration activities are subject to various laws and regulations governing the protection of
the environment. The company recognises management’s best estimate for decommissioning and restoration
obligations in the period in which they are incurred. Actual costs incurred in future periods could differ materially from
the estimates. Additionally, future changes to environmental laws and regulations, life of mine estimates and discount
rates could affect the carrying amount of this provision. Such changes could similarly impact the useful lives of assets
depreciated on a straight-line-basis, where those lives are limited to the life of mine.
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-119
2.
Accounting policies (continued)
2.3
Significant accounting judgments and estimates (continued)
Stockpiles, gold in process and product inventories
Costs that are incurred in or benefit the production process are accumulated as stockpiles, gold in process and product
inventories. Net realisable value tests are performed at least annually and represent the estimated future sales price of
the product, based on prevailing and long-term metals prices, less estimated costs to complete production and bring the
product to sale.
Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of
contained gold ounces based on assay data, and the estimated recovery percentage based on the expected processing
method. Stockpile tonnages are verified by periodic surveys.
Although the quantities of recoverable metal are reconciled by comparing the grades of ore to the quantities of gold
actually recover ed (metallurgical balancing), the nature of the process inherently limits the ability to precisely monitor
recoverability levels. As a result, the metallurgical balancing process is constantly monitored and the engineering
estimates are refined based on actual results over time.
Recoverable tax, rebates, levies and duties
Société d’Exploitation des Mines d’Or de Sadiola S.A. is due refunds of input tax which remain outstanding for periods
longer than those provided for in the respective statutes. In addition Société d’Exploitation des Mines d’Or de Sadiola
S.A. has unresolved tax disputes. If the outstanding input taxes are not received and the tax disputes are not resolved in
a manner favourable to Société d’Exploitation des Mines d’Or de Sadiola S.A. it could have an adverse effect upon the
carrying value of these assets.
Ore Reserve estimates
Ore Reserves are estimat es of the amount of product that can be economically and legally extracted from the
company’s properties. In order to calculate Ore Reserves, estimates and assumptions are required about a range of
geological, technical and economic factors, including quantities, grades, production techniques, recovery rates,
production costs, transport costs, commodity demand, commodity prices and exchange rates.
Estimating the quantity and/or grade of Ore Reserves requires the size, shape and depth of orebodies to be determined
by analysing geological data such as the logging and assaying of drill samples. This process may require complex and
difficult geological judgements and calculations to interpret the data.
The company is required to determine and report Ore Reserves in accordance with the SAMREC code.
Because the economic assumptions used to estimate Ore Reserves change from period to period, and because
additional geological data is generated during the c ourse of operations, estimates of Ore Reserves may change from
period to period. Changes in reported Ore Reserves may affect the company’s financial results and financial position in
a number of ways, including the following:
• asset carrying values may be affected due to changes in estimated future cash flows.
• depreciation, depletion and amortisation charged in the income statement may change where such charges are
determined by the units-of-production basis, or where the useful economic lives of assets change.
• overburden removal costs recorded on the balance sheet or charged in the income statement may change due to
changes in stripping ratios or the units-of-production basis of depreciation.
• decommissioning, site restoration and environmental provisions may change where changes in estimated OreReserves
affect expectations about the timing or cost of these activities.
• the carrying value of deferred tax assets may change due to changes in estimates of the likely recovery of the tax
benefits.
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-120
2.
Accounting policies (continued)
2.3
Significant accounting judgments and estimates (continued)
Exploration and evaluation expenditure
The company’s accounting policy for exploration and evaluation expenditure results in certain items of expenditure
being capitalised for an area of interest where it is considered likely to be recoverable by future exploitation. This policy
requires management to make certain estimates and assumptions as to future events and circumstances, in particular
whether an economically viable extraction operation can be established. Any such estimates and assumptions may
change as new information becomes available. If, after having capitalised the expenditure, a judgement is made that
recovery of the expenditure is unlikely, the relevant capitalised amount will be written off to the income statement.
Development expenditure
Development activities commence after project sanctioning by the appropriate level of management. Judgement is
applied by management in determining when a project has reached a stage at which economically recoverable reserves
exist such that development may be sanctioned. In exercising this judgement, management is required to make certain
estimates and assumptions similar to those described above for capitalised exploration and evaluation expenditure.
Any such estimates and assumptions may change as new information becomes available. If, after having started the
development activity, a judgement is made that a development asset is impaired, the appropriate amount will be written
off to the income statement.
Contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The
assessment of such contingencies inherently involves the exercise of judgement and estimates of the outcome of future
events.
Litigation and other judicial proceedings as a rule raise difficult and complex legal issues and are subject to
uncertainties and complexities including, but not limited to, the facts and circumstances of each particular case, issues
regarding the jurisdiction in which each suit is brought and differences in applicable law. Upon resolution of any pending
legal matter, the company may be forced to incur charges in excess of the presently established provisions and related
insurance coverage. It is possible that the financial position, results of operations or cash flows of the company could be
materially affected by the unfavourable outcome of litigation.
2.4 Summary of significant accounting policies
Foreign currency translation
Functional currency
Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic
environment in
which the Companyentity operates (the ‘functional currency’). The functional currency of United
States Dollars (US$) is used as
opposed to the currency of the country in which the enterprise is domiciled,
namely Franc de la Communauté
Financière d’Afrique (F CFA). The decision has been taken on the basis of
the US$ being the functional currency in which
the enterprise operates, asreceives its revenue and the majority of costs are mainly influenced by the US dollar.
US$-based.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the approximate exchange rates
rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of foreign
currency transactions and from the translation at the year-end exchange rate of
monetary assets and liabilities
denominated in foreign currencies are recognizedrecognised in the income statement.statement, except for derivative balances that are
within the scope of IAS 39. Translation differences on these balances are reported as part of their fair value gain or loss.
Non-monetary
Non monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated
translated using the approximate exchange rate at the date of the transaction.
F-113
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2003, 20042006, 2007 and 20052008
F-121
2.
Accounting policies e.(continued)
2.4
Summary of significant accounting policies (continued)
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated amortizationamortisation and impairments. Cost includes pre-
includesproduction expenditure incurred during the development of a mine and the present value of related future
decommissioning costs. Cost also includes finance charges capitalized
Interest on borrowings relating to the financing of major capital projects under construction is capitalised during the
construction phase as part of the cost of the project. Such borrowing costs are capitalised over the period where such expenditureduring which
the asset is financed by borrowings.
being acquired or constructed and borrowings have been incurred. Capitalisation ceases when construction
is interrupted for an extended period or when the asset is substantially complete. Other borrowing costs are expensed
as incurred.
If there is an indication that the recoverable amount of theany property, plant and equipment is less than the carryi ng value,
carrying value, the recoverable amount is estimated and an allowance is made for the impairment in value.
Subsequent costs are included in the asset’s carrying amount only when it is probable that future economic benefits
benefits associated with the item will flow to the group,company, and the cost of the itemaddition can be measured reliably. All
other repairs
and maintenance are charged to the income statement during the financial period in which they
are incurred.
Amortization on
To the extent a legal or constructive obligation to a third party exists, the acquisition cost includes estimated costs of
dismantling and removing the asset and restoring the site. A change in estimated expenditures for dismantling, removal
and restoration is added to and/or deducted from the carrying value of the related asset. To the extent that the change
would result in a negative carrying amount, this effect is recognised as income. The change in depreciation charge is
recognised prospectively.
Amortisa tion of assets (mine development costs) is calculated to allocate the cost of each asset to its residual value
over its estimated useful life. Those assets not amortised on the units-of-production method (include in mine
infrastructure) as amortised as follows:
• buildings up to allocatelife of mine;
• plant and machinery up to life of mine;
• equipment and motor vehicles up to five years;
• computer equipment up to three years; and
• leased assets over the depreciable amountperiod of each asset over its estimated useful life.
the lease.
Major renovations are amortizeddepreciated over the remaining useful life of the related asset or to the date of the next major
major renovation, whichever is sooner.
Plant and equipment are amortized using the units-of-production (“UOP”) method where the mine operating
plan calls for production from well-defined mineral reserves.
For mobile and other equipment, the straight-line method is applied over the estimated life of the asset,
which does not exceed the estimated mine life based on proved and probable mineral reserves, as the
useful lives of these assets are considered to be limited to the life of the mine.
The calculation of the UOP rate of amortization could be impacted to the extent that actual production in the
future is different from current forecast production based on proved and probable mineral reserves. This
would generally result to the extent that there are significant changes in any of the factors or assumptions
used in estimating mineral reserves. These factors could include:
·
an expansion of proved and probable mineral reserves through exploration activities;
·
the grade of mineral reserves may vary significantly from time to time ;
·
differences between actual commodity prices and commodity prices assumptions used in the
estimation of mineral reserves;
·
unforeseen operational issues at the mine site; and
·
increases in capital, operating, mining, processing and reclamation costs and foreign exchange rates
that could adversely affect the economic viability of mineral reserves.
Such changes in mineral reserves could similarly impact the useful lives of assets depreciated on the
straight-line method, where those lives are limited to the life of the mine.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
date.
Gains and losses on disposals are determined by comparing net sales proceeds with the carrying amount, andamount. These are
are included in the income statement.
Mine development costs
Capitalized
Capitalised mine development costs include expenditure incurred to develop the Sadiola ore body,new orebodies, to define further
further mineralization to themineralisation in existing ore body andorebodies, to expand the capacity of the mine.mine and to maintain production. Where funds have
been borrowed specifically to finance a project, the amount of interest capitalizedcapitalised represents the actual
borrowing costs
incurred. Mine development costs include acquired proved and probable Mineral Resources at cost at the acquisition
date.
Amortization
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-122
2.
Accounting policies (continued)
2.4
Summary of significant accounting policies (continued)
Mine development costs (continued)
Depreciation, depletion and amortisation of mine development costs are computed by the units-of-production method
based on
estimated proved and probable mineral reserves. Proved and probable mineral reserves reflect estimated
quantities of economically recoverable reserves which can be recovered in the future from known mineral deposits.
deposits. These costsreserves are amortizedamortised from the date on which commercial production begins.
Stripping costs incurred in open-pit operations during the production phase to remove additional waste are charged to
operating costs on the basis of the average life of mine stripping ratio and the average life of mine costs per tonne. The
average stripping ratio is calculated as the number of tonnes of waste material expected to be removed during the life of
mine per tonne of ore mined. The average life of mine cost per tonne is calculated as the total expected costs to be
incurred to mine the orebody, divided by the number of tonnes expected to be mined. The average life of mine stripping
ratio and the average life of mine cost per tonne are recalculated annually in the light of additional knowledge and
changes in estimates.
The cost of the “excess stripping” is capitalised as mine development costs when the actual mining costs exceed the
sum of the adjusted tonnes mined, being the actual ore tonnes plus the product of the actual ore tonnes multiplied by
the average life of mine stripping ratio multiplied by the life of mine cost per tonne. When the actual mining costs are
below the sum of the adjusted tonnes mined, being the actual ore tonnes plus the product of the actual ore tonnes
multiplied by the average life of mine stripping ratio, multiplied by the life of mine cost per tonne, previously capitalised
costs are expensed to increase the cost up to the average.
The cost of stripping in any period will be reflective of the average stripping rates for the orebody as a whole. Changes
in the life of mine stripping ratio are accounted for prospectively as a change in estimate.
Mine infrastructure
Mine plant facilities, including decommissioning assets, are amortizedamortised using the lesser of their useful life or units-of-productionunits-of-
production method based
on estimated proved and probable mineral reserves. Other infrastructure, property, plant and equipment
comprising vehicles and
computer equipment are depreciated by the straight-line method over their estimated useful
lives.
Exploration and Evaluation assets
All exploration costs are expensed until the directors conclude that a future economic benefit will more likely than not
be realised. In evaluating if expenditures meet this criterion to be capitalised, the directors use several different sources
of information depending on the level of explorat ion. While the criteria for concluding that expenditure should be
capitalised is always probable, the information that the directors use to make that determination depends on the
level of exploration.
•
Costs on greenfields sites, being those where the company does not have any mineral deposits which are already
being mined or developed, are expensed as incurred until the directors are able to demonstrate that future
economic benefits are probable, which generally will be the establishment of proved and probable reserves at this
location.
•
Costs on brownfields sites, being those adjacent to mineral deposits which are already being mined or developed,
are expensed as incurred until the directors are able to demonstrate that future economic benefits are probable,
which generally will be the establishment of increased proved and probable reserves after which the expenditure is
capitalised as a mine development cost.
•
Costs relating to extensions of mineral deposits, which are already being mined or developed, including
expenditure on the definition of mineralisation of such mineral deposits, is capitalised as a mine development cost.
Costs relating to property acquisitions are capitalised within development costs.
F-114
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2003, 20042006, 2007 and 20052008
F-123
2.
Accounting policies (continued)
2.4
f.Summary of significant accounting policies (continued)
Exploration
expenditure
Exploration costs capitalized include acquired proved and probable mineral reserves at cost at acquisition
date, as well as exploration costs capitalized on the basis indicated below.
Research and exploration expenditure is expensed when it is incurred until it can be determinedImpairment of assets
Assets that the
mineral property can be economically developed, at which stage all further exploration expenditure incurred
are subject to develop such property is capitalized.
g.
Impairment
Theamortisation are tested for impairment whenever events or changes in circumstance indicate
that the carrying amount of the Company’s assets are assessed at each balance sheet date for indicators ofmay not be recoverable.
impairment. If such indicators exist an impairment test is performed.
An impairment loss is recognizedrecognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount.
The recoverable amount is the higher of an asset’s fair value, less costs to sell and
value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units).
The determinationflows.
Impairment calculation assumptions include life of fair value is subject to risksmine plans based on published reserves and uncertainties includingresources,
management’s estimate of the future gold price, and
based on current market price trends, foreign exchange rates.rates, and a
pre-tax discount rate adjusted for country and project risk. It is therefore reasonably possible that changes could occur
which may affect the
recoverability of mining assets.
h.
property, plant and equipment.
Leased
assets
Operating lease rentals are charged against operating profits onin a straight-line basis oversystematic manner related to the lease period.
i.
Stockpiles, goldperiod the assets
concerned will be used.
Exploration and research expenditure
Pre – license costs are recognised in processprofit or loss as incurred. Exploration and gold bullion inventories
research expenditure is expensed in the
year in which it is incurred. These expenses include: geological and geographical costs, labour, mineral resources and
exploratory drilling costs.
Inventories
Inventories are valued at the lower of cost and net realizablerealisable value after appropriate allowances for
redundant and slow
moving items. Cost is determined on the following bases:
·
•gold in process is valued at the average total production cost at the relevant stage of production;
• gold doré / bullion and gold-in-process is valued on a weightedan average total production cost method;
·
• ore stockpiles are valued at the average moving cost of mining and stockpiling the ore. Stockpiles are classified as
a non-current asset where the stockpile exceeds current processing capacity;
• by-products are valued on a weightedan average oftotal production cost method; and
·
consumable storesmethod.
• Mine operating supplies are valued at average cost.cost
In
A portion of the case of gold on hand, cost includes an appropriate share of overheads based on normal operating
capacity. Therelated depreciation, depletion and amortisation charge is included in the cost of consumable stores includes expenditure incurred in bringing them to their existinginventory.
location and condition.
Ore stockpiles not realizable within the next production cycle are classified as non-current inventories.
Costs that are incurred in, or that benefit, the production process are accumulated as stockpiles, gold in
process and gold bullion inventories and are carried at the lower of cost or net realizable value. Net
realizable value tests are performed at least annually and represent the estimated future sales price of the
gold based on prevailing and long-term gold prices, less estimated costs to complete production and bring
the gold to sale.
Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the
number of contained gold ounces based on assay data, and the estimated recovery percentage based on
the expected processing method. Stockpile tonnages are verified by periodic surveys.
Although the quantities of recoverable metal are reconciled by comparing the grades of ore to the quantities
of gold actually recovered (metallurgical balancing), the nature of the process inherently limits the ability to
precisely monitor recoverability levels. As a result, the metallurgical balancing process is constantly
monitored and the engineering estimates are refined based on actual results over time.
F-115
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2003, 20042006, 2007 and 20052008
F-124
2.
Accounting policies (continued)
2.4
j. ProvisionsSummary of significant accounting policies (continued)
Provisions
Provisions are recognizedrecognised when the Companycompany has a present obligation, whether legal or constructive, as a
resultbecause of a past
event for which it is probable that an outflow of resources embodying economic benefits will
be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation.
Where some or all of the expenditure
required to settle a provision is expected to be reimbursed by another party, the reimbursement is recognised only when
the reimbursement is virtually certain. The amount to be reimbursed is recognised as a separate asset. Where the
company has a joint and several liability with one or more other parties, no provision is recognised to the extent that
those other parties are expected to settle part or all of the obligation.
Provisions are measured at the present value of management’s best estimate of the expenditureexpendi ture required to
settle the present
obligation at the balance sheet date. The discount rate used to determine the present
value reflects current market
assessments of the time value of money and the increasesrisks specific to the liability.
liability.
k.
