16th Feb 2011 07:00
AFRICAN BARRICK GOLD LSE: ABG 16 February 2011
Preliminary Results for the 12 months ended 31 December 2010 (Unaudited)
Based on IFRS and expressed in US Dollars (US$)
African Barrick Gold plc ("ABG") reports full year 2010 results > Net income of US$218 million - up 272% year-on-year
Financial Highlights
Net income of US$218 million, with an EPS of US$53.2 cents, up 272% on 2009.
EBITDA2 of US$419 million, up 68% on 2009.
Operational cash flow of US$345 million, an increase of 78% on 2009.
Revenue of US$975 million, up 37%3 on 2009.
Net cash position of US$401 million as at 31 December 2010.
Proposed final dividend of US$3.7 cents per share and total dividend for 2010 of US$5.3 cents per share.
Operational Highlights
Strong fourth quarter saw sales for the year reach 724,083 ounces, a 6% increase on 2009, due to sales of concentrate on hand.
Full year production of 700,934 ounces, 2% lower than 2009 production, primarily due to production challenges at Buzwagi.
Cash costs2 of US$569 per ounce, an increase of 7% on 2009 due to a combinationof industry cost pressures, lower than expected production and additional spendat Buzwagi.
Bulyanhulu and North Mara showed consistent production and cost performance throughout the year.
Measures undertaken at Buzwagi during the year began to show positive effect during the fourth quarter.
Tulawaka focus successfully shifted from closure to mine life extension.
A successful year for exploration:
Initial high grade underground resource declared at North Mara under the Gokona and Nyabigena pits.
Higher grades at depth with additional near surface mineralisation indicated at the Nyanzaga Project.
Commenting on the results CEO Greg Hawkins states: "Our key focus over thispast year has been to ensure that our assets are positioned to generatelong-term, consistent operating performance. This has been evident in theachievements at Bulyanhulu and North Mara, the mine life extension at Tulawakaand our determined approach to overcoming the challenges at Buzwagi. Thismarks the approach ABG will continue to take with the business, to ensure thatit can be run consistently and sustainably, to manage business risks and toapply all of our available resources to deal with any challenges. Thisunderpins our strategy of building growth on a solid operating base and addingvalue for our shareholders. Our financial performance during 2010 has beenparticularly strong, and we ended the year with a net cash balance of overUS$400 million. For 2011, we expect to produce between 700,000-760,000 ouncesof gold at a cash cost of between US$590-650 per ounce sold, whilst alsocontinuing to advance our portfolio of growth projects and assess otheropportunities to expand our asset base." African Barrick Gold plc Three months ended Year ended 31 31 31 31 December December % December December % 2010 2009 change 2010 2009 change
Attributable Gold Production (ounces)1 179,730 213,588 (16%) 700,934 716,306 (2%)
Attributable Gold Sales (ounces)1 201,298 197,927 2%
724,083 683,687 6%
Attributable cash cost (US$/ounce)2 603 613 (2%)
569 533 7%
Average realised gold price (US$/ounce)2 1,394 1,093 28% 1,240 974 27% (in US$'000) Revenue 309,522 229,616 35% 975,021 711,1823 37% EBITDA2 133,650 68,578 95% 419,167 249,456 68%
Cash generated from operating activities 125,305 108,814 15% 345,141 193,961 78%
Net profit/ (loss) attributable to owners 79,005 (15,980) 494% 218,103 58,577 272%
Operating cash flow per share (cents) 30.6 26.5 15% 84.2 47.3 78%
Basic earnings per share (cents) 19.3 (3.9) 494%
53.2 14.3 272%
Total dividend per share (cents) n/a n/a -
5.3 n/a -
1 Production and sold ounces reflect equity ounces which exclude 30% of Tulawaka's production base.
2 Cash costs per ounce sold, average realised gold price per ounce sold and EBITDA are non-IFRS financial performance measures with no standard meaning under IFRS. Refer to "Non-IFRS measures" on page 27 for the definitions of each measure.
3Based on restated revenue to include sales of co-products, refer to pages 19 and 42.
CEO Statement With the positive performances at Bulyanhulu and North Mara, as well as thecontribution from Tulawaka, we finished the year with production of 700,934ounces of gold at a cost of US$569 per ounce. With the positive evolution ingold prices over 2010, we are pleased to report a robust operating cash flow ofUS$345 million, and a year end net cash position of US$401 million. We werealso successful in growing our overall resource base by 3.5% to 26.9 millionounces, of which 63% are classified as reserves. However, despite theseachievements the issues faced at Buzwagi meant that we did not meet all of our2010 targets. As such, resolving the issues at Buzwagi was a top priority forour management team during much of 2010, with the objective of ensuring thatthe mine entered 2011 in a position to deliver on expectations.We implemented a range of plans in 2010 to help drive further efficiency andgrowth in our business, and we will continue to invest in these in 2011. We aimto reach 1 million ounces of production per year, representing growth of 40%from 2010 levels. We plan to achieve this while also striving to delivercost-base efficiencies. These are fundamental pillars of our focus on creatingshareholder value and we aim to deliver them by:
optimising our existing assets;
expanding through organic growth; and
growing through acquisitions in Africa.
Optimising our existing assets
In order to ensure that our assets remain world class and continue to operateat maximum efficiency levels, we continue to undertake a range of capitalinvestment measures and efficiency programmes. Against a backdrop of costpressures in the industry, we believe that these will help us to continue tooperate at or below the midpoint of the industry cost curve.In 2010, these activities included an upgrade of the ventilation system atBulyanhulu, fleet expansion at Buzwagi and Tulawaka, and de-bottlenecking atour North Mara process plant to increase throughput. We also streamlined ourprocurement and supply chain functions, as well as re-organising our office inDar es Salaam. In 2011, we have a capital expenditure budget of US$140 millionfor sustaining and development capital, US$24 million for expansion projectsand US$73 million for waste stripping. Key capital investment projects includethe water treatment facility at North Mara, the addition of pebble ports andback-up generating capacity at our Buzwagi process plant, additionalunderground mining equipment for Tulawaka and continued security investment.
Expanding through organic growth
The optimisation projects for all four of our mine sites remain on track to deliver substantial and sustainable additional production within the next 3-4 years.
At Bulyanhulu, we are continuing to dewater and rehabilitate access to the Upper East Zone. The feasibility study for this project is progressing, and we expect to finalise it during the first half of 2011.
At North Mara, we have been encouraged by the drill results below the Gokonaand Nyabigena pits, where we released an initial high-grade resource of 370,000gold ounces during the fourth quarter of 2010. We are targeting expanding thisto 1 million ounces through an intensive drill programme throughout 2011, andthe feasibility study for this project is also on track to be completed duringthe first half of 2011.At Golden Ridge, we expect to announce an initial resource for the deposit inthe coming weeks and the feasibility study is also on schedule to be completedbefore the middle of the year.Thanks to the success of our exploration drilling programme, we are extendingthe life of our Tulawaka mine for the full year 2011 and into the secondquarter of 2012.We will continue our exploration drilling at the site with theaim of further increasing the life of mine. If successful, we anticipate thiswill be based solely on the underground operation through the addition of asecond portal. We aim to provide an update on this later in the year.We also made encouraging progress at the greenfield Nyanzaga Project in 2010,notably with the discovery of mineralisation closer to surface as well asincreasing grades at depth. We are stepping up the drill programme in 2011,with the aim of initiating a scoping study later in the year. Elsewhere, themain focus of our generative exploration work was in the North Mara area alongthe Gokona corridor, with some exciting initial results that we will follow upon in 2011.In recognition of the critical importance of organic growth to our long-termambitions, we are increasing our total exploration budget in 2011 to US$55million, including US$26 million of capitalised expenditure. This represents a103% increase on 2010.
Strengthening our management team
We have continued to strengthen our management team over the course of the year, employing and promoting individuals with a track record of leadership and the skill set and experience to help take our business forward.
In September, we announced the appointment of Marco Zolezzi as our ChiefOperating Officer. Marco has significant expertise in running mines andbringing complex, large-scale projects through to full ramp up. He has been ofsignificant value as we continue to focus on delivering consistent performanceat our operating mines and driving forward our organic growth projects.We also appointed Boyd Timler as General Manager at Buzwagi. Boyd has 28 yearsof mining experience and has been instrumental in defining and implementing theaction plan used to address 2010 production issues at the mine. Towards the endof the year, we also appointed Basie Maree as General Manager of Tulawaka.Basie brings substantial experience of the industry, including a number ofyears with Anglo American, and will lead Tulawaka forward into a new stage ofits development.With these and other appointments, I am confident that we now have a managementteam in place with the necessary experience, energy and enthusiasm to furtherdevelop the business and deliver on ABG's potential.Final DividendThe Directors are pleased to recommend the payment of a final dividend ofUS$3.7 cents per ordinary share. This represents a total dividend of US$5.3cents for 2010. Subject to the shareholders approving this recommendation atthe AGM, the final dividend will be paid on 26 May 2011 to shareholders on theregister at 3 May 2011. The ex- dividend date is 27 April 2011. ABG willdeclare the final dividend in US dollars. Unless a shareholder has elected orelects to receive dividends in US dollars, dividends will be paid in poundssterling with the US dollar amount being converted into pounds sterling atexchange rates prevailing on or around 9 May 2011. Currency elections must bemade by return of currency election forms. The deadline for the return ofcurrency election forms is 6 May 2011.
Outlook
As I have already mentioned, 2010 was a year of significant achievement whilewe also faced a number of challenges that impacted production targets. However,with the measures we have taken, with the investments made and with theadditional expertise we have added to our team, we ended 2010 strongly andenter 2011 with an impressive platform on which to build.
We are aiming to develop the business further through the following key objectives for 2011:
achieving attributable group production between 700,000-760,000 ounces;
maintaining cash cost of between US$590-US$650 per ounce sold, and direct cash operating cost of between US$545-US$605 per ounce sold;
increasing group throughput and recoveries;
completing feasibility studies at our brownfield projects;
achieving growth in our overall resource base;
improving further in our safety record; and
continuing our focus on opportunities for strategic acquisitions to expand our footprint throughout Africa.
Finally, I would like to thank all of my colleagues for their commitment,enthusiasm and hard work throughout what has been an extraordinary year in thedevelopment of our business. I would also like to thank our Board of Directorsfor their unwavering support, their wise counsel and their commitmentthroughout the year.
Greg Hawkins, Chief Executive Officer
For further information, please visit our website: www.africanbarrickgold.comor contact:African Barrick Gold plc +44 (0)207 129
Greg Hawkins, Chief Executive Officer 7152
+44 (0)207 129
Kevin Jennings, Chief Financial Officer 7153 Andrew Wray, Head of Corporate Development & Investor +44 (0)207 129
Relations 7155 +44 (0)20 7251 Finsbury 3801 Andrew Mitchell Charles Chichester About ABG ABG is headquartered in London and is listed on the Main Market of the LondonStock Exchange under the symbol ABG. ABG is the largest gold producer inTanzania and the fifth largest in Africa, growing from no production in 2000 toapproximately 701,000 attributable ounces in 2010, with 16.8 million ounces ofreserves. It has four producing mines, all located in northwest Tanzania, andseven principal exploration projects. ABG has substantial gold mining experience and expertise, from exploration anddevelopment to mine construction and operation. It has modern, well investedoperations that have benefited from the experience, technology and highstandards of its majority shareholder, Barrick Gold Corporation ("BGC").
ABG's four mines are:
Bulyanhulu: an underground gold mine, which began production in April 2001;
Buzwagi: an open pit gold mine, which began production in May 2009; North Mara: an open pit gold mine consisting of three open pit deposits, which began production in April 2002; and Tulawaka: an open pit gold mine that has transitioned to an underground operation, which began production in June 2005. ABG's recent exploration focus has been on advancing the explorationopportunities around its existing operating mines in order to increase ABG'sreserves and resources. Historically, and prior to ABG's listing on the LondonStock Exchange, the operations of ABG comprised the Tanzanian gold miningbusiness of BGC. BGC reports under US GAAP. Due to differences in the basis of accounting, thereare significant differences in the operating results and balance sheet reportedby ABG compared to the corresponding amounts included in the consolidatedoperating results and balance sheet of BGC.
Presentation and conference call
A presentation will be held for analysts and investors on 16 February 2011 at 9.00 am London time. A dial in facility will be available as follows:
Participant dial in: +44 (0) 203 003 2666 Password: African Barrick Gold or ABG There will be a replay facility available until 23 February 2010. Accessdetails are as follows:Replay number: +44 (0) 208 196 1998 Replay PIN: 1958056# FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" that express or imply expectations of future events or results. Forward-looking statements are statements that are not historical facts. These statements include, without limitation, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future production, operations, costs, products and services, and statements regarding future performance. Forward-looking statements are generally identified by the words "plans," "expect," "anticipates," "believes," "intends," "estimates" and other similar expressions.
