Financial Review

Quarter ended 30 September 2012 compared with quarter ended 30 June 2012

Revenue

Attributable gold production decreased by 6 per cent from 862,000 ounces in the June quarter to 811,000 ounces in the September quarter.

At the South African operations, production decreased by 11 per cent from 437,000 ounces to 387,000 ounces. This decrease in production was mainly due to a fire at KDC’s Ya Rona shaft (formerly Driefontein 4 shaft), illegal strike action at KDC East and West, and a slightly lower grade mined at South Deep.

Attributable gold production at the West African operations decreased by 3 per cent from 193,000 ounces to 188,000 ounces, largely due to a temporary suspension of the heap leach operations at Tarkwa. Attributable equivalent gold production at Cerro Corona in Peru, decreased by 2 per cent from 84,000 ounces to 82,000 ounces, largely due to a lower milling rate because of the harder ore currently being processed. At the Australian operations, gold production increased by 4 per cent from 148,000 ounces to 154,000 ounces, reflecting the increase in higher grade underground ore mined and produced at Agnew.

At the South Africa region, gold production at KDC decreased by 15 per cent from 279,600 ounces (8,698 kilograms) in the June quarter to 238,300 ounces (7,411 kilograms) in the September quarter. At Beatrix, gold production decreased by 3 per cent from 79,600 ounces (2,477 kilograms) to 77,600 ounces (2,415 kilograms). At South Deep, gold production decreased by 8 per cent from 77,800 ounces (2,420 kilograms) to 71,300 ounces (2,217 kilograms).

At the West Africa region, managed gold production at Tarkwa decreased by 4 per cent from 176,300 ounces to 169,400 ounces. At Damang, gold production increased by 4 per cent from 38,200 ounces to 39,900 ounces.

At the South America region, total managed equivalent gold production at Cerro Corona decreased by 3 per cent from 84,900 equivalent ounces in the June quarter to 82,700 equivalent ounces in the September quarter.

At the Australasia region, St Ives’ gold production decreased by 4 per cent from 111,200 ounces to 106,600 ounces. At Agnew, gold production increased by 28 per cent from 37,200 ounces to 47,600 ounces.

The average quarterly US dollar gold price achieved increased by 3 per cent from US$1,600 per ounce in the June quarter to US$1,655 per ounce in the September quarter. The average rand gold price increased by 6 per cent from R414,642 per kilogram to R439,597 per kilogram, while the average Australian dollar gold price decreased marginally from A$1,600 per ounce to A$1,591 per ounce due to the stronger Australian dollar. The average Rand/US dollar exchange rate weakened by 2 per cent from R8.06 in the June quarter to R8.26 in the September quarter. The average Rand/Australian dollar exchange rate weakened by 5 per cent from R8.16 to R8.56. The average Australian/US dollar exchange rate strengthened by 3 per cent from A$1.00 = US$1.01 in the June quarter to A$1.00 = US$1.04 in the September quarter.

As a result of the above mentioned factors, revenue increased marginally from R11,364 million to R11,395 million, but decreased in dollar terms from US$1,408 million to US$1,380 million due to the weaker rand.

Operating costs

Net operating costs increased by 5 per cent from R5,973 million (US$740 million) in the June quarter to R6,290 million (US$763 million) in the September quarter. This increase in net operating costs, together with the decrease in production, resulted in an increase in total cash cost of 10 per cent from R220,546 per kilogram to R243,143 per kilogram. In US dollar terms, total cash cost increased by 8 per cent from US$851 per ounce to US$916 per ounce. Refer to the Total cash cost reconciliation for more detail.

At the South Africa region, net operating costs increased by 7 per cent from R3,346 million (US$415 million) to R3,592 million (US$436 million). This increase was due to two months of significantly higher winter tariffs (approximately 60 per cent to 65 per cent higher than summer tariffs) compared with only one month in the June quarter as well as the average annual wage increase of 9.4 per cent, effective from 1 July 2012. Total cash cost increased by 19 per cent from R248,503 per kilogram (US$959 per ounce) to R296,205 per kilogram (US$1,115 per ounce) due to the lower production and increased costs.

At the West Africa region, net operating costs increased by 2 per cent from US$152 million (R1,224 million) to US$155 million (R1,274 million). This increase was due to a lower quarter on quarter build-up of gold inventory, mainly at the South heap leach facility at Tarkwa. Total cash cost at the West African operations increased by 4 per cent from US$722 per ounce in the June quarter to US$754 per ounce in the September quarter due to the decrease in production and the increase in costs.