Environmental
expenditure
Non-current environmental obligations comprising decommissioning
Litigation and restorationadministrative proceedings are basedevaluated on a case-by-case basis considering the information available,
Company’s environmental management plans,including that of legal counsel, to assess potential outcomes. Where it is considered probable that an obligation will
result in compliance with the current environmental and regulatory
requirements.
The Company’s mining and exploration activities are subject to various laws and regulations governing the
protectionan outflow of the environment and the Company’s environmental management plan. The Company
recognizes management’s estimate of the value of liabilities for asset rehabilitation obligations in the period
in which they are incurred. A corresponding increase to the carrying amount of the related asset, with
respect to decommissioning obligations,resources, a provision is recorded and amortized over the life of the mine. Where a related
asset is not easily identifiable with a liability, the change in estimate over the course of the year is expensed.
Actual costs incurred in future periods could differ materially from the estimates. Additionally, future changes
to environmental laws and regulations could increase the extent of reclamation and remediation work
required to be performed by the Company.
l. Decommissioningcosts
The provision for decommissioning represents the estimated cost that will arise from rectifying damage
caused before production commenced.
Decommissioning costs are provided for at the present value of the expenditures expected cash outflows if these are
reasonably measurable. These provisions cover the estimated payments to settle the
obligation, using estimated future cash flows based on current prices. When this provision gives access to
future economic benefits, an asset is recognizedplaintiffs, court fees and included within mining infrastructure. The unwinding of
the decommissioning obligation is included in the income statement. The estimated future costs of
decommissioning obligations are regularly reviewed and adjusted as appropriate for new circumstances or
changes in law or technology. The estimates are discounted at a pre-tax rate that reflects current market
assessments of the time value of money.
Gains from the expected disposal of assets are not taken into account when determining the provision.
m.
Restoration
costs
The provision for restoration represents the cost of restoring site damage afterpotential
settlements.
A contingent liability is disclosed when the commencementpossibility of
production. Increases in the provision are charged to the income statement as a cost an outflow of production.
Gross restoration costs are estimated at the present value of the expenditures expected to settle the
obligation, using estimated future cash flows based on current prices. The estimates are discounted at a pre-
tax rate that reflects current market assessments of the time value of money.
Expenditure on ongoing restoration costs is expensed when incurred.
n.
Revenue
recognition
Revenue is recognized to the extent that it is probable that theresources embodying economic benefits will flow to the Companyis not
and the revenue can be reliably measured. This requires persuasive evidence that:
·an arrangement exists;remote.
·delivery has occurred and title has transferred;
·the seller’s price to the buyer is fixed or determinable; and
· collectability is reasonably assured.
F-116
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statementsEmployee benefits
For the years ended December 31, 2003, 2004 and 2005
o.
Interest
income
Interest is recognized as it accrues, using the effective interest rate method.
p.
Taxation
Deferred taxation is provided on all temporary differences between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes.
Deferred tax assets are only recognized to the extent it is probable that the deductible temporary differences
will reverse in the foreseeable future and future taxable profit will be available against which the temporary
difference can be utilized.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and if required, reduced
to the extent it is no longer probable that sufficient future taxable profit will be available to allow all or part of
the deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at future anticipated tax rates, which have been enacted or
substantially enacted at the balance sheet date.
Current and deferred tax provisions are recognized in the income statement.
Current taxation is measured on taxable income at the applicable statutory rate enacted or substantially
enacted at the balance sheet date, and includes any adjustment to tax payable in respect of previous years.
Significant judgment is required in determining the provision for income taxes. There are many transactions
and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.
The Company recognizes provisions and impairments respectively for anticipated tax audit issues based on
estimates of whether additional taxes will be due. Where the final tax outcome of these tax audits are
different from the amounts that were initially recorded, such differences will impact the income tax expense
and income tax provisions in the period in which such determination is made.
The Company recognizes the net future tax benefit related to deferred tax assets to the extent that it is
probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the
recoverability of deferred tax assets requires the Company to make significant estimates related to
expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows
from operations and the application of existing tax laws. To the extent that future cash flows and taxable
income differ significantly from estimates, the ability of the Company to realize the deferred tax assets
recorded at the balance sheet date could be impacted.
Additionally, future changes in tax laws could limit the ability of the Company to obtain tax deductions in
future periods.
q.
Exceptional
items
Items of income and expense that are material and in management’s judgment require separate disclosure
are classified as “exceptional items” on the face of the income statement. These exceptional items relate to
the underlying performance of the business and include impairment charges.
r.
Dividend
distribution
Dividends to the Company’s stakeholders is recognized as a liability in the Company’s financial statements
in the period in which the dividends are approved by the Company’s stockholders.
F-117
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2003, 2004 and 2005
s.
Financial
instruments
Financial instruments recognized on the balance sheet include trade and other receivables, cash and cash
equivalents, and trade and other payables.
A financial instrument or a portion of a financial instrument will be derecognized and a gain or loss
recognized when the Company loses the contractual rights or extinguishes the obligation associated with
such an instrument.
On derecognition of a financial asset, the difference between the proceeds received or receivable and the
carrying amount of the asset is included in the income statement.
On derecognition of a financial liability the difference between the carrying amount of the liability
extinguished or transferred to another party and the amount paid is included in income.
All financial instruments discussed below are initially measured at fair value, including transaction costs,
when the Company becomes a party to their contractual arrangements. The subsequent measurement of
financial instruments is dealt with below.
Derivatives
The Company enters into derivative contracts to ensure a degree of price certainty and to guarantee a
minimum revenue on a part of the future planned gold production.
Derivatives do not qualify for hedge accounting and are accounted for as trading instruments.
Accordingly, all derivatives are measured at their estimated fair value, with the changes in estimated fair
value being reported in earnings in the periods in which they occur.
The estimated fair values of derivatives are determined with reference to market rates using industry
standard valuation techniques.
t.
Trade and other receivables
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using
the effective interest method, less provision for impairment. A provision for impairment of trade receivables is
established when there is objective evidence that the Company will not be able to collect all amounts due
according to the original terms of the receivables. The amount of the provision is the difference between the
asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective
interest rate. The amount of the provision is recognized in the income statement.
u.
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid
investments readily convertible to known amounts of cash and subject to insignificant risk of changes in
value, and are measured at cost as they have a short term maturity.
v.
Financial
liabilities
Financial liabilities, other than derivatives, are subsequently measured at amortized cost, using the effective
interest rate method, being the original obligation less principal payments and amortizations.
w.
Employee
benefits
Short-term employee benefits
The cost of all short-term employee benefits is recognizedi s recognised during the period in which the employee renders
the related
service.
The provisions for employee entitlements to wages, salaries, and annual leave represent the amount which the
the Company’scompany has a present obligation to pay as a result of employees’ services provided.provided to the balance sheet date. The
provisions have been
calculated at undiscounted amounts based on current wage and salary rates.
F-118
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2003, 2004 and 2005
Long-term employee benefits
A long-term provision for the long-service obligation costs to employees at the end of the life of mine
represents the present value of the estimated future cash outflows resulting from employees’ services
provided.
In determining this liability for employee benefits, consideration has been given to future increases in wage
and salary rates, and the Company’s expected staff turnover.
Liabilities for employee benefits which are not expected to be settled within 12 months are discounted at a pre tax rate
pre-tax rate that reflects current market assessments of the time value of money.
The Company and all employees contribute totowards the Malian StateGovernment social security fund. Accordingly, on
retirement, the Malian employees are entitled to a retirement benefit from the Malian State.Government. Expatriate
employees are reimbursed their contributions made to the social security fund.
Environmental expenditure
The company has long-term remediation obligations comprising decommissioning and restoration liabilities relating to its
past operations which are based on the company's environmental management plans, in compliance with current
environmental and regulatory requirements. Provisions for non-recurring remediation costs are made when there is a
present obligation, it is probable that expense on remediation work will be required and the cost can be estimated within
a reasonable range of possible outcomes. The costs are based on currently available facts, technology expected to be
available at the time of the clean up, laws and regulations presently or virtually certain to be enacted and prior
experience in remediation of contaminated sites.
F-119
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-125
2.
2005Accounting policies (continued)
2.4
2004Summary of significant accounting policies (continued)
2003
US$
1
Decommissioning costs
The provision for decommissioning represents the cost that will arise from rectifying damage caused before production
commenced. Accordingly an asset is recognised and included within mine infrastructure.
Decommissioning costs are provided at the present value of the expenditures expected to settle the obligation, using
estimated cash flows based on current prices. The unwinding of the decommissioning obligation is included in the
income statement.
Estimated future costs of decommissioning obligations are reviewed regularly and adjusted as appropriate for new
circumstances or changes in law or technology. Changes in estimates are capitalised or reversed against the relevant
asset. Estimates are discounted at a pre-tax rate that reflects current market assessments of the time value of money.
Gains or losses from the expected disposal of a ssets are not taken into account when determining the provision.
Restoration costs
The provision for restoration represents the cost of restoring site damage after the start of production. Increases in the
provision are charged to the income statement as a cost of production.
Gross restoration costs are estimated at the present value of the expenditures expected to settle the obligation, using
estimated cash flows based on current prices. The estimates are discounted at a pre-tax rate that reflects current
market assessments of the time value of money and risks specific to the liability.
Revenue recognition
Revenue is recognised at the fair value of the consideration received or receivable to the extent that it is probable that
the economic benefits will flow to the company and the revenue can be reliably measured. The following criteria must
also be present:
• Revenue
Product sales
198,138,374
187,577,578
166,574,925
2 the sale of mining products is recognised when the significant risks and rewards of ownership of the products are
Operating transferred to the buyer;
• profit
Operating profitinterest is arrived at afterrecognised on a time proportion basis, taking account of:
Ad Valorem and CPS tax
11,874,900
11,172,594
9,950,342
Amortization of property, plant and equipment (note 5)
29,661,072
25,563,636
27,808,561
Auditors' remuneration
-
Statutory audit fees
77,853
119,948
116,215
-
External audit - audit fees
32,013
67,207
62,130
-
External audit - disbursements
-
3,800
1,369
Contributions to Malian State social security fund
2,726,692
2,778,639
2,422,890
Exploration expenditure
971,110 226,277 1,779,853
Present value adjustment on value added tax (VAT) refundable
1,021,000
-
-
Present value adjustment on refundable tax on fuel
297,000
-
-
Realized fair value loss on derivatives
-
1,102,500
465,000
Reversal of unrealized fair value gain on derivatives
-
(1,415,000)
713,158
Legal fees
45,636 38,652 34,000
Ore stockpile valuation adjustment
-
5,617,704
-
Provision for obsolete and slow-moving consumable stores
358,681
1,038,105
1,292,080
Remuneration other than to employees
-
management
fees
1,981,333 1,864,751 1,661,100
- mining contractor's fees
43,760,712
28,080,456
29,362,077
Salaries, wages and benefits
15,164,324
16,612,686
13,530,339
Unwinding of non-current provisions
232,867
167,817
142,596
3
Exceptional impairments of indirect taxes receivable and exceptional
provision for indirect taxes payable
Impairment of advance on tax dispute (note 3.1)
5,184,786
-
-
Impairment of VAT refundable by Malian State (note 3.2)
1,947,000
-
-
Provision for 2003/2004 tax audit (note 3.3)
1,434,617
-
-
Impairment of stamp duties refundable by Malian State (note 7.1)
564,264
-
-
9,130,667
-
-
3.1 Impairment of advance on tax dispute
During November 2003, the Malian State performed a tax audit of the corporate taxationprincipal outstanding and various indirect taxes at
the Company for fiscal years 2000effective rate
over the period to 2002. The resultsmaturity, when it is determined that such income will accrue to the company; and
• where a by-product is not regarded as significant, revenue is credited against cost of sales, when the significant
risks and rewards of ownership of the audit indicatedproducts are transferred to the buyer.
Taxation
Deferred taxation is provided on all qualifying temporary differences at the balance sheet date between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax assets are only recognised to the extent that it is probable that the Company oweddeductible temporary differences will
reverse in the Malian Stateforeseeable future and future taxable profit will be available against which the temporary difference can
F CFA 7.9 billion (US$16.4 million asbe utilised.
The carrying amount of December 31, 2004) of various taxesdeferred tax assets is reviewed at each balance sheet date and penalties, which was communicated
by way of a formal letter of assessmentreduced to the Company. Accordingextent that it is
no longer probable that sufficient future taxable profit will be available to Malian State officialsallow all or part of the main reasons for the
additional taxes were:
·
withholding taxes payable;
·
fringe benefits on certain facilities provideddeferred tax asset to expatriate employees that shouldbe
utilised.
Deferred tax assets and liabilities are measured at future anticipated tax rates, which have been taxed differently;
·
enacted or
substantively enacted at the application of the incorrect depreciation rates to certain mining assets; and
·
different interpretations of the law with respect to VAT payable on interest paid.
The Company is of the opinion that the tax filings and indirect tax submissions by the Company were in compliance with
applicable laws and regulations.
Towards the end of the 2003 financial year the Malian State proposed that the Company and the Malian State settle
their differences in opinion on the tax audit findings by way of the Company paying F CFA 2.5 billion (US$5.2 million as
of December 31, 2004) to the Malian State. In January 2004, the Malian State threatened to close down the operations
of the Company if the taxes were not paid and, as a result the Malian State requested that an advance of F CFA 2.5
billion (US$5.2 million as of December 31, 2004) be made to them in order for the Company to continue operations.
The agreement with the Malian State was that this advance was not an acknowledgement of any taxes payable and that
the advance would allow the Company and the Malian State time to resolve their differences in tax interpretation, or to
allow the Company the right to arbitration. No cash payment was made as a transfer was made from the current
account held with the Malian State. Numerous attempts to resolve the dispute between the Malian State and the
Company between January and June 2004 failed. The US$5.2 million was included in trade and other receivables.
Without admitting that the Company filings have been prepared in an incorrect manner in terms of the prevailing laws
and regulations, the directors have decided that the advance previously made to the authorities should be abandoned in
order to close this issue and allow management to concentrate on the Company’s core business. Accordingly, the
abandonment has been recorded as an exceptional item rather than as an under provisions of prior year taxation.
Abandonment of this amount enabled the Company to reach an agreement with the Government of Mali on all corporate
taxation issu es which was in dispute and to establish a protocol for the indirect taxes that were in dispute for the future.balance sheet date.
F-120
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31,
3.2 2006, 2007 and 2008
F-126
2.
Accounting policies (continued)
2.4
Summary of significant accounting policies (continued)
Taxation (continued)
Current and deferred tax is recognised as income or expense and included in profit or loss for the period.
Current tax is measured on taxable income at the applicable statutory rate enacted or substantially enacted at the
balance sheet date.
Special items
Items of income and expense that are material and require separate disclosure, in accordance with IAS 1.86, are
classified as “special items” on the face of the income statement. Special items that relate to the underlying
performance of the business are classified as “operating special items” and include impairment charges and reversals.
Special items that do not relate to underlying business performance are classified as “non-operating special items” and
are presented below “Operating (loss) profit” on the income statement.
Dividend distribution
Dividend distribution to the company’s shareholders is recognised as a liability in the company’s financial statements in
the period in which the dividends are declared by the board of directors of Société d’Exploitation des Mines d’Or de
Sadiola S.A..
Financial instruments
Financial instruments are initially measured at fair value when the company becomes a party to their contractual
arrangements. Transaction costs are included in the initial measurement of financial instruments, except financial
instruments classified as at fair value through profit and loss. The subsequent measurement of financial instruments is
dealt with below.
A financial asset is derecognised when the right to receive cash flows from the asset has expired or the company has
transferred its rights to receive cash and either (a) has transferred substantially all the risks and rewards of the asset, or
(b) h as neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of
the asset.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
On derecognition of a financial asset, the difference between the proceeds received or receivable and the carrying
amount of the asset is included in income.
On derecognition of a financial liability, the difference between the carrying amount of the liability extinguished or
transferred to another party and the amount paid is included in income.
Regular way purchases and sales of all financial assets and liabilities are accounted for at settlement date.
Other non-current assets
•Loans and receivables are subsequently measured at amortised cost using the effective interest method. If there is
evidence that loans and receivables are impaired, the carrying amount of the assets is reduced and the loss
recognised in the income statement.
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-127
2.
Accounting policies (continued)
2.4
Summary of significant accounting policies (continued)
Trade and other receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method, less accumulated impairment. Impairment of VAT refundabletrade and other receivables is established when there is
objective evidence as a result of a loss event that the company will not be able to collect all amounts due according to
the original terms of the receivables. Objective evidence includes failure by Malian Statethe counterparty to perform in terms of
contractual arrangements and agreed terms. The gross amount of VAT refundable by the impairment is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
The impairment is recognised in the income statement.
Cash and cash equivalents
Cash and cash equivalents are defined as cash on h and, demand deposits and short-term, highly liquid investments
which are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. They are
measured at cost which is deemed to be fair value as they have a short-term maturity.
Financial liabilities
Financial liabilities are subsequently measured at amortised cost, using the effective interest method.
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-128
2008
Unaudited
20072006
US$
3.
Revenue
Product sales
396,209,095
267,911,114 300,727,005
4.