All forward-looking statements involve a number of risks, uncertainties andother factors. Although ABG's management believes that the expectationsreflected in such forward-looking statements are reasonable, investors arecautioned that forward-looking information and statements are subject tovarious risks and uncertainties, many of which are difficult to predict andgenerally beyond the control of ABG, that could cause actual results anddevelopments to differ materially from those expressed in, or implied orprojected by, the forward-looking information and statements contained in thisreport. Factors that could cause or contribute to differences between theactual results, performance and achievements of ABG include, but are notlimited to, political, economic and business conditions, industry trends,competition, commodity prices, changes in regulation, currency fluctuations(including the US dollar; South African rand and Tanzanian shilling exchangerates), ABG's ability to recover its reserves or develop new reserves,including its ability to convert its resources into reserves and its mineralpotential into resources or reserves, and to timely and successfully processits mineral reserves, risks of trespass, theft and vandalism, changes in itsbusiness strategy, as well as risks and hazards associated with the business ofmineral exploration, development, mining and production. Accordingly, investorsshould not place reliance on forward-looking statements contained in thisreport.The forward-looking statements in this report reflect information available atthe time of preparing this report. Subject to the requirements of theDisclosure and Transparency Rules and the Listing Rules or applicable law, ABGexplicitly disclaims any obligation or undertaking publicly to release theresult of any revisions to any forward-looking statements in this report thatmay occur due to any change in ABG's expectations or to reflect events orcircumstances after the date of this report. No statements made in this reportregarding expectations of future profits are profit forecasts or estimates, andno statements made in this report should be interpreted to mean that ABG'sprofits or earnings per share for any future period will necessarily match orexceed the historical published profits or earnings per share of ABG or any
other level. AFRICAN BARRICK GOLDLSE: ABG TABLE OF CONTENTS Key Statistics 7 Operating Review 9 Exploration Review 14 Financial Review 19 Non-IFRS measures 27
Principal Risks and Uncertainties 29
Directors 32 Group Income Statement and Statement of Comprehensive Income 33 Group Balance Sheet 34 Group Statement of Changes inEquity 35 Group Statement of Cash Flows 36
Notes to the financial information 37
Reserves and Resources 52Key Statistics African Barrick Gold Three months ended Year ended 31 December 31 December (Unaudited) 2010 2009 2010 2009 Operating results Tonnes mined (thousand of tonnes) 9,794 10,304
40,016 36,781
Ore tonnes mined (thousand of tonnes) 2,091 2,690
7,970 11,018
Ore tonnes processed (thousand of tonnes) 2,023 1,951 7,706 6,546 Recovery rate (percent) 87.0% 86.2% 86.1% 87.0%
Average grade (grams per tonne) 3.2 3.9
3.3 3.9
Attributable gold production1 (ounces) 179,730 213,588
700,934 716,306
Attributable gold sold1 (ounces) 201,298 197,927
724,083 683,687
Copper production (thousands of pounds) 2,100 2,082
7,958 6,788
Copper sales volume (thousand of pounds) 4,604 1,752 13,370 6,487 Cash cost per tonne milled2 62 64 55 57 Per ounce data Average spot gold price3 1,367 1,100
1,225 972
Average realised gold price2 1,394 1,093
1,240 974
Total cash cost per ounce sold2 603 613 569 533 Amortisation and other costs per ounce data2 138 165 147 128 Total production costs per ounce sold2 741 778 716 661 Three months ended Year ended Financial results 31 December 31 December (in US$'000) (Unaudited) 2010 2009 2010 2009 Revenue4 309,522 229,616 975,021 711,182 Cost of sales4 (175,267) (164,770) (589,039) (487,027) Gross profit 134,255 64,846 385,982 224,155 Corporate administration (9,083) (9,955) (35,436) (37,759) Exploration and evaluation costs (6,251) (1,882) (14,861) (8,871) Other charges (13,747) (18,738) (26,033) (21,419) Profit before net finance cost 105,174 34,271 309,652 156,106 Finance income 174 299 1,202 361 Finance expense (448) (133) (1,777) (6,062) Profit before taxation 104,900 34,437 309,077 150,405 Taxation expense (23,429) (49,625) (86,471) (84,388) Net profit/ (loss) for the period 81,471 (15,188) 222,606 66,017 Attributed to: - Non-controlling interests 2,466 792 4,503 7,440 - Owners of the parent 79,005 (15,980) 218,103 58,577
Other financial information summary
African Barrick Gold Three months ended Year ended (Unaudited) 31 December 31 December (in US$ '000 unless otherwise stated) 2010 2009 2010 2009 Cash and cash equivalents 401,012 69,726 401,012 69,726 Cash generated from operating activities 125,304 108,814 345,141 193,961 Capital expenditure5 77,328 61,769 224,391 223,268 EBITDA2 133,650 68,578 419,167 249,456 Basic earnings/(loss) per share (US$ cents) 19.3 (3.9) 53.2 14.3 Long term debt (Borrowings)6 - 1,383,415 - 1,383,415 Equity 2,543,085 657,415 2,543,085 657,415
1 Production and sold ounces reflect equity ounces which exclude 30% of Tulawaka's production base.
2 Cash cost per tonne milled, average realised gold price per ounce sold, totalcash cost per ounce sold, amortisation and other costs per ounce, totalproduction cost per ounce and EBITDA are non-IFRS financial performancemeasures with no standard meaning under IFRS. Refer to 'Non IFRS measures' onpage 27 for definitions.
3 Reflects the London PM fix price.
4 Restated to reflect the inclusion of co-product sales in revenue, refer to pages 19 and 42.
5 Excludes acquisition of Tusker Gold Limited and includes non-cash reclamation asset adjustments during the year.
6 Reflects external debt to the Group and amounts owed to BGC.
Operating Review
Operationally, 2010 has seen unprecedented levels of activity for ABG. For thefirst time, all four of our mines were operational for the full year, althoughwe faced certain challenges in our operating environment that impacted on ouroverall group production levels. Nonetheless, our group production for the yearwas 700,934 ounces.With respect to our cash costs for the year, we saw a 7% increase over 2009 toUS$569 per ounce sold. The increase was primarily due to lower than expectedproduction levels at Buzwagi, increased costs incurred at the mine and industrycost pressures generally. Cash costs of US$55 per tonne milled for the yearwere slightly lower than the 2009 figure of US$57 per tonne, primarily as aresult of the overall incremental increase in tonnes milled from open pitoperations. ABG sold 724,083 gold ounces for the year, up by 6% on 2009 (683,687 ounces),despite the decrease in our overall production. The increase was driven by thesale of concentrate ounces on hand at Bulyanhulu and Buzwagi at the end of2009.
We mined 40 million tonnes for the year, compared to 36.8 million in 2009. The increase was driven primarily by the focus on waste-stripping at the Gokona open pit, in order to access high-grade ore from 2012.
Tonnes processed for the year totalled 7.7 million, an 18% increase on 2009 levels (6.5 million tonnes). The increase was mainly driven by increased throughput at North Mara and at Buzwagi compared to the prior period, which only reflected eight months' production at Buzwagi.
The average grade for the year was 3.3 grams per tonne, 15% lower than theprior year period. The decrease was due to three key issues: the processing oflow-grade stockpiles at Buzwagi in the third and fourth quarters; the lowergrade of the transitional ore processed overall at Buzwagi when compared to theoxide material mined during 2009; and the low-grade stockpiles processedthroughout the year at Tulawaka.
Our copper production for the year of 8 million pounds represents a 17% increase on 2009, which only reflected eight months of production at Buzwagi.
Bulyanhulu delivered in line with expectations throughout the year; however itwas deeply regrettable that we suffered three fatalities as a result of a rockfall in March as well as a further fatality from a non-mining related accidentlater in the year. We must learn from these incidents and from the thoroughinvestigations we subsequently carried out to ensure that there is noreoccurrence.North Mara delivered production ahead of budget and at a slightly lower cashcost per ounce sold, when compared to 2009. In addition, the announcement of ahigh-grade initial underground resource beneath the planned final Gokona andNyabigena open pits highlights the potential for North Mara both to extend itsmine life and to add significant ounces to ABG's production base going forward.
Tulawaka has continued to outperform its original feasibility study for its underground operation, with an initial extension of its life-of-mine, through to the second quarter of 2012.
At Buzwagi, a number of challenges impacted production and cash costs per ouncesold at the mine, notably the issues faced in processing the layer oftransitional ore between the oxide cap and the primary sulphide ore, a seriesof unscheduled power outages and the organised and systematic onsite fuel theftuncovered during the third quarter. We implemented a series of measures toaddress these issues during the year. These included:
strengthening the senior management team with Boyd Timler's appointment as General Manager;
bringing forward mining fleet expansion from 2011 to accelerate stage-two mining;
optimising the drill-and-blast programme in the open pit;
hiring and training replacement mining personnel following the fuel theft;
recommissioning the sulphur plant and optimising the flotation plant;
ordering additional pebble ports and back-up generating power for 2011; and
conducting a full site security review.
Overall, we are confident that the measures undertaken in 2010 will have a positive long-term impact at Buzwagi, and were beginning to show positive effects by the end of the year with production stabilising around 20,000 ounces per month in December.
With our other operating mines also delivering in line with expectations, ourportfolio of growth projects showing encouraging progress and our strongcapital position providing us with balance sheet flexibility, we believe thatwe are well positioned to deliver on the potential of the Company's asset baseas we enter 2011. This year, our focus will remain on achieving operationalexcellence in order to deliver stable and profitable production levels. Bulyanhulu Key statistics Three months ended Year ended 31 December 31 December (Unaudited) 2010 2009 2010 2009
Underground ore tonnes hoisted Kt 275 262
958 967 Ore milled Kt 271 268 954 959 Head grade g/t 8.6 9.1 9.2 8.7 Mill recovery % 91.7% 92.2% 92.2% 92.1% Gold ounces produced oz 68,619 72,137 259,873 248,991 Gold ounces sold oz 84,785 73,441 262,442 255,121 Cash cost per ounce sold $/oz 530 667 539 651 Cash cost per tonne milled $/t 165 183 148 173 Capital expenditure $(000) 23,412 24,279 80,539 59,583 Operating performance
Bulyanhulu delivered solid results in 2010, hitting key production targets for the year.
Gold production for the year was 259,873 ounces, 4% higher than the prior year period's total of 248,991 mainly due to the higher-grade ore mined in 2010.
Gold ounces sold for the year were 262,442 ounces, which was 1% higher than theproduction figure and also 3% higher than 2009. The difference in sales was dueto selling all unsold gold concentrate from the previous year, bringing theyear-end finished gold inventories back to normalised levels, combined with anincrease in the production base of 10,882 ounces.Cash costs for the year of US$539 per ounce sold were 17% lower than the prioryear of US$651. This was primarily a result of our improved production base andincreased co-product revenue, which was driven by increased copper prices.Other contributing factors include improved cost-management measures, withlower consumables costs, lower maintenance cost due to investments made in newmining equipment, and a decrease in contracted services costs as a result ofinsourcing Alimak mining activities. The cost benefits of these measures werepartially offset with an increase in labour costs due to increased headcountand inflationary pressure.
Cash costs per tonne milled fell to US$148 in 2010 (US$173 in 2009) as a result of mining cost reductions and increased copper revenues.
Capital expenditure for the year of US$80.5 million was 35% higher than theprior year of US$59.6 million. This was mainly driven by a number ofinvestments made in the underground mine and surface infrastructure. Notableinvestments included the new refrigeration plant, the shaft dewatering system,the underground workshop and additional mining equipment. Buzwagi Key statistics Three months ended Year ended 31 December 31 December (Unaudited) 2010 2009 2010 2009 Tonnes mined Kt 4,510 5,399 18,848 19,843 Ore tonnes mined Kt 1,167 1,261 4,285 5,034 Ore milled Kt 904 956 3,553 2,671 Head grade g/t 1.9 2.6 2.0 2.5 Mill recovery % 81.6% 83.4% 81.0% 87.4% Gold ounces produced oz 44,257 66,357 186,019 189,031 Gold ounces sold oz 45,706 52,086 198,221 153,682
Cash cost per ounce sold $/oz 869 616 685 422 Cash cost per tonne milled $/t 44 34
38 24 Capital expenditure $(000) 12,641 5,955 29,781 109,298 Operating performance The mine's gold production for the year was 186,019 ounces, compared to 189,031ounces for the previous year, which only reflected eight months of production.This production level was lower than management's expectations for the year andwas primarily due to two reasons: firstly, the longer than expected time takento process the low-grade transitional ore, which adversely impacted throughputand plant recoveries, and, secondly, the short-term impact of measures taken toaddress the systematic onsite fuel theft discovered during the third quarter.To address these production challenges, management focused efforts on trainingnew mining and maintenance personnel and improving plant and equipmentavailability. We also made a number of investments in additional mobile miningequipment to help advance mining activities and to address delays in theoverall production timetable. In addition to production challenges, it was alsonecessary to address mill downtime resulting from unplanned breakdown and poweroutages throughout the year, which remain an ongoing issue. Production improvedover the second half of November and throughout December, as the operationalmeasures taken during the year began to take effect. The grade of 2.0 g/t was20% lower than the previous year's 2.5 g/t. This decrease was primarily due toprocessing a different material blend and lower-grade ore when compared to2009.Gold ounces sold during the year amounted to 198,221, exceeding production by7% and representing a 29% increase over the previous year (153,682). Theincrease in gold ounces sold versus the prior year as well as versus 2010production was due to a combination of the gold concentrate and gold in circuitinventories that built up in the process throughout 2009 and which weresubsequently sold in 2010.Cash costs for the year were US$685 per ounce sold, compared to the previousyear's US$422. Key factors which negatively impacted cash costs included: (i)the lower than expected production levels; (ii) higher energy costs resultingfrom the fuel theft; and (iii) higher maintenance and contracted services costsincurred in addressing mill downtime and processing issues. In addition, anumber of measures were taken to enhance security and onsite management inresponse to the fuel theft, which resulted in increased labour-related costs.
Cash costs per tonne milled increased to US$38 in 2010 (US$24 in 2009). The increase in costs was primarily due key factors as explained above and lower monthly average milling throughput due to power outages and unplanned breadkdowns.
Capital expenditure for the year was US$29.8 million compared to US$109.3million in 2009. Capital investment in 2009 included project development costsof US$101.2 million, whereas capital investment in 2010 was primarily focusedon mining equipment and improving the production plant to optimise operations. North Mara Key statistics Three months ended Year ended 31 December 31 December (Unaudited) 2010 2009 2010 2009 Tonnes mined¹ Kt 4,969 4,631 20,106 15,888 Ore tonnes mined Kt 610 1,154 2,624 4,933 Ore milled Kt 765 644 2,860 2,605 Head grade g/t 2.6 3.6 2.8 3.2 Mill recovery % 84.7% 81.7% 82.9% 79.7% Gold ounces produced oz 54,973 61,350 212,947 212,358 Gold ounces sold oz 57,300 57,185 218,684 209,495 Cash cost per ounce sold $/oz 459 569 472 508
Cash cost per tonne milled $/t 34 51
36 41 Capital expenditure $(000) 31,506 26,038 91,442 46,114 Operating performance
North Mara performed in line with expectations and showed stable production results.
The mine's gold production for the year was 212,947 ounces, remaining flat whencompared to the prior-year figure of 212,358 ounces, where lower mineproduction was offset by strong mill performance. The decrease in ore tonnesmined was a result of our continued focus on stripping at Gokona, which wasoffset by increased ore tonnes mined from Nyabirama. The 2010 grade of 2.8 g/tcompared negatively to the 2009 grade of 3.2g/t. This was the result ofprocessing a higher proportion of lower-grade stockpiled ore in the second halfof 2010 to supplement lower production from the Nyabirama and Nyabigena openpits. The processing plant's throughput of 2,860 Kt was 10% higher than theprevious year owing to high mill uptime and a favourable ore blend.Gold ounces sold for the year were 218,684, 3% higher than the production of212,947 ounces and 4% higher than the previous year's ounces sold of 209,495ounces. The increase in sales ounces was mainly due to the sale of ounces onhand at the end of the previous year.Cash costs for the year were US$472 per ounce sold compared to US$508 in theprior year period. The decrease was primarily driven by lower administrativeexpenditure, cost savings achieved in the energy, consumables and maintenanceareas and the capitalisation of Gokona stripping costs.
Cash costs per tonne milled decreased to US$36 in 2010 (US$41 in 2009). The decrease was primarily due to improved mill productivity processing and administrative costs savings.
