A Strong Platform for Growth

Transcription

1 Annual Report & Accounts 2011 A Strong Platform for Growth

2 About African Barrick Gold A quality African gold producer ABG is Tanzania s largest gold producer and one of the five largest gold producers in Africa. We have four producing mines, all located in Northwest Tanzania, and several exploration projects at various stages of development. With a high-quality asset base, solid growth opportunities and a clear strategy, we have the objective of increasing our existing production to one million ounces per year by We aim to achieve this through our focused strategy of: driving operating efficiencies to optimise production from our existing asset base; growing through near mine expansion and development of advanced-stage projects; and organic greenfield growth and acquisitions in Africa. Maintaining our licence to operate through acting responsibly in relation to our people, the environment and the communities in which we operate is central to achieving our objectives. ABG is a UK public company with its headquarters in London. We are listed on the Main Market of the London Stock Exchange under the symbol ABG and have a secondary listing on the Dar es Salaam Stock Exchange also under the symbol ABG. Historically and prior to our initial public offering (IPO), our operations comprised the Tanzanian gold mining business of Barrick Gold Corporation (Barrick), our majority shareholder. ABG reports in US dollars (US$) and in accordance with IFRS as adopted by the European Union, unless otherwise stated in this report. Go online to find more information

3 overview performance governance financial statements shareholder information Highlights and an introduction to our business and the way we work Operational performance, market review, key performance data and a review of our sustainable approach An explanation of our approach to corporate governance, remuneration policies and practices and the people who champion them Detailed financial information for the year ended 2011 Useful information for owners of ABG shares Performance highlights 2 Group at a glance 4 Chairman s statement 6 Chief Executive Officer s statement 8 Business model 12 Our strategy and performance 14 Key performance indicators 24 Chief Operating Officer s review 26 Operating review 30 Exploration and project development 38 Financial review 42 Corporate responsibility 52 Risk management 70 Board of Directors 78 Senior management 80 Corporate governance 81 Directors report 94 Directors responsibilities statement 99 Remuneration report 100 Reserves and resources 112 Independent auditors report on the consolidated financial statements 117 Consolidated financial statements 118 Notes to the consolidated financial statements 122 Independent auditors report on the Company s financial statements 165 Parent company financial statements 166 Notes to the company financial statements 170 Glossary of terms 181 Basis of preparation for the reporting of tax data 184 Shareholder enquiries 185 PG More information within this report Go online to find more information The Overview and Performance sections make up the Business Review in accordance with section 417 of the Companies Act 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, expects, anticipates, believes, intends, estimates and other similar expressions. All forward-looking statements involve a number of risks, uncertainties and other factors. Although ABG s management believes that the expectations reflected in such forwardlooking statements are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of ABG, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements contained in this report. Factors that could cause or contribute to differences between the actual results, performance and achievements of ABG include, but are not limited 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 exchange rates), ABG s ability to recover its reserves or develop new reserves, including its ability to convert its resources into reserves and its mineral potential into resources or reserves, and to timely and successfully process its mineral reserves, risks of trespass, theft and vandalism, changes in its business strategy, as well as risks and hazards associated with the business of mineral exploration, development, mining and production. Accordingly, investors should not place reliance on forward-looking statements contained in this report. The forward-looking statements in this report reflect information available at the time of preparing this report. Subject to the requirements of the Disclosure and Transparency Rules and the Listing Rules or applicable law, ABG explicitly disclaims any obligation or undertaking publicly to release the result of any revisions to any forward-looking statements in this report that may occur due to any change in ABG s expectations or reflect events or circumstances after the date of this report. No statements made in this report regarding expectations of future profits are profit forecasts or estimates, and no statements made in this report should be interpreted to mean that ABG s profits or earnings per share for any future period will necessarily match or exceed the historical published profits or earnings per share of ABG or any other level. ANNUAL REPORT AND ACCOUNTS

4 Performance highlights Continuing to deliver strong financials Some of the year s key achievements include: REVENUE (US$ 000) GOLD SALES 2 (Oz) GROSS PROFIT (US$ 000) EBITDA 1 up 30% on 2010 Record cash margins 1 of US$895 per ounce +25% % % Trebling of proposed final dividend to US13.1 cents per share US$1,217, ,539Oz US$513,801 Averaged realised gold price 1 of US$1,587 per ounce for 2011 EBITDA 1 (US$ 000) OPERATING CASH FLOW PER SHARE 1,3 (US$/share) EARNINGS PER SHARE 3 (US$/share) Launch of ABG Development (Maendeleo) Fund, the largest community development fund of its kind in Tanzania Secondary listing on the Dar es Salaam Stock Exchange A successful year for exploration: +30% US$544,091 TOTAL RESERVES AND RESOURCES (Moz) +44% US$1.22share LOST TIME INJURY FREQUENCY RATE (frequency rate) +26% US67.0cents/share CASH COST PER OUNCE SOLD 1 (US$/Oz) Highly successful drilling campaign at Nyanzaga led to a fourfold increase in the in-pit Mineral Resource at the Tusker deposit to 3.5Moz Au Indicated and 0.6Moz Au Inferred +17% Moz +10% % US$692/Oz Tulawaka mine life extended twice, now through to the end of 2012 Initial resource declared at Golden Ridge 2

