External operating environment
Our external operating environment is dynamic and complex, with external factors beyond our control influencing our ability to deliver on our strategy and create value.
The focus of the business will be to lower costs and ensure profitability at lower gold prices.
The most prominent external event of 2022 – Russia’s war in Ukraine – continues to have far-reaching impacts on global supplies of oil, gas and grain, among other commodities. The continuing hostilities have exacerbated global inflation and interest rates and increased the prospect of a global recession in 2023. Increased inflationary pressure placed upward pressure on costs for the business and society at large, creating the potential for economic, social, and subsequent political disruptions, including in those jurisdictions in which we operate. There maybe a consequent impact on the global natural resources sector as governments and society respond to this inflationary pressure.
The COVID-19 environment has stabilised as more people acquire some level of immunity from vaccination and previous infections. Reported cases across our employees and contractors remain mild and asymptomatic with no severe cases or deaths from COVID-19 reported in 2022. However, we remain vigilant and our COVID-19 crisis preparedness and response plan remains in place to enable prompt action and business continuity should the situation change.
Investors continued to increase their call for the companies in which they invest to improve their sustainability practices, governance and contributions to society while reducing their impact on the environment.
Major external factors affecting AngloGold Ashanti are:
- Global geopolitical and macro-economic uncertainty, including inflation, skilled labour shortages, supply chain disruptions and energy shortages
- Growing climate crisis and increasing pressure to decarbonise operations
- Uncertain and increasingly rigorous regulatory requirements
- Increased demands for employment and other value chain opportunities from local communities
- Increasing stakeholder and societal expectations, particularly in relation to ESG performance and disclosures
- Pressure from international credit ratings
Global geopolitical and macro-economic uncertainty, including inflation, skilled labour shortage, supply chain disruptions and energy shortages
Explanation and impact
Economic uncertainty and heightened geopolitical tensions impact several factors that can influence commodity prices, exchange rates, and interest rates. These factors together with investor sentiment influence the gold price, which in turn affects the financial results of our business.
While most markets globally appear to have recovered from the effects of the COVID-19 pandemic and related lockdowns, the world economy has suffered further shocks resulting from the war in Ukraine, tighter global financial markets and a marked rise in global inflation.
According to the International Monetary Fund, the global economy grew by 2.9% in 2022, compared to 5.9% in 2021. The slowdown is expected to continue in 2023 with growth of 1.7% forecast for the year.
Inflation, which reached 6.5% in the US at the end of 2022, remains a key concern with the Russian/Ukraine war spurring higher energy prices.
The gold price received averaged $1,793/oz in 2022, which, although high relative to the average price over the past decade, was little changed from the $1,796/oz average for 2021 Continued price increases amid rising inflationary expectations were countered by expectations of rising interest rates as monetary authorities in the world’s largest economies raised interest rates to check rising prices.
The unprovoked war on Ukraine by Russian forces in late February 2022 continues to cause enormous suffering and loss of life, although the disruptions to financial and commodity markets have lessened over time. Prices for several hard and soft commodities reached their highest levels in a decade or more, and in some cases set records. Brent crude oil touched levels not seen since 2012; copper advanced to its highest level ever. Corn and wheat both soared to multi-year highs. While the gold price responded initially, peaking at $2,039/oz in early March 2022 before falling to a low for the year of $1,632/oz in October. The closing price on 10 March 2023 was $1,868/oz.
Sudden price spikes experienced over the past year and higher cost of key production inputs impacted margins. More costly basic commodities also affected host countries and communities. Furthermore, these higher prices threaten the ability of the global community and individual member states to achieve the targets set out by the United Nations Sustainable Development Goals (SDGs) by 2030.
Our response
- Rigorously manage those variables in our control
- Continued implementation of new Operating Model to reduce waste and duplication, improve effectiveness by simplifying organisational structure and locate resources closer to each operation to ensure delivery to plans
- Renewed emphasis on our Full Potential Programme and also ongoing Operational Excellence initiatives to optimise operating processes and reduce costs, while seeking to ensure our workforce is fully engaged and appropriately skilled
- Continued investment in capital projects to increase grade, extend mine lives and widen margins over the medium-to-long term
- Maintain balance sheet strength by reducing debt, increasing maturity of borrowings and lowering the average interest rate
- Apply disciplined capital allocation for exploration projects to extend mine life and improve the quality of our portfolio
Outlook
A robust economic recovery in the United States, Europe and China, coupled with complications in the global supply chain, brought with it accelerating inflation and the prospect of higher interest rates to counter rising prices. While inflation has moderated in 2023, it remains a persistent threat. The pace at which the US Federal Reserve and other monetary authorities are prepared to raise interest rates to combat inflation will have a direct impact on gold prices and input costs in the year ahead. The focus of the business will be to lower costs and ensure profitability at lower gold prices.