Capital expenditure for the year totalled US$91.4 million, 98% higher than theUS$46.1 million in the prior year. Key capital expenditure driving the increaseincluded capitalised waste stripping mainly relating to the Gokona stage 2 pushback (US$49.8 million) and capitalised exploration expenditure (US$8.1 million)to define the Gokona Deeps underground project. Tulawaka
Key statistics (reflected as Three months ended
Year ended 70%) 31 December 31 December (Unaudited) 2010 2009 2010 2009
Underground ore tonnes hoisted Kt 39
11 103 83 Ore milled Kt 82 84 340 312 Head grade g/t 4.8 5.4 4.1 7.0 Mill recovery % 93.2% 93.8% 93.2% 94.1% Gold ounces produced oz 11,881 13,746 42,094 65,926 Gold ounces sold oz 13,507 15,224 44,736 65,389 Cash cost per ounce sold $/oz 779 493 709 413 Cash cost per tonne milled $/t 128 93 93 87 Capital expenditure (100%) $(000) 4,788 5,089 15,513 7,884 Operating performance
Tulawaka has successfully outperformed its original feasibility for the underground operation in terms of reserve additions and ounce production. Throughout the year a key focus of the mine's management has been on exploration and definition drilling to extend the mine life beyond 2011. We are pleased to announce an initial extension of the life-of-mine to the second quarter of 2012 and will continue to focus on further extensions in 2011.
The mine's attributable gold production for the year was 42,094 ounces comparedto the 65,926 ounces achieved in 2009. This lower gold-production levelresulted from mining lower-grade ore from the underground pit and processinglower-grade material from the stockpiles than in 2009.
Gold ounces sold amounted to 44,736 for the year, 6% higher than production and down 32% compared to 2009, reflecting the decline in production.
Cash costs for the year were US$709 per ounce sold compared to US$413 in theprior year. This cost increase was mainly due to the lower production base andincreased mining costs compared with 2009. The increased mining costs weredriven by higher fuel, labour and maintenance costs.
Cash costs per tonne milled increased to US$93 in 2010 (US$87 in 2009) primarily as a result of the higher cost of underground mining.
Capital expenditure for the year totalled US$15.5 million compared to US$7.9million for the previous year. Notable investments included additional miningequipment (US$4.4 million), increased exploration development (US$2.8 million)and the support of mine-life extension. Exploration Review ABG's commitment to exploration continues to grow, and for 2011 our explorationbudget is again being increased following the additional expenditure in 2010.For 2011, we are budgeting total exploration expenditure, both expensed andcapitalised, of US$55 million. This represents a 103% increase on 2010.
The core objectives under which these funds will be deployed in our exploration and development activities are threefold:
to continue to drive our strategy of organic growth through near-mine exploration and resource expansion;
to optimise our existing assets through the identification and delineation of higher-grade satellite deposits; and
to progress regional exploration in order to evaluate new opportunities throughout Africa, particularly through acquisitions.
Throughout 2010, our Exploration and Technical Services teams have principallyfocused on advancing the organic growth projects in and around each of ABG'scurrent Tanzanian operations, as well as advancing important explorationprogrammes at our North Mara and Nyanzaga Projects.We are undertaking ongoing feasibility studies at four key projects: GoldenRidge, North Mara Underground, Bulyanhulu Upper East Zone and the Tulawaka EastZone Underground Extension. All four studies have progressed in line with ourexpectations. Of particular note were the ongoing feasibility studies at GoldenRidge and Bulyanhulu's Upper East Zone which progressed positively through theyear. So have our efforts on the East Zone Underground Extension at Tulawaka,where we have achieved an initial extension of the productive life of the mine.Key achievements during the year included the declaration of an initialunderground resource at North Mara. Although at an earlier stage, we alsoreported a number of successes in the continuing developments of the drillprogrammes we have been carrying out at the Nyanzaga Project.During 2010, ABG reviewed a number of opportunities for regional expansion. Weare continuing to undertake exploration and evaluation work in a number ofcountries, assessing the potential for projects that would add value throughboth enhancing our growth profile and adding strategically important geographicdiversification. From a greenfield perspective, in May 2010 we completed theacquisition of Tusker Gold Limited ("Tusker") for a consideration ofapproximately US$63 million, net of cash acquired. As a result of thisacquisition, we now control 100% of the Nyanzaga project, which includes theTusker deposit. Importantly, this is one of the largest undeveloped golddeposits in Tanzania.
Overall, the positive progression of our exploration projects and efforts throughout the year by the Exploration and Technical Services teams clearly shows ABG's ability to recognise near-mine opportunities and additional upside opportunities across regional areas. This is strategically important, as it supports both our existing production platform and organic growth prospects.
Organic Growth Projects Brownfield Projects
The North Mara Underground Extension
This project is focused on developing underground resources beneath the Gokonaand Nyabigena open pits. The objective is to bring underground resources intoproduction as soon as possible, with the aim of processing higher-gradeunderground ore and displacing some of the lower-grade open-pit ore in order toincrease production levels and at the same time extend life-of-mine at NorthMara.As announced in December 2010, following an earlier scoping study, we havedelineated and validated an initial high-grade underground indicated resourceof 370,000 ounces of gold at 8.29g/t beneath the planned final Gokona andNyabigena open pits. This indicates that there is the potential to develop asubstantial underground operation at the Gokona and Nyabigena deposits with anattractive grade profile. The underground feasibility study to assess the fullpotential of the current resource on the Gokona-Nyabigena project is onschedule for its targeted completion in mid-2011.In addition, ABG's exploration group has been completing deep diamond drillingin and around the current Gokona underground resource area. This drillprogramme is aimed at extending and validating higher grade mineralised zones. Assay results for this drilling programme have now been received for six holes.Results from most of these holes delineate the extent of higher grade shootsand the potential extension of the Gokona West high grade shoot at depth. Based on the positive results of the initial resource estimate and theexploration drilling programme we are scheduled to begin a significant resourcedrill-out programme early in 2011. The resource drill-out is aimed at expandingthe total underground resource to greater than 1 million ounces. We will alsouse these programmes to demonstrate and validate the economic viability of
theproject.
Figure - Gokona Deeps long section showing best intersections from recent Exploration drilling
[Refer to www.africanbarrickgold.com for picture]
North Mara - Nyabigena East
Grade-control activities that we conducted throughout the year identifiedopportunities to extend the Nyabigena resource area at the eastern end of theexisting open pit. A reverse circulation drilling programme initiated duringthe first quarter of 2010 produced good results, highlighting the opportunityto extend mining operations in the Nyabigena East Main Zone and significantlyclose the gap between the Nyabigena main pit and the Nyabigena Eastmineralisation.In addition, the results of infill programmes conducted during the year haveled to the upgrade from "Inferred" to "Indicated" of the resource of NyabigenaEast, for which a pit has been outlined as part of the Nyabigena operations. North Mara - Gokona CorridorIn addition to the underground targets at North Mara, we are also undertakingsignificant additional exploration elsewhere around the mine, particularly inthe Gokona Corridor.The Gokona Corridor extends approximately six kilometres northwest of theGokona deposit and approximately ten kilometres southeast of the Nyabigenadeposit. Historically, very little effective drilling has been completedoutside of the immediate mine area. For this reason, during 2010 we completed areverse circulation scout drilling programme along this corridor to test foradditional gold deposits. Initial results are encouraging with several holesintersecting anomalous gold zones (>100ppb Au) along with encouraging zones ofalteration and veining. To build on this progress and accurately assess golddeposit potential, we are now carrying out a significant programme ofmulti-element geochemistry on the drill samples in conjunction with the goldanalysis. Additional scout drilling and follow-up of the 2010 scout drillingwill be ongoing throughout 2011.
Tulawaka East Zone Underground Extension
Throughout the year, the focus of our near-mine expansion programmes atTulawaka was on the East Zone Underground Extensions. The objective of thedrilling here is to identify and delineate additional high-grade gold reservesand resources below the current East Zone underground infrastructure, with theprimary purpose of extending the life of the Tulawaka mine.Our exploration drilling continued to extend the known high-grade mineralisedshoots below the Level 7 resource we had previously defined, indicatingpotential to extend the mine life further. Overall, our drilling programmesindicate that existing mineralised zones continue to at least 150 metres belowthe floor of Tulawaka's now completed open pit. We expect to continue drillprogrammes throughout 2011, which will aim to extend known high-grade zones fora further 100-200 metres below currently defined depths. In this way, we willbe able to assess the possible significant expansion of our current resourcebase to add further reserves and extend the mine life through an exclusivelyunderground operation.
Figure - Tulawaka East Zone long section showing better intersections from Q4 drilling below 7Level
[Refer to www.africanbarrickgold.com for picture]
Golden Ridge
Approximately 55 kilometres north of the Buzwagi operation, the Golden Ridgeproject represents an important opportunity for ABG to exploit a higher-grademineralisation deposit as a satellite feed to the Buzwagi mill. Findings todate indicate that it has the potential to produce between 70,000 and 100,000ounces per year from 2013/14.
We are actively progressing the feasibility study, which is scheduled for completion by mid-2011. ABG's exploration team completed a programme of infill reverse circulation drilling and metallurgical test-work diamond drilling during 2010. Elements of this programme confirmed the width and tenor of mineralisation in the main zone and indicated the potential for further exploration drilling to target higher-grade areas.
Bulyanhulu Upper East Zone
The Bulyanhulu Upper East Zone is approximately 2.5 kilometres east of the mainBulyanhulu shaft and contains approximately 1 million gold ounces at 10g/t Auwithin Reef 1 and 2. The mineralisation in the Bulyanhulu Upper East Zone isincluded in current reserves, but it was not scheduled for mining until laterin the mine life. However, following review of planning models and previousfeasibility studies, we are now considering accelerating the timetable formining the Upper East Zone within the overall life of mine. This would make useof an existing 1.8 kilometre decline to this zone, which is being dewatered andrehabilitated, as well as utilising excess milling capacity in the processplant.We started a further feasibility study into the Upper East Zone area during theyear. We intend to complete this study in the first half of 2011, allowing usto assess the viability of mining the reserves in the zone earlier thananticipated in the current life-of-mine plan.
Bulyanhulu Reef 1 and 2 West
During the year, we completed reverse circulation drilling programmes on areasof Reef 2 West, along with Reef 1 and Reef 0b targets where there haspreviously been relatively limited exploration drilling. Favourable resultsfrom this programme warrant a second phase of follow-up drilling so that we canidentify additional near surface resources for either open-pit or undergroundmining. We are planning deeper drill holes targeting extensions of higher-gradezones in early 2011 from the existing underground development at Bulyanhulu.
Location of Reef 2 West drill holes with corresponding intercepts (base plan orthophoto image of Bulyanhulu)
[Refer to www.africanbarrickgold.com for picture]
Greenfield ProjectsThe Nyanzaga project
Following the completion of the acquisition of Tusker in May 2010, we tookcontrol of 100% of the Nyanzaga Project. Following on from that, the focus ofour exploration activities has remained on further delineating and expandingthe project's current resources. The actions we have taken include anaggressive reverse circulation and diamond-core step-out and infill drillprogramme on the Tusker and Kilimani resource areas. Additionally, these drillprogrammes also commenced testing of geophysical and geochemical targets acrossthe Nyanzaga project area for large-scale gold deposits and additionalsatellite opportunities within 15 kilometres of the Tusker resource area.Tusker declared an inferred resource of approximately 4.2 million ounces forthe Nyanzaga project in June 2009. Our current drill programme aims to confirmand expand this resource base, and it has shown positive results to date.Step-out and infill drilling on the southern strike extensions of the Tuskerprospect have identified wide, higher-grade extensions of gold mineralisation.In particular, recent intercepts indicate that mineralisation on the southernextensions of the Tusker resource area occurs closer to surface than previouslymodelled, and deeper intersections indicate the potential for grade quality toincrease with depth in this area of the system. In addition, results obtainedfrom the drill programme are showing potential to locate additional resourceson the western limb and on the north end of the Tusker resource area.In 2011, our drilling will continue to focus on extending mineralisation on thenorthern, western and southern domains of the Tusker deposit, and given thesuccess of the drill programme to date, we will expand step-out drilling toallow accelerated follow-up of identified positive intersections. Additionally,infill drilling on the main resource area will commence to upgrade the existingmineral inventory and inferred resources.
We aim to initiate a scoping study later in 2011 as we gain a greater understanding of the extent of the mineralisation on the Tusker and Kilimani project areas.
Tusker Prospect drill hole location plan. Red hatch shows approximate surface trace of eastern limb mineralized envelope.
[Refer to www.africanbarrickgold.com for picture]
Tusker Section 2320mN - hole NYZRCDD0156 indicating potential for higher grade zones at depth; and NYZRCDD0164 has identified mineralization closer to surface.
[Refer to www.africanbarrickgold.com for picture]
Financial Review Revenue
Revenue for the year of US$975.0 million was 37% higher than the prior yearperiod of US$711.2 million after restating 2009 revenue to include co-productrevenue as set out below. The Group generated a year on year sales volumeincrease of 40,396 ounces and benefitted from higher average realised gold prices resulting from global economic conditions that drove market gold pricesto record levels. The increase in sales was primarily due to the sale ofunsold ounces on hand at the beginning of the year in gold concentrate atBuzwagi and Bulyanhulu. The average realised gold price was US$1,240 per ouncein 2010 compared to US$974 per ounce in 2009. Co-product revenue totalled US$53.7 million for the year. This represents anincrease of 202% from the prior year period (US$17.8 million). The ramp up ofBuzwagi production of gold/copper concentrate contributed to the increase incopper sales volumes. The 2010 average realised copper price of US$3.55 perpound compared to the prior period realised price of US$2.24 per pound assistedgreatly in the increase in co-product revenue. For these reasons, the Group hasreclassified copper and silver as co-product revenue to reflect their increasedsignificance as a percentage of revenue. The table below provides a quarterlyreconciliation between gold and co-product revenue for 2010 and the 2009comparative. (US$'000) Q1 2010 Q2 2010 Q3 2010 Q4 2010 Total Total 2009 Gold Revenue as previously stated 210,660 213,175 208,767 288,700 921,302 693,412 Plus: Co-product revenue 10,958 11,097 10,842 20,822 53,719 17,770 Total Revenue 221,618 224,272 219,609 309,522 975,021 711,182 Realised copper price ($ per pound sold) 3.87 3.05 3.18 3.93 3.55 2.24 Cost of sales Cost of sales were US$589.0 million for the year ended 31 December 2010,representing an increase of 21% from the prior year period (US$487.0 million)after restating 2009 Cost of sales to reclassify co-product as noted above. Thekey operational activities that impacted cost of sales during the yearincluded the following: (i) the transition of Buzwagi from a project to a fullyear operation and the associated operational challenges it faced in 2010; (ii)the transition of the North Mara mine from a three pit operation to focusing onthe investment in the stage 2 push back at the Gokona open pit; and (iii)production stability at Bulyanhulu providing the opportunity to focus on costoptimisation.
During 2009, a significant build up in low grade ore stockpiles at North Mara and Buzwagi and copper concentrate at Buzwagi increased the change in inventories to US$63 million. The unsold gold was subsequently sold in 2010.