At Cerro Corona in South America, net operating costs increased by 6 per cent from US$35 million (R282 million) to US$37 million (R302 million). This was due to an increase in tonnes mined, an increase in plant repair costs and an increase in the statutory workers participation in profits. Total cash cost decreased by 2 per cent from US$482 per ounce in the June quarter to US$474 per ounce in the September quarter due to the increase in gold equivalent ounces sold.

At the Australasia region, net operating costs decreased by 4 per cent from A$137 million (R1,122 million) to A$131 million (R1,122 million). This was mostly at St Ives due to a decrease in mining volumes at the open pits in the September quarter. Total cash cost for the region decreased by 8 per cent from A$910 per ounce (US$922 per ounce) to A$839 per ounce (US$870 per ounce) mainly due to the increase in production at Agnew.

Operating margin

Operating profit decreased by 5 per cent from R5,391 million (US$667 million) in the June quarter to R5,105 million (US$617 million) in the September quarter due to the increase in net operating costs.

The Group’s operating margin decreased from 47 per cent in the June quarter to 45 per cent in the September quarter. The operating margin at the South African operations decreased from 42 per cent to 32 per cent. At the West African operations the operating margin decreased from 56 per cent to 55 per cent. At Cerro Corona in South America, the operating margin was at a record high of 75 per cent compared with 69 per cent in the June quarter and at the Australian operations the operating margin increased from 42 per cent to 47 per cent.

Amortisation

Amortisation increased by 1 per cent from R1,577 million (US$195 million) in the June quarter to R1,591 million (US$193 million) in the September quarter. This increase was in line with the higher volumes mined at Agnew and Damang, partly offset by the lower production at KDC.

Other

Net interest paid increased from R65 million (US$8 million) in the June quarter to R83 million (US$10 million) in the September quarter. In the September quarter, interest paid of R177 million (US$21 million) was partly offset by interest received of R59 million (US$7 million) and interest capitalised of R35 million (US$4 million). This compared with the June quarter interest paid of R154 million (US$19 million), partly offset by interest received of R60 million (US$7 million) and interest capitalised of R29 million (US$4 million). The increase in interest paid was due to an increase in borrowings in South Africa during the September quarter.

The loss on share of results of associates after taxation increased from R98 million (US$12 million) in the June quarter to R144 million (US$18 million) in the September quarter. The September quarter comprised a profit of R19 million (US$2 million) on the Group’s interest in Rand Refinery and a loss of R163 million (US$20 million) relating to the ongoing study and evaluation costs at the Far Southeast project (FSE). The loss in the June quarter comprised a profit of R17 million (US$2 million) in Rand Refinery and a loss of R115 million (US$14 million) at FSE. The increase in the FSE study and evaluation costs in the September quarter was due to increased drilling and on site costs in line with the project schedule.

The gains and losses on foreign exchange related to the conversion of offshore cash holdings into their functional currencies, as well as exchange gains and losses on intercompany loans. The loss of R66 million (US$8 million) in the September quarter compares with a gain on foreign exchange of R8 million (US$1 million) in the June quarter.

The gain on financial instruments of R7 million (US$1 million) in the September quarter compares with a loss of R8 million (US$1 million) in the June quarter. The gain in the September quarter was mainly due to a mark to market gain on Australia’s diesel hedge contracted during the quarter. The loss in the June quarter reflects mark to market adjustments on warrants held by the Company.

Share-based payments decreased from R194 million (US$24 million) in the June quarter to R169 million (US$21 million) in the September quarter. The higher charge in the June quarter was due to the year to date net effect of new allocation charges for share-based compensation granted.

Other costs increased from R40 million (US$5 million) in the June quarter to R132 million (US$16 million) in the September quarter. This increase was due to newly legislated rates and taxes on exploration properties in Ghana, an increase in social development expenditure in Peru and increased expenditure on consultants.

Exploration

Exploration expenditure increased from R190 million (US$23 million) in the June quarter to R249 million (US$30 million) in the September quarter due to the timing of expenditure and a reallocation of exploration costs to feasibility and evaluation costs in the June quarter - refer below. Refer to the Growth section for more detail on exploration activities.

Feasibility and evaluation costs

Feasibility and evaluation costs, which include Corporate development and strategic project costs and general office costs in the various countries we operate in, decreased from R120 million (US$15 million) in the June quarter to R60 million (US$7 million) in the September quarter. This decrease was mainly due to the timing of expenditure and the reallocation of team project costs from exploration to feasibility and evaluation costs in the June quarter. Refer to the Growth section for more detail.