Related strategic focus areas
Improve portfolio quality
Enhance financial flexibility
Optimise overhead, costs and capital expenditure
Related risks
Risk 2: Failure to successfully deliver and ramp up growth projects
Risk 4: Inability to convert Mineral Reserve and Mineral Resource
Risk 6: Failure to move down the industry cost curve – all-in sustaining cost competitiveness
Risk 7: Loss of or threats to social licence to operate
Risk 8: Adverse gold and commodity prices, and currency movements
Risk 10: Failure to attract and retain critical skills and talent
For further detail on our top risks, see Managing risks and opportunities
Growing climate crisis and increasing pressure to decarbonise operations
Explanation and impact
The prospect of changing rainfall patterns, rising sea levels, higher temperatures, increased water stress or floods and severe weather conditions caused by global climate change remain growing concerns for businesses, investors, broader society and governments. This has led to growing pressure to reduce greenhouse gas (GHG) emissions and to limit fossil energy and water usage and to promote responsible practices in line with the United Nations Framework Convention on Climate Change (UNFCCC), the Conference of the Parties (COP), the Paris Agreement, the SDGs and other benchmarks.
Our response
- Maintained focus on improving our ESG performance
- Initiated two new Group standards in 2022 – the first relating to the management of mine blasting-related noise and vibration beyond the fence-line and the second relating to the management of climate change risks. The latter follows through on an action plan contained in the Group Climate Change Strategy
- Set a target to achieve a 30% absolute reduction in Scope 1 and 2 greenhouse gas (GHG) emissions by 2030 (as compared to 2021) through a combination of renewable energy projects, fleet electrification and lower-emission power sources
- Recommitted to net zero Scope 1 and 2 GHG emissions by 2050 and, in partnership with our value chain partners, to set Scope 3 GHG reduction targets
- Climate Change Working Group maintained its focus on the related strategy and transition processes, and will oversee implementation of the new Climate Change Strategy adopted in 2021
- Complied with our corporate frameworks, standards and guidelines, as well as external ones including the ICMM and the World Gold Council’s Responsible Gold Mining Principles, among others
Outlook
Pressure from governments, investors and broader society to improve environmental stewardship and reduce GHG emissions is likely to intensify. This trend is being driven by a number of factors, including investors’ desire to mitigate long-term risks to the overall operating environment and also commitments made by countries under the Paris Agreement to limit average global temperature increases to less than 1.5 degrees Celsius by 2050. To achieve this, global emissions are projected to need reductions of 8-10% annually between 2020 and 2050.
To do our part, we set targets designed to achieve a 30% reduction in absolute Scope 1 and 2 greenhouse gas (GHG) emissions by 2030 as compared to 2021, and then to progress work toward charting a Roadmap to Net Zero Scope 1 and 2 GHG emissions by 2050. Our power mix already includes hydro-electric energy in the DRC and Brazil, while our planned Colombia projects will be largely hydro-powered. Our Australian operations, previously powered by diesel generators, presently use mostly natural gas.
Related strategic focus areas
Focus on people, safety and sustainability
Improve portfolio quality
Maintain long-term optionality
Related risks
Risk 9: Inability to meet expectations or to mine responsibly (ESG performance)
For further detail on our top risks, see Managing risks and opportunities
Uncertain and increasingly rigorous regulatory requirements
Explanation and impact
Regulatory certainty facilitates decision-making in relation to long-term investments in mining assets with lives spanning several decades. Regulatory changes relating to mining rights, the payment of taxes and royalties, and operating, closure and decommissioning requirements can impact investment returns.
More onerous regulations can result in an increased cost of compliance, which may be compounded by uncertainty in the understanding or application of legislation. This can affect the financial position of the business and its sustainability as well as relationships with government and regulators.
Our response
- Engaged constructively with governments, local stakeholder groups and regulators to optimise the shared value and benefits derived from the orebody among stakeholders
- Carefully monitored regulatory changes to ensure compliance and to facilitate long-term planning
Outlook
While we engage regularly with all governments and regulators, particular attention is given to negotiations with regulators in Colombia (on mining and environmental permitting), Brazil (on evolving TSF legislation) and countries in Africa that are considering legalising or formalising small-scale and artisanal mining (Guinea, Tanzania and Ghana). We engage with host governments and monitor and evaluate actual or anticipated regulatory changes, for timely implementation and compliance.