Revenue related costs such as royalties and third party smelting and refiningfees increased by US$15.9 million following the rising trend in revenue andconcentrate volume. The increase in the third party smelting and refiningcharges has been impacted by increased metal prices and costs attributable tosales of gold and copper concentrate at Buzwagi, when compared to no such salesin 2009. Depreciation and amortisation was US$109.5 million for the year. Thisrepresents an increase of 17% from the prior year period (US$93.4 million).This increase is due to the higher capital investment base employed in 2010 asa result of the commercial completion of Buzwagi and the rate of depreciationwhen compared to other older operations. African Barrick Gold plc Three months ended Year ended (US$'000) 31 December 31 December (Unaudited) 2010 2009 2010 2009 Cost of Sales Direct mining expenses 121,365 129,182 437,420 418,294 Change in inventories 11,431 (11,343) (9,753) (62,885) Direct mining costs 132,796 117,839 427,667 355,409
Third party smelting and refining fees 4,696 2,968 20,308
13,027 Other operating costs - 2,331 - 2,331 Royalty expense 9,299 7,325 31,549 22,910
Depreciation and amortization 28,476 34,307 109,515
93,350 Total 175,267 164,770 589,039 487,027 The consolidated direct mining expenses totalled US$437.4 million for the year.This represents an increase of 5% from the prior year period (US$418.3million). The key reasons for the increase can be attributed to a full yearcost of operating costs at Buzwagi, compared to eight months of operating costsin the prior year, and the operational challenges it faced. The difference intotal direct mining expense for Buzwagi was US$65.6 million year on year. Adetailed breakdown of direct mining expenses is shown in the table below. African Barrick Gold plc Three months ended Year ended (US$'000) 31 December 31 December (Unaudited) 2010 2009 2010 2009 Direct mining expenses Labour 40,495 38,567 139,594 126,450 Energy and fuel 20,992 18,794 81,381 62,764 Consumables 22,217 24,091 82,841 86,462 Maintenance 15,384 17,632 64,441 57,292 Contracted services 22,150 14,893 81,873 59,775 General administration costs 21,148 35,499 72,272 68,704
Capitalised direct mining costs (21,021) (19,794) (84,982)
(43,153) Total direct mining expenses 121,365 129,182 437,420 418,294 Bulyanhulu showed an 8% (US$12.9 million) improvement in costs driven byimproved cost management measures lowering consumable, maintenance, andcontracted services costs, which were partially offset by increased labourcosts from increased head count and inflationary increases in remuneration.Direct mining costs at North Mara remained flat versus 2009 and significantresources were focused on increased capitalised stripping of the Gokona stage 2push back. Tulawaka costs increased by 23% (US$5.7 million) due to the cost oflabour, energy, maintenance and administration costs required to mine andprocess ore at a lower grade. Buzwagi costs increased by 71%, mainly due toBuzwagi operating for a full year as opposed to eight months in 2009. Inaddition, the higher energy costs caused by the on-site fuel theft, andincreased cost pressure from additional operational initiatives taken toimprove performance resulted in higher labour, maintenance, consumables andadministration expenditure.
Individual cost components comprise:
Labour costs have been impacted by increased headcount at Buzwagi and Bulyanhulu and inflationary pressure in remuneration to attract and retain personnel.
Energy and diesel fuel expenses account for all electricity, diesel fuel, andoil/lubricant expenditures. On a comparable basis Buzwagi drove costs higherpartly due to increased milling activity and the consequence of the fuel theft.The realised WTI crude oil cost per barrel, the key input of diesel, rose froman average of US$62 to US$80 in 2010 contributing to higher energy costs. Thisincrease in diesel costs were partially offset by North Mara converting fromself generation of electricity to drawing from the national power grid whichresulted in lower costs and less exposure to global fuel prices.
Consumable costs on a comparable basis have remained in line with 2009 with Bulyanhulu driving cost savings through better cost management partly offset by higher costs at Buzwagi.
Maintenance costs on a comparable basis were higher, primarily driven by plantbreakdowns and a full year of operation at Buzwagi. In addition, Tulawaka costswere high due to mining equipment failure and its transition to in-housemaintenance.Contractor services comprise mainly of maintenance and repair contractors("MARC") and drilling/geology services at Buzwagi and North Mara. MARC costs atBuzwagi increased due to the increase in size and age of the mining fleet and afull year of operation.
General and administrative costs increased modestly compared to 2009 as a result of additional security costs at Buzwagi.
Capitalised direct mining costs consisted of capitalised operating costs to reflect deferred stripping at North Mara and underground mine development at Bulyanhulu and, to a lesser extent, Tulawaka.
Other operating costs in the previous year related to net realisable value write downs relating to supplies inventory.
Cash Costs Cash costs for 2010 were US$569 per ounce sold, a 7% increase over 2009's cashcost per ounce sold of US$533. The increase can be explained by lower thanexpected production levels at Buzwagi, combined with increased costs incurredin dealing with operating challenges at the mine partially offset by improvedco-product sales now classified as revenue, which we deduct from cash costs asset out on page 42. Cash costs at Buzwagi for the year were US$685 per ouncesold, compared to the previous year's US$422. Both North Mara and Bulyanhuluperformed in line with expectations from a cash costs perspective. However, alower production base at Tulawaka resulted in a 72% increase in total cashcosts per ounce sold at the mine, when compared to 2009.The table below provides a reconciliation between cost of sales and total cashcosts on a by-product revenue and a co-product revenue basis to calculate thecash cost per ounce sold.
(US$'000) except ounces and per ounce cost Three months
ended Year ended 31 December 31 December 2010 2009 2010 2009 Total cost of sales 175,267 164,770 589,039 487,027 Deduct: By-product revenue - - - -
Deduct: Depreciation and amortization (28,476) (34,307)
(109,515) (93,350)
Total cash costs on by-product basis 146,791 130,463
479,524 393,677 Deduct: Co-product revenue (20,821) (6,115) (53,718) (17,771)
Total cash costs on a co-product basis 125,970 124,348
425,806 375,906 Total ounces sold1 207,087 204,461 743,256 711,712
Consolidated cash cost per ounce 608 608
573 528 Equity ounce adjustment2 (5) 5 (4) 5
Attributable cash cost per ounce on a co-product basis 603 613
569 533
1Reflects 100% of ounces sold.
2Reflects the adjustment for non-controlling interests at Tulawaka.
Corporate administration costs
Corporate administration expenses totalled US$35.4 million for the year ended31 December 2010. This equated to a 6% decrease from the prior year period ofUS$37.8 million. Corporate administration comprised the expenses associatedwith maintaining the Dar es Salaam, Johannesburg and London offices. Costsinclude salaries, office rent, consulting, legal, audit fees and investorrelations expenses. The decrease was predominantly driven by a saving incorporate labour costs due to the reorganisation exercise completed during thesecond half of 2009 with the transition from Dar es Salaam to Johannesburg.This was largely offset by the increased costs to run a publicly listed companyand costs from a London office which was not fully functional until mid year2010.
Exploration and evaluation costs
Exploration and evaluation costs are incurred to advance the exploration at ourgreenfield projects. For 2010, US$14.9 million was incurred approximately68% higher than the US$8.9 million incurred in the same period in 2009. Keyfocus for the year was exploration and step out drilling at Nyanzaga of US$7.2million, US$1.3 million at Golden Ridge to perform metallurgical sampling andresource modelling, and US$3.6 million at Tulawaka to test satellite open pitopportunities. The increased expenditure supports the current focus on growthprojects around existing sites some of which are close to entering thefeasibility stage.
Where it is probable that resources will be converted into reserves, the expenditure is capitalised. During 2010 an amount of US$ 12.2 million of exploration costs were capitalised compared to US$2.8 million in 2009. Details of these costs are included in the Exploration Review.
Other charges Other charges amounted to US$26.0 million for the year, 22% up from the 2009amount of US$21.4 million. Other charges comprise mostly of oneâ€"off costsincluding foreign exchange gains and losses (previously deemed part ofcorporate administration), gains and losses on disposals, social developmentcosts, IPO listing costs, asset write downs and provision movements. The maincontributors to the expense are the following: (i) foreign exchange losses ofUS$7.9 million (US$10.7 million in 2009) from the continued devaluation of theTanzanian shilling against the US dollar impairing the TZS denominated assetson the balance sheet; (ii) US$3.5 million spent during the year on corporatesocial programmes, compared to US$1.0 million in 2009; (iii) ABG's entry into zero cost collar contracts as part of a program to protect it against coppermarket volatilities, which resulted in an unrealised mark-to-market revaluationloss of US$3.7 million at year end; and (iv) IPO transaction costs of US$2.6million.
Other costs incurred related to the reversal of a Buzwagi fuel levy claim associated with the fuel theft; the net provision to account for the discounting impact of non-current receivables; and adjustments to existing indirect tax provisions which were offset with an insurance claim received in respect of a claim settled in relation to an excavator destroyed in 2009.
Finance expense and income The finance expense decreased to US$1.8 million for the year, compared toUS$6.1 million in 2009. This decrease was primarily a result of the repaymentof the external debt facility at North Mara during the first half of 2009.Finance expense for 2010 primarily relates to the interest expense associatedwith discounting of the environmental reclamation liability as well as theinitial fee payable for the US$150 million credit facility that was completedduring November 2010. The initial fees to complete the transaction such as theparticipation fee and related legal costs will be amortised over the 24 monthterm of the facility. ABG will incur a monthly commitment fee equal to 40% ofthe interest margin above LIBOR as negotiated in the agreement. Currently,
ABGhas no external debt.
Finance income relates predominantly to interest charged on non-current receivables and interest received on cash balances.
Taxation expense
The taxation expense increased to US$86.5 million for the year, compared tofrom US$84.4 million in 2009. The 2010 expense consists of deferred tax ofUS$86.2 million and corporate taxes of US$0.3 million which were incurred in2010. The higher tax expense relates to the increased taxable income for 2010,which was generated mainly from North Mara and Bulyanhulu as a result ofimproved margins from higher gold prices. The effective tax rate in 2010amounted to 28% compared to 56% in 2009. The variance relates to a 2009 yearend adjustment to unrecognised tax benefits relating to an uncertain taxposition raised in the previous year regarding the recoverability of certaintax losses. Commodity prices
Gold prices have a significant impact on ABG's operating earnings and its ability to generate cash flows. In 2010 the price of gold reached an all-time high, trading in a range of US$1,045 to US$1,431 per ounce and closing at US$1,421 per ounce. Market gold prices averaged US$1,225 per ounce, a new annual average record and a US$253 per ounce improvement on the US$972 per ounce average in the prior year period.
The market price of gold has been influenced by low US dollar interest rates,sovereign debt concerns, investment demand and the monetary policies put inplace by the world's most prominent central banks. As a result of the globaleasing of monetary policy, as well as large fiscal deficits incurred in the USand other major developed economies, there is a possibility that both inflationand US dollar depreciation could emerge in the coming years. Gold is viewed asa hedge against inflation and has historically been inversely correlated to theUS dollar. Therefore, higher inflation and/or depreciation in the US dollarshould be positive for the price of gold. Gold prices also continue to be influenced by negative long-term trends inglobal gold mine production, the impact of central bank gold purchases andinvestor interest in owning gold. In 2010, gold sales by central banks werenot significant, while investor interest led holdings by major global ETFs toincrease by 10 million ounces in the year to total 67 million ounces at the endof the period. Historically, gold has been viewed as a reliable store of valuein times of financial uncertainty and inflation and as a de facto globalcurrency. Investor interest in gold as an asset class has increased greatly asa result of this.ABG also produces copper as a co-product that is recognised in revenue. Copperprices rose in 2010, particularly in the second half, trading in a range ofUS$2.74 to US$4.42 per pound. The average price for the year was US$3.42 perpound and closed the year at an all time high of US$4.42 per pound. Copper'srise during the period resulted from a number of factors including strongdemand from emerging markets, especially China, decreasing exchange stockpilesand increasing investor interest in base metals with strong forward-lookingsupply/demand outlooks. Copper prices should continue to be positivelyinfluenced by factors such as demand from Asia, global economic growth, thelimited availability of scrap metal and production levels of mines and smeltersin the future. Disposals and acquisitions Acquisition of TuskerOn 27 April 2010, ABG, through BUK Holdco Limited, one of its immediatesubsidiaries, purchased 100% of the issued share capital of Tusker by way of atakeover offer for an aggregate net consideration of US$74 million. Tusker helda 49% interest in the Nyanzaga project, with the ABG Group owning the remaining51%. Following completion of the acquisition, ABG now owns 100% of the Nyanzagaproject. Further details on this project are provided in the Exploration Reviewand further details on the Tusker acquisition are provided in note 8 to the
financial statements. Net profit for the period As a result of the factors discussed above, net profit for the year ended 31December 2010 was US$222.6 million. This represents an increase of 237% fromthe prior year period (US$66.0 million). The key drivers were increased revenueas a result of a continued positive gold price environment combined with highersales ounces. This was partially offset by increased costs of sales which wereprimarily due to the additional cost base from a full period of production atBuzwagi, increased direct mining expenditure across all sites, the increasedtaxation expense; and increased exploration and evaluation expenditureincurred.