5 overview performance governance financial STatements shareholder information Improving the profitability of our assets ATTRIBUTABLE GOLD PRODUCTION 2 (OZ) AND EBITDA 1 (US$ 000) BY MINE 262, , ,832 58, , % 166, % 128,627-16% 67, % +1% +6% -20% +40% BULYANHULU BUZWAGI NORTH MARA TULAWAKA Group gold production EBITDA Financial highlights Revenue of US$1,218 million, up 25% on 2010 EBITDA 1 of US$544 million, up 30% on 2010 Record cash margins 1 of US$895 per ounce, an increase of 33% on 2010 Net income of US$275 million, with an EPS of US67.0 cents, up 26% on 2010 Operational cash flow of US$498 million, an increase of 44% on 2010 Cash position of US$584 million as at 2011 Proposed increase in final dividend to US13.1 cents per share, making the total dividend for 2011 US16.3 cents per share, up 208% on Operational highlights Attributable gold sales 2 for the year of 699,539 ounces (Group sales 2 of 724,574 ounces), a 3% decrease on 2010 driven by lower production Attributable gold production 2 of 688,278 ounces (Group production 2 of 713,508 ounces), 2% below 2010 production, primarily due to the waste stripping programme at North Mara and impact of power unreliability at Buzwagi Increase in full year production at Bulyanhulu, Buzwagi and Tulawaka, with lower production at North Mara due to the planned focus on waste stripping Cash costs 1 of US$692 per ounce, an increase of 22% on 2010 due to a combination of industry cost inflation, increased diesel usage and higher headcount. 1 cash costs per ounce sold, EBITDA, cash margin, average realised gold price per ounce sold and operating cash flow per share are non-ifrs financial performance measures with no standard meaning under IFRS. Refer to Non-IFRS measures on page 50 for the full definitions of each measure. 2 production and sold ounces reflect equity ounces which exclude 30% of Tulawaka s production base. Group production and sales consolidate 100% of Tulawaka's production and sales base. 3 The years basic earnings per share and operating cash flow per share comparatives were calculated using the 2010 number of average weighted shares as the Company was not incorporated in the prior years stated, and thus had no share capital. ANNUAL REPORT AND ACCOUNTS

6 Group at a glance A focus on Africa Where we operate Currently, all of ABG s mining operations are in Tanzania. We believe that Tanzania possesses significant mining potential. Critically, it has an established legal and regulatory framework for mining companies and a history of political stability and democratically elected governments. At present, we have four gold producing mines, all in Northwest Tanzania. These are Bulyanhulu, Buzwagi, Tulawaka and North Mara. Headquarters, London, UK Our office in London serves as ABG s corporate headquarters and is the base for abg s Executive Directors and other members of the Senior Leadership Team, including the General Counsel and the Head of Corporate Development and Investor Relations. Regional Office, Dar es Salaam, Tanzania Our office in Dar es Salaam serves as the primary interface with the government, in addition to being the logistical base in Tanzania, which provides in-country support to our operations. Other functions located in this office include community relations, legal and a number of technical services. Regional Office, Johannesburg, South Africa Our Johannesburg office is the regional base for administrative, finance, human resources and procurement functions and a number of technical services for our operations. Producing mines Bulyanhulu buzwagi Key features Production of 262,034Oz in Underground mine with a life of 25+ years. Proven and probable reserves of 10,632,000Oz. Production of 196,541Oz in Open pit mine with a 12 year mine life. Proven and probable reserves of 2,915,000Oz. Key priorities for 2011 Accelerate underground production from Upper East Zone. Continue strong commitment to training with a focus on specialised skills. Continue the development and training of the operation s workforce. Continue the acceleration of stage two mining. Progress in 2011 Continuation of rehabilitation work on the decline to the Upper East Zone. Certification of the first two full crews of Tanzanian Alimak miners. Initial expansion of mining fleet to improve pit scheduling. Installation of full back-up diesel power to provide plant stability. Key priorities for 2012 Complete the construction of Underground Workshop and the shaft dewatering project. Complete the CIL Expansion Project and Upper East Zone feasibility studies. Continue our commitment to training and localisation. Complete the detoxification plant upgrade and initial certification process under the International Cyanide Code. Continue the mining fleet expansion. Maintain name-plate throughput in the mill. PG More information on page 30 PG More information on page

7 overview performance governance financial STatements shareholder information Lake Victoria North Mara Tulawaka Nyanzaga Golden Ridge Bulyanhulu Buzwagi Tanzania North Mara TulawAKA (70%) Production of 170,832Oz in Open pit mine consisting of three open pits with a mine life in excess of ten years. Proven and probable reserves of 3,485,000Oz. Complete feasibility study for Gokona Underground. Commission water treatment plant. Production of 58,871Oz in Completed open pit mine with underground access ramp. Proven and probable reserves of 64,000Oz. Open West Pit Extension to supplement production. Evaluate additional opportunities to further extend the mine life. Completion of feasibility study at Gokona Underground. Completion of construction of water treatment plant. Complete the commissioning of water treatment plant for the discharge of the environmental protection order. Progress our objectives under the North Mara Co-Existence Plan. West Pit Extension delivered first ore to the ROM pad in the fourth quarter. Mine life extended twice through to the end of Develop the second access portal to the underground. Increase current mining rates. Continue to evaluate additional opportunities to further extend the mine life. PG More information on page 34 PG More information on page 36 ANNUAL REPORT AND ACCOUNTS

8 Chairman s statement Committed To Excellence Dear Shareholders, Once again, it is a pleasure to present ABG s annual report. We are pleased to report robust financial performance for the year overall, notwithstanding certain challenges we have faced in our operating environment. We achieved record revenues of approximately US$1,218 million, operating cash flows of US$498 million and net income of US$275 million. We ended the year with US$584 million of cash on the balance sheet and no debt, which provides us with significant strategic flexibility to pursue our growth ambitions over the coming years. Our financial strength overall has enabled the Directors to recommend a significant step up in the final dividend of US13.