Non-recurring items

Non-recurring income amounted to R94 million (US$12 million) in the September quarter compared with expenses of R135 million (US$17 million) in the June quarter. The nonrecurring income in the September quarter included a profit on the disposal of the Groups’ interest in GoldQuest Mining Corporation and Atacama Pacific Gold Corporation which amounted to R239 million (US$30 million), partly offset by a loss of R13 million (US$2 million) on the sale of the Groups’ interest in Evolution Mining Limited, resulting in a net profit of R226 million (US$28 million). This was further offset by restructuring costs of R80 million (US$10 million) relating to business process re-engineering costs incurred across all the operations and R33 million (US$4 million) incurred at KDC principally on Proto teams to combat the fire at Ya Rona shaft. Non-recurring costs in the June quarter included the impairment of 7.8 million shares in Northam Platinum Limited, which amounted to R73 million (US$9 million), the impairment of various junior exploration companies amounting to R1 million (US$ nil) and restructuring costs of R62 million (US$8 million).

Royalties

Government royalties decreased from R333 million (US$41 million) in the June quarter to R278 million (US$34 million) in the September quarter. This decrease was mainly at the South African operations due to the lower revenue received on which royalties are calculated.

Taxation

Taxation decreased from R960 million (US$119 million) in the June quarter to R933 million (US$113 million) in the September quarter in line with the lower profit before taxation.

Earnings

Net earnings attributable to owners of the parent amounted to R1,424 million (US$171 million) or 195 SA cents per share (US$0.24 per share) in the September quarter, compared with R1,606 million (US$198 million) or 220 SA cents per share (US$0.27 per share) in the June quarter.

Headline earnings i.e. earnings excluding the after tax effect of asset sales, impairments and the sale of investments, amounted to R1,200 million (US$143 million) or 165 SA cents per share (US$0.19 per share) in the September quarter, compared with R1,680 million (US$207 million) or 230 SA cents per share (US$0.29 per share) in the June quarter.

Normalised earnings - net earnings excluding non-recurring items as well as gains and losses on foreign exchange, financial instruments and share of results of associates after royalties and taxation, amounted to R1,477 million (US$177 million) or 202 SA cents per share (US$0.25 per share) in the September quarter, compared with R1,819 million (US$224 million) or 250 SA cents per share (US$0.30 per share) in the June quarter.

Cash flow

Cash inflow from operating activities decreased from R4,195 million (US$514 million) in the June quarter to R1,449 million (US$172 million) in the September quarter. The decrease in the cash inflow in the September quarter was mainly due to an increase in operating costs and a negative movement on working capital of R2,047 million (US$258 million) quarter on quarter. The negative change in working capital was due to an increase in inventory at the Ghanaian operations, an increase in accounts receivable at Cerro Corona due to timing of concentrate sales receipts and certain prepayments made in Ghana on fleet orders.

Dividends paid of R1,196 million (US$146 million) in the September quarter, included the 2012 interim dividend of R1,169 million (US$143 million) paid to owners of the parent and R27 million (US$3 million) paid to non-controlling interest holders at Tarkwa and La Cima (Cerro Corona). This compares with dividends of R2 million (US$nil) paid to noncontrolling interest holders at La Cima in the June quarter.

Cash outflow from investing activities decreased from R3,362 million (US$418 million) in the June quarter to R3,196 million (US$387 million) in the September quarter. The main reason for this decrease was the receipt of R514 million (US$64 million) on the disposal of the Groups’ investment in GoldQuest Mining Corporation, Atacama Pacific Corporation and Evolution Mining Limited, partly offset by the purchase of the remaining 40 per cent interest in the Talas project in Kyrgyzstan amounting to R83 million (US$10 million) and an increase in capital expenditure of R302 million (US$28 million). Capital expenditure increased from R3,330 million (US$414 million) in the June quarter to R3,632 million (US$442 million) in the September quarter.

At the South Africa region, capital expenditure increased marginally from R1,463 million in the June quarter to R1,471 million in the September quarter. The majority of this expenditure was spent on ore reserve development (ORD), together with the necessary infrastructure and development costs required in the build-up to full production at South Deep.

At the West Africa region, capital expenditure increased from US$89 million in the June quarter to US$101 million in the September quarter. This increase was mainly at Tarkwa which increased from US$60 million to US$71 million due to the acquisition of additional mining fleet, increased stripping to improve flexibility and water treatment facilities for the heap leach operations. Capital expenditure at Damang was similar quarter on quarter at US$30 million.

In South America, at Cerro Corona, capital expenditure increased from US$21 million in the June quarter to US$25 million in the September quarter. The majority of this expenditure was incurred on the tailings storage facility.

At the Australasia region, capital expenditure increased from A$95 million in the June quarter to A$113 million in the September quarter. At St Ives, capital expenditure increased from A$74 million to A$99 million, with increased expenditure on equipping and development at Hamlet underground mine and Bellerophon open pit, as well as an increase in open pit mining equipment due to the transition to owner mining. Capital expenditure in the September quarter on the transition to owner mining amounted to A$21 million, bringing the total expenditure to date on the project to A$31 million, with a total forecast of A$92 million to finalise the project by 2014. At Agnew, capital expenditure decreased from A$21 million to A$15 million, as the June quarter included the purchase of an additional A$5 million mining fleet. The balance of the expenditure at Agnew was mostly on exploration and the development of Kim underground mine.