Net profit attributable to non-controlling interest
The net profit attributable to the non-controlling interest for the year ended31 December 2010 was US$4.5 million. This represents a decrease of 39% on 2009(US$7.4 million), due to lower production and increased exploration activity atthe Tulawaka operation. EBITDA EBITDAfor the year ended 31 December 2010 increased by 68% to US$419.2 millioncompared tothe prior year period (US$249.5 million) as a result of improvedgold prices along with increased ounces sold supported further by recordco-product revenue. This was partly offset by an increase in direct mining costbase predominantly driven by Buzwagi as it only reflected eight months directmining costs in the prior year period, increased direct mining costs acrosssome sites as well as increased revenue related costs such as royalties,smelting, refining and transport costs. Note that EBITDA includes the impact ofother charges totalling US$26.0 million which comprise mostly one-off typeexpenditure. A reconciliation between net profit/ (loss) for the period and
EBITDA is presented below: For the three months ended For the year ended 31 December 31 December (US$000) 2010 2009 2010 2009
Net profit/ (loss) for the period 81,471 (15,188) 222,606
66,017 Plus income tax expense 23,429 49,625 86,471 84,388
Plus depreciation and amortization 28,476 34,307 109,515
93,350 Plus finance expense 448 133 1,777 6,062 Less finance income (174) (299) (1,202) (361) EBITDA 133,650 68,578 419,167 249,456 14. Basic earnings per share Earnings per share for the year ended 31 December 2010 was an amount of US53.2cents showing an increase of 272% from the prior year period of US14.3 cents.The increase has been driven by net profit for the year. The prior year basicearnings per share comparative were calculated using the 2010 number of averageweighted shares as ABG was not incorporated until January 2010 and thus had noshare capital in 2009. Cash flow Three months ended Year ended (US$ '000) 31 December 31 December 2010 2009 2010 2009
Cash flow from operating activities 125,305 108,815
345,141 193,961
Cash used in investing activities (68,491) (93,703)
(275,555) (248,448)
Cash(used in)/ provided by financing activities 32 (17,452)
261,978 71,042
Increase(decrease) in cash 56,846 (2,340)
331,564 16,555
Foreign exchange difference on cash (278) (136)
(278) (136) Opening cash balance 344,444 72,202 69,726 53,307 Closing cash balance 401,012 69,726 401,012 69,726 Cash flow from operating activities was US$345.1 million for the year, anincrease of US$151.1 million on the prior year (US$194.0 million). The increaseprimarily related to increased EBITDA which was partially offset by workingcapital movements. EBITDA has predominantly been driven by increased revenuedue to both price and sales volume increases. Working capital was adverselyimpacted by the outflow associated with the increase in indirect tax receivableand prepayments of US$48.8 million; a decrease in trade and other payables ofUS$28.5 million; investment in ore inventory of US$16.0 million and suppliesinventory of US$9.6 million which was in part offset by a reduction in goldsales receivables and finished gold due to the introduction of quarterlycounterparty advance settlement and backlog concentrate sold during the year.Throughout 2010, ABG has been actively involved in discussions with theTanzanian Government and the Tanzanian Revenue Authority to resolve the statusof fuel excise levies and VAT refunds for its operations. These issues havebeen outstanding for some time and were further complicated by amendments madeto certain tax laws which were passed in 2009. The amendments conflicted withcertain provisions contained in our existing Mineral Development Agreements("MDAs") which guarantee the fiscal stability of our operations. We are pleasedto report that the Government has adopted legislation to reverse theamendments, which should allow for the fiscal and tax terms of our MDAs to behonoured. This represents a significant step in supporting the stability of thelegal framework for the mining industry in Tanzania. As at 31 December 2010,the discounted outstanding amounts due to us were approximately US$121 million.We are in discussions with the authorities to agree terms for the repayment ofthese amounts, which is likely to be by way of tax offsets.Cash flow used in investing activities equalled US$275.6 million for the year.This represents an increase of 11% from the prior year of US$248.5 million. Theincrease includes net cash of US$63.1 million used for the acquisition ofTusker, taking into account the cash in that business on the purchase date, aswell as US$9.7 million in settling outstanding stock options. Total capitalexpenditure for the year of US$224.3 million increased slightly from the prioryear figure of US$223.3 million. Key projects include the Bulyanhuluunderground development, Buzwagi mining equipment and additional North Maraprocessing and mining projects; North Mara deferred strip of US$51.1 million,as well as US$12.2 million relating to capitalised exploration. The US$248.5million 2009 capital spent was primarily driven by US$101.2 million spent onthe construction of Buzwagi.
Total cash capital decreased from the prior year and amounted to US$196.4 million for 2010 (US$207.4 million for 2009) and reflects adjustments made for non-cash reclamation additions.
A breakdown of invested capital activities for the year ended is providedbelow: For the year ended 31 December (US$'000) 2010 2009 Sustaining capital (133,312) (95,700) Expansionary capital (63,131) (111,668) Total cash capital (196,443) (207,368) Tusker acquisition1 (72,805) - Non-current asset movement2 (6,307) (41,080)
Cash used in investing activities (275,555)
(248,448)
1The Tusker acquisition includes the acquisition of the subsidiary, net of cash for US$63.1 million including the Tusker stock options settled for US$9.7 million in total.
2Non-current asset movement relates to the investment in the powerline and landacquisitions reflected as prepaid operating leases; Tanzania governmentreceivables; villlage housing project; and other items. Note that for 2010 thelong term indirect tax movement have been reflected as part of working capitalin the cash flow from operational activities section which amounted to US$36.7million. US$26.5 million was classified in 2009 in the non-current assetmovement as part of the cash flow from investing activities. Cash provided by financing activities for the year ended 31 December 2010 ofUS$262.0 million increased 268% from the prior year of US$71.0 million. Theincrease primarily relates to ABG's IPO and is further supported by the partialexercise of the overallotment option. In total the IPO and the overallotmentoption proceeds resulted in US$865 million after deduction of transactioncosts. This was in part offset by the payment of a special dividend and therepayment of intergroup loans to other members of BGC's group as part of theABG Reorganisation. The inflow in 2009 was predominantly funded by BGC tosupport the construction costs associated with Buzwagi and repayment ofexternal debt at North Mara as well as distributions paid to non-controllinginterests at Tulawaka. An interim dividend of US$6.6 million was paid during Q3of this year. At 31 December 2010 ABG had cash and cash equivalents of US$401.0 million.
Credit facility On 24 November 2010, ABG and its wholly owned subsidiary BarbCo One Ltdconcluded negotiations with a syndicate of commercial banks, for the provisionof a revolving credit facility in a maximum aggregate amount of US$150 million.The facility has been provided to service the general corporate needs of theABG Group and to fund potential acquisitions. All provisions contained in thecredit facility documentation have been negotiated on normal commercial andcustomary terms for such finance arrangements. The term of the facility is 24months and when drawn the spread over LIBOR will be 350 basis points. Noamounts were drawn down on the facility at 31 December 2010.Debt as at 31 December 2010 was zero and decreased substantially from US$1.4billion for the prior year, which all related to intergroup borrowings. Aportion of the debt was repaid through proceeds generated from the IPO while alarge portion was converted into equity through the pre-IPO reorganisation.
Dividend
An interim dividend of US$1.6 cents per share was paid to shareholders on 27 September 2010. The Directors recommend the payment of a final dividend of US$3.7 cents per share, subject to the shareholders approving this recommendation at the AGM.
Significant judgements in applying accounting policies and key sources of estimation uncertainty
Many of the amounts included in the consolidated financial statements requiremanagement to make judgements and/or estimates. These judgements and estimatesare continuously evaluated and are based on management's experience and bestknowledge of the relevant facts and circumstances, but actual results maydiffer from the amounts included in the consolidated financial informationincluded in this release. Information about such judgements and estimation isincluded in the accounting policies and/or notes to the consolidated financialstatements, and the key areas are summarised below.
Areas of judgement and key sources of estimation uncertainty that have the most significant effect on the amounts recognised in the consolidated financial statements include:
Estimates of the quantities of proven and probable gold reserves;
The capitalisation of waste stripping costs;
The capitalisation of exploration and evaluation expenditures;
Review of goodwill, tangible and intangible assets carrying value, the determination of whether these assets are impaired and the measurement of impairment charges or reversals;
The estimated fair values of cash generating units for impairment tests, including estimates of future costs to produce proven and probable reserves, future commodity prices, foreign exchange rates and discount rates;
The estimated useful lives of tangible and long-lived assets and the measurement of depreciation expense;
Recognition of a provision for environmental rehabilitation and the estimation of the rehabilitation costs and timing of expenditure;
Whether to recognise a liability for loss contingencies and the amount of any such provision;
Whether to recognise a provision for accounts receivable and the impact of discounting the non-current element;
Recognition of deferred income tax assets, amounts recorded for uncertain tax positions, the measurement of income tax expense and indirect taxes; and
Determination of fair value of derivative instruments.
Non-IFRS Measures ABG has identified certain measures in this report that are not measuresdefined under IFRS. Non-IFRS financial measures disclosed by management areprovided as additional information to investors in order to provide them withan alternative method for assessing ABG's financial condition and operatingresults. These measures are not in accordance with, or a substitute for, IFRS,and may be different from or inconsistent with non-IFRS financial measures usedby other companies. These measures are explained further below.
Average realisedgold price per ounce sold is a non-IFRS financial measure which excludes from gold revenue:
- Unrealised gains and losses on non hedge derivative contracts
- Unrealised mark to market gains and losses on provisional pricing from copper and gold sales contracts; and
- Export duties.
Cash costs per ounce sold is a non-IFRS financial measure. Cash costs includeall costs absorbed into inventory, as well as royalties, co-product credits,and production taxes, and exclude capitalised production stripping costs,inventory purchase accounting adjustments, unrealised gains/losses fromnon-hedge currency and commodity contracts, depreciation and amortisation andsocial development costs. Cash cost is calculated net of co-product revenue,and is measured on a co-product basis. The change in the cash cost measurementto include co-product revenue follows the decision by management to present thesale of copper and silver as co-product revenue and part of total revenue.The presentation of these statistics in this manner allows ABG to monitor andmanage those factors that impact production costs on a monthly basis. ABGcalculates cash costs based on its equity interest in production from itsmines. Cash costs per ounce sold are calculated by dividing the aggregate ofthese costs by gold ounces sold. Cash costs and cash costs per ounce sold arecalculated on a consistent basis for the periods presented. Refer to page 21 aspart of the financial review section 3 for a reconciliation of cost of sales tocash costs.
EBITDA is a non-IFRS financial measure. ABG calculates EBITDA as net profit or loss for the period excluding:
- Income tax expense;- Finance expense;- Finance income;
- Depreciation and amortisation; and
- Goodwill impairment charges.
EBITDA is intended to provide additional information to investors and analysts.It does not have any standardised meaning prescribed by IFRS and should not beconsidered in isolation or as a substitute for measures of performance preparedin accordance with IFRS. EBITDA excludes the impact of cash costs of financingactivities and taxes, and the effects of changes in operating working capitalbalances, and therefore is not necessarily indicative of operating profit orcash flow from operations as determined under IFRS. Other companies maycalculate EBITDA differently. Refer to page 23 as part of the financial reviewsection 13 for a reconciliation of net profit to EBITDA.
EBIT is a non-IFRS financial measure and reflects EBITDA adjusted for depreciation and amortisation and goodwill impairment charges.
Amortisation and other cost per ounce sold is a non-IFRS financial measure.Amortisation and other costs include amortisation and depreciation expenses andthe inventory purchase accounting adjustments at ABG's producing mines. ABGcalculates amortisation and other costs based on its equity interest inproduction from its mines. Amortisation and other costs per ounce sold iscalculated by dividing the aggregate of these costs by ounces of goldsold.Amortisation and other cost per ounce sold are calculated on a consistentbasis for the periods presented. Cash cost per tonne milled is a non-IFRS financial measure. Cash costs includeall costs absorbed into inventory, as well as royalties, by-product credits,and production taxes, and exclude capitalised production stripping costs,inventory purchase accounting adjustments, unrealised gains/losses fromnon-hedge currency and commodity contracts, depreciation and amortisation andsocial development costs. Cash cost is calculated net of co-product revenue,and is measured on a co-product basis. ABG calculates cash costs based on itsequity interest in production from its mines. Cash costs per tonne milled arecalculated by dividing the aggregate of these costs by total tonnes milled.
Mining statistical information
The following describes certain line items used in the ABG Group's discussion of key performance indicators:
Open pit material mined - measures in tonnes the total amount of open pit ore and waste mined.
Underground ore tonnes hoisted - measures in tonnes the total amount of underground ore mined and hoisted.
Total tonnes mined include open pit material plus underground ore tonnes hoisted.
Strip ratio - measures the ratio wasteâ€"toâ€"ore for open pit material mined.
Ore milled - measures in tonnes the amount of ore material processed through the mill.
Head grade - measures the metal content of mined ore going into a mill for processing.
Milled recovery - measures the proportion of valuable metal physically recovered in the processing of ore. It is generally stated as a percentage of the metal recovered compared to the total metal originally present.
Total production costs - measures the total cost of production and is an aggregate of total cash costs as well as production specific depreciation and amortisation.
Direct cash operating cost per ounce - measures the total direct cash cost attributable to producing an ounce. It reflects cash costs adjusted to exclude royalties and third party smelting and refining fees on an ounce basis.
Principal Risks and Uncertainties
ABG and its subsidiaries (together the "ABG Group") face a variety of risks,the occurrence of which could adversely affect group performance, earnings,financial position and prospects. Over the course of the year under review, theABG Group made material developments in the identification and management ofits risk profile in order to focus on the most significant risks and eventsthat could affect its operations, financials and performance.The principal risks affecting the ABG Group are set out below, along with thesteps taken to mitigate them. There may be additional risks unknown to ABG andother risks, which are currently believed to be immaterial, could turn out tobe material. These risks, whether they materialise individually orsimultaneously, could significantly affect the ABG Group's business andfinancial results. In addition, ABG could also be affected by risks relating tothe gold-mining industry generally and the risks and hazards involved in thebusiness of mining metals, which are largely outside of its control. PotentialRisk Mitigation/Comment impact Strategic risks Single country risk
All of the ABG Group's revenue is ABG assesses a wide range of potential High derived from production at its growth opportunities to build on its
four facilities in Tanzania. In existing portfolio, including external order to ensure continued growth, acquisition and development the ABG Group needs to identify opportunities outside of Tanzania to new resources and development maximise growth potential. opportunities through exploration
and acquisition targets.
Reserves and resource estimates
The ABG Group's stated mineral ABG management has implemented a High reserves and resources are only number of processes to continuously
estimates based on a range of monitor and evaluate the current life assumptions, including geological, of the Company's mine plans and metallurgical and technical production targets. The ABG Group's factors; there can be no assurance resources and reserves are updated that the anticipated tonnages or annually. ABG follows NI 43-101 of the
grades will be achieved. Canadian Institute of Mining Metallurgy and Petroleum when calculating its mineral reserves and resources. Financial risks Commodity prices
The ABG Group's financial ABG's strategic objective is to High performance is highly dependent provide maximum exposure to the price
upon the price of gold and, to a of gold. As such a no gold hedging lesser extent, the price of copper policy has been adopted. ABG has and silver. The prices of these implemented a number of processes to commodities are affected by a assess its exposure to other commodity number of factors beyond ABG's price fluctuations. ABG has entered control. Rapid fluctuations in into hedging facilities in connection pricing of these commodities will with copper price fluctuations and is have a corresponding impact on reviewing appropriate hedging
ABG's financial position. facilities to assist in the management of exposure to other commodities, such as diesel.
Costs and capital expenditure
ABG operates a cyclical business ABG management continuously monitors High where fluctuations in operating operational costs and capital
cash flow and capital expenditure expenditure. It holds a conservative
may adversely affect ABG's balance sheet and has a rigorous cash financial position. flow planning process to mitigate liquidity risks. ABG has also entered into a commercial credit facility to provide further support for working capital requirements. PotentialRisk Mitigation/Comment impact External risks
Political, legal and regulatory
developments
The ABG Group's exploration, development The ABG Group assesses legal High and operational activities are subject to and political risks as part of
extensive laws and regulations governing its evaluation of potential various matters in the jurisdictions in projects. It actively monitors which the Company operates. Changes to legal and political existing law and regulations, or more developments in countries in stringent application or interpretation which its existing operations of current laws and regulations by are located. relevant government authorities, could adversely affect the ABG Group's The ABG Group actively engages operations and development projects. In in dialogue with the Tanzanian particular, as ABG's revenue is currently government and legal policy derived exclusively from the production makers to discuss all key of its facilities in Tanzania, its legal and regulatory business operations and financial developments applicable to its condition may be adversely affected by operations, in particular legal and regulatory changes and developments in connection developments in Tanzania, or if existing with the Tanzanian Mining Act mineral development agreements are not and applicable environmental honoured by the Tanzanian Government. legislation. The ABG Group may also be adversely affected by changes in global economic conditions, political and /or economic instability in Tanzania or any of its
surrounding countries. Taxation reviews
The ABG Group's financial condition may The ABG Group has entered into High be adversely affected if it is
a series of ongoing unsuccessful in its current appeals and/ discussions with the Tanzanian or its discussions with the Tanzanian government with the goal of Revenue Authority regarding outstanding resolving outstanding tax tax assessments and unresolved tax disputes and recovering disputes, namely in respect of fuel amounts owed. levies, VAT and certain corporate taxes.