Operating profit
Operating profit is arrived at after taking account of:
Royalties
23,750,861 16,059,074 18,027,171
Amortisation of property, plant and equipment (note 7)
68,304,975 12,100,569 34,039,909
Auditors' remuneration
– Statutory audit fees
30,922 47,673 31,981
– External audit - audit fees
549,171 615,013 404,681
Contributions to Malian State amounted to US$29.2 million at December 31, 2005.
Management has estimated that only US$27.3 million is recoverable based on previous VAT audits performed by the
authorities. Accordingly, an impairment of VAT refundable of US$1.9 million has been made.social security fund
3.33,264,198 3,225,695 3,650,222
Exploration and evaluation expenditure
3,664,509 1,816,335 553,347
Legal fees
74,906 57,300 65,201
Provision for obsolete and slow-moving consumable stores
- -
432,263
Remuneration other than to employees
– management fees
3,962,091 2,679,111 3,007,271
Salaries, wages and benefits
15,646,151 15,020,927 14,900,568
Mining contractor fees
44,940,226 42,431,789 29,057,225
Operating leases
26,919,581 29,457,981 26,214,997
5.
Special impairments of indirect taxes receivable and special
expenses for indirect taxes payable
2003/2004 tax audit (note 5.3)
- - 4,136,344
2005/2006 tax audit (note 5.1)
4,627,182
1,984,564 -
2007 tax submissions (note 5.2)
1,718,612
667,833 -
Impairment of indirect taxes receivable (note 5.4)
5,362,435
- -
11,708,229
2,652,397 4,136,344
5.1
Payment relating to the 2005/2006 tax audit
During 2007, the Malian tax authorities conducted a tax audit of the corporate taxation and various indirect tax
submissions of the company for previous years. The result of the audit, which was communicated to the company in
October, indicated that the Company owed the Government of Mali an amount of F CFA 10.5 billion (US$23.6 million
as of December 31, 2007). The company objected to the claim as management was of the opinion that the tax
submissions of the Company were in compliance with applicable laws and regulations. The company however provided
an amount of F CFA 877 million (US$1.98 million as of December 31, 2007) in respect of indirect taxes and
F CFA 403 million (US$0.9 million as of December 31, 2007) in respect of corporate taxation based on the uncertainty
of the interpretation of certain rules (Refer Note 17.3). The tax auth orities confirmed the 2005/2006 audit claim in
November 2008 indicating that the Company owed the Government of Mali a reduced amount of F CFA 4.2 billion
(US$8.2 million as of December 31, 2008). Due to the uncertainty of the interpretation of certain rules the company
provided an additional amount of F CFA 2.5 billion (US$4.63 million as of December 31, 2008) in respect of indirect
taxes and F CFA 388 million (US$0.65 million as of December 31, 2008) in respect of corporate taxation. The company
has therefore provided for the full amount of the confirmed 2005/2006 audit claim as of December 31, 2008.
5.2
Provision relating to the 2007 and 2008 tax submissions
The company has reviewed the 2007 and 2008 tax submissions based on the interpretations applied by the tax
authorities in conducting the 2005/2006 audit. Management determined that there may be an under payment of
F CFA 295 million (US$0.67 million as of December 31, 2007) which was provided for in the 2007 financial results. The
company has reviewed the tax submissions for the 2007 and 2008 financial years based on the interpretations applied
by the tax authorities in confirming the 2005/2006 audit claim. An additional amount of F CFA 927 million
(US$1.7 million as of December 31, 2008) was provided in the 2008 financial results.
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-129
5.
Special impairment of indirect taxes receivable and special expenses for indirect taxes payable(continued)
5.3
Payment relating to the 2003/2004 tax audit
During the 2005 financial year a tax assessment was received for corporate company tax and for various indirect
taxes by Malian
Government of Mali authorities for the 2003 and 2004 fiscal years. Management objected to the assessment as it did
not
reflect the protocol agreement reached between the Companycompany and the Government of Mali with regard to the tax
audit of the Company for fiscal years 2000 to 2002 (note 3.1) and thus a dispute arose between the Malian
government and the Company.5.1). As discussed in note 3.15.1 the Malian government Government of Mali
required an advance be made which
the Company refused. Without admitting guilt the Company decided to pay the Malian government
Government of Mali an amount agreed
by both parties. The Company and the Government of Mali reached settlement
on the disputes relating to the 2003 and 2004 fiscal year tax assessments in 2006. The additional settlement of
$4.1 million has been recorded as an special payment of indirect taxe s.
5.4
2005Impairment of indirect taxes receivable
The company entered into a second protocol with the Government of Mali whereby the Government of Mali will enter
into a loan agreement with a local bank to finance the refund of the audited VAT and refundable tax on fuel in arrears. In
terms of the protocol the company has agreed to allow a deduction from the arrears of an amount to pay the discount on
behalf of the Government, which represents the costs related to the loan financing. The company has therefore
impaired the VAT refundable balance by an amount of F CFA 2.3 billion (US$4.93 million as of December 31, 2008) and
the refundable tax on fuel balance by an amount of F CFA 202 million (US$0.43 million as of December 31, 2008) to
account for this cost. This expense, together with present value adjustments recorded in previous periods, represent the
full cost of the discount that the compan y has agreed to.
20046.
2003
US$
4 Taxation
All pre-tax income and income tax expense is related to operations in Mali
2008
Unaudited
2007 2006
US$
Current tax expense
72,473,043 27,056,753 44,327,378
Current tax expense (note 14)– prior year
13,364,869281,700 911,737
8,092,583
11,353,204
-
Deferred tax expense (note 10)income
4,306,792
3,703,792
(8,29,771)
17,671,661 11,796,375
10,523,433(16,206,315) (3,669,454) (3,402,067)
56,548,428 24,299,036 40,925,311
A reconciliation of the statutory tax rate to that charged in the income statement is set out in the following table:
%
%
%
Statutory tax rate in Mali
35.0
35.0
35.0
Disallowable expenses:
-
0.1
- Net foreign exchange (gain) loss
8.81.3
(0.7) (0.3)
-
-
- ExceptionalSpecial impairment of indirect taxes receivable and exceptional
provisionspecial
expenses for indirect taxes payable
10.7 -1.6
-
- Other
2.2 -
-
Non-taxable income
(2.1)
(0.5)
(2.8)
1.0 0.7
Translation (loss) gain on current and deferred tax
4.87.1
(8.8)
(7.2)
(9.5) (4.2)
Prior year tax expense
-0.2
1.5
1.0 -
Effective tax rate
59.445.2
27.226.8 31.2
25.1
ExplorationSociét�� d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
costs
capitalizedF-130
Mine
development
costs
Exploration
costs
acquiredUS$
Work in
progress
Mine infra-US$
structure TotalMine
US$infrastructure
US$
US$Total
US$
US$7.
US$
5
Property, plant and equipment at December 31, 2005
2008
Cost
Balance at January 1, 2008
204,594,957
4,382,026
234,914,367
443,891,350
Additions 2,634,597
1,595,118
4,325,985
8,555,700
Amounts written off
-
-
(426,201)
(426,201)
Transfers and other movements
-
(5,976,423)
9,332,276
3,355,853
Balance at December 31, 2008
207,229,554
721
248,146,427
455,376,702
Accumulated amortisation
Balance at beginning of yearJanuary 1, 2008
31,828,455
143,818,713
4,542,812
1,618,252
199,507,239
381,315,471
Additions150,652,677
-
9,139,661165,523,960
316,176,637
Amortisation for the year
29,234,781
- 7,436,385
4,017,019 20,593,06539,070,194
68,304,975
Impairments - -
167,498
167,498
Amounts written off
-
-
(426,201)
(426,201)
Balance at end of yearDecember 31, 2008
31,828,455179,887,458
152,958,374-
4,542,812204,335,451
9,054,637384,222,909
203,524,258
401,908,536
Carrying amount at December 31, 2008
27,342,096 721
43,810,976
71,153,793
Mine
development
costs
US$
Work in
progress
US$
Mine
infrastructure
US$
Total
US$
Balance at January 1, 2007
195,904,306
-
220,619,116
416,523,422
Additions 8.690,651
4,382,026
2,066,786
15,139,463
Transfers and other movements
-
-
12,228,465
12,228,465
Balance at December 31, 2007
204,594,957
4,382,026
234,914,367
443,891,350
Accumulated amortization
Balance at beginning of yearJanuary 1, 2007
22,358,679
86,438,595145,045,091
-
-159,030,977
131,577,813304,076,068
240,375,087
AmortizationAmortisation for the year
3,152,215
16,150,5905,607,586
-
-6,492,983
10,358,267
29,661,07212,100,569
Balance at December 31, 20052007
25,510,894
102,589,185150,652,677
-
-165,523,960
141,936,080
270,036,159
316,176,637
Carrying amount at December 31,
2005 6,317,561 2007 (unaudited)
50,369,18953,942,280
4,542,8124,382,026
9,054,63769,390,407
61,588,178127,714,713
131,872,377
Transfers and other movements comprise amounts from changes in estimates of decommissioning assets and asset
reclassifications.
2008
Unaudited
2007
US$
8.
Inventories
Non-current portion of inventories
Ore stockpiles
80,393,816
50,846,071
Current portion of inventories
ExplorationOre stockpiles
costs49,781,463
capitalized46,601,337
MineGold bullion
development- 36,220
costsGold-in-process 1,449,122
Exploration
costs
acquired
Work in
progress
Mine infra-
structure
Total
US$
US$
US$
US$
US$
US$
Property, plant and equipment at December 31, 20041,529,754
Consumable stores
Cost22,559,462 14,748,435
Consumable stores
25,680,591
17,869,564
Less: adjustment for obsolete and slow-moving items
(3,121,129)
(3,121,129)
Total current inventory
73,790,047
Balance at beginning of year
31,828,455
131,758,228
4,542,812
686,350
199,278,636
368,094,481
Additions
-
12,060,485
-
931,902
3,083,139 16,075,526
Disposals
-
-
-
- (2,854,536) (2,854,536)
Balance at end of year
31,828,455
143,818,713
4,542,812
1,618,252
199,507,239
381,315,47162,915,746
Total inventories
154,183,863
113,761,817
Accumulated amortization
Balance at beginning of year
20,718,785
74,743,002
-
-
122,204,201
217,665,988
Amortization for the year
1,639,894
11,695,593
-
-
12,228,149
25,563,636
Disposals
-
-
-
- (2,854,536) (2,854,537)
Balance at end of year
22,358,679
86,438,595
-
-
131,577,814
240,375,087
Carrying amount at December 31,
2004 9,469,776
57,380,118
4,542,812
1,618,252
67,929,425
140,940,384
F-121
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-131
20052008
2004Unaudited
2007
US$
6 Inventories
Non-current portion of inventories
Orestockpiles
17,936,431
10,813,834
Current portion of inventories
Orestockpiles
24,920,668
16,041,803
Gold bullion and gold-in-process
4,202,424
2,845,639
Consumable stores
14,264,543 13,655,078
Consumable stores
16,953,409 15,985,263
Less: adjustment for obsolete and slow-moving items
(2,688,866)
(2,330,185)
Total current inventory
43,387,635
32,542,520
Total inventories
61,324,066
43,356,354
79.
Trade and other receivables
Related party receivables
– AngloGold Ashanti Mali S.A.
28,871
149,858
– Société des Mines d’Or de Morila S.A.
21,234
315,275
–- Société d'Exploitation des Mines d’Or de Yatela S.A.
981,400
135,041493,053
325,196- RandRefinery
10,430,699
5,426,583
- Other
- 117,049
– AngloGold Services Limited
491
33,417
–Other
108,915
369,514
294,552
1,193,26011,412,099 6,036,685
Special tax account with Government of Mali
464,288
Tradereceivable
11,309
4,868,464
1,165,003
VAT refundable by Malian StateGovernment of Mali (note 3.2 and 18.2.1)19.2.1)
21,306,774
26,233,829
18,378,734
Advance on tax dispute (note 3.1)
-
5,184,786
Stamp duties refundable by Malian State (note 7.1)
3,884,667
4,479,717
31,645,860
Refundable tax on fuel by Government of Mali (note 18.2.2)19.2.2)
4,126,907
9,891,2704,846,963
9,761,660Prepaid expenses
Prepaidexpenses
82,912
279,666- 278,097
Other
1,679,524
3,019,065
751,938 2,923,551
Total current and non-current trade and other receivables
38,062,006
42,078,06346,896,159
47,165,352
Less: non-current portion of VATamounts refundable by Malian State
14,551,010Government of Mali
-
30,260,588
Total current trade and other receivables
38,062,006
27,527,053
47,165,35216,635,571
7.1
Stamp duties refundable by the Malian State
During 2002, a dispute arose between the Company and the Malian State with regards to the payment of stamp duties
on gold exports due to different interpretations of the Convention Agreement and the Mining Code. In order to ensure
the continuation of gold exports, the Company paid stamp duties raising an amount receivable from the Malian State.
The Company entered into arbitration to resolve the dispute. The Tribunal decision was announced in February 2003,
indicating that the Company would no longer be obliged to pay stamp duties and that stamp duties to the value of F
CFA2.2 billion (US$3.2 million) should be reimbursed to the Company.
During the 2003, 2004 and 2005 financial years, management communicated with the Minister of Finance (MOF),
Minister of Domains (MOD) and the Minister of Mines (MOM) several times in an effort to recover the outstanding
stamp duties. However, at the end of December 2005, the amount of US$3.9 million (2004: US$4.5 million) was still
outstanding and is reflected in trade and other receivables.
The MOD represented the Malian State during the arbitration proceedings. In order for the MOF to be able to settle with
the Company the outstanding stamp duties, the MOD is required to officially notify the MOF advising that the Malian
State lost the arbitration case. Subsequently the MOF has confirmed to management of the Company that they will
settle the long outstanding stamp duty. F CFA 800 million (US$1.4 million) was reimbursed early in January 2006 and it
is expected the balance will be paid by June 30, 2006. An impairment of US$0.6 million was made in December 2005
for the portion of the amount that management is not expecting to recover.
F-122
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31,
2005
2004
2003
US$
810.
Cash and cash equivalents
-
-
HypoVereinsbank and Citibank balances – Short-term fixed depositCurrent accounts
46,555,323
15,000,000
HypoVereinsbank balances - Current account
9,853,940
6,949,451
3,978,137
9,828,224
Malian bank balances
1,998,062
1,949,861
3,123,730
242,792
6,967,804
London and South African bank balances
-
330,214
2,622,570
11,258,655
1,028,380
Petty cash
25,475
51,391
44,009
32,56918,584
12,185,406 12,739,760 30,512,51348,578,860
17,842,992
11.
2005Provisions
2004
US$
9
Environmental rehabilitation obligations
Provision for decommissioningobligation
Balance at beginning of year
1,437,932
1,382,627
30,888,509 14,087,265
Unwinding of decommissioning obligation
43,138
55,305
1,173,763 704,356
Change in estimate
889,292
-
5,459,600 16,096,888
Balance at end of year
2,370,362
1,437,932
37,521,872 30,888,509
Provision for restorationEmployee long service obligation
Balance at beginning of year
4,363,757
3,155,393
1,016,361 775,266
Unwinding of restoration obligation
130,913
77,633
- 38,760
Change in estimate
485,555 202,335
2,397,330Utilised during the year
1,130,731
(131,527) -
Balance at end of year
6,892,000
4,363,7571,370,389 1,016,361
Employee long service obligation
Balance at beginning of year
1,960,529
1,417,641
Unwinding of employee long service obligation
58,816
34,879
Charge to income statement
373,687
508,009
Balance at end of year
2,393,032
1,960,529
Total provisions
11,655,394 7,762,218
38,892,261 31,904,870
Assumptions applicable to all provisionsthe environmental rehabilitation provision
Estimated gross future environmental rehabilitation costs
US$8.845.3 million
US$8.636.7 million
Estimated gross future employee long service costs
US$2.5 million
US$2.4 million
Discount rate
2.5% 3.80%
3%Inflation rate
4%
Inflationrate
2.25%
2%
1.0% 2.30%
Average discountcash flow period from the beginning of the life of mine
1326 years
1318 years
The average discountcash flow period is based on the current estimate of the life of mine, which is subject to revision annually.
The estimated gross future costs are based on management's best estimates at December 31, 2005,2008, and are also
subject to revision annually. The change in estimate arises due to the change in the assumption of the discount rate
applicable and a change in the estimate of the gross future costs.
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-132
Malian StateGovernment social security fund
The Companycompany and all employees contribute to the Malian StateGovernment social security fund. On retirement, the Malian
employees are entitled to a retirement benefit from the Malian State. Expatriatefund. The fund reimburses expatriate employees are reimbursed only their own
contributions made to the social security fund. Accordingly, there is no obligation for defined employee benefits. The company's
Company's contributions to the Malian StateGovernment social security fund are disclosed in note 2.4.
2008
Unaudited
2007
10US$
12.
