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Review of operations

Despite a languishing gold price, AngloGold has continued to pursue its diversification and consolidation goals with a focus on realising value rather than volume. In South Africa this involved negotiating the sale of two mines as well as an increasing focus on enhancing productivity through both labour practices and new technology. This is in line with AngloGold's strategy of concentrating on higher margin, long-life operations through asset optimisation.

The year also saw the integration into AngloGold of the newly acquired Australian operations. Significant progress was made with the development of the African portfolio with three new operations being added. The Africa region continued to perform beyond expectations and is now the second largest contributor to AngloGold's earnings. The North and South American operations performed well during the year. 

Africa 

The Africa region comprises joint ventures Sadiola mine (38 per cent interest), Yatela mine (40 per cent interest), Morila mine (40 per cent interest) in Mali and Geita mine (50 per cent interest) in Tanzania, as well as the wholly-owned Navachab mine in Namibia. Geita will be accounted for with effect from 2001. These operations (excluding Geita) treated 3.5 million attributable tonnes, at an average grade of 3.2 grams per tonne, producing 366,000 ounces of gold (up 40 per cent on 1999) at an average cash cost of $124 per ounce (17 per cent lower than last year).

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During the year:
Sadiola had an excellent year, with record gold production up 13 per cent to 611,000 ounces (232,000 attributable ounces). Total cash costs decreased to a record low of $114 per ounce. The life-of-mine currently extends to 2007, with a resource base of 10 million ounces after which there should be a further two years of production from currently inferred resources and marginal dump treatment.

In February, the AngloGold board approved $76 million for the construction and development of the Yatela mine, which AngloGold will manage. Located some 25 kilometres north of Sadiola, this mine will produce 230,000 ounces of gold per annum with a current life-of-mine of six years. The project is on schedule and within budget, with mining having begun in December. The heap leach pad and general infrastructure is at an advanced stage. The first gold pour is scheduled for June 2001.

On 15 December 2000 AngloGold acquired a 50 per cent interest in the Geita mine in northern Tanzania for $205 million and additional project finance of $67 million. Geita has published reserves of 7.8 million ounces and resources of 14.6 million ounces, including 2 million ounces from the Nyamulilima Hill property.

The first gold was poured on 8 June 2000 with 177,000 ounces of gold produced during the year. The project is being managed jointly by AngloGold and Ashanti.

In addition to contributing the Nyamulilima Hill prospect to the Geita resource base, AngloGold has entered into a broad strategic alliance with Ashanti to seek opportunities to work together throughout Africa.

The purchase of a 40 per cent interest in the Morila mine in Mali from Randgold Resources for $132 million and project finance of $36 million was announced in July. AngloGold is the operator of the mine. The first gold was poured on schedule in October 2000. By the end of December the mine had exceeded expectations and recovered 142,000 ounces (57,000 attributable ounces) at a remarkable total cash cost of $88 per ounce. The mine's average annual production rate will be 500,000 ounces at a total cash cost of $127 per ounce over its ten-year life.

Navachab mine in Namibia had an excellent year, with annual production of 77,000 ounces, the highest since the mine's inception in 1989. The mine was declared a continuous operation by the Namibian Minister of Labour and agreements were finalised with the representative union on Sunday and public holiday payments. 

Australasia 

AngloGold's Australian assets comprise the wholly-owned Sunrise Dam mine in Western Australia and operations at the Pine Creek mine (made up of Union Reefs and Brocks Creek mines) in the Northern Territory, as well as interests in the joint ventures at the Boddington mine (33.33 per cent interest) in Western Australia and the Tanami mine (40 per cent interest) in the Northern Territory.

These operations treated (attributable to AngloGold) 9.3 million tonnes, at an average grade of 1.75 grams per tonne, producing 524,000 ounces of gold at an average total cash cost of A$390 ($226) per ounce.
  

During the year:
Cyclonic rains in the northern and western areas of the continent reduced production in the first half of the year. The Tanami and Pine Creek operations were the worst affected. A strong recovery in production was achieved during the second half of the year, reaching record levels.

Operations at Brocks Creek mine ceased during the year and rehabilitation of the site is well advanced.