Utilities supply
Power stoppages, fluctuations and Back up or alternative power High disruptions in electrical power supply or generation have been
other utilities could adversely affect implemented at North Mara and ABG's operations and impact its financial Tulawaka. ABG is in the condition. In addition, an increase in process of implementing power costs would make production more additional power back-up costly and alternative power sources may facilities to maintain
not be available. critical systems at its other operations. Community relations
A failure to adequately engage or manage In addition to its existing Medium relations with local communities and corporate social
stakeholders could have a direct impact responsibility programmes, the on the ABG Group's ability to operate at ABG Group is implementing a
its existing operations. number of additional initiatives to improve and build on local community relations, including micro finance and adult education programmes. Risks Mitigation/Comment Potential impact Operational risks Loss of critical processes
The ABG Group's mining, processing, Management assesses the critical High development and exploration activities components of ABG's operational
depend on the continuous availability infrastructure on a continuous of its operational infrastructure, in basis. In addition to external addition to reliable utilities and resources and when required, ABG water supplies and access to roads. has established channels through Any failure or unavailability of the support of the Barrick Group operational infrastructure, for network to address critical example through equipment failure or disruptions to its technical disruption, could adversely affect services and plant equipment. production output and/or impact Supply chain management and exploration and development support is assessed and reviewed activities. Deficiencies in core against business requirements on supply chain availability could also a regular basis. adversely affect ABG's operations.
Environmental rehabilitation
The ABG Group's activities are subject The ABG Group has committed High to environmental hazards as a result itself to the application of
of the processes and chemicals used in global standards including the its extraction and production methods. Global Reporting Initiative The ABG Group may be liable for losses standards, International Council and costs associated with on Mining and Metal practices, environmental hazards at its and the International Cyanide operations, have its licences and Code standards. Compliance with permits withdrawn or suspended as a applicable environmental result of such hazards or may be standards is assessed on a forced to undertake extensive clean-up continuous basis. Remediation and and remediation action in respect of rehabilitation costs are assessed environmental hazards and incidents and reviewed annually. relating to its operations. Any such action could have a material adverse effect on the Group's business, operations and financial condition.
Employees and contractors
The ABG Group's business significantly ABG regularly assesses its staff High depends upon its ability to recruit recruitment and retention
and retain qualified personnel, in policies to assist with labour particular members of the Senior stability, and maintains Management Team and its skilled team appropriate investment in of engineers and geologists. The loss training and development to of skilled workers and a failure to safeguard the skills of its work recruit and train equivalent force. It is also focused on replacements may negatively impact on furthering the nationalisation of ABG's operations and production. its workforce in Tanzania and
participates in a number of training programmes to help develop local industry expertise. ABG depends on certain key Assessments of arrangements with contractors. Interruptions in key contractors are undertaken on
contracted services could result in a regular basis to ensure that production slowdowns and/or stoppages. contracted services and support
meet business requirements and expectations. Risk Mitigation/Comment Potential impact
Security, trespass and vandalism
ABG faces certain risks in dealing The ABG Group has taken measures to High with trespass, theft, corruption and protect its employees, mines and
vandalism at its mines and production facilities from various unauthorised small-scale mining in security and theft risks. Steps proximity to and on specific areas include the strengthening of covered by ABG's exploration and existing security personnel, the mining licences. The impact of such installation of additional risks may have an adverse effect perimeter fencing, surveillance upon ABG's operations and financial equipment and the imposition of
condition. additional security checks and procedures. Where appropriate, the Group continues to work in collaboration with local law enforcement to address security-related matters. In addition, ABG adheres to the Voluntary Principles on Security and Human Rights as part of its membership of the Barrick Group.
Health and safety, infectious
diseases Due to the nature of ABG's The ABG Group has implemented a Medium operations, a wide range of number of malaria and tuberculosis
occupational health diseases, such programmes and HIV/AIDS awareness as noise-induced hearing loss and and prevention programmes for its lung diseases, pose a risk to ABG's employees, their families and the workforce. In addition, tropical and local communities surrounding its infectious diseases, such as malaria operations. It also provides and HIV/AIDS, pose significant occupational health services to its health risks to ABG employees, due employees at its mine clinics and to the epidemic proportions that it continues to improve such diseases may have in areas at preventative hygiene initiatives. which ABG's operations are located. Health and safety and risk The potential liabilities related to management systems are in place on such diseases and the impact that site at all of ABG's operations. these diseases may have on ABG's workforce may have an adverse effect upon ABG's operations and financial
condition. Directors The Directors serving on the Board during the year will be listed in ABG'sannual report. A list of current Directors is maintained on ABG's website:www.africanbarrickgold.comFinancial InformationGroup Income Statement For the year ended (In thousands of US$) 31 December (Unaudited) 2010 2009 Revenue (note 3h) 975,021 711,182 Cost of sales (note 3h) (589,039) (487,027) Gross profit 385,982 224,155 Corporate administration (note 3h) (35,436)
(37,759)
Exploration and evaluation costs (14,861) (8,871) Other charges (note 3h) (26,033) (21,419) Profit before net finance expense and taxation 309,652 156,106 Finance income 1,202 361 Finance expense (1,777) (6,062) (575) (5,701) Profit before taxation 309,077 150,405 Tax expense (note 5) (86,471) (84,388) Net profit for the period 222,606 66,017 Profit attributable to: - Non-controlling interests 4,503 7,440
- Owners of the parent (net earnings) 218,103
58,577 Earnings per share
- Basic earnings per share (cents) (note 6) 53.2
14.3
- Diluted earnings per share (cents) (note 6) 53.2
14.3
Group Statement of Comprehensive Income
(In thousands of US$) For the year ended 31 December (Unaudited) 2010 2009 Profit for the period 222,606 66,017
Other comprehensive income for the year -
-
Total comprehensive income for the year 222,606
66,017 Attributed to: - Non-controlling interests 4,503 7,440 - Owners of the parent 218,103 58,577 The notes on pages 37 to 51 form an integral part of this financialinformation. Group Balance Sheet For the year ended (In thousands of US$) 31 December (Unaudited) 2010 2009 ASSETS Non-current assets Goodwill and intangible assets 258,513
156,397
Property, plant and equipment (note 9) 1,615,118 1,498,072 Deferred tax assets 121,269 181,188 Non-current portion of inventory 69,122 - Other assets (note 3h) 104,458 61,286 2,168,480 1,896,943 Current assets Inventories 227,974 278,650 Trade and other receivables (note 7) 59,214
61,598
Other current assets (note 7) 70,428
58,311
Cash and cash equivalents 401,012 69,726 758,628 468,285 Total assets 2,927,108 2,365,228 EQUITY AND LIABILITIES Share capital and share premium (note 10) 929,199 - Other reserves 1,584,125 636,922 Total owners equity 2,513,324 636,922 Non controlling interest 29,761 20,493 Total Equity 2,543,085 657,415 Non-current liabilities Deferred tax liabilities 136,185 87,893 Derivative financial instruments 1,754 - Provisions 108,944 83,565 Other non-current liabilities (note 3h) 7,483 4,748 254,366 176,206 Current liabilities Trade and other payables 119,961 148,192 Derivative financial instrument 1,904 - Provisions 4,000 - Other current liabilities 3,792 - Borrowings from related parties -
1,383,415 129,657 1,531,607 Total liabilities 384,023 1,707,813 Total equity and liabilities 2,927,108 2,365,228
The notes on pages 37 to 51 form an integral part of this financial information
Group Statement of Changes in Equity
Contributed Stock Total Total non- Share Share surplus/Other option Retained owner's controlling(In thousands of US$) Capital premium reserve reserve Earnings equity interests Total Equity(Unaudited)Balance at 1 January 2009 - - 633,749 - (55,407) 578,342 25,257 603,599Profit for the year andother comprehensive income - - - - 58,577 58,577 7,440 66,017Contributed surplus additions - - 3 - - 3 - 3Distributions paid tonon-controlling interests - - - - - - (12,204) (12,204)Balance at 31 December 2009 - - 633,752 - 3,170 636,922 20,493 657,415Issuance of shares to BGC 1,991 1,989,138 (1,991,129) - - - - -Capital reduction - (1,989,138) 1,989,138 - - - - -Bonus issue to BGC 43,805 (43,805) - - - - -Profit for the year andtotal comprehensive income - - - - 218,103 218,103 4,503 222,606Special dividends - - (258,680) - - (258,680) - (258,680)Conversion to contributed surplus - - 1,039,498 -
- 1,039,498 - 1,039,498Share issuance 16,301 921,035 - - - 937,336 - 937,336Transacation costs - (53,933) - - - (53,933) - (53,933)Interim dividend - - - - (6,562) (6,562) - (6,562)Stock options - - - 640 - 640 - 640Distributions fromnon-controlling interests - - - - - - 4,765 4,765Balance at 31 December 2010 62,097 867,102 1,368,774 640
214,711 2,513,324 29,761 2,543,085
The notes on pages 37 to 51 form an integral part of this financial information Group Statement of Cash Flows (In thousands of US$) For the year ended 31 December (Unaudited) 2010 2009
Cash flows from Operating activities
Net profit for the period 222,606 66,017 Adjustments for: Taxation 86,471 84,388 Depreciation and amortization 107,072 106,969 Finance items 575 5,701 Loss on disposal of property, plant and equipment 90 1,204 Working capital adjustments (84,248) (81,227) Other 11,785 15,441 Cash generated from operations before interest and tax 344,351 198,493 Finance income 1,202 361 Finance expenses (412) (4,893) Net cash generated by operating activities 345,141 193,961
Cash flows from investing activities Purchase of property, plant and equipment (note 9) (224,391) (223,268) Investments in other assets (2,592) (8,994) Acquisition of subsidiary, net of cash acquired (note 8) (63,109) - Other investing activities 14,537 (16,186) Net cash used in continuing investing activities (275,555) (248,448)
Cash flows from financing activities
Repayment of external debt - (112,500) (Repayment) / receipt of related party debt funding
(575,100) 195,743
Share issuance - IPO (net of transaction costs)
865,366 -
Increase in contributed surplus 231,255 3 Special dividend (252,981) - Interim dividend (6,562) -
Distributions to outside equity holders
- (12,204)
Net cash provided by continuing financing activities 261,978 71,042 Net increase in cash and equivalents
331,564 16,555
Net foreign exchange difference
(278) (136)
Cash and cash equivalents, net of overdrafts, at 1 January
69,726 53,307
Cash and cash equivalents at 31 December 401,012 69,726
The notes on pages 37 to 51 form an integral part of this financial information.
Notes to the Financial Information
1. GENERAL INFORMATION
African Barrick Gold plc (the "Company") was incorporated on 12 January 2010 and re-registered as a public limited company on 12 March 2010 under the Companies Act 2006. It is registered in England and Wales with registered number 7123187.
On 24 March 2010 the Company's shares were admitted to the Official List of theUnited Kingdom Listing Authority ("UKLA") and to trading on the main market ofthe London Stock Exchange, hereafter referred to as the Initial Public Offering("IPO").
Barrick Gold Corporation (''BGC'') currently owns approximately 73.9% of the shares of the Company and is the ultimate controlling party of the Group.
In preparation for the IPO, BGC conducted a reorganisation, which was completedon 22 of February 2010, whereby the companies comprising the African RegionalBusiness Unit of BGC were reorganised under the Company (The "Pre-IPOReorganisation"). As such, prior to 22 February 2010, the Company did notcontrol all of the entities (collectively the "Group") it acquired pursuant tothe Pre-IPO Reorganisation.The condensed consolidated financial information for the year ended 31 December2010 was approved for issue by the Board of Directors of the Company on 15February 2011. The condensed consolidated financial information does notcomprise statutory accounts within the meaning of section 434 of the CompaniesAct 2006. The condensed consolidated financial information is unaudited.
The Group's primary business is the mining, processing and sale of gold. The Group has four operating mines located in Tanzania. The Group also has a portfolio of exploration projects located across Tanzania.
2. BASIS OF PREPARATION OF THE CONDENSED ANNUAL FINANCIAL STATEMENTS
The financial information set out above does not constitute the Group'sstatutory accounts for the year ended 31 December 2010, but is derived from theGroup's full financial accounts, which are in the process of being audited. TheGroup's full financial accounts will be prepared under International FinancialReporting Standards as adopted by the European Union, and will be the firstfinancial statements prepared by the Group.The Company became the holding company for the Group pursuant to the Pre-IPOReorganisation completed on 22 February 2010, as detailed in Note 1. As thiswas a reorganisation of businesses under common control, the condensedconsolidated financial information for the years ended 31 December 2009 and 31December 2010 has been prepared on a basis that combines the results and assetsand liabilities of each of the companies constituting the Group (the pooling ofinterest method of accounting).
For the periods prior to the Pre-IPO Reorganisation, consolidated financial statements were not prepared for the Group. The accompanying condensed consolidated financial information presents the results of the Company and its subsidiaries as if the Group has been in existence throughout the period presented and as if the Pre-IPO Reorganisation had occurred as at 1 January 2009.
The condensed consolidated financial information has been prepared under thehistorical cost convention, as modified by the revaluation of financial assetsand financial liabilities (including derivative instruments at fair valuethrough profit and loss). The financial statements are presented in US dollars(US$) and all monetary results are rounded to the nearest US$'000 except whenotherwise indicated. 3. ACCOUNTING POLICIES
The accounting policies set out below are consistent with those used in the African Barrick Gold plc Prospectus except for:
a) New and amended standards adopted by the Group
The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010.
IFRS 3 (revised), 'Business combinations', and consequential amendments to IAS27, 'Consolidated and separate financial statements', IAS 28, 'Investments inassociates', and IAS 31, 'Interests in joint ventures', are effectiveprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after1 July 2009.The revised standard requires the application of the acquisition method ofaccounting for business combinations. For example, all payments to purchase abusiness are recorded at fair value at the acquisition date, with contingentpayments classified as debt subsequently re-measured through the incomestatement. There is a choice on an acquisition-by-acquisition basis to measurethe non-controlling interest in the acquiree either at fair value or at thenon-controlling interest's proportionate share of the acquiree's net assets.All acquisition-related costs are expensed.As the Group has adopted IFRS 3 (revised), it is required to adopt IAS 27(revised), 'Consolidated and separate financial statements', at the same time.IAS 27 (revised) requires the effects of all transactions with non-controllinginterests to be recorded in equity if there is no change in control and thesetransactions will no longer result in goodwill or gains and losses. Thestandard also specifies the accounting when control is lost. Any remaininginterest in the entity is re-measured to fair value, and a gain or loss isrecognised in profit or loss. There has been no material impact of IAS 27(revised).
Other new standards, amendments and interpretations to existing standards are not relevant to the Group.