Deferred taxation
The net deferred taxation liabilityasset relating to temporary differences is made up as follows:
- Property, plant and equipment
(2,952,675)
12,027,927
5,247,138
(14,429,798)
- Non-current provisionsNon-currentprovisions
13,612,291
(4,079,389)
(2,716,776)
11,166,704
-
Inventory
1,092,395
(941,103) (815,565)
1,092,395
- Present value adjustment on taxes receivablerefundable
3,522,024
1,645,172
- Accruals
2,175,381
1,768,628
(997,679)17,449,416
-
-
Other
(181,337) (193,169)
5,828,420 1,521,628
1,243,101
The movement on the net deferred tax liability/(asset)asset (liability) is as follows:
Balance at beginning of year
1,243,101
1,521,628
2,182,164
(2,426,353)
Deferred tax chargeincome (note 4)6)
16,206,315
4,306,792
3,703,792
3,669,454
Balance at end of year
17,449,416
5,828,4201,243,101
1,521,628
13.
Trade and other payables
Related party payables
- AngloGold Ashanti Limited
1,720,047
2,997,170
- AngloGold Ashanti Mali S.A.
553,172
1,485,597
- Société des Mines de Morila S.A.
30,469
-
- Société Ashanti Goldfields de Guinée S.A.
203,593
98,473
- AngloGold Ashanti Iduapriem Limited
150,122
-
2,657,403
4,581,240
Accruals
7,395,742
3,338,449
Trade and other payables
24,542,835
23,884,905
34,595,980
31,804,594
2008
Unaudited
2007
2006
US$
14.
Dividends paid
Amount outstanding at beginning of year
-
22,906,407 20,000,000
Dividends declared during the year
110,000,000
-
90,000,000
Less: amount outstanding at end of year
-
-
(22,906,407)
Dividends
paid
110,000,000 22,906,407 87,093,593
15.
Income tax paid
Amount payable (receivable) at beginning of year
(2,019,356) 33,137,071 8,101,642
Current tax expense (note 6)
72,754,743
27,968,490
44,327,378
Amount (payable) receivable at end of year (51,605,536)
2,019,356
(33,137,071)
Income
tax
paid
19,129,851 63,124,917 19,291,949
F-123
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31,
2006, 2007 and 2008
F-133
16.
2005Ordinary stock
Authorised and issued: ordinary par value stock with a nominal value of F CFA 109 000 (US$200) each.
2008
2004Unaudited
2007
Held by:
Number of
outstanding
stock in
issue
US$
AngloGold Mali Holdings 1 (subsidiary of AngloGold Ashanti Ltd)
38,000 7,600,000 7,600,000
AGEM Limited (subsidiary of IAMGOLD Corporation) 38,000
7,600,000
7,600,000
Government of Mali
18,000
3,600,000
3,600,000
International Finance Corporation 6,000
1,200,000
1,200,000
100,000 20,000,000 20,000,000
17.
Contractual commitments and contingencies
17.1 Operating leases
At December 31, 2008, the company was committed to making the following minimum payments in respect of operating
leases for amongst others, hire of plant and equipment and land and buildings.
2008
Unaudited
2007
US$
Expiry within:
11Trade and other payables
- Oneyear
873,988 1,476,119
These balances are calculated based on the minimum rentals due in terms of the contract up to and including the expiry
date (December 2009) or minimum notice period (six months), whichever is the lesser. The contract does not provide
for guaranteed escalations. The company has no other restrictions on any of its leasing arrangements.
17.2 Capital commitments
Contracted for
1,631,466 1,348,314
Not contracted for
200,000
5.804,754
Total authorised by the directors
1,831,466
7,153,068
Related party payablesPurchase obligations
Contracted
38,984,926 31,758,000
– AngloGold Services LimitedThe proposed capital expenditure for mine infrastructure and other purchase obligations will be financed from cash
resources generated by operating activities of the company.
192,56217.3 The company is subject to and pays taxes in Mali. Some of these taxes are defined by contractual agreements with the
179,842
– AngloGold Ashantilocal government, but others are defined by the general corporate tax laws of the country. The company has historically
filed, and continues to file, all required tax returns and to pay the taxes reasonably determined to be due. The tax rules
in Mali S.A.
496,914
535,767
– Société d’Exploitation des Mines d’Or de Yatela S.A.
55,040
94,525
– Société des Mines d’Or de Morila S.A.
-
85,783
–
Other
7,604
39,924
752,120
935,841
Provisionsare complex and accruals
13,416,960 11,569,571
Tradesubject to interpretation. From time to time the company is subject to a review of its historic tax
filings and other payables
8,676,310
5,468,040
22,845,390
17,973,452
2005
2004
2003
US$
12 Dividends paid
Amount outstanding at beginningin connection with such reviews, disputes can arise with the taxing authorities over the interpretation or
application of year
10,802,000
11,000,000 22,000,000
Dividends declared duringcertain rules to the year
40,000,000
45,000,000 30,000,000
Less:company’s business conducted in Mali. During 2007 the Malian tax authorities
conducted a tax audit of the corporate taxation and various indirect tax submissions of the company for previous years.
The result of the audit, which was communicated to the company in October, indicated that the company owed the
Government of Mali an amount outstanding at end of year
(20,000,000) (10,802,000) (11,000,000)
Dividendspaid
30,802,000 45,198,000 41,000,000
13 Cash generated from operations
Profit before taxation
29,755,792 43,390,664 41,844,716
Adjustedfor:
Non-cashmovements
- adjustment for obsoleteF CFA 10.5 billion (US$23.6 million as of Decem ber 31, 2007) The company objected
to the claim as management was of the opinion that the tax submissions of the company were in compliance with
applicable laws and slow-moving consumable
stores 358,681
1,038,105 1,292,080
- net foreign exchange losses / (gains)
7,520,279
(636,876) (3,298,374)
- exceptional impairmentsregulations. The company however provided an amount of F CFA 877 million (US$1.98 million as of
December 31, 2007) in respect of indirect taxes receivable and
exceptional provision F CFA 403 million (US$0.9 million as of December 31, 2007) in
respect of corporate taxation based on the uncertainty of the interpretation of certain rules. The tax authorities
subsequently reviewed their claim and submitted a revised claim of F CFA 5.2 billion (US$11.7 million as of
February 29, 2008) on the 19 February 2008. The company objected to the revised claim as management was of the
opinion that the authorities had no grounds for reassessing submissions for fiscal years that have previously been
closed. The tax authorities confirmed the tax audit claim in November 2008 indicating that the Company owed the
Government of Mali a reduced amount of F CFA 4.2 b illion (US$8.2 million as of December 31, 2008). Due to the
uncertainty of the interpretation of certain rules the company provided an additional amount of F CFA 2.5 billion
(US$4.64 million as of December 31, 2008) in respect of indirect taxes payable (note 3)
9,130,667 - -
- present value adjustmentand F CFA 388 million (US$0.65 million as of VAT taxes refundable (note 2)
1,021,000
-
- present value adjustment on refundable
December 31,2008) in respect of corporate taxation. The company has therefore provided for the full amount of the
confirmed tax on fuel
297,000
-
-
- ore stockpile valuation adjustment
-
5,617,704
-
- unwindingaudit claim as of non-current provisions
232,867
167,817
142,596
- environmental restoration charge to the income statement
2,397,330 1,130,731 1,017,831
- employee long service obligation charge to the income
statement 373,687 508,009 445,515
Reversal of unrealized fair value gain on derivatives
-
(1,415,000)
713,158
Amortization of property, plant and equipment
29,661,072
25,563,636 27,808,561
Interestreceived
(341,515) (363,185) (348,543)
Other movements in working capital
(1,694,505)
(15,585,162) 11,061,893
78,712,355
59,416,443 80,679,433
Other movements in working capital
Increase in inventories
(11,203,796) (2,862,544) 1,113,764
Decrease / (increase) in trade and other receivables 13,592,249 (9,242,362) (5,914,831)
(Decrease) / increase in trade and other payables
(4,082,958)
(3,480,256) 15,862,960
(1,694,505) (15,585,162) 11,061,893
14 Income tax paid
Amount (receivable) / payable at beginning of year
(802,383)
4,182,320 (4,780,739)
Current tax expense (note 4)
13,364,869 8,092,583 11,353,204
Amount (payable) / receivable at end of year
(8,101,642) 802,383
(4,182,320)
Income tax paid
4,460,844 13,077,286 2,390,145
December 31, 2008.
F-124
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-134
18.
Related parties
2005
2004
US$
15
Ordinary stock
Authorized and issued: ordinary par value stock with a
nominal value of F CFA 109 000 (US$200) each.
Held by:
Number of stock
AngloGold Ashanti Holdings PLC (subsidiary of AngloGold
Ashanti Limited)
38,000
7,600,000
7,600,000
AGEM Limited (subsidiary of IAMGOLD Corporation)
38,000
7,600,000
7,600,000
Government of Mali
18,000 3,600,000
3,600,000
International Finance Corporation
6,000
1,200,000
1,200,000
100,000 20,000,000
20,000,000
16
Contractual commitments and contingencies
16.1 Operating leases
At December 31, 2005, the Company was committed to making the following payments in respect of operating leases for amongst
others, hire of plant and equipment and land and buildings.
Expirywithin:
-
One
year
20,150,634
19,931,394
- Between 1-2 years
20,150,634
19,931,394
- Between 2-5 years
40,301,269
59,794,183
- After 5 years
-
-
80,602,537
99,656,971
16.2 Capital Commitments
Contracted for:
20,219,632
20,850,280
Not contracted for
9,600,266
667,225
Total authorized by the directors
29,819,898
21,517,505
The proposed capital expenditure for mine infrastructure will be financed from cash resources generated by operations of the
Company.
17 Relatedparties
17.1
18.1 Identity of related parties
The stockholders of the Companycompany are disclosed in note 15.16. Entities within the AngloGold Ashanti group and with which
the
Company has transacted, are listed in note 17.2.18.2. The directors of the Companycompany are listed below:
DL HodgsonNF Nicolau (Chairman)
(South African)
(resigned May 4, 2005)January 14, 2008)
NF NicolauC Rampa-Luhembwe (Chairman)
(Congolese)
(appointed May 4, 2005)April 23, 2008)
C Barjot (French)
C
BarjotJ McCombe (Canadian)
JF
Conway
Mme HN Cisse
MEH Keita (Malian)
M
Diallo
GA
Edey
MH Sabbagha
(resigned August 10, 2005)
(Malian)
FRL Neethling (South African)
(resigned February 29, 2008)
AW Mbugua (Kenyan)
(resigned April 23, 2008)
A der Hovanessian (American)
(resigned October 23, 2008)
DA Dembele (Malian)
ND Keita (Malian)
(resigned October 10, 2008)
DH Diering (South African)
(resigned October 24, 2008)
LE Philips (Canadian)
MP O’Hare (South African)
(appointed August 10, 2005)April 23, 2008)
K Addo-Kufuor (Ghanaian)
(appointed April 23, 2008)
AE Coetzee (South African)
(appointed October 24, 2008)
MB Kone (Malian)
(appointed October 24, 2008)
EM Essien (American)
(appointed December 11, 2008)
AW
Mbugua
T
Tanoh
LA
Dembele
MD
Keita
S
Venkatakrishnan
17.2
18.2 Material related party transactions
Material related party transactions are as follows:
Transactions
with related
parties
Net amounts
due by/(owed
(owed to) related
related parties (notes
7(notes 9 & 11)13)
Transactions
with related
parties
Net amounts
due by/(owed
(owed to)
related parties
(notes 9 & 13)
Transactions
with related
parties (notes
7 & 11)Net amounts
2005 2004due by/
(owed to)
related
parties
Material related party transactions are as
follows:
2008
Unaudited 2007
2006
US$
–- AngloGold Ashanti Mali S.A.
(4,362,040)4,142,235
(468,043)(553,172)
(3,229,746)3,239,467
(385,909)(1,485,597)
5,105,740
–(493,841)
- Société des Mines d’Or de Morila S.A.
(Morila)
573,185260,197 (30,469) 225,674 (98,473)
21,234(476,657)
379,194174,237
229,492- Société Ashanti Goldfields de
–Guinée S.A. (Siguiri)
203,593
(203,593)
(153,345)
123,699
(153,345)
153,345
AngloGold Ashanti Iduapriem Limited
(Iduapriem)
150,122
(150,122) - - - -
- Société d’Exploitation des Mines
d’Or de Yatela
S.A. (Yatela) 2,986,883
(3,383,480)981,400
80,001 3,400,908 230,671(2,619,552)493,053
(2,865,379)
–381,436
- AngloGold Services Ashanti Limited
(3,667,155)48,641,003
(192,071)(1,720,047)
(3,697,971)7,318,000
(146,425)(2,997,170)
3,662,857
–(156,096)
- Rand Refinery Limited
446,740(395,486,258)
11,30910,430,699
541,254(267,391,388)
4,868,4645,426,583
(300,178,723)
–23,892
- Key Management Personnel
850,407remuneration 1,537,329
-
846,6571,056,175
-
506,223
-
- Salary
1,443,265
-
991,990
-
414,803
-
- Performance related payments
94,064
-
64,185
-
91,420
-
AngloGold Ashanti Mali S.A. and AngloGold Services Limited areis a service organisationsorganisation within the AngloGold Ashanti group and,
accordingly, provide provides
management services to the Company.company. Included in transactions with AngloGold Ashanti Mali S.A. are
management fees
paid by the Company of US$1,981,333 (2004:3,962,091 (2007: US$1,864,751)2,679,111) (refer note 2)4). Morila and Yatela are associatesfellow subsidiaries to
the Company,company, also located in Mali. SemosSadiola shares certain employees with Yatela, as well as the elution and smelting of
the gold
production process. The Companycompany incurs only ad hoc transactions with Morila. All
The company has entered into contractual agreements with AngloGold Ashanti Limited, for the provision of purchasing
services of goods and materials originating in South Africa. Include in transactions with AngloGold Ashanti Limited are
purchases by the service organisationsCompany of US$48,641,003 (2007: US$7,318,000).
Rand Refinery Limited is a subsidiary company within the AngloGold Ashanti group. The company has entered into
contractual agreements with Rand Refinery Limited for the provision of all services required for the collection, transport,
refining and purchase of the doré bars produced by the company. Included in transactions with Rand Refinery Limited
fellow associates are measured on an arm's length basis.sales by the company of US$396.2 million (2007: US$267.9 million) and purchases by the company of
US$0.7 million (2007: US$0.5 million).
F-125
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31,
18 2006, 2007 and 2008
F-135
19.
Risk management activities
In the normal course of its operations, the Companycompany is exposed to inter alia, gold price, currencyother commodity price, foreign exchange,
interest rate, liquidity, price and credit risks. In order to manage these risks, the company may enter into transactions
which make use of both on and off balance sheet derivatives. The Company didcompany does not acquire, hold or issue derivatives
for trading purposes. The Companycompany has access via its shareholders to a developed comprehensive risk management
process to facilitate, control and monitor these risks.
The financial risk management objectives of the company are defined as follows :
•safeguarding the followingcompany’s core earnings stream from its major assets through the effective control and
management of gold price risk, other commodity risk, foreign exchange risk and interest rate risk;
• effective and efficient usage of credit facilities in both the short and long term through the adoption of reliable
liquidity management processesplanning and procedures;
• ensuring that investment and hedging transactions are undertaken with creditworthy counterparts; and
• ensuring that all contracts and agreements related to manage these risks.risk management activities are coordinated and consistent
throughout the company and that they comply where necessary with all relevant regulatory and statutory
requirements
18.1
19.1 Gold price and currency risk
Gold price risk arises from the risk of an adverse effect on current or future earnings resulting from fluctuations in the
price of gold. The company does not hedge against the effects of fluctuations in the gold price.
18.2 19.2 Credit Risk
risk
Credit risk arises from the risk that a counterpartycounter party may default or not meet its obligations in a timely manner.
The company does not obtain collateral or other security to support financial instruments subject to credit risk, but
monitors the credit standing of counter parties. Although the company sells gold to only one counter party, the company
does not believe that this concentration of credit results in significant credit risk as the majority of proceeds are received
within two working days of the gold leaving the mine. There is however a concentration of credit risk with respect to
various taxes receivable from the Malian State. These taxes and the measures taken to ensure recoverability thereof
are discussed below.
Ageing and impairment of financial assets
The following age analysis provides information regarding the credit quality of assets which expose the company to
credit risk:
2008
2005
2006
2007 2008
2008
Total
US$
VAT and Fuel tax receivable
2,453
2,581
19,462
11,001
35,497
Impairment (695)
(732)
(5,517) (3,119)
(10,063)
1,758
1,849
13,945
7,882
25,434
2007
2005
20062007
2007
Total
US$
VAT and Fuel tax receivable
2,595
14,044
24,555
41,194
Discounting (296)
(1,603)
(2,802)
(4,701)
2,299
12,441 21,753 36,493
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-136
19.