A continued strong performance at Sunrise Dam has resulted in increased production and cash costs at A$298 ($172) per ounce. In April 2000, the board approved capital expenditure of $63 million for the further development of the operation, involving a major expansion of the open-pit, coupled with an increase in the plant capacity to 2.5 million tonnes per annum. This will extend the life of the open-pit through to around 2007, during which time about 2.3 million ounces of gold will be produced. The project will be financed by internally generated funds. Drilling is continuing to define more clearly the significant underground potential that has already been identified and is likely to further extend the life of the operation.

The oxide mining operation at Boddington which began in 1987 is now in the final phase of its life. The feasibility study for the Boddington expansion project, which is based on the 19.7 million ounce basement ore resource and has the potential to add a further 19 years to the mine's life, has been completed and is under review by the joint venture partners.

A restructuring of the corporate office activities and the move of the office from Melbourne to Perth during the first quarter of 2001 will result in cost savings and improved delivery of services to the operating units. In addition, a refocusing of exploration will see a reduction in field exploration personnel.

North America 

The North American operations comprise a 70 per cent interest in the Jerritt Canyon Joint Venture and the Cripple Creek & Victor Gold Mining Company, in which AngloGold has a 67 per cent interest (with a 100 per cent interest in gold produced) subject to contractual obligations by the joint venture partners.

These operations treated (attributable to AngloGold) 0.5 million underground tonnes and 10.3 million open-pit tonnes at an average grade of 13.93 grams per underground tonne and 0.75 grams per open-pit tonne, producing 496,000 ounces of gold at an average cash cost of $207 per ounce.

During the year:
Both the Jerritt Canyon and Cripple Creek mines were affected by adverse weather conditions and mechanical difficulties in the first half of the year which resulted in reduced production. A strong performance in the second half returned both operations to budgeted production levels at year-end.

During the third quarter, Jerritt Canyon entered into an agreement to purchase 66,000 attributable ore tonnes from Cortez Gold Mines and to process this ore at the Jerritt Canyon facilities to produce 32,000 attributable ounces. The agreement further provides for the purchase of 276,500 attributable ore tonnes in 2001 and 2002 to produce 103,000 attributable ounces during this period.

Development at the East Cresson mine at Cripple Creek continued during the year with approval for environmental permit Amendment No. 8, which allows for expanded operations through to 2013, received in August.

Phase 3 of the leach pad extension at Cripple Creek was completed during the third quarter, with the project coming in under budget and ahead of schedule.

Relocation of Highway 67 at Cripple Creek was begun in the fourth quarter. This will allow for continued expansion of the leach pad. 

South Africa 

AngloGold's wholly-owned South African operations comprised 13 underground mines located in three geographic areas as well as Ergo, a surface metallurgical operation.

These are:

the TauTona, Deelkraal, Elandsrand, Mponeng and Savuka mines near Carletonville, straddling the North West and Gauteng provinces. (In December 2000, agreement was reached to sell the Elandsrand and Deelkraal mines);

the Great Noligwa, Kopanang, Tau Lekoa and Moab Khotsong mines near Orkney, in North West Province;

the Tshepong, Matjhabeng, Bambanani and Joel mines around Welkom in the Free State; and

a metallurgical treatment operation, Ergo, near Johannesburg in Gauteng Province.

These operations treated 19.5 million underground tonnes, at an average grade of 7.82 grams per tonne and 50.3 million surface tonnes at an average grade of 0.32 grams per tonne. Most of the surface tonnes were treated at Ergo at an average grade of 0.24 grams per tonne. In total this produced 5,418,000 ounces of gold at an average cash cost of $217 per ounce.
  

During the year:
At the end of the first quarter, five South African mines - Great Noligwa, TauTona, Elandsrand, Bambanani and Joel - were identified as performing below expectations. Of these, Great Noligwa and TauTona had recovered by year-end. Elandsrand (with Deelkraal) is being sold, while Joel and Bambanani continued to underperform and will receive further attention in 2001.

Modest increases in productivity were achieved, despite a reduction in production. Great Noligwa, Tau Lekoa, Matjhabeng, Tshepong and Savuka performed very well, improving on both area mined per employee and grams produced per employee indices as a result of team-based training and other productivity enhancing initiatives.