The following new standards, new interpretations and amendments to standardsand interpretations have been issued but are not effective for the financialyear beginning 1 January 2010 and have not been early adopted: IFRS 9, 'Financial instruments', issued in December 2009, but has not yet beenendorsed. This addresses the classification and measurement of financial assetsand is likely to affect the Group's accounting for its financial assets. Thestandard is not applicable until 1 January 2013 but is available for earlyadoption.
Revised IAS 24, 'Related party disclosures', issued in November 2009 and endorsed by the EU on 19 July 2010. It supersedes IAS 24, 'Related party disclosures', issued in 2003. The revised IAS 24 is required to be applied from 1 January 2011. Earlier application, in whole or in part, is permitted.
'Classification of rights issues' (Amendment to IAS 32), issued in October2009. For rights issues offered for a fixed amount of foreign currency, currentpractice appears to require such issues to be accounted for as derivativeliabilities. The amendment states that if such rights are issued pro rata toall the entity's existing shareholders in the same class for a fixed amount ofcurrency, they should be classified as equity regardless of the currency inwhich the exercise price is denominated. The amendment should be applied forannual periods beginning on or after 1 February 2010. Earlier application ispermitted.'Prepayments of a minimum funding requirement' (Amendments to IFRIC 14), issuedin November 2009. The amendments correct an unintended consequence of IFRIC 14,'IAS 19 - The limit on a defined benefit asset, minimum funding requirementsand their interaction'. Without the amendments, entities are not permitted torecognise as an asset some voluntary prepayments for minimum fundingcontributions. This was not intended when IFRIC 14 was issued, and theamendments correct the problem. The amendments are effective for annual periodsbeginning 1 January 2011. Earlier application is permitted. The amendmentsshould be applied retrospectively to the earliest comparative period presented.IFRIC 19, 'Extinguishing financial liabilities with equity instruments'. Thisclarifies the requirements of IFRSs when an entity renegotiates the terms of afinancial liability with its creditor and the creditor agrees to accept theentity's shares or other equity instruments to settle the financial liabilityfully or partially. The interpretation is effective for annual periodsbeginning on or after 1 July 2010. Earlier application is permitted. Contributed surplus The Company did not exist until 12 January 2010, and did not become the parentcompany for the Group until 22 February 2010 when the transfer of the membersof the Group pursuant to the Pre-IPO Reorganisation was completed. Contributedsurplus represents the difference between the cumulative investment in theentities and businesses which form part of the combined African Barrick Goldplc Group and non-controlling interests. Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds.
Revenue recognition
Revenue is recognised when persuasive evidence exists that all of the following criteria are met:
The significant risks and rewards of ownership of the product have been transferred to the buyer;
Neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold, has been retained;
The amount of revenue can be measured reliably;
It is probable that the economic benefits associated with the sale will flow to the Group; and
The costs incurred or to be incurred in respect of the sale can be measured reliably.
Gold dore salesThe Group produces gold in dore form. Historically all dore sales were made toBarrick International (Barbados) Corporation ("BIBC"), a related party. FromMay 2010 onwards gold dore is sold directly to third parties. Revenue from golddore sales is recognised either at the time of sale to a third party or, inrelation to quarter end settlements, at the time of shipment should the Grouphave received confirmation of sale to the third party. The sales price is basedon the gold spot price at the time of sales.
Concentrate sales
Under the terms of concentrate sales contracts with independent smelting companies, gold in concentrate is sold at trailing monthly average spot prices based on contractually obliged quotational periods.
Revenue is recorded, net of selling costs, at the time of shipment, which isalso when risk passes to the independent smelting companies, using the contractprices on the expected date that final sales prices will be fixed. Variationsbetween the price recorded at the shipment date and the actual final price setunder the smelting contracts are caused by changes in market prices, and resultin an embedded derivative in accounts receivable. The embedded derivative isrecorded at fair value each period until final settlement occurs, with changesin fair value classified as provisional price adjustments and included as acomponent of revenue.
Co-products
The Group derives revenue from the sale of copper and silver. Beginning in Q42010 these revenues were recorded in revenue as co-products in line with amanagement decision taken to record it as co-product revenue on a basis of itssignificance. Comparative figures have been restated and impacts Revenue andCost of Sales.Revenue is recorded, net of selling costs, at the time of shipment, which isalso when risk passes to the smelting companies, using forward market prices onthe expected date that final sales prices will be fixed. Variations between theprice recorded at the shipment date and the actual final price set under thesmelting contracts are caused by changes in market prices, and result in anembedded derivative in accounts receivable. The embedded derivative isrecorded at fair value each period until final settlement occurs, with changesin fair value classified as provisional price adjustments and included as a
component of revenue. Employee benefits
The Group operates an equity-settled, share based compensation plan ("Stock Option Plan"), a long term incentive plan ("LTIP") and a legacy restricted share unit plan ("Legacy RSU Plan").
Share based payments
Issue of Stock Options
Stock options can be granted either under a Company LTIP or a Stock OptionPlan. The Company receives services from employees as consideration for equityinstruments (options) of the Group. The fair value of the employee servicesreceived in exchange for the grant of the options is recognised as an expense.The total amount to be expensed is determined by reference to the fair value ofthe options granted:
including any market performance conditions;
excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and
excluding the impact of any non-vesting conditions (for example, the requirement for employees to save).
Non-market vesting conditions are included in assumptions about the number ofoptions that are expected to vest. The total expense is recognised over thevesting period, which is the period over which all of the specified vestingconditions are to be satisfied. At the end of each reporting period, theCompany revises its estimates of the number of options that are expected tovest based on the non-market vesting conditions. It recognises the impact ofthe revision to original estimates, if any, in the income statement, with acorresponding adjustment to equity.When the options are exercised, the Company may issue new shares or procure thetransfer of existing shares to satisfy the exercise. Where shares are issued,the proceeds received net of any directly attributable transaction costs arecredited to share capital (nominal value) and share premium when the optionsare exercised. The grant by the Company of options over its equity instrumentsto the employees of subsidiary undertakings in the Group is treated as acapital contribution. The fair value of employee services received, measured byreference to the grant date fair value, is recognised over the vesting periodas an increase to investment in subsidiary undertakings, with a correspondingcredit to equity.LTIP
The Company has a cash-settled, Restricted Share Unit (RSU) plan for selectemployees. Under the terms of the RSU plan, selected employees are granted RSUswhere each RSU has a value equal to 1 common share of the Company. RSUs vestover a two and a half or three year period and are settled in cash. AdditionalRSUs are credited to reflect dividends paid on common shares of the Companyduring the vesting period. A liability for RSUs is measured at fair value onthe grant date and is recognised on a straight-line basis over the vestingperiod, with a corresponding charge to the compensation expense. Changes in thefair value of the RSU liability, due to changes in the price of common sharesof the Company, are recorded each period, with a corresponding charge to thecompensation expense. Compensation expenses recognised for RSUs incorporate anestimate for expected forfeiture rates. The expected forfeiture is estimatedbased on historical forfeiture rates and expectations of future forfeiturerates. Adjustments to compensation expense are recognised in periods where theactual forfeiture rate differs from the expected rate.
Legacy RSU Plan
Historically, the Barrick Group maintained a cash-settled, RSU plan for selectemployees who now work for the Company. This plan operates in the identicalmanner to the Company RSU plan. These existing legacy restricted share unitswill continue to be administered and accounted for based on the movement of thefair value of the Barrick common share for recording liabilities andcompensation expense. g) Comparative figures
Where a change in the presentational format of the condensed consolidated interim financial information has been made during the period, comparative figures have been restated accordingly.
h) Presentation changes- RevenueRevenue from the sale of copper and silver is treated as co-product revenue,and included in total revenue in line with a management decision to record itas co-product revenue. Co-product revenue increased by 202% year-on-year. Thisis different to the Prospectus, where it was treated as by-product revenue as acredit to cost of sales. The change was a result of increased revenue fromcopper which derived from Buzwagi.
- Restricted share units
Assets relating to restrictive share unit liabilities of US$7.5 million havebeen reclassified to the liability. This is different to the Prospectus wherethe asset was shown separately as part of non-current assets. As this amounthas an immaterial impact on the opening position, no opening balance sheet ispresented.
- Gains and losses on the translation of foreign currency transactions
Gains and losses on the translation of foreign currency transactions are deemedto be part of other charges. This is different to the Prospectus where it wasclassified as part of corporate administration.
i) Derivatives
Derivatives are initially recognised at fair value on the date a derivativecontract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether thederivative is designated as a hedging instrument, and if so, the nature of
theitem being hedged. 4. SEGMENT REPORTINGThe Group has only one primary product produced in a single geographiclocation, being gold produced in Tanzania. In addition the Group producescopper as a co-product. Reportable operating segments are based on the internalreports provided to the Chief Operating Decision Maker ("CODM") to evaluatesegment performance, decide how to allocate resources and make other operatingdecisions. After applying the aggregation criteria and quantitative thresholdscontained in IFRS 8, the Group's reportable operating segments were determinedto be: North Mara gold mine; Tulawaka gold mine; Bulyanhulu gold mine; Buzwagigold mine; and a separate Corporate and Exploration segment, which primarilyconsists of costs related to corporate administration and exploration andevaluation activities ("Other").Segment results and assets include items directly attributable to the segmentas well as those that can be allocated on a reasonable basis. Segment assetsconsist primarily of property, plant and equipment, inventories andreceivables. Capital expenditures comprise additions to property, plant andequipment. Segment liabilities are not reported since they are not consideredby the CODM as material to segment performance. The Group has also includedsegment cash cost on a co- product basis. Segment information for thereportable operating segments of the Group for the years ended, 31 December2010 and 31 December 2009 is set out below.2010 reflected as 100% North Mara Tulawaka Bulyanhulu Buzwagi Other Total Gold revenue 268,762 78,499 327,847 246,194 - 921,302 Co-product revenue 804 148 31,977 20,790 - 53,719 Total Segment revenue1 269,566 78,647 359,824 266,984 - 975,021
Segment cash costs on a by-product basis2
103,983 45,450 173,491 156,601 50,296 529,821 Other charges3 12,743 (5,865) 5,100 14,408 (353) 26,033 EBITDA4,5 152,840 39,062 181,233 95,975 (49,943) 419,167 Depreciation and amortization 28,018 10,622 28,386 39,087 3,402 109,515 EBIT4 124,822 28,440 152,847 56,888 (53,345) 309,652 Total segment finance income 1,202 Total segment finance expense (1,777) Profit before tax 309,077 Income tax expense (86,471) Profit for the year 222,606 Capital expenditure: Sustaining 26,217 9,748 71,387 18,844 7,116 133,312 Expansionary 59,043 2,758 357 973 - 63,131 Reclamation asset adjustment 6,182 3,007 8,795 9,964 - 27,948 Total Capital expenditure 91,442 15,513 80,539 29,781 7,116 224,391 Cash costs: Segment cash cost on a by-product basis2 103,983 45,450 173,491 156,601 479,525 Deduct: Co-product revenue (804) (148) (31,977) (20,790) (53,719) Total Cash costs on co-product basis 103,179 45,302 141,514 135,811 425,806 Sold ounces6 218,684 63,909 262,442 198,221 743,256 Cash cost per ounce sold 472 709 539 685 573 Equity ounce adjustment (4)
Attributable cash cost per ounce sold4
569 2009 reflected as 100% North Mara Tulawaka Bulyanhulu Buzwagi Other Total Gold revenue 204,760 90,446 244,513 153,693 - 693,412 Co-product revenue 753 160 16,669 188 - 17,770 Total Segment revenue1 205,513 90,606 261,182 153,881 - 711,182
Segment cash costs on a by-product basis2
107,174 38,757 182,665 65,081 46,630 440,308 Other charges3 9,511 1,988 19,976 2,581 (12,637) 21,419 EBITDA4,5 88,828 49,861 58,541 86,219 (33,993) 249,456 Depreciation and amortization 25,890 20,935 26,894 16,991 2,640 93,350 EBIT4 62,938 28,926 31,647 69,228 (36,633) 156,106 Total segment finance income 361 Total segment finance expense (6,062) Profit before tax 150,405 Income tax expense (84,388) Profit for the year 66,017 Capital expenditure: Sustaining 28,012 2,546 56,694 8,059 389 95,700 Expansionary 17,876 3,655 2,286 87,851 - 111,668 Reclamation asset adjustment 226 1,683 603 13,388 - 15,900 Total Capital expenditure 46,114 7,884 59,583 109,298 389 223,268 Cash costs: Segment cash cost on a by-product basis2 107,174 38,757 182,665 65,081 393,677 Deduct: Co-product revenue (753) (160) (16,669) (188) (17,770) Total Cash costs on co-product basis 106,421 38,597 165,996 64,893 375,907 Sold ounces6 209,495 93,413 255,121 153,682 711,711 Cash cost per ounce sold 508 413 651 422 528 Equity ounce adjustment 5
Attributable cash cost per ounce sold4
533 1Revenue includes the incidental revenue derived from the sale of co-products.Previously co-product revenue was regarded as by-products and included in costof sales.
2The Chief Decision Maker reviews direct mining costs for the four operating mine sites separately from corporate administration costs and exploration costs. Consequently, the Group has reported these costs in this manner.
3Foreign exchange gains and losses were included in cash operating costs as per the Prospectus. In the analysis above they have been reclassified to other charges.
4These are non-IFRS financial performance measures with no standard meaning under IFRS. Refer to 'Non IFRS measures' on page 27 for definitions.
5Indirect corporate administration costs on-charged to the sites have been excluded from the individual site's EBITDA and included in Other.
6Reflects 100% of ounces sold.
For the year ended 31 December (in thousands of US$) 2010 2009 Segment assets North Mara 603,739 528,667 Tulawaka 104,003 93,612 Bulyanhulu 1,109,740 1,026,668 Buzwagi 724,467 664,383 Other7 385,159 51,898 Total segment assets 2,927,108 2,365,228
7During the current year additions of US$102 million were incurred for the purchase of Tusker Intangible assets and goodwill, net of cash acquired.
TAX EXPENSE For the year ended 31 December(in thousands of US$) 2010 2009 Current Tax:Current tax on profits for the year 291 - Adjustments in respect of prior years - -Total current tax 291 - Deferred tax Origination and reversal of temporary differences 86,180 84,388Total deferred tax 86,180 84,388 Income tax expense 86,471 84,388 The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the profits of the consolidated entities as follow: Profit before tax 309,077 150,405 Tax calculated at domestic tax rates applicable to profits in the respective countries 88,186 45,130
Tax effects of:
Expenses not deductible for tax purposes / (non- taxable income) (2,908) 3,995Tax losses for which no deferred incometax asset was recognized 4,347 (2,883) Prior year adjustments (2,201) 1,681 Adjustment to unrecognised tax benefits carried forward - 36,8921 Effect of tax rates in foreign jurisdications (63) (2) Other (890) (425) Tax charge 86,471 84,388
1The 2009 reconciliation includes an amount of US$36.9 million relating to an adjustment made against the amount of unrecognised tax benefits carried forward. The adjustment reflects uncertainty regarding the recoverability ofcertain tax losses, and gives rise to an increased deferred tax charge.