Risk management activities (continued)
19.2.1 Vulnerability from concentrations of VAT refundable by the Government of Mali
The gross undiscounted amount of value added taxes receivable from the Government of Mali amounts to
US$34.7 million at 31 December 2008 (2007: US$38.9 million). VAT is refundable from the government in F CFA. The
last audited VAT return was for the period ended June 30, 2008 and at 31 December 2008 US$30.2 million (2007:
US$16.2 million) is still outstanding and US$4.5 million (2007: US$22.7 million) is still subject to audit. The accounting
processes for the unaudited amount are in accordance with the processes advised by the Government of Mali in terms
of the previous audits. The Government of Mali is a shareholder in the company and concluded a first protocol
agreement with the company for reimbursement of outstanding VAT on July 5, 2006. All provisions of the first protocol
were fulfilled as at December 2008. Certain amounts at the end of 2007 were expected to be received after 12 months
of the balance sheet date and were classified as non-current accordingly. The amounts provided for in 2007 were
discounted to their present value at a rate of 6.5% per annum. The Company entered into a second protocol with the
Government of Mali whereby the Government of Mali will enter into a loan agreement with a local bank to finance the
payment of the audited amounts in arrears. In accordance with the protocol the Company has agreed to allow a
deduction from the arrears of an amount to pay the discount on behalf of the Government, which represents the costs
related to the loan financing. The amounts provided in 2008 have been discounted by the amount of the deduction
proposed in the second protocol. The cumulative present value and impairment adjustment made against the gross VAT
receivable amounts to US$9.1 million (2007: US$4.2 million). Due to the signing of the second protocol 0n
6 March 2009 all amounts outstanding at the balance sheet date have been classified as cur rent.
19.2.2 Vulnerability from concentrations of refundable tax on fuel
The gross undiscounted amount of fuel duties receivable from the Government of Mali amounts to US$5.0 million at
31 December 2008 (2007: US$5.3 million). Fuel duties are paid on receipt of the fuel supply and are refundable in
F CFA, requiring the claim to be submitted before January 31, of the following year, and are subject to authorisation by
firstly the Department of Mining and secondly the Customs and Excise authorities. The Customs and Excise authorities
have not approved any payments for 2008 and 2007, US$5.0 million (2007 US$5.3 million) is still subject to
authorisation. The accounting processes for the unauthorised amount are in accordance with the processes advised by
the Government of Mali in terms of the previous authorisations. With effect from February 2006, fuel duties are no
longer payable to the Government of Mali. The Government of Mali is a shareholder in the Company and conclud ed a
first protocol agreement with the Company for reimbursement of outstanding fuel duties on July 5, 2006. All provisions
of the first protocol were fulfilled as at December 2008. Certain amounts at the end of 2007 were expected to be
received after 12 months of the balance sheet date and were classified as non-current accordingly. The amounts
provided for in 2007 were discounted to their present value at a rate of 6.5% per annum. The Company entered into a
second protocol with the Government of Mali whereby the Government of Mali will enter into a loan agreement with a
local bank to finance the payment of the amounts in arrears. In terms of the protocol the Company has agreed to allow a
deduction from the arrears of an amount to pay the discount on behalf of the Government, which represents the costs
related to the loan financing. The amounts provided in 2008 have been determined with reference to the amount of the
deduction recommended in the second protocol. The cum ulative present value and impairment adjustments made
against the gross fuel tax receivable amounts to US$0.91 million (2007: US$0.48 million). Due to the signing of the
second protocol 6 March 2009 all amounts outstanding at the balance sheet date have been classified as current.
19.3 Currency risk
Since the functional currency of the company is US Dollars, currency risk is incurred primarily as a result of purchases
made in other currencies, such as the Euro, South African Rand and the Franc de la Communauté Financière d’Afrique
(F CFA). The company does not use derivatives to hedge foreign currency transactions.
As the company does not enter into financial instruments for trading purposes, the risks inherent to financial instruments
are always offset by the underlying risk being hedged. The company further manages such risks by ensuring that when
decisions are made to utilise hedging the level of hedge cover will not exceed expected requirements in future periods,
that the tenor of instruments will not exceed the life of mine and that no basis risk exist.
Management is of the opinion that the exposure to foreign currency fluctuations will not have a significant impact on
equity or profit and loss.
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-137
19.
Risk management activities (continued)
19.4 Fair values of financial instruments
The estimated fair values of the current financial instruments are determined based on relevant market information.
These estimates involve uncertainties and cannot be determined with precision. The estimated fair values of the
company’s current financial instruments as at December 31, 2008 approximates the carrying amount of such financial
instruments as reflected in the balance sheet.
All amounts are expected to be recoverable or payable within the 2009 financial year.
20.
Capital management
The primary objective of managing the company’s capital is to ensure that there is sufficient capital available to support
the funding requirements of the company, including capital expenditure, in a way that optimises the cost of capital,
maximises shareholders’ returns and ensures that the company remains in a sound financial position. There were no
changes to the company’s overall capital management approach during the current year. The company manages and
makes adjustments to the capital structure as and when funding is required. This may take the form of raising
shareholder or bank debt or hybrids thereof.
F-138
SOCIÉTÉ D’EXPLOITATION DES MINES D’OR DE YATELA S.A.
FINANCIAL STATEMENTS
as of and for the year ended December 31, 2008
F-139
Société d’Exploitation des Mines d’Or de Yatela S.A.
Financial statements and report of the Independent Registered Public Accounting Firm
For the year ended December 31, 2008
Independent Auditor’s Report
Income statements
Balance sheets
Statement of changes in stockholders’ equity
Cash flow statements
Notes to the financial statements
F-140
Report of the Independent Registered Public Accounting Firm
The board of directors and stockholders of Société d’Exploitation des Mines d’Or de Yatela S.A.
We have audited the accompanying balance sheet of Société d’Exploitation des Mines d’Or de Yatela S.A. as of
December 31, 2006 and the related statements of income, changes in stockholders’ equity and cash flows for the year then
ended. These financial statements are the responsibility of the company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a tes t basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Société
d’Exploitation des Mines d’Or de Yatela S.A. as of December 31, 2006 and the results of its operations and its cash flows for
the year then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
KPMG Inc.
Johannesburg, South Africa
June 25, 2007
F-141
Société d’Exploitation des Mines d’Or de Yatela S.A.
Income Statement
For the years ended December 31,
Unaudited
2008
Unaudited
2007 2006
Note
US$
Revenue
3
144,447,245
208,846,031
214,500,620
Cost of sales
(97,153,052)
(110,271,525)
(116,283,590)
Gross profit
47,294,193
98,574,506
98,217,030
Exploration costs
(897,435)
(1,978,821)
(27,821)
Other operating expenses / (income)
68,703
111,707
(896,162)
Net foreign exchange gain / (loss)
(4,048,541)
(1,635,215)
297,449
Special impairments of indirect taxes receivable and special
income (expenses) for indirect taxes payable
5 835,768 (6,201,491) (531,017)
Operating profit
4
43,252,688
88,870,686
97,059,479
Interest income
448,161
1,679,426
1,218,954
Interest expense
(804,853)
(2,132,580)
(2,996,042)
Profit before taxation
42,895,996
88,417,532
95,282,391
Taxation
6
(16,523,617)
(31,323,388)
(12,538,580)
Profit for the year
26,372,379
57,094,144
82,743,811
The accompanying notes are an integral part of the financial statements.
F-142
Société d’Exploitation des Mines d’Or de Yatela S.A.
Balance Sheet
As at December 31,
Unaudited
2008
Unaudited
2007
Note
US$
ASSETS
Non-current assets
Property, plant and equipment
7
40,412,569
23,567,351
Trade and other receivables
9
625,000
19,267,402
Deferred taxation
10
3,347,730
10,199,283
44,385,299 53,034,036
Current assets
Inventories 8
23,075,472
38,503,196
Trade and other receivables
9
29,291,694
16,341,087
Taxation
4,088,457
-
Cash and cash equivalents
11
23,870,729
26,970,783
80,326,352 81,815,066
Total assets
124,711,651
134,849,102
EQUITY AND LIABILITIES
Equity
Stockholders' equity
82,359,523
55,987,144
Non-current liabilities
Provisions 12
25,338,123
21,180,344
25,338,123 21,180,344
Current liabilities
Trade and other payables
13
17,014,005
24,515,932
Taxation
-
33,165,682
17,014,005 57,681,614
Total liabilities
42,352,128 78,861,958
Total equity and liabilities
124,711,651 134,849,102
The accompanying notes are an integral part of the financial statements.
F-143
Société d’Exploitation des Mines d’Or de Yatela S.A.
Statements of changes in stockholders’ equity
For the years ended December 31,
Ordinary
stock
(note 17)
Non-
distributable
reserve
Retained
earnings
Total
stockholders’
equity
Note
US$
Balance at 31 December 2006
14,513
2,903
78,875,584
78,893,000
Profit for the year
-
-
57,094,144
57,094,144
Dividends declared
14
(80,000,000) (80,000,000)
Balance at 31 December 2007 (unaudited)
14,513
2,903
55,969,728
55,987,144
Profit for the year
-
-
26,372,379
26,372,379
Dividends declared (note 14)
14
-
-
Balance at December 31, 2008 (unaudited)
14,513
2,903
82,342,107
82,359,523
The non-distributable reserve is a legal reserve created in 2000 and is a requirement of the commercial law of Mali. This law
prescribes the transfer of 10% of profits, restricted to a maximum of 20% of ordinary share capital, to a non-distributable
reserve. Such reserve only becomes distributable when the Company is liquidated.
The accompanying notes are an integral part of the financial statements.
F-144
Société d’Exploitation des Mines d’Or de Yatela S.A.
Cash flow statements
For the years ended December 31,
Unaudited
2008
Unaudited
2007 2006
Note
US$
Net cash provided by operating activities
Profit for the year
26,372,379
57,094,144
82,743,811
Adjusted for:
Non-cash
movements
-
taxation charge per income statement
16,523,617
31,323,388
12,538,580
- deferred stripping
2,947,331
20,346,982
13,779,768
-
provision for obsolete and slow moving consumable stores
-
(435,834)
757,951
-
net foreign exchange (gain) / loss
4,048,541
1,635,215
(297,449)
-
unwinding of non-current provisions
804,853
725,324
689,997
-
environmental restoration charge to the income statement
560,513 3,776,192
1,688,625
-
employee long service obligation charge to the income
statement
-
-
(939,691)
-
present value adjustment on VAT taxes refundable
-
1,360,681
1,100,081
-
present value adjustment on refundable tax on fuel
-
46,575
21,528
-
loss on disposal of property, plant and equipment
-
-
226,478
-
amortisation of property, plant and equipment
4,916,982
9,753,803
39,381,404
-
finance charges
-
-
1,184,436
Special impairments of indirect taxes refundable and special
(income) expenses for indirect taxes payable
(835,768)
6,201,491
531,017
Restoration expenditure
(382,132)
(1,001,027)
(1,626,621)
Decrease (increase) in non-current inventories
-
-
4,138,853
Interest paid
-
-
(1,184,436)
Income tax paid
15
(47,069,205)
(19,929,143)
(452,463)
Decrease (increase) in inventories
15,427,724
(12,000,227)
(11,071,231)
Decrease (increase) in trade and other receivables (current and
non-current)
4,930,567
(8,698,629) (10,094,951)
Decrease in trade and other payables
(9,810,471)
(1,135,278)
6,597,221
Net cash inflow from operating activities
18,434,931
89,063,657
139,712,908
Net cash used in investing activities
Capital
expenditure
(4,550,004) (5,340,768) (2,586,002)
Additional waste stripping
(16,984,981) (3,963,909)
(19,015,243)
Net cash outflow from investing activities
(21,534,985)
(9,304,677)
(21,601,245)
Net cash used in financing activities
Interest-bearing loans repaid
-
-
(52,391,551)
Dividends paid
14
-
(80,000,000)
(51,000,000)
Net cash outflow from financing activities
-
(80,000,000)
(103,391,551)
Net (decrease) in cash and cash equivalents
(3,100,054)
(241,020)
14,720,112
Cash and cash equivalents at beginning of year
26,970,783
27,211,803
12,491,691
Cash and cash equivalents at end of year
11 23,870,729
26,970,783
27,211,803
The accompanying notes are an integral part of the financial statements.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-145
1.Business activities
Société d’Exploitation des Mines d’Or de Yatela S.A. (Yatela) is a Company registered in Mali. The Company operates
a mine for the commercial exploitation of gold in the Kayes region of Western Mali. Commercial production commenced
on July 3, 2001.
2.Accounting policies
Statement of compliance
The Company financial statements are prepared in compliance with International Financial Reporting Standards (IFRS)
and Interpretations of those standards, as adopted by the International Accounting Standards Board (IASB) and
applicable legislation.
During the current financial year the following new or revised accounting standards, amendments to standards and new
interpretations were adopted by Société d’Exploitation des Mines d’Or de Yatela S.A:
Standard or
Interpretation
Title Effective
date
IAS 39 and
IFRS 7
Reclassification Amendments to IAS 39 Financial
Instruments: Recognition and Measurement and
IFRS 7 Financial Instruments: Disclosures
For reclassifications on or after
1 November 2008, date of reclassification or
for previous reclassifications, 1 July 2008
The adoption of the amendments to IAS 39 and IFRS 7did not have any effect on the financial position or performance
of Société d’Exploitation des Mines d’Or de Yatela S.A.
During the current financial year no new or revised accounting standards, amendments to standards and new
interpretations were early adopted by Société d’Exploitation des Mines d’Or de Yatela S.A.
The following accounting standards, amendments to standards and new interpretations, which are not yet mandatory for
Société d’Exploitation des Mines d’Or de Yatela S.A, have not been adopted in the current year:
Standard or
Interpretation
Title
Effective for annual period
beginning on or after
IFRS 1
First-time Adoption of International Financial Reporting Standards
1 January 2009
IFRS 1/IAS 27
Amendments – Cost of an Investment in a Subsidiary, Jointly
Controlled Entity or Associate
1 January 2009
IFRS 2
Amendments – Vesting Conditions and Cancellations
1 January 2009
IFRS 3
Business Combinations (revised)
1 July 2009
IFRS 8
Operating Segments
1 January 2009
IAS 1
Presentation of Financial Statements – (revised)
1 January 2009
IAS 32/IAS 1
Amendments – Puttable Financial Instruments and Obligations
arising on Liquidation
1 January 2009
IAS 27
Consolidated and Separate Financial Statement (revised)
1 July 2009
IAS 39
Amendment – Eligible Hedged Items
1 July 2009
IFRSs
Annual Improvements Project
1 July 2009
IFRIC 15
Agreements for the Construction of Real Estate
1 January 2009
IFRIC 16
Hedges of a Net Investment in a Foreign Operation
1 October 2008
IFRIC 17
Distributions of Non-cash Assets to Owners
1 July 2009
IFRIC 18
Transfers of Assets from Customers
1 July 2009
The Company has assessed the significance of these new standards, amendments to standards and new
interpretations, which will be applicable from 1 January 2009 and later years and concluded that they will have no
material financial impact.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-146
2.
Accounting policies (continued)
2.1 Basis of preparation
The financial statements are prepared according to the historical cost accounting convention. The Company’s
accounting policies as set out below are consistent in all material respects with those applied in the previous year,
except for the adoption of the new and revised standards and interpretations mentioned above. The financial
statements are presented in US dollars.
2.2
Significant accounting judgements and estimates
Use of estimates: The preparation of the financial statements requires the Company’s management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. The determination of estimates requires the exercise of judgement based on various assumptions and
other factors such as historical experience, current and expected economic conditions, and in some cases actuarial
techniques. Actual results could differ from those estimates.
The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that
are the basis of future cash flow estimates and unit-of-production amortisation calculations; environmental, reclamation
and closure o bligations; estimates of recoverable gold and other materials in heap leach pads; asset impairments, write-
downs of inventory to net realisable value; post-employment, post-retirement and other employee benefit liabilities; the
accounting treatment of financial instruments and deferred taxation.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
As a global Company, the entity is exposed to numerous legal risks. The outcome of currently pending and future
proceedings cannot be predicted with certainty. Thus, an adverse decision in a lawsuit could result in additional costs
that are not covered, either wholly or partly, under insurance policies and that could significantly influence the business
and results of operations.
The judgements that management have applied in the application of accounting polici es, and the estimates and
assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year, are discussed below.
Carrying value of property, plant and equipment
All mining assets are amortised using the units-of-production method where the mine operating plan calls for production
from well-defined mineral reserves over proved and probable reserves.
For mobile and other equipment, the straight-line method is applied over the estimated useful life of the asset which
does not exceed the estimated mine life based on proved and probable mineral reserves as the useful lives of these
assets are considered to be limited to the life of the relevant mine.
The calculation of the units-of-production rate of amortisation could be impacted to the extent that actual production in
the future is different from current forecast production based on proved and probable mine ral reserves. This would
generally arise when there are significant changes in any of the factors or assumptions used in estimating mineral
reserves.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-147
2.
Accounting policies (continued)
2.2
Significant accounting judgements and estimates (continued)
These factors could include:
•
changes in proved and probable mineral reserves;
•
the grade of mineral reserves may vary significantly from time to time;
•
differences between actual commodity prices and commodity price assumptions;
•
unforeseen operational issues at mine sites;
•
changes in capital, operating, mining, processing and reclamation costs, discount rates and foreign exchange
rates; and
•
changes in mineral reserves could similarly impact the useful lives of assets depreciated on a straight-line basis,
where those lives are limited to the life of the mine.
The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of
value-in-use calculations and fair values less costs to sell. These calculations require the use of estimates and
assumptions. It is reasonably possible that the gold price assumption may change which may then impact the estimated
life of mine determinant and may then require a material adjustment to the carrying value of tangible assets.
The Company defers stripping costs incurred during the production stage of its open-pit operations, where this is the
most appropriate basis for matching the costs against the related economic benefits. This is generally the case where
there are fluctuations in stripping costs over the life of the mine.
In the production stage of the open-pit operations, further development of the mine requires a phase of unusually high
overburden remo val activity that is similar in nature to preproduction mine development. The costs of such unusually
high overburden removal activity are deferred and charged against reported profits in subsequent periods on a units-of-
production basis. This accounting treatment is consistent with that for stripping costs incurred during the development
phase of a mine, before production commences.
If the Company were to expense production stage stripping costs as incurred, this would result in volatility in the year to
year results from open-pit operations and excess stripping costs would be expensed at an earlier stage of a mine’s
operation.
Deferred stripping costs are included in ‘Mine development costs’, within property, plant and equipment. These form
part of the total investment in the individual asset, which is reviewed for impairment if events or a change in
circumstances indicate that the carrying value may not be recoverable. Amortisation of de ferred stripping costs is
included in operating costs.
The Company reviews and tests the carrying value of assets when events or changes in circumstances suggest that the
carrying amount may not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are
largely independent of cash flows of other assets. If there are indications that impairment may have occurred, estimates
are prepared of expected future cash flows for each group of assets. Expected future cash flows used to determine the
value in use of property, plant and equipment are inherently uncertain and could materially change over time. They are
significantly affected by a number of factors including published reserves, resources, exploration potential and
production estimates, together with economic factors such as spot and future gold prices, discount rates, foreign
currency exchange rates, estimates of costs to produce reserves and future capital expenditure.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-148
2.
Accounting policies (continued)
2.2
Significant accounting judgements and estimates (continued)
Production start date
The Company assesses the mine construction project to determine when it moves into the production stage. The criteria
used to assess the start date are determined by the unique nature of each construction project such as the complexity
of a plant and its location. The Company considers various relevant criteria to assess when the mine is substantially
complete and ready for its intended use and moves into the production stage. Some of the criteria would include but are
not limited to the following:
• the level of capital expenditure compared to the construction cost estimates;
• completion of a reasonable period of testing of the mine plant and equipment;
• ability to produce gold in saleable form (within specifications and the de minimis rule); and
• ability to sustain ongoing production of gold.
When a mine construction project moves into the production stage, the capitalisation of certain mine construction costs
ceases and costs are either regarded as inventory or expensed, except for capitalisable costs related to mining asset
additions or improvements or reserve development.
Income taxes
The Company is subject to income tax. Significant judgement is required in determining the provision for income taxes
due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax
determination is uncertain during the ordinary course of business. The Company recognises liabilities for anticipated tax
audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.
The Company recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable
that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred
income tax assets requires the Company to make significant estimates related to expectations of future taxable income.
Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax
laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the
ability of the Company to realise the net deferred tax assets recorded at the balance sheet date could be impacted.
Additionally, future changes in tax laws in the jurisdictions in which the company operates could limit the ability of the
company to obtain tax deductions in future periods.
Provision for environmental rehabilitation obligations
The Company 217;s mining and exploration activities are subject to various laws and regulations governing the protection of
the environment. The Company recognises management’s best estimate for decommissioning and restoration
obligations in the period in which they are incurred. Actual costs incurred in future periods could differ materially from
the estimates. Additionally, future changes to environmental laws and regulations, life of mine estimates and discount
rates could affect the carrying amount of this provision. Such changes could similarly impact the useful lives of assets
depreciated on a straight-line-basis, where those lives are limited to the life of mine.
Stockpiles, gold in process and ore on leach pad
Costs that are incurred in or benefit the production process are accumulated as stockpiles, gold in process and ore on
leach pads. Net realisable value tests are performed at least annually and represent the estimated future sales price of
the pro duct, based on prevailing and long-term metals prices, less estimated costs to complete production and bring the
product to sale.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-149
2.
Accounting policies (continued)
2.2
Significant accounting judgements and estimates (continued)
Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of
contained gold ounces based on assay data, and the estimated recovery percentage based on the expected processing
method. Stockpile ore tonnages are verified by periodic surveys. Estimates of the recoverable gold on the leach pads
are calculated from the quantities of ore placed on the pads based on measured tons added to the leach pads, the
grade of ore placed on the leach pads based on assay data and a recovery percentage based on metallurgical testing
and ore type.
Although the quantities of recoverable metal are reconciled by comparing the grades of ore to the quantities of gold
actually recovered (metallurgical balancing), the nature of the process inherently limits the ability to precisely monitor
recoverability levels. As a result, the metallurgical balancing process is c onstantly monitored and engineering estimates
are refined based on actual results over time.
Recoverable tax, rebates, levies and duties
The Company is due refunds of input tax which remain outstanding for periods longer than those provided for in the
respective statutes.
In addition, the Company has unresolved tax disputes. If the outstanding input taxes are not received and the tax
disputes are not resolved in a manner favourable to the Company, it could have an adverse effect upon the carrying
value of these assets.
Ore Reserve estimates
Ore Reserves are estimates of the amount of product that can be economically and legally extracted from the
Company’s properties. In order to calculate Ore Reserves, estimates and assumptions are required about a range of
geological, technical and economic factors, including quantities, grades, production techniques, recovery rates,
production costs, transport costs, commodity demand, commodity prices and exchange rates.
Estimating the quantity and/or grade of Ore Reserves requires the size, shape and depth of orebodies to be determined
by analysing geological data such as the logging and assaying of drill samples. This process may require complex and
difficult geological judgements and calculations to interpret the data.
The Company determines and reports Ore Reserves in accordance with the SAMREC code.
Because the economic assumptions used to estimate Ore Reserves change from period to period, and because
additional geological data is generated during the course of operations, estimates of Ore Reserves may change from
period to period. Changes in reported Ore Reserves may affect the Company’s financial results and financial position in
a number of ways, including the following:
• asset carrying values may be affected due to changes in estimated future cash flows;
• amortisation charged in the income statement may change where such charges are determined by the units-of-
production basis, or where the useful economic lives of assets change;
• overburden removal costs recorded on the balance sheet or charged in the income statement may change due to
changes in stripping ratios or the units-of-production basis of amortisation;
• decommissioning site restoration and environmental provisions may change where changes in estimated Ore
Reserves affect expectations about the timing or cost of these activities; and
• the carrying value of deferred tax assets may change due to changes in estimates of the likely recovery of the tax
benefits.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-150
2.
Accounting policies (continued)
2.2
Significant accounting judgements and estimates (continued)
Exploration and evaluation expenditure
The Company’s accounting policy for exploration and evaluation expenditure results in certain items of expenditure
being capitalised for an area of interest where it is considered likely to be recoverable by future exploitation. This policy
requires management to make certain estimates and assumptions as to future events and circumstances, in particular
whether an economically viable extraction operation can be established. Any such estimates and assumptions may
change as new information becomes available. If, after having capitalised the expenditure, a judgement is made that
recovery of the expenditure is unlikely, the relevant capitalised amount will be written off to the income statement.
Development expenditure
Development activities commence after project sanctioning by the appropriate level of management. Judg ement is
applied by management in determining when a project has reached a stage at which economically recoverable reserves
exist such that development may be sanctioned. In exercising this judgement, management is required to make certain
estimates and assumptions similar to those described above for capitalised exploration and evaluation expenditure.
Any such estimates and assumptions may change as new information becomes available. If, after having started the
development activity, a judgement is made that a development asset is impaired, the appropriate amount will be written
off to the income statement.
Contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The
assessment of such contingencies inherently involves the exercise of significant judgement and estimates of the
outcome of future events.
Litigation and other judicial proceedings as a rule raise difficult and co mplex legal issues and are subject to
uncertainties and complexities including, but not limited to, the facts and circumstances of each particular case, issues
regarding the jurisdiction in which each suit is brought and differences in applicable law. Upon resolution of any pending
legal matter, the Company may be forced to incur charges in excess of the presently established provisions and related
insurance coverage. It is possible that the financial position, results of operations or cash flows of the Company could
be materially affected by the unfavourable outcome of litigation.
2.3 Summary of significant accounting policies
Foreign currency translation
Functional currency
Items included in the financial statements are measured using the currency of the primary economic environment in
which the entity operates (the ‘functional currency’). The functional currency of United States Dollars (US$) is used as
opposed to the currency of the country in which the enterprise is domiciled, namely Franc de la Communauté
Financière d’Afrique (F CFA). The decision has been taken on the basis of US$ being the functional currency in which
the enterprise receives its revenue and majority of costs are mainly influenced by the US dollar.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the approximate exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resultin g from the settlement of foreign
currency transactions and from the translation at the year-end exchange rate of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-151
2.
Accounting policies (continued)
2.3
Summary of significant accounting policies (continued)
Non monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction.
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated amortisation and impairments. Cost includes pre-
production expenditure incurred during the development of a mine and the present value of related future
decommissioning costs.
Interest on borrowings relating to the financing of major capital projects under construction is capitalised during the
construction phase as part of the cost of the project. Such borrowing costs are capitalised over the period during which
the asset is being acquired or constructed and borrowings have been incurred. Capitalisation ceases when construction
is interrupted for an extended period or when the asset is substantial ly complete. Other borrowing costs are expensed
as incurred.
If there is an indication that the recoverable amount of any of the tangible assets is less than the carrying value, the
recoverable amount is estimated and an allowance is made for the impairment in value.
Subsequent costs are included in the asset’s carrying amount only when it is probable that future economic benefits
associated with the asset will flow to the Company, and the cost of the addition can be measured reliably. All other
repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
To the extent a legal or constructive obligation to a third party exists, the acquisition cost includes estimated costs of
dismantling and removing the asset and restoring the site. A change in estimated expenditures for dismantling, removal
and restoration is added to and/or deducted from the carrying value of the related asset.
To the extent that the change would result in a negative carrying amount, this effect is recognised as income. The
change in depreciation charge is recognised prospectively.
For those assets (included in mine infrastructure) not amortised on the units-of-production method amortisation of
assets is calculated to allocate the cost of each asset to its residual value over its estimated useful life as follows:
• buildings up to life of mine;
• plant and machinery up to life of mine;
• equipment and motor vehicles up to five years; and
• computer equipment up to three years.
Major renovations are depreciated over the remaining useful life of the related asset or to the date of the next major
renovation, whichever is sooner.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Gains and losses on disposals are determined by comparing net sale proceeds with the carrying amount. These are
included in the income statement.
Mine development costs
Capitalised mine development costs include expenditure incurred to develop new orebodies, to define further
mineralisation in existing orebodies and, to expand the capacity of a mine. Where funds have been borrowed
specifically to finance a project, the amount of interest capitalised represents the actual borrowing costs incurred. Mine
development costs include acquired proved and probable Mineral Resources at cost at the acquisition date.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-152
2.
Accounting policies (continued)
2.3 Summary of significant accounting policies
Amortisation of mine development costs are computed by the units-of-production method based on estimated proved
and probable mineral reserves. Proved and probable mineral reserves reflect estimated quantities of economically
recoverable reserves which can be recovered in the future from known mineral deposits. These reserves are amortised
from the date on which commercial production begins.
Stripping costs incurred in open-pit operations during the production phase to remove additional waste are charged to
operating costs on the basis of the average life of mine stripping ratio and the average life of mine costs per tonne. The
average stripping ratio is calculated as the number of tonnes of waste material expected to be removed during the life of
mine per tonne of ore mined. The average life of mine cost per tonne is calculated as the total expected costs to be
incurred to mine the orebod y, divided by the number of tonnes expected to be mined. The average life of mine stripping
ratio and the average life of mine cost per tonne are recalculated annually in the light of additional knowledge and
changes in estimates.
The cost of the excess stripping is capitalised as mine development costs when the actual mining costs exceed the sum
of the adjusted tonnes mined, being the actual ore tonnes plus the product of the actual ore tonnes multiplied by the
average life of mine stripping ratio, multiplied by the life of mine cost per tonne. When the actual mining costs are below
the sum of the adjusted tonnes mined, being the actual ore tonnes plus the product of the actual ore tonne multiplied by
the average life of mine stripping ratio, multiplied by the life of mine cost per tonnes, previously capitalised costs are
expensed to increase the cost up to the average.
The cost of stripping in any period will be reflective of the average stripping rates for t he orebody as a whole. Changes
in the life of mine stripping ratio are accounted for prospectively as a change in estimate.
Mine infrastructure
Mine plant facilities, including decommissioning assets, are amortised using the lesser of their useful life or units-of-
production method based on estimated proved and probable mineral reserves. Other tangible assets comprising
vehicles and computer equipment, are depreciated by the straight-line method over their estimated useful lives.
Exploration and Evaluation assets
All exploration costs are expensed until the directors conclude that a future economic benefit will more likely than not be
realised. In evaluating if expenditures meet this criterion to be capitalised, the directors use several different sources of
information depending on the level of exploration. While the criterion for concluding that expenditure should be
capitalised is always probable, the information that the director s use to make that determination depends on the level of
exploration.
•Costs on greenfields sites, being those where the Company does not have any mineral deposits which are already
being mined or developed, are expensed as incurred until the directors are able to demonstrate that future
economic benefits are probable, which generally will be the establishment of proved and probable reserves at this
location.
•Costs on brownfields sites, being those adjacent to mineral deposits which are already being mined or developed,
are expensed as incurred until the directors are able to demonstrate that future economic benefits are probable,
which generally will be the establishment of increased proved and probable reserves after which the expenditure is
capitalised as a mine development cost.
•Costs relating to extensions of mineral deposits, which are already being mined or developed, including
expenditure on the definition of mineralisation of such mineral deposits, is capitalised as a mine development cost.
Costs relating to property acquisitions are capitalised within development costs.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-153
2.
Accounting policies (continued)
2.3 Summary of significant accounting policies
Impairment of assets
Assets that are subject to amortisation are tested for impairment whenever events or changes in circumstance indicate
that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value, less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
(cash-generating units).
Impairment calculation assumptions include life of mine plans based on prospective reserves and resources,
management’s estimate of the future gold price, based on current market price trends, foreign exchange rates, and a
pre-tax discount rate adjusted for country and project risk. It is there fore reasonably possible that changes could occur
which may affect the recoverability of tangible assets.
Leased assets
Operating lease rentals are charged against operating profits in a systematic manner related to the period the assets
concerned will be used.
Exploration and research expenditure
Pre-licence costs are recognised in profit or loss as incurred. Exploration and research expenditure is expensed in the
year in which it is incurred. These expenses include: geological and geographical costs, labour, mineral resources and
exploratory drilling costs.
Inventories
Inventories are valued at the lower of cost and net realisable value after appropriate allowances for redundant and slow
moving items. Cost is determined on the following bases:
•gold in process is valued at the average total production cost at the relevant stage of production;
•gold doré / bullion is valued on an average total production cost method;
•ore stockpiles are valued at the average moving cost of mining and stockpiling the ore. Stockpiles are classified as
a non-current asset where the stockpile exceeds current processing capacity;
•by-products, which include uranium oxide and sulphuric acid are valued on an average total production cost
method. By-products are classified as a non-current asset where the by-products on hand exceed current
processing capacity;
•mine operating supplies are valued at average cost; and
•heap leach pad materials are measured on an average total production cost basis. The cost of materials on the
leach pad from which gold is expected to be recovered in a period longer than 12 months is classified as a non-
current asset.
A portion of the related amortisation charge is included in the cost of inventory.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-154
2.
Accounting policies (continued)
2.3 Summary of significant accounting policies
Provisions
Provisions are recognised when the Company has a present obligation, whether legal or constructive, because of a past
event for which it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation. Where some or all of the expenditure
required to settle a provision is expected to be reimbursed by another party, the reimbursement is recognised only when
the reimbursement is virtually certain. The amount to be reimbursed is recognised as a separate asset. Where the
Company has a joint and several liability with one or more other parties, no provision is recognised to the extent that
those other parties are expected to settle part or all of the obligation.
Provisions are measured at the present value of management’s best estimate of the expendi ture required to settle the
obligation at the balance sheet date. The discount rate used to determine the present value reflects current market
assessments of the time value of money and the risks specific to the liability.
Litigation and administrative proceedings are evaluated on a case-by-case basis considering the information available,
including that of legal counsel, to assess potential outcomes. Where it is considered probable that an obligation will
result in an outflow of resources, a provision is recorded for the present value of the expected cash outflows if these are
reasonably measurable. These provisions cover the estimated payments to plaintiffs, court fees and the cost of potential
settlements.
A contingent liability is disclosed when the possibility of an outflow of resources embodying economic benefits is not
remote.
Employee benefits
Short-term employee benefits
The cost of all short-term employee benef its is recognised during the period in which the employee renders the related
service.
The provisions for employee entitlements to wages, salaries, and annual leave represent the amount which the
Company has a present obligation to pay as a result of employees’ services provided to the balance sheet date. The
provisions have been calculated at undiscounted amounts based on current wage and salary rates.
Long-term employee benefits
Liabilities for employee benefits which are not expected to be settled within 12 months are discounted at a pre tax rate
that reflects current market assessments of the time value of money.
