OK, after this I'll stop, Just have to post this great letter from the CEO:
A LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Back
Dear shareholder
Today's results are the first for the new AngloGold. They cover the first two quarters of this year, as
the pooling of the companies constituting AngloGold had an effective date of 1 January 1998. The
results for the first quarter were announced in individual company form and have been restated in this
announcement, while the figures for the six months ended 30 June 1997 for the individual companies
have been aggregated for comparative purposes.
In the new structure, we have a single company and 16 "gold factories" or "businesses", some with
names which will be new to you. At our Vaal River Operations we have four: Great Noligwa (previously
Vaal Reefs No 8 shaft), Kopanang (Vaal Reefs No 9 shaft), Tau Lekoa (Vaal Reefs No 10 shaft), and
Moab Khotsong (Vaal Reefs No 11 shaft). At the Free State Operations there are five: Bambanani
(previously Freegold 1), Tshepong (Freegold 2 and 4), Masimong (Freegold 3), Matjhabeng (Western
Holdings), and Joel (HJ Joel). There are four at our West Wits Operations: Western Deep Levels East,
West and South, and Elandsrand with its Deelkraal Section. Then there is Ergo, Navachab and
Sadiola. The operations map should help you familiarise yourself with the new identities.
We are viewing each of these "gold factories" as businesses in their own right, and they are fully
equipped to conduct all normal business operations. Indeed, all operational activity will be driven from
this level. We are in the process of removing regional management structures, locating all strategic
functions at our corporate office. This greatly simplifies our overall structure, and has produced very
considerable savings.
With the new structure the key realities are:
operational - now at `mine' level; or
strategic - at the corporate level.
In an important step to provide shareholders with both more, and more useful, information, we have
published in this document operational results for each of the 16 "gold factories". This provides those
who wish to measure our performance in detail with a critical new level of information.
The first six months of 1998 have been hectic for AngloGold:
we have had to negotiate fair prices for the assets we have acquired from Anglo American; we have had to win support from the shareholders of all the existing companies, to combine these companies into the new AngloGold; and in so doing, we had to produce a huge volume of information to comply with various stock exchange requirements; ballot our shareholders; and finally, convince the South African High Court that all shareholder sentiment had been effectively canvassed, and that the requisite levels of support had been achieved.
Now, we are busy with our ADR listing application for the main board of the New York Stock Exchange.
In the midst of this flurry of restructuring activity, we have been concerned about who was minding the store. Good operational results are the foundation, and the only foundation, for any company structure.
We are in the business of the profitable production of gold. If we fail at this, all else is irrelevant. The results we publish today are an indication that our business is operationally healthy.
Comparing the first half of 1998 with the corresponding period of 1997:
gold produced is 4 per cent up;
the price received rose by 6 per cent;
operating profit rose by 31 per cent in appropriation/Rand terms, and by 61 per cent in International Accounting Standards (IAS)/Dollar terms; and profit available for distribution to shareholders - surely any company's true bottom line - rose 42 per cent in appropriation/Rand terms, 82 per cent in IAS/Dollar terms.
These results include a number of new or extraordinary items:
severance costs of R313,0 million have been paid;
exploration activities of R92,1 million have been funded by this company for the first time. Previously, gold exploration was funded by Anglo American and its associates. The gold growth potential now resides with AngloGold.
capital recoupments arising from the sale of shafts and plants, at R244 million, are considerably higher than in the
comparative period (R76 million); and
savings of R80 million have also been achieved from the cancellation of management contracts.
When the extraordinary capital recoupments are stripped out, earnings of R621,5 million are up 41,6 per cent on the
comparative period.
In the light of these results, the Board has declared an interim dividend of R7,50 or $1.28 a share. This produces a dividend
yield of 6,7 per cent in Rand terms and 5,8 per cent in Dollar terms, when measured against the average share price for the
period. The dividend has been converted at the exchange rate at 30 June.
When measured against the weak spot price over the period ( 3 per cent down in Rand terms, and 14 per cent lower in Dollar
terms compared to the first half of 1997), and the massive restructuring undertaken during the period, these results must be
seen as satisfactory. They provide evidence that we are doing what we have promised: to build not only the biggest but also
the best gold company in the world; a company which can produce high volumes of profitable gold ounces today, accumulate
profitable reserve ounces for tomorrow, and offer shareholders significant rewards. We intend AngloGold to be a value
investment.
Prospects
With the fall of the Rand, gold prices in this currency are likely to be higher. AngloGold will benefit from the gearing effect of
Rand denominated costs and Dollar denominated revenues. However, we are seeking to be a value investment in real terms.
Our performance will be measured both in Dollar and Rand terms, and non-South African investors will be expecting good
Dollar dividends. We can only deliver these by achieving good margins through mining excellence. One measure of our
success or failure is, of course, our cost performance expressed in Dollar per ounce terms. We want to shape our own destiny,
not merely float on the uncertain tide of the gold price, measured both in Rand and Dollar terms.
In our South African operations we have now achieved a scale and structure which we believe is sustainable well into the new
century. We are continuing with programmes which will eliminate illiteracy and innumeracy, and re-organise work in
multi-skilled, self-directed teams. We intend to continue to publicly target specific productivity increases.
We will continue, also, to sharpen the focus of the mining machine through the progressive application of appropriate, and in
many cases proprietary, technologies. We have developed mine planning and reporting software, which turns mine planning
into a much more flexible exercise, and enables the mine plan to be continually updated by information which flows from the
mining process. This software enables us to better manage our other key asset (after our people) - the ore body. Equally, we
are working flat out on the programme to mine safely and profitably at below 4 000 metres.
Abroad, exploration activities are well established in East, Central and West Africa. Negotiations with Minorco on the possible acquisition of its gold assets are progressing. We will continue our search for both partnerships and possible acquisitions on a global basis. With 140 million ounces of reserves and 414 million ounces of resources, we can afford to take our time and to be absolutely sure that every ounce of new production at least maintains - preferably enhances - the profitability of this company.
NICKY OPPENHEIMER
BOBBY GODSELL
Chairman
Chief Executive Officer
17 July 1998
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