Rand per kilogram cash costs were 8 per cent higher year-on-year mostly as a result of the 6 per cent lower gold production. Dollar denominated unit costs decreased as a result of the devaluation of the rand. The Great Noligwa, TauTona and Kopanang mines, which contribute some 80 per cent of South African earnings, performed well during the year.

Despite a poor performance in the first quarter as a result of the intersection with the Jersey fault, the Great Noligwa mine showed continuing improvement, maintaining its role as the largest revenue generator in the group.

TauTona mine performed slightly below expectations during the year owing to infrastructure problems. These have been addressed in a R36 million project which is 50 per cent complete and the mine is now operating at expected levels with fewer problems.

Kopanang mine achieved its production targets, although not quite meeting the record production levels set in the previous exceptional year.

The Savuka, Tau Lekoa and Tshepong mines continued their steady performance.

Matjhabeng's performance improved, albeit off the previous year's low base. Matjhabeng's Kudu shaft was closed during the second quarter and operations at that mine's Nyala and Sable shafts have been scaled back in anticipation of closure in 2001.

Agreement in principle was reached with Harmony Gold Mining Company on the sale of Elandsrand and Deelkraal mines for R1 billion ($132 million) cash. As a result, gold production from the South African operations will decline by some 500,000 ounces and cash costs will reduce by about $9 per ounce. The sale will also reduce AngloGold's capital commitments in South Africa by R792 million over the next six years.

Gold production declined at Mponeng as a result of reduced throughput and as a number of key high-grade areas were affected by seismicity. The withdrawal of permission to blast more than once per shift following the 1999 methane explosion also affected development and reduced flexibility. This permission was restored in August and development rates have returned to normal.

Both Bambanani and Joel continued to produce unsatisfactory results throughout 2000. An unexpected drop in the average grade of the Joel orebody, plus the loss of ore reserves owing to the Klippan washout, reduced mining flexibility. An increased volume was not sufficient to counter the lower grades. If the performance of these two mines cannot be corrected, decisive action will be taken to close or sell them.

Exceptionally high rainfalls and numerous power failures restricted gold output at Ergo.

Work continued on four major projects. The Moab Khotsong project will lead to the establishment of a new mine, while the Mponeng, Elandsrand and Joel projects will extend the lives of existing mines by providing access to deeper reserves. Annual expenditure amounted to R951 million ($110.7 million) with a forecast expenditure of R638 million ($81.8 million) in 2001.

Following a recovery and strong performance by most operations in the final quarter, the South African operations are well positioned for delivery in the year ahead. 

South America 

The South American operations comprise the wholly-owned Morro Velho mine and a 50 per cent interest in the Serra Grande mines in Brazil, as well as a 46.25 per cent interest in Cerro Vanguardia mine in southern Argentina.

These operations treated (attributable to AngloGold) 1.7 million tonnes, at an average grade of 8.05 grams per tonne, producing 439,000 ounces of gold at an average cash cost of $144 per ounce.

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During the year:
Attributable production increased by 3.3 per cent during the year as a result of increased volumes at Morro Velho and better grades at both Morro Velho and Serra Grande.

Cerro Vanguardia was affected by bad weather conditions in the second quarter, but managed to make up for lost production by year-end. Work is in progress to replace the intake portion of the plant at Cerro Vanguardia before the start of the next rainy season in April, which should eliminate similar problems during periods of bad weather.

Morro Velho's Espírito Santo mine was mined out and production was replaced with ore from Santa Cruz.

Production at Morro Velho's Cuiabá mine improved owing to better mining conditions, the introduction of new blasting techniques and improved maintenance of the trackless fleet. Work has progressed well with the installation of an hydraulic backfill system to replace the mechanical system currently in use and a communication system is being installed which will further improve production.

Serra Grande succeeded in increasing throughput by 18 per cent for the year and gold production by 23 per cent with no additional investment. This level of production is expected to continue.

A gravity circuit has been installed in the Serra Grande plant which should improve overall recoveries in 2001.
  

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