The company and all employees contribute towards the Malian Government social security fund. Accordingly, on
retirement, the Malian employees are entitled to a retirement benefit from the Malian Government. Expatriate
employees are reimbursed their contributions made to the social security fund
Environmental ex penditure
The Company has long-term remediation obligations comprising decommissioning and restoration liabilities relating to
its past operations which are based on the Company's environmental management plans, in compliance with current
environmental and regulatory requirements. Provisions for non-recurring remediation costs are made when there is a
present obligation, it is probable that expenditure on remediation work will be required and the cost can be estimated
within a reasonable range of possible outcomes. The costs are based on currently available facts, technology expected
to be available at the time of the clean up, laws and regulations presently or virtually certain to be enacted and prior
experience in remediation of contaminated sites.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-155
2.
Accounting policies (continued)
2.3 Summary of significant accounting policies
Decommissioning costs
The provision for decommissioning represents the cost that will arise from rectifying damage caused before production
commenced. Accordingly an asset is recognised and included within mine infrastructure.
Decommissioning costs are provided at the present value of the expenditures expected to settle the obligation, using
estimated cash flows based on current prices. The unwinding of the decommissioning obligation is included in the
income statement.
Estimated future costs of decommissioning obligations are reviewed regularly and adjusted as appropriate for new
circumstances or changes in law or technology. Changes in estimates are capitalised or reversed against the relevant
asset. Estimates are discounted at a pre-tax rate that reflects current market assessments of the time value of money.
Gains or losses from the expected disposal of assets are not taken into account when determining the provision.
Restoration costs
The provision for restoration represents the cost of restoring site damage after the start of production. Increases in the
provision are charged to the income statement as a cost of production.
Gross restoration costs are estimated at the present value of the expenditures expected to settle the obligation, using
estimated cash flows based on current prices. The estimates are discounted at a pre-tax rate that reflects current
market assessments of the time value of money and risks specific to the liability.
Revenue recognition
Revenue is recognised at the fair value of the consideration received or receivable to the extent that it is probable that
economic benefits will flow to the Company and revenue can be reliably measured. The following criteria must also be
present:
•the sale of mining products is recognised when the significant risks and rewards of ownership of the products are
transferred to the buyer;
•interest is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate
over the period to maturity, when it is determined that such income will accrue to the Company; and
•where a by-product is not regarded as significant, revenue is credited against cost of sales, when the significant
risks and rewards of ownership of the products are transferred to the buyer.
Taxation
Deferred taxation is provided on all qualifying temporary differences at the balance sheet date between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax assets are only recognised to the extent that it is probable that the deductible temporary differences will
reverse in the foreseeable future and future taxable profit will be available against which the temporary difference can
be utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is
no longer probable that sufficient future taxable profit will be available to allow all or part of the deferred tax asset to be
utilised.
Deferred tax assets and liabilities are measured at future anticipated tax rates, which have been enacted or
substantively enacted at the bala nce sheet date.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-156
2.
Accounting policies (continued)
2.3 Summary of significant accounting policies
Current and deferred tax is recognised as income or expense and included in profit or loss for the period.
Current tax is measured on taxable income at the applicable statutory rate enacted or substantively enacted at the
balance sheet date.
Special items
Items of income and expense that are material and require separate disclosure, in accordance with IAS 1.86, are
classified as special items on the face of the income statement. Special items that relate to the underlying performance
of the business are classified as operating special items and include impairment charges and reversals. Special items
that do not relate to underlying business performance are classified as non-operating special items and are presented
below operating (loss) profit on the income statement.
Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in
the period in which the dividends are declared by the board of directors of Société d’Exploitation des Mines d’Or de
Yatela S.A..
Financial instruments
Financial instruments are initially measured at fair value when the Company becomes a party to their contractual
arrangements. Transaction costs are included in the initial measurement of financial instruments, except financial
instruments classified as at fair value through profit and loss. The subsequent measurement of financial instruments is
dealt with below.
A financial asset is derecognised when the right to receive cash flows from the asset has expired or the Company has
transferred its rights to receive cash and either (a) has transferred substantially all the risks and rewards of the asset, or
(b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of
the asset.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
On derecognition of a financial asset, the difference between the proceeds received or receivable and the carrying
amount of the asset is included in income.
On derecognition of a financial liability, the difference between the carrying amount of the liability extinguished or
transferred to another party and the amount paid is included in income.
Regular way purchases and sales of all financial assets and liabilities are accounted for at settlement date.
Other non-current assets
•Loans and receivables are subsequently measured at amortised cost using the effective interest method. If there is
evidence that loans and receivables are impaired, the carrying amount of the assets is reduced and the loss
recognised in the income statement.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-157
2.
Accounting policies (continued)
2.3 Summary of significant accounting policies
Trade and other receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method, less accumulated impairment. Impairment of trade and other receivables is established when there is
objective evidence as a result of a loss event that the Company will not be able to collect all amounts due according to
the original terms of the receivables. Objective evidence includes failure by the counterparty to perform in terms of
contractual arrangements and agreed terms. The amount of the impairment is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
The impairment is recognised in the income statement.
Cash and cash equivalents
Cash and cash equivalents are defined as cash on h and, demand deposits and short-term, highly liquid investments
which are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. They are
measured at cost which is deemed to be fair value as they have a short-term maturity.
Financial liabilities
Financial liabilities are subsequently measured at amortised cost, using the effective interest method.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-158
Unaudited
2008
Unaudited
2007
2006
US$
3.
Revenue
Product sales
144,447,245 208,846,031 214,500,620
4.
Operating profit
Operating profit is arrived at after taking account of :
Cost of sales
Royalties 8,658,776
12,519,064
12,995,391
Amortisation of property, plant and equipment
4,916,982
9,753,803
39,381,404
Auditors’ remuneration
- Statutory audit fees
20,447
20,397
32,669
- External audit – audit fees
89,232
132,363
326,558
Contributions to Malian State social security fund
1,260,359
1,234,637
936,123
Legal fees
65,681
7,283
15,045
Operating leases
49,978,368
45,953,100
40,948,998
Management fees
1,444,473
2,088,460
2,145,006
Other contractors
4,144,090
4,805,984
3,621,338
Salaries, wages and benefits
6,566,586
6,050,571
5,175,254
Provision for obsolete consumable stores
-
(435,834)
757,951
Consumable stores
16,837,752 15,787,309 17,904,444
Inventory movement
15,576,936 (11,969,757)
(6,222,362)
Deferred stripping adjustment
(14,037,650) 16,383,073 (5,235,475)
Other cash operating expenses
1,631,020
7,332,663
3,501,246
5.
Special impairment of indirect taxes receivable and special
income (expenses) for indirect taxes payable
Assessment relating to 2005 to 2006 tax audit (note 5.1)
2,089,119 (5,972,079)
-
Provision relating to the 2007 / 2008 tax submissions (note 5.2)
(492,123) (229,412)
-
Impairment of VAT refundable by Government of Mali (note 5.3)
- -
(531,017)
Impairment of indirect taxes receivable (note 5.4)
(761,228) - -
835,768 (6,201,491) (531,017)
5.1
Assessment relating to the 2005 / 2006 tax audit
During October 2007, the Malian authorities performed a tax audit of the corporate taxation and various indirect taxes
submissions of the Company for the fiscal years 2005 to 2006. The results of the audit indicated that the Company
owed the Government of Mali F CFA 2,639 million (US$6.0 million as of December 31, 2007) of various indirect taxes
and penalties, which was communicated by way of a formal letter of assessment to the Company. The Company was
of the opinion that the tax submissions by the Company were in compliance with applicable laws and regulations.
Management however decided to make a provision for the assessment based on the uncertainty of the interpretation of
certain rules. The tax authorities confirmed the 2005/2006 audit claim in November 2008 indicating that the Company
owed the Government of Mali a reduced amount of F CF A 2.0 billion (US$3.9 million as of December 31, 2008). The
Company therefore reduced the provision raised in 2007 to the amount confirmed by the tax authorities.
5.2
Provision relating to the 2007 / 2008 tax submissions
The Company has reviewed the 2007 and 2008 tax submissions based on the interpretations applied by the tax
authorities in conducting the 2005 / 2006 audit. Management determined that there may be an under payment of
F CFA 101 million (US$0.23 million as of December 31, 2007) which was provided for in the 2007 financial results. The
Company has reviewed the tax submission for the 2007 and 2008 financial years based on the interpretations applied
by the tax authorities in confirming the 2005/2006 audit claim. An additional amount of F CFA 268 million (US$0.5
million as of December 31, 2008) was provided in the 2008 financial results.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-159
5.3
Impairment of VAT refundable by Government of Mali
The gross amount of VAT refundable by the Government of Mali amounted to US$11.7 million at December 31, 2005.
Management estimated that only US$11.5 million was recoverable based on previous VAT audits performed by the
authorities. Accordingly, an impairment of VAT refundable of US$0.2 million was made. In 2006 an additional
impairment of VAT refundable of $0.5 million was made (Refer Note 19.2.1).
5.4
Impairment of indirect taxes receivable
The Company has entered into a second protocol with the Government of Mali whereby the Government of Mali will
enter into a loan agreement with a local bank to finance the refund of the audited VAT and refundable tax on fuel in
arrears. In terms of the second protocol the Company has agreed to allow a deduction from the arrears of an amount to
pay the discount on behalf of the Government, which represents the costs related to the loan financing. The Company
has therefore impaired the VAT refundable balance by an amount of F CFA 259 million (US$0.55 million as of
December 31, 2008) and the refundable tax on fuel balance by an amount of F CFA 100 million (US$0.21 million as of
December 31, 2008) to account for this cost. This expense, together with the cumulative present value adjustments
recorded in previous periods, represents the full cost of the disc ount that the Company has agreed to (Note 19.2.1 and
19.2.2).
Unaudited
2008
Unaudited
2007
2006
US$
6.
Taxation
All pre-tax income and income tax expense is related to operations in Mali.
Current tax expense
9,672,064
40,597,288
13,282,867
Deferred tax
6,851,553
(9,273,900) (744,287)
16,523,617
31,323,388
12,538,580
A reconciliation of the statutory tax rate to that charged in the income statement is set out in the following table:
%
%
%
Statutory tax rate in Mali
35.0
35.0
35.0
Disallowable expenses:
(0.3)
3.1
0.1
-
Net foreign exchange loss / (profit)
1.0
0.6
(0.1)
-
Special impairment of indirect taxes receivable and special
expenses for indirect taxes payable
(1.3)
2.5
0.2
Effect of tax holiday
-
-
(21.7)
Translation loss (gain) on current and deferred tax
4.6
(3.1) (0.2)
(Over) under provision prior year
(0.2)
0.4
-
Effective tax rate
39.1
35.4
13.2
Mine
development
costs
US$
Work in
progress
US$
Mine
infrastructure
US$
Total
US$
7.
Property, plant and equipment at December 31, 2008
Cost
Balance at January 1, 2008
69,148,261
3,358,871
92,653,081
165,160,213
Additions 1,870,026
1,843,652
836,326
4,550,004
Disposals -
-
(888)
(888)
Transfers & other movements
12,482,382 (5,113,227)
9,843,041 17,212,196
Balance at December 31, 2008
83,500,669
89,296
103,331,560
186,921,525
Accumulated amortisation
Balance at January 1, 2008
59,083,350
-
82,509,512
141,592,862
Amortisation for the year
964,385 -
3,952,597
4,916,982
Disposals -
-
(888)
(888)
Balance at December 31, 2008
60,047,735
-
86,461,221
146,508,956
Carrying amount at December 31, 2008 (unaudited)
23,452,934
89,296
16,870,339
40,412,569
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-160
Mine
development
costs
US$
Work in
progress
US$
Mine
infrastructure
US$
Total
US$
Balance at January 1, 2007
84,278,860
1,217,320
87,132,975
172,629,155
Additions 1,632,596
2,141,551
1,566,621
5,340,768
Transfers and other movements
(16,763,195)
-
3,953,485
(12,809,710)
Balance at December 31, 2007
69,148,261
3,358,871
92,653,081
165,160,213
Accumulated amortization
Balance at January 1, 2007
56,644,375
-
75,194,684
131,839,059
Amortisation for the year
2,438,975
-
7,314,828
9,753,803
Balance at December 31, 2007
59,083,350
82,509,512
141,592,862
Carrying amount at December 31, 2007 (unaudited)
10,064,911
3,358,871
10,143,569
23,567,351
Included within the net book value of Mine Development costs is US$21.3 million (2007: US$7.3 million) of capitalised
stripping costs.
Transfers and other movements comprise amounts from changes in estimates of decommissioning assets, deferred
stripping movements and asset reclassifications.
Unaudited
2008
Unaudited
2007
US$
8.
Inventories
Ore stockpiles
2,307,327 16,468,547
Gold-in-process
15,543,507 16,959,228
Consumable stores
5,224,638 5,075,421
Consumable stores
5,546,755 5,397,538
Less: adjustment for obsolete and slow-moving items
(322,117) (322,117)
Total inventories
23,075,472 38,503,196
9.
Trade and other receivables
Related party receivables
- Société d’Exploitation des Mines d’Or de Morila S.A.
2,919
-
- Rand Refinery
4,044,733
3,731,848
4,047,652
3,731,848
Vat refundable by Government of Mali (note 19.2.1)
19,943,266
27,678,710
Prepaid expenses
1,986,360
84,997
Refundable tax on fuel by Government of Mali (note 19.2.2)
2,026,959
2,381,884
Other
1,912,457
1,731,050
Total current and non-current trade and other receivables
29,916,694
35,608,489
Less: non-current portion of amounts refundable by Government of Mali
-
19,267,402
Less: non-current prepayment to mining contractor
625,000
-
Total current trade and other receivables
29,291,694
16,341,087
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-161
Unaudited
2008
Unaudited
2007
US$
10.
Deferred taxation
The deferred taxation asset / (liability) relating to temporary differences is made up as follows:
- Property, plant and equipment
(7,200,099)
92,451
- Non-currentprovisions
8,868,343
7,413,120
- Inventory
112,741
112,741
- Present value adjustment on indirect taxes receivable
1,339,174
1,072,745
- Currentaccruals
227,571
1,508,226
3,347,730
10,199,283
The movement on the net deferred tax asset is as follows:
Balance at beginning of year
10,199,283
925,383
Deferred tax (expense) income
(6,851,553)
9,273,900
Balance at end of year
3,347,730
10,199,283
11.
Cash and cash equivalent
Malian bank balances
2,104,815
4,480,356
London and New York bank balances
21,759,243
22,476,145
Petty cash
6,671
14,282
23,870,729
26,970,783
12.
Provisions
Environmental rehabilitation obligation
Balance at beginning of year
21,180,344
14,506,491
Unwinding of obligation
804,853
725,324
Change in estimate
3,735,058
6,949,556
Utilised during the year
(382,132)
(1,001,027)
Balance at end of year
25,338,123
21,180,344
Assumptions applicable to environmental rehabilitation obligation
Estimated gross future environmental rehabilitation costs
US$27.0 million
US$25.0 million
Discount rate
2.5%
3.8%
Inflation rate
1.00%
2.30%
Average cash flow period
8 years
8 years
The average cash flow period is based on the current estimate of the time necessary to fulfil all obligations, which is
subject to revision annually. The estimated gross future costs are based on management's best estimates at
December 31, 2008, and are also subject to revision annually. The change in estimate arises due to the change in the
assumption of the discount rate applicable and a change in the estimate of the gross future costs.
Malian Government social security fund
The Company and all employees contribute to the Malian Government social security fund. On retirement, the Malian
employees are entitled to a retirement benefit from the fund. The fund reimburses expatriate employees only their own
contributions made to the fund. Accordingly, there is no obligation for defined employee benefits. The Company's
contributions to the Malian Government social security fund a re disclosed in note 4.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-162
Unaudited
2008
Unaudited
2007
US$
13.
Trade and other payables
Related party payables
- AngloGold Ashanti Limited
37,654
771,625
- AngloGold Ashanti Mali S.A.
215,554
364,612
- Société d’Exploitation des Mines d’Or de Sadiola S.A.
981,400
493,053
1,234,608
1,629,290
Accruals
7,995,330
15,296,481
Trade and other payables
7,784,067
7,590,161
17,014,005
24,515,932
Unaudited
2008
Unaudited
2007 2006
US$
14.
Dividends paid
Amount outstanding at beginning of year
-
-
-
Dividends declared during the year
- 80,000,000 51,000,000
Less: amount outstanding at end of year
-
-
-
Dividends
paid
- 80,000,000 51,000,000
15.
Income tax paid
Amount payable at beginning of year
33,165,682
13,320,163 -
Current tax expense (note 6)
9,672,064
40,597,288 13,282,867
Translation difference
143,002
(822,626) 489,759
Amount receivable (payable) at end of year
4,088,457
(33,165,682) (13,320,163)
Income tax paid
47,069,205
19,929,143 452,463
16.
Contractual commitments and contingencies
16.1 Operating leases
At December 31, 2008, the Company was committed to making the following minimum payments in respect of operating
leases for amongst other, hire of plant and equipment.
Unaudited
2008
Unaudited
2007
US$
Expiry within:
- Oneyear
1,680,101 2,833,047
These balances are calculated based on the minimum rentals due in terms of the contract up to and including the expiry
date (July 2010) or minimum notice period (90 days), whichever is the lesser. The contract does not provide for
guaranteed escalations. The Company has no other restrictions on any of its leasing arrangements.
16.2 Capital commitments
Contracted for
664,140
3,738,345
Not contracted for
667,012
2,522,480
Total authorised by the directors
1,331,152
6,260,825
The proposed capital expenditure for mine infrastructure will be financed from cash resources generated by operating
activities of the Company.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-163
16.
Contractual commitments and contingencies (continued)
16.3 The Company is subject to and pays taxes in Mali. Some of these taxes are defined by contractual agreements with the
local government, but others are defined by the general corporate tax laws of the country. The Company has historically
filed, and continues to file, all required tax returns and to pay the taxes reasonably determined to be due. The tax rules
in Mali are complex and subject to interpretation. From time to time the Company is subject to a review of its historic tax
filings and in connection with such reviews, disputes can arise with the taxing authorities over the interpretation or
application of certain rules to the Company’s business conducted in Mali. Management believes based on information
currently to hand that no such tax contingencies exist, and as assessments are completed, the Company will make
appropriate adjustments to those estimates used in determining amounts due. The ultimate outcome cannot be
presently determined.
Unaudited
2008
Unaudited
2007
Held by:
Number of
outstanding
stock in
issue
US$
17.
Ordinary stock
Authorised and issued: ordinary par value stock with a nominal value of F CFA 10 000 (US$14.513) each.
Sadiola Exploration Ltd
794
11,523
11,523
C Rampa-Luhembwe
1
14.5
14.5
J McCombe
1 14.5
14.5
M Diallo
1 14.5
14.5
L Phillips
1 14.5
14.5
DH Diering
1 14.5
14.5
K Addo-Kufuor
1
14.5
14.5
Government of the Republic of Mali
200
2,903
2,903
1,000 14,513
14,513
18.
Related parties
18.1 Identity of related parties
The stockholders of the Company are disclosed in note 17. Entities within the AngloGold Ashanti group and with which
the Company has transacted, are listed in note 18.2. The directors of the Company are listed below:
NF Nicolau (Chairman) (South African)
(resigned January 14, 2008)
C Rampa-Luhembwe (Chairman) (Congolese)
(appointed April 23, 2008)
J McCombe (Canadian)
M Diallo (Malian)
FRL Neethling (South African) (resignedFebruary29,2008)
AW Mbugua (Kenyan)
(resigned April 23, 2008)
S Malé (Malian)
W Diawara (Malian)
LE Philips (Canadian)
DH Diering (South African)
(appointed April 23, 2008; resigned October 24, 2008)
K Addo-Kufuor (Ghanaian)
(appointed April 23, 2008)
AE Coetzee (South African)
(appointed October 24, 2008)
FM Thiam (Malian)
(appointed June 20, 2008)
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-164
18.
Related parties (continued)
18.2 Material related party transactions
Transactions
with related
parties
Net amounts
due by/
(owed to)
related parties
(notes 9 & 14)
Transactions
with related
parties
Net amounts
due by/
(owed to)
related parties
(notes 9 & 14)
Transactions
with related
parties
Net amounts
due by/
(owed to)
related
parties
Unaudited 2008
Unaudited 2007
2006
US$
AngloGold Ashanti Mali S.A
1,892,534
(215,554)
2,892,386
(364,612)
3,447,035
(446,404)
Société des Mines de Morila S.A (Morila)
(1,345)
2,919
2,327
-
1,673
-
Société d’Exploitation des Mines d’Or de
Sadiola S.A. (Sadiola)
3, 383,480
(981,400)
2,619,552
(493,053)
2,865,379
(381,436)
Société Ashanti Goldfields de Guinée
(Siguiri) 14,000 - - - - -
AngloGold Ashanti Limited
902,722
37,654
2,981,852
(771,625)
1,089,223
(222,632)
Rand Refinery Limited
(144,447,245)
4,044,733
(208,846,031)
3,731,848
(214,136,050)
3,926,803
Sadiola Exploration Limited
-
-
-
-
1,111,147
-
Key management personnel remuneration
652,331
-
863,863
-
674,485
-
- Salary
593,545
-
774,434
-
619,860
-
- Performance related payments
28,824
-
58,059
-
16,995
-
-
Pension Scheme Contributions
6,544
-
18,676
-
26,158
-
- Other Benefits
23,418
-
12,694
-
11,472
-
AngloGold Ashanti Mali S.A. is a service organisation within the AngloGold Ashanti group and, accordingly, provides
management services to the Company. Included in transactions with AngloGold Ashanti Mali S.A. are management fees
paid by the Company of US$1,444,473 (2007: US$2,088,460) (2006: US$2,145,006) (refer note 4). Morila and Sadiola
are fellow subsidiaries to the Company, also located in Mali. Yatela shares certain employees with Sadiola, as well as
the elution and smelting of the gold production process. The Company incurs only ad hoc transactions with Morila.
The Company has entered into contractual agreements with AngloGold Ashanti Limited for the provision of purchasing
services of goods and materials originating in South Africa. Included in transactions with AngloGold Ashanti Limited are
purchases by the Company of US$902,722 (2007: US$2,981,852) (2006: US$1,089,223).
R and Refinery Limited is a subsidiary Company within the AngloGold Ashanti group. The Company has entered into
contractual agreements with Rand Refinery Limited for the provision of all services required for the collection, transport,
refining and purchase of the doré bars produced by the Company. Included in transactions with Rand Refinery Limited
are sales by the Company of US$144.4 million (2007: US$208.8 million) (2006: US$214.1 million) and purchases by the
Company of US$0.4 million (2007: US$0.4 million) (2006: US$0.4 million).
19.
Risk management activities
In the normal course of its operations, the Company is exposed to gold price, other commodity price, foreign exchange,
interest rate, liquidity, price and credit risks. In order to manage these risks, the Company may enter into transactions
which make use of both on- and off-balance sheet derivatives. The Company does not acquire, hold or issue derivatives
for trading purposes. The Company has access via its shareholders to a developed comprehensive risk management
process to facilitate, control and monitor these risks.
The financial risk management objectives of the Company are defined as follows:
•safeguarding the Company’s core earnings stream from its major assets through the effective control and
management of gold price risk, other commodity risk, foreign exchange risk and interest rate risk;
• effective and efficient usage of credit facilities in both the short and long term through the adoption of reliable
liquidity management planning and procedures;
• ensuring that investment and hedging transactions are undertaken with creditworthy counterparts; and
• that all contracts and agreements related to risk management activities are coordinated and consistent
throughout the Company and that they comply where necessary with all relevant regulatory and statutory
requirements.
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-165
19.
Risk management activities (continued)
19.1 Gold price risk
Gold price risk arises from the risk of an adverse effect on current or future earnings resulting from fluctuations in the
price of gold. The Company does not hedge against the effects of fluctuations in the gold price.
19.2 Credit Risk
Credit risk arises from the risk that a counter party may default or not meet its obligations in a timely manner.
The Company does not obtain collateral or other security to support financial instruments subject to credit risk, but
monitors the credit standing of counterparties.counter parties. Although the Company sells gold to only one counterparty,counter party, the
Company does not believe that this concentration of credit results in significant credit risk.risk as the majority of proceeds
are received within two working days of the gold leaving the mine. There is however a
concentration of credit risk with
respect to various taxes receivable from the Malian State. These taxes and the
measures taken to ensure recoverability
thereof are discussed in note 7,5, note 39 and below.
18.2.1
Ageing and impairment of financial assets
The following age analysis provides information regarding the credit quality of assets which expose the Company to
credit risk :
2008
2005
2006
20072008
2008
Total
US$
VAT and Fuel tax receivable
1,680
3,190
9,923
7,177
21,970
2007
2005
2006 2007
2007
Total
US$
VAT and Fuel tax receivable
7,940
10,969
11,151
30,060
19.2.1 Vulnerability from concentrations of VAT refundable by the Malian StateGovernment of Mali
VAT refundable amountedGross value added taxes receivable from the Government of Mali amounts to US$26.223.3 million (2004at 31 December 2008
(2007: US$18.430.6 million) at December 31. This arises as vatable
supplies are generally exempt from VAT (gold revenue) whilst most of the mine inputs are subject to VAT, resulting
generally in a net input VAT receivable.. VAT is refundable from the government in F CFA. The last audited value
added taxVAT return was for the
period ended June 30, 20052008 and at that dateDecember 31, 2008 US$21.720.8 million (2007: US$21.5 million) is still outstanding and
US$6.82.5 million (2007: US$9.1 million) is still subject to audit. The accounting processes for the unaudited amount are in
accordance with
the processes advised by the Malian governmentGovernment of Mali in terms of the previous audits. The Government of
Mali is a
shareholder in the Company and has committed to provideconcluded a repayment planfirst protocol agreement with the Company for reimbursement of
outstanding VAT July 5, 2006. All provisions of the first protocol were fulfilled as at December 2008. Certain amounts due. Due to thisat
uncertainty, certain amounts arethe end of 2007 were expected to be received after 12 months of the balance sheet date and are
were classified as non-curre ntnon-
current accordingly. TheseThe amounts are alsoprovided for in 2007 were discounted to their present value usingat a rate of 6.5% per
annum. The Company has entered into a second protocol with the effectiveGovernment of Mali whereby the Government of Mali
interest rate method.will enter into a loan agreement with a local bank to finance the payment of the audited amounts in arrears. In terms of
the second protocol the Company has agreed to allow a deduction from the arrears of an amount to pay the discount on
behalf of the Government, which represents the costs related to the loan financing. The amounts provided in 2008 have
been determined with reference to the amount of the deduction proposed in the second protocol. The cumulative
present value and impairment adjustments made against the gross VAT receivable amounts to US$3.4m
(2007: US$2.8m). As all Amounts receivable will be received in terms of the second protocol during 2009 all amounts
outstanding at the balance sheet date have been classified as current.
18.2.2 
Société d’Exploitation des Mines d’Or de Yatela S.A.
Notes to the financial statements
For the years ended December 31, 2006, 2007 and 2008
F-166
19.
Risk management activities (continued)
19.2.2 Vulnerability from concentrations of refundable tax on fuel by the Government of Mali
ReimbursableGross fuel duties receivable from the Malian government, for the Company amountGovernment of Mali amounts to US$9.92.5 million (2004at 31 December 2008
(2007: US$9.8
2.6 million) at December 31.. Fuel duties are paid on receipt of the fuel supply and are refundable in F CFA, requiring the
claim to be submitted before January 31 of the following year, and are subject to authorizationauthorisation by firstly the Department
Department of Mining and secondly the CustomsCustom and Excise authorities. The Customs and Excise authorities have
not approved any
payments for 2008 and 2007, US$6.642.5 million which is still outstanding, whilst(2007: US$3.56 million2.6 million) is still subject to authorization.authorisation. The accounting
accounting processes for the unauthorizedunauthorised amount are in accordance with the processes advised by the MalianGovernment of Mali in
government in terms of the previous authorizations.authorisations. With effect from February 2006, fuel duties are no longer payable to the
Government of Mali. The Government of Mali is a shareholder in the Company and hasconcluded a first protocol
committeda greement with the Company for reimbursement of outstanding fuel duties on July 5, 2006. All provisions of the first
protocol were fulfilled as at December 2008. Certain amounts at the end of 2007 were expected to providebe received after
12 months of the balance sheet date and were classified as non-current accordingly. The amounts provided for in 2007
were discounted to their present value at a repayment plan forrate of 6.5% per annum. The Company has entered into a second protocol
with the Government of Mali whereby the Government of Mali will enter into a loan agreement with a local bank to
finance the payment of the amounts due. Duein arrears. In terms of the second protocol the Company has agreed to this uncertaintyallow a
deduction from the arrears of an amount to pay the discount on behalf of the Government, which represents the costs
related to the loan financing. The amounts although reported
as current assets, may take longer than 12 monthsprovided in 2008 have been determined with reference to the amount of the
deduction proposed in the second protocol. The cumulative present value and impairment adjustments made against
the gross fuel tax receivable amounts to US$0.45m (2007: US$0.24m). As all amounts receivable will be received.received in
terms of the second protocol during 2009, all amounts outstanding at the balance sheet date have been classified as
current.
18.3 19.3 Currency risk
Since the functional currency of the Company is US Dollars, currency risk is incurred primarily as a result of purchases
purchases made in other currencies, such as the Euro, South African Rand and the Franc de la Communaté
Communauté Financière d’Afrique (F
(F CFA). The Company does not use derivatives to hedge foreign currency transactions.
As the Company does not enter into financial instruments for trading purposes, the risks inherent to financial
instruments are always offset by the underlying risk being hedged. The Company further manages such risks by
ensuring that when decisions are made to utilise hedging the level of hedge cover will not exceed expected
requirements in future periods, that the tenor of instruments will not exceed the life of mine and that no basis risk exist.
Management is of the opinion that the exposure to foreign currency fluctuations will not have a significant impact on
equity or profit and loss.
18.4
19.4 Fair values of financial instruments
The estimated fair values of the current financial instruments are determined at discrete points in time based on relevant market
information.
These estimates involve uncertainties and cannot be determined with precision. The estimated fair values
of the
Company’s current financial instruments as at December 31, 20052008 approximates the carrying amount of such
financial instruments as reflected in the balance sheet.
US$14.6 million, included20.
Capital management
The primary objective of managing the Company’s capital is to ensure that there is sufficient capital available to support
the funding requirements of the Company, including capital expenditure, in non-current tradea way that optimises the cost of capital,
maximises shareholders’ returns and other receivables relatesensures that the Company remains in a sound financial position. There were no
changes to VAT which is expected to be
refundedthe Company’s overall capital management approach during the 2007 financialcurrent year. The fair value of this receivable approximates its carrying amount. All otherCompany manages and
amounts are expected to be recoverable or payable within the 2006 financial year.
F-126
Société d’Exploitation des Mines d’Or de Sadiola S.A.
Notesmakes adjustments to the financial statements
Forcapital structure as and when funding is required. This may take the years ended December 31,form of raising
shareholder or bank debt or hybrids thereof.
19
Reconciliation between IFRS and US GAAP
The following table summarizes the effect on net profit and stockholders’ equity of differences between International
Financial Reporting Standards (IFRS) and accounting principles generally accepted in the United States of America
(US GAAP) as of and for the year ended December 31, 2005:
Notes
2005
2004
2003
US$
Income statement information
Net profit as per IFRS
12,084,131
31,594,290
31,321,283
US GAAP adjustments:
Amortization for the 2005 year of exploration costs previously
capitalized under IFRS
19.1
3,152,215
1,639,894
2,439,206
Deferred tax thereon
(1,103,275)
(573,962)
(853,722)
Deferred tax adjustment relating to translation differences
19.2
8,126,515
(2,451,704)
(1,523,832)
Net profit as per US GAAP
22,259,586
30,208,518
31,382,935
Balance sheet information
Stockholders' equity as per IFRS
179,029,066
206,944,936
220,350,646
US GAAP adjustments:
Exploration costs capitalized under IFRS
19.1
(31,828,454)
(31,828,455)
(31,828,455)
Deferred tax thereon
11,139,959
11,139,959
11,139,959
Amortization of exploration costs capitalized under IFRS
19.1
25,510,894
22,358,679
20,718,785
Deferred tax thereon
(8,928,813)
(7,825,538)
(7,251,575)
Deferred tax adjustment relating to translation differences
19.2
1,139,045
(6,987,470)
4,535,766
Stockholders’ equity as per US GAAP
176,061,697
193,802,111
208,593,594
19.1 Exploration costs capitalized under IFRS and the amortization thereof
Under IFRS, certain exploration drilling costs were capitalized based on the favourable outlook of future economic
benefits associated with the areas being drilled. Under US GAAP, similar costs can be capitalized only once a bankable
feasibility study has been obtained to support the probability of the future economic benefits associated with the area.
Exploration costs capitalized under IFRS are amortized on a units-of-production method. Under US GAAP, the
accumulated amortization should be reversed.
The application of US GAAP would have resulted in an increase in net profit of US$2.0 million (2004: US$1.1 million
and 2003: US$1.6 million) and a decrease in stockholders’ equity of US$4.1 million (2004: US$6.2 million and 2003:
US$7.2 million).
19.2 Deferred tax adjustment relating to translation differences
Under IFRS, all carrying amounts used in the computation of deferred tax are translated from US Dollars into the local
tax paying currency at a closing rate of exchange, while under US GAAP, non-monetary carrying amounts are
translated at their historical rates of exchange.
The application of US GAAP would have resulted in an increase in net profit of US$8.1 million (2004: decrease of
US$2.5 million and 2003: decrease of US$ 1.5 million) and an increase in stockholders’ equity of US$1.1 million (2004:
decrease of US$ 7.0 million and 2003: decrease of US$ 4.5 million).
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
ANGLOGOLD ASHANTI LIMITED
/s/ Srinivasan Venkatakrishnan
Name: Srinivasan Venkatakrishnan
Title:
Chief Financial Officer
Date: March 16, 2006.
Date:
May 4, 2009
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