Net cash inflow from financing activities decreased from R371 million (US$46 million) in the June quarter to R284 million (US$34 million) in the September quarter and comprised net external loans received and loans received from noncontrolling interest holders. The net inflow from external loans received and loans repaid decreased from R327 million (US$41 million) in the June quarter to R187 million (US$22 million) in the September quarter. Loans received from noncontrolling interest holders increased from R34 million (US$4 million) in the June quarter to R95 million (US$11 million) in the September quarter and related to our joint venture partner’s contribution of 49 per cent of the capital expenditure on the Chucapaca project. The balance of R2 million relates to the issue of shares.

The net cash outflow of R2,659 million (US$327 million) in the September quarter compared with a net cash inflow of R1,201 million (US$142 million) in the June quarter. After accounting for a positive translation adjustment of R75 million (US$26 million) on offshore cash balances, the cash outflow for the September quarter was R2,584 million (US$301 million). The cash balance decreased from R6,669 million (US$795 million) at the end of June to R4,085 million (US$494 million) at the end of September.

Notional cash expenditure (NCE)

Notional cash expenditure is defined as operating costs (including general and administration expenses) plus capital expenditure, which includes near-mine exploration and growth capital. NCE is reported on a per kilogram and per ounce basis – refer to the NCE table of this report.

Revenue less NCE reflects the free cash flow available to pay taxation, interest, greenfields exploration, feasibility and evaluation costs and dividends.

The NCE margin is defined as the difference between revenue per ounce and NCE per ounce expressed as a percentage.

The Group NCE, which includes capitalised project costs increased from R339,046 per kilogram (US$1,308 per ounce) in the June quarter to R384,627 per kilogram (US$1,448 per ounce) in the September quarter. This increase was as a result of the higher operating costs and capital expenditure together with the decrease in production. The NCE margin for the Group decreased from 18 per cent in the June quarter to 13 per cent in the September quarter.

NCE per ounce from existing operations increased from R333,854 per kilogram (US$1,288 per ounce) in the June quarter to R380,229 per kilogram (US$1,432 per ounce) in the September quarter. The NCE margin from existing operations decreased from 19 per cent in the June quarter to 14 per cent in the September quarter due to the higher NCE in the September quarter.

NCE per ounce for capital projects decreased from R5,192 per kilogram (US$20 per ounce) in the June quarter to R4,398 per kilogram (US$16 per ounce) in the September quarter. Actual expenditure for the September quarter at Chucapaca (51 per cent), the Damang Super-pit and APP amounted to R57 million (US$7 million), R26 million (US$3 million) and R15 million (US$2 million) respectively.

At the South Africa region, NCE per kilogram increased from R353,733 per kilogram (US$1,365 per ounce) to R420,335 per kilogram (US$1,583 per ounce) due to the decrease in production and higher operating costs. The NCE margin decreased from 16 per cent in the June quarter to 4 per cent in the September quarter due to the higher NCE partly offset by the higher gold price. NCE excluding the funding of South Deep increased from R319,257 per kilogram (US$1,232 per ounce) to R384,877 per kilogram (US$1,449 per ounce). The NCE margin excluding South Deep halved from 24 per cent to 12 per cent quarter on quarter.

At the West Africa region, NCE per ounce increased from US$1,169 per ounce in the June quarter to US$1,234 per ounce in the September quarter due to the higher capital expenditure and lower production. The NCE margin decreased from 28 per cent to 25 per cent due to the higher NCE in the September quarter.

At the South America region, NCE per ounce increased from US$708 per ounce in the June quarter to US$829 per ounce in the September quarter due to the increase in operating costs and capital expenditure. The NCE margin at Cerro Corona, however, increased from 48 per cent to 52 per cent due to the higher gold price received partly offset by the higher NCE in the September quarter.

At the Australasia region, NCE per ounce increased from A$1,548 per ounce (US$1,567 per ounce) in the June quarter to A$1,586 per ounce (US$1,644 per ounce) in the September quarter due to an increase in capital expenditure. The NCE margin decreased from 3 per cent in the June quarter to less than 1 per cent in the September quarter due to the higher NCE in the September quarter.

Balance sheet

Net debt (long-term loans plus the current portion of long-term loans less cash and deposits) increased from R11,457 million (US$1,366 million) at the end of June to R13,982 million (US$1,691 million) at the end of September.