TAX NEWS - JUNE 2010

Australia Tax: AngloGold to Cut Australian Exploration on Profit Tax

by Elisabeth Behrmann, 01 June 2010 -- AngloGold Ashanti Ltd., the world's third-largest gold producer, will cut its exploration spending in Australia if a proposed tax on mining profits is approved.

"Our global exploration spending is about $180 million, of which 10 to 15 percent we've been allocating to Australia," Mark Cutifani, chief executive officer of Johannesburg-based AngloGold, said by phone from Canberra. "If the resource tax goes through in its current form we certainly won't be allocating that sort of level of expenditure to Australia."

AngloGold joins BHP Billiton Ltd., Rio Tinto Group and Xstrata Plc in pressing for changes to the planned 40 percent tax on mining project profits in Australia, the biggest exporter of coal and iron ore. Resources Minister Martin Ferguson today said the government is listening to the concerns.

"I'm very concerned about the nature of the debate both as a company leader and as an Aussie," said Cutifani, who is attending the annual Minerals Week conference hosted by the Minerals Council of Australia. "The real issue for me is lack of consultation prior to the announcement of the tax," he said, with the government's handling of the announcement damaging Australia's reputation.

Prime Minister Kevin Rudd yesterday said his government is committed to the planned tax, which will apply to profits on resource projects above the long-term bond rate, currently about 6 percent.


Reputational Damage

Other resource rich countries such as South Africa are "rubbing their hands together" over the prospect of attracting investment that may have gone to Australia, Cutifani told reporters in Canberra.

"The current reform will damage Australia's reputation and lead to the deferral of mining projects and the loss of thousands of jobs," Ian Smith, the CEO of Australia's largest gold producer Newcrest Mining Ltd., said at the conference.

AngloGold, developing the A$600 million ($499 million) Tropicana project in Western Australia, said the tax made the project "tough," adding that it's still "on track."

AngloGold's board is due to decide on Tropicana by the fourth quarter this year. It may start output in 2013, and is set to produce at a rate of about 400,000 ounces a year.

Cutifani rated Canada, Africa and Colombia as the most attractive for gold mining investment.


Canada, Colombia

"Canada's government has been very progressive in supporting its mining industry, so we've gone back into Canada in two major areas," he said. "Continental Africa all up is the most attractive exploration address in the world."

AngloGold had output of 4.6 million ounces last year, of which about 35 percent came from South Africa. This proportion will fall over the next five years to less than 30 percent. "We want to keep output in South Africa steady at 1.7 million ounces while output elsewhere will rise," Cutifani said.

Planned cost cuts in South Africa of 10 percent this year are progressing well, he said, targeting a further reduction of 10 to 15 percent over the next two years. AngloGold aims to cut its South African workforce by about 10 percent over the next two years from about 32,000 now. "We're hoping to do this by natural attrition," Cutifani said.

Total mining costs in South Africa were $619 an ounce during the first quarter, compared with an average company cash cost of "a tad under" $600 an ounce. Gold prices are expected to trade in a range at $1,000-$1,200 an ounce "for now," Cutifani said. Gold for immediate delivery traded at $1,223 an ounce at 12:17 p.m. Sydney time.

AngloGold isn't in talks for takeovers at present because its own projects are more cost effective.

"Some of the most recent transactions you've seen in the industry, assets are changing hands at about $7,000-$8,000 of production ounce, whereas we can bring on new production at $2,500 an ounce."