The tax rate in Tanzania is 30% and in South Africa 28% for both years presented.
6. EARNINGS PER SHARE
Basic earnings per share ("EPS") is calculated by dividing profit for the period attributable to owners of the Company by the weighted average number of Ordinary Shares in issue during the period.
For the purpose of calculating EPS, the share capital for the Company in theperiod prior to the Pre-IPO Reorganisation on 22 February 2010 is calculated asif this reorganisation was completed as at 1 January 2009.
Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary Shares outstanding to assume conversion of all dilutive potential Ordinary Shares. The Company has dilutive potential Ordinary Shares in the form of stock options. The weighted average number of shares are adjusted for the number of shares granted assuming the exercise of stock options.
At 31 December 2010 and 31 December 2009, earnings per share have beencalculated as follows: For the year ended 31 December (in thousands of US$) 2010 2009 Earnings
Profit from continuing operations attributable to equity
holders of the Company 218,103 58,577
Weighted average number of Ordinary Shares in issue1 410,085,499
410,085,499
Adjusted for dilutive effect of:
- Stock options 18,482 -
Weighted average number of ordinary shares for diluted
earnings per share 410,103,981 410,085,499 Earnings per share
Basic earnings per share from continuing operations (cents) 53.2
14.3
Dilutive Earnings per share from continuing operations (cents) 53.2
14.3
1The prior year basic earnings per share comparative were calculated using the2010 number of average weighted shares as the Company was not incorporated inthe prior year, and thus had no share capital.
7. TRADE AND OTHER RECEIVABLES AND OTHER CURRENT ASSETS
For the year ended 31 December 2010 2009 Trade and other receivables:
Amounts due from concentrate sales 46,491
16,219 Other receivables¹ 11,621 9,662 Due from related parties 2,131 37,518
Less: Provision for doubtful debt on other receivables (1,029)
(1,801)
Total trade and other receivables 59,214
61,598 (in thousands of US$) Other current assets:
Current portion of indirect tax receivables2 58,048
51,339
Other debtors and advance payments 12,055
6,142 Insurance receivable 325 830 Total other current assets 70,428 58,311
¹Other receivables relate to employee and supplier back charge related receivables.
2The total indirect tax receivable is US$121.2million of which US$63.2millionis included in non-current assets. This receivable is due from the TanzanianRevenue Authority and it is anticipated to be offset against future corporationtax payments. To reflect the time value of money the long term portion of thisreceivable has been discounted at a rate of 5.7%. 8. BUSINESS COMBINATIONS On 27 April 2010, the Company, through BUK Holdco Limited, one of its immediatesubsidiaries, purchased 100% of the issued share capital of Tusker Gold Limited("Tusker") by way of a takeover offer for an aggregate net consideration ofapproximately US$74 million. Tusker is an Australian based exploration companywith a focus on gold. Tusker was listed on the Australian Stock Exchange butwas delisted from the Exchange as part of the acquisition. All of Tusker'sassets are located in Tanzania and consist of a significant gold resource baseand additional exploration ground. Details of the purchase consideration, the net assets acquired and goodwill areas follows: (in thousands of US$) 2010 - Purchase consideration 74,232
- Foreign exchange gain on cash settlement recognised in other charges (3,109)
Total purchase consideration 71,123 The assets and liabilities as of 27 April 2010 recognised as a result of theacquisition are as follows: Acquiree'scarrying(in thousands of US$) Fair value amount Cash and cash equivalents 8,014 8,014
Property, plant and equipment 115
115
Exploration and evaluation asset 79,533
5,740 Receivables 314 314 Deferred taxation liability (22,023) - Payables (4,048) (884) Stock options (9,696) (9,696) Fair value of net assets 52,209 3,603 Goodwill 22,023 Total purchase consideration 74,232 Purchase consideration 74,232
Foreign gain on cash settlement recognised in other charges
(3,109)
Cash and cash equivalent in subsidiary acquired
(8,014)
Net cash outflow on acquisition
63,109 The goodwill is attributable to deferred taxation liability generated due tothe difference between the fair value of the exploration and evaluation assetand the book value thereof for taxation purposes. None of the goodwill isexpected to be deductible for tax purposes. The fair value of the acquiredidentifiable intangible assets, goodwill and deferred tax liability areprovisional pending receipt of the final valuations for those assets.
Acquisition costs incurred relating to the Tusker acquisition amounted to US$0.4 million which was all expensed as incurred.
Cancellation of Options
A total of 12,450,000 stock options were held by Tusker directors and employeesat the time of the acquisition. The holders of all options irrevocably agreedto cancel their options in exchange for a consideration of US$8.1 million,which formed part of the consideration. On 31 December 2009 Tusker announced that it had appointed Argonaut SecuritiesLtd to provide assistance with any future capital raisings. Based on the termsof the arrangement, Argonaut will be remunerated for its services by Tuskeragreeing to issue Argonaut with 2 million options with an exercise price of30c, 2 million options with an exercise price of 50c and a further 4 millionoptions with an exercise price of 80c. The Argonaut agreement was cancelled inexchange for payment of an amount of US$1.6 million. Expenses The acquired business contributed expenses of US$765,822 to the Group for theperiod from 30 April 2010 to 31 December 2010. If the acquisition had occurredon 1 January 2010, consolidated profit for the year ended 31 December 2010would have been US$2.7 million. These amounts have been calculated using theGroup's accounting policies.
9. PROPERTY, PLANT & EQUIPMENT
For the year ended 31 Plant Mineral properties December 2010 and and mine development Assets under (in thousands of US$) equipment costs construction1 Total At January 1, 2010, net of accumulated depreciation 784,122 625,030 88,920 1,498,072 Additions - - 224,391 224,391 Disposals/write-downs (273) - - (273) Depreciation (45,839) (61,233) - (107,072)
Transfers between categories 58,989 130,037 (189,026)
- At December 31, 2010 796,999 693,834 124,285 1,615,118 At January 1, 2010 Cost 1,067,766 875,242 88,920 2,031,928 Accumulated depreciation (283,644) (250,212) - (533,856) Net carrying amount 784,122 625,030 88,920 1,498,072 At December 31, 2010 Cost 1,125,072 1,005,279 124,285 2,254,636 Accumulated depreciation (328,073) (311,445) - (639,518) Net carrying amount 796,999 693,834 124,285 1,615,118 For the year ended 31 Plant Mineral properties December 2009 and and mine development Assets under (in thousands of US$) equipment costs construction1 Total At January 1, 2009, net of accumulated depreciation 365,067 587,642 430,406 1,383,115 Additions - - 223,268 223,268 Disposals/write-downs (1,342) - - (1,342) Depreciation (72,297) (34,672) - (106,969)
Transfers between categories 492,694 72,060 (564,754)
- At December 31, 2009 784,122 625,030 88,920 1,498,072 At January 1, 2009 Cost 578,457 803,182 430,406 1,812,045 Accumulated depreciation (213,390) (215,540) - (428,930) Net carrying amount 365,067 587,642 430,406 1,383,115 At December 31, 2009 Cost 1,067,766 875,242 88,920 2,031,928 Accumulated depreciation (283,644) (250,212) - (533,856) Net carrying amount 784,122 625,030 88,920 1,498,072
1 Assets under construction represents (a) sustaining capital expendituresincurred constructing tangible fixed assets related to operating mines andadvance deposits made towards the purchase of tangible fixed assets; and (b)expansionary expenditure allocated to a project on a business combination orasset acquisition, and the subsequent costs incurred to develop the mine. Oncethese assets are ready for their intended use, the balance is transferred toplant and equipment, and/ or mineral properties and mine development costs.10. SHARE CAPITAL Share capital Share premium Number £ '000 US$'000 US$'000 At 12 January 2010 1 - - -
Issuance of Ordinary Shares to BGC 303,246,949 30,325 45,796
- Issuance of shares on IPO 101,082,317 10,108 15,415 870,950
Issuance of over-allotment shares 5,756,232 576 886
50,085 Transaction costs - - - (53,933) At 31 December 2010 410,085,499 41,009 62,097 867,102
Creation of Company and Pre-IPO Reorganisation
The Company was incorporated and registered in England and Wales on 12 January2010 as a private limited company with a share capital of one Ordinary Share of£1.
On 19 February 2010 the Company entered into a share exchange agreement pursuant to which it acquired the entire issued share capital of BUK Holdco Ltd, an intermediate holding company of members of the Group, from members of BGCs Group in return for issuing 943,464 Ordinary Shares of £1 each at a premium of £999 per share.
On 22 February 2010 the Company entered into a share exchange agreementpursuant to which it acquired the entire issued share capital of 1816962Ontario Inc from BGC, an intermediate holding company of members of the Group,in return for issuing 375,000 Ordinary Shares of £1 each at a premium of £999per share. The Company subsequently entered into a reduction of capital, eliminating sharepremium of US$1,989,138 to create distributable reserves, and restructured itsshare capital so as to reduce the nominal value of each of its Ordinary Sharesto 10 pence each. Following the share capital restructuring the Company made abonus issue of shares to its then existing shareholders in preparation for theIPO, resulting in a total of 303,246,950 Ordinary Shares being in issue priorto the IPO.
Re-registration of the company as a public company
On 12 March 2010, the Company re-registered as a public limited company.
Issuance of shares on IPO
On 24 March 2010 the Company successfully completed its IPO. A total number of101,082,317 shares with a par value of 10 pence each were issued at a price of575 pence per share for a total of £581,223,322 (US$886,365,567) net ofunderwriter fees. On 15 April 2010 the Company issued a further 5,756,232Ordinary Shares at a price of 575 pence per share for a total of £33,098,334(US$52,275,508) pursuant to the exercise of the over-allotment option grantedin connection with the IPO. Total costs related to the issuance of new sharestaken against share premium amounted to US$53.9 million.
11. COMMITMENTS AND CONTINGENCIES
The Group is subject to various laws and regulations which, if not observed, could give rise to penalties. As at 31 December 2010, the Group has the following commitments and/ or contingencies
Legal contingencies
As at 31 December 2010, the Group was a defendant in approximately 240 lawsuits. The plaintiffs are claiming damages and interest thereon for the loss caused by the Group due to one or more of the following: unlawful eviction, termination of services, wrongful termination of contracts of service, non payment for services, defamation, negligence act or omission in failing to provide safe working environment, unpaid overtime and public holidays compensation.
The total amounts claimed from lawsuits in which specific monetary damages aresought amounted to US$44 million. The Group's Legal Counsel is defending theGroups' current position, and the outcome which is not certain. However, in theopinion of the Directors and Group's Legal Counsel, no material liabilities areexpected to materialise from these lawsuits. Consequently no provision has beenset aside against the claims in the books of account. Tax related contingencies
i. On 26 October 2009, the TRA issued a demand notice against the Group for an
amount relating to withholding tax on technical services provided to Bulyanhulu Gold Mine Ltd. The claim amounts to US$ 5.355 million. Management is of the opinion that the Group complied with all of the withholding tax requirements, and that there will be no amount payable. Therefore no provision has been raised.
ii. The TRA has issued a number of tax assessments to the Group relating to
past taxation years from 2002 onwards. The Group believes that these
assessments are incorrect and has filed objections to each of them. The
Group is attempting to resolve these matters by means of discussions with
the TRA. Management is of the opinion that this will not result in any material liabilities to the Group.
Exploration and Development Agreement
Pursuant to an agreement with the Government of the United Republic ofTanzania, entered into in 1996 the Group was issued a mining licence for theNyabigena, Nyabirama and Gokona concessions in the Nyamongo region, North Marain Tanzania. The agreement requires the Group to pay to the Government ofTanzania annual rents of US$1,500 per annum per square kilometer, for as longas the Group holds the mining licence. The total commitment for 2010 based onmineral licences held as at 31 December 2009 is US$0.17 million. Purchase Commitments
At December 31, 2010, the Group had purchase obligations for supplies and consumables of approximately US$ 64 million (2009: US$56 million).
Capital Commitments
In addition to entering into various operational commitments in the normal course of business, the Group entered into the following commitments for construction activities for capital projects.
For the year ended 31 December (in thousands of US$) 2010 2009
Contracted capital expenditure 29,323
29,460 Total 29,323 29,460 12. SUBSEQUENT EVENTS A dividend in respect of the year ended 31 December 2010 of US$ 3.7 cents pershare, amounting to a total dividend of US$5.3 cents per share for 2010, is tobe proposed at the Annual General Meeting on 21 April 2011. These financialstatements do not reflect this dividend payable. Reserves and Resources Mineral reserves and mineral resources estimates contained in this report havebeen calculated as at 31 December 2010 in accordance with National Instrument43-101 as required by Canadian securities regulatory authorities, unlessotherwise stated. Canadian Institute of Mining, Metallurgy and Petroleum (CIM)definitions were followed for mineral reserves and resources. Calculations havebeen reviewed, verified (including estimation methodology, sampling, analyticaland test data) and compiled by ABG's Personnel under the supervision of ABG'sQualified Persons: Nic Schoeman, Director of Technical Services, Richard Adofo,Corporate Manager, Geology and Robert Van der Westhuizen, Corporate MinePlanning Manager.Mineral reserves have been calculated using an assumed long-term average goldprice of $US 1000 per ounce, a silver price of US$ 16.00 per ounce, a copperprice of US$ 2.00 per pound. Reserve calculations incorporate current and/orexpected mine plans and cost levels at each property. Mineral Resources havebeen calculated using an assumed long-term average gold price of US$ 1200 perounce, a silver price of US$ 19.00 per ounce and a copper price of US$ 2.50 perpound. Resources have been estimated using varying cut-off grades, depending onboth the type of mine or project, its maturity and ore types at each property.Reserve estimates are dynamic and are influenced by changing economicconditions, technical issues, environmental regulations and any other relevantnew information and therefore these can vary from year to year. Resourceestimates can also change and tend to be influenced mostly by new informationpertaining to the understanding of the deposit and secondly the conversion toore reserves. In addition, estimates of inferred mineral resources may not formthe basis of an economic analysis and it cannot be assumed that all or any partof an inferred mineral resource will ever be upgraded to a higher category.Therefore, investors are cautioned not to assume that all or any part of aninferred mineral resource exists, that it can be economically or legally mined,or that it will ever be upgraded to a higher category. Likewise, investors arecautioned not to assume that all or any part of measured or indicated mineralresources will ever be upgraded into mineral reserves.
Tulawaka mineral reserves and resources are stated as ABG's 70% attributable portion.
The Nyanzaga mineral reserves and mineral resources estimates contained in thisreport are based on the inferred resource declaration made by Tusker GoldLimited in June 2009, which was calculated in accordance with the AustralasianCode for Reporting of Exploration Results, Mineral Resources and Ore Reserves2004 edition.
[Refer to www.africanbarrickgold.com for Mine Gold Reserves & Resources table]
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