Regarding TSFs in particular, we remain committed to implementing the Global Industry Standard on Tailings Management. Tailings-related regulations introduced in Brazil in 2022 required AngloGold Ashanti to conduct a new detailed risk assessment, overseen by an external consultant, of our Brazilian TSF portfolio. The outcome of this risk assessment will result in work to buttress the Calcinados TSF, which services the Queiroz plant at the Cuiabá mining complex, in order to bring the facility’s post-liquefaction factor of safety in line with the international standards currently considered to be best practice.
Related strategic focus areas
Focus on people, safety and sustainability
Enhance financial flexibility
Maintain long-term optionality
Related risks
Risk 1: Adverse regulatory changes to mining rights and adverse fiscal changes
Risk 3: Adverse future implications of event risks
For further detail on our top risks, see Managing risks and opportunities
Increasing stakeholder and societal expectations in respect of ESG performance and disclosures
Explanation and impact
Companies, particularly those in the extractive industries, face increased scrutiny worldwide from an array of stakeholders:
- Providers of capital as well as ESG and credit ratings agencies have increasing expectations relating to financial, operating and ESG performance
- Governments’ expectations relate to contributions to the fiscus and to national and local economies, as well as partnerships to facilitate service delivery and social and economic development
- Communities’ expectations relate to socio-economic benefits – local employment and procurement opportunities, and the provision of infrastructure, healthcare and education, among others
Our response
- Engaged constructively with stakeholders to better understand their requirements, to consistently manage their expectations, and to secure and maintain our social licence to operate
- Delivered on related strategic objectives and commitments
- Sought to ensure responsible corporate citizenship, in line with our values
- Maintained and improved aspects of our ESG performance – set targets and transparently reported progress made in meeting these targets
- Created and shared value for communities in host countries – through employment and procurement opportunities, and by investing in socio-economic initiatives that promote long-term resilience and self-sufficiency
Outlook
There has been increasing expectation from governments, investors and broader society for improved performance and greater disclosure on ESG matters as well as financial, operating and sustainability metrics in general. On disclosure, we have comprehensive ESG data sets available on our website – see <ESGD> and will continue to participate annually in a number of ESG rating agency surveys and aim to respond promptly to related queries. We have continued to provide support to our host communities with respect to their responses to the COVID-19 pandemic. For more detail, see our <SR>.
Related strategic focus areas
Focus on people, safety and sustainability
Enhance financial flexibility
Maintain long-term optionality
Related risks
Risk 5: Failure to meet our operational and safety targets
Risk 9: Inability to meet expectations or to mine responsibly (ESG performance)
For further detail on our top risks, see Managing risks and opportunities
Pressure from international credit ratings
Explanation and impact
As credit ratings agencies assess the credit risk of a company and its ability to honour its debt obligations, the assessments sometimes take into account the jurisdiction in which the Company is located or operates since the country’s political, economic and regulatory environment can have an impact on the Company.
Our response
- Engaged regularly with ratings agencies to ensure an accurate understanding of our potential operating and financial performance
- Continued to look at operational efficiencies that will make our mines more consistent in production, more resilient to gold price volatility and thus provide stable and sustainable cash flows
- Current Company ratings are as follows:
- S&P: BB+/stable
- Moody’s: Baa3/stable
- Fitch: BBB-/negative
Outlook
South Africa’s sovereign rating by Fitch, Moody’s and S&P will continue to determine whether and by how much our credit rating can improve, as our corporate rating cannot be more than two notches above the sovereign rating of our country of domicile (South Africa). We also remain exposed to other lower-rated sovereign countries.
Our overall credit ratings have remained stable since 2019 and are underpinned by a diversified asset base, robust balance sheet, strong liquidity and disciplined capital allocation.
Related strategic focus areas
Enhance financial flexibility
Improve portfolio quality
Related risks
Risk 2: Failure to successfully deliver and ramp up of growth projects
Risk 4: Inability to convert Mineral Reserve and Mineral Resource
Risk 5: Failure to meet our operational and safety targets
Risk 6: Failure to move down the industry cost curve – all-in sustaining cost competitiveness
Risk 7: Loss of or threats to social licence to operate
Risk 8: Adverse gold and commodity prices, and currency movements
Risk 9: Inability to meet expectations or to mine responsibly (ESG performance)
Risk 10: Failure to attract and retain critical skills and talent
For further detail on our top risks, see Managing risks and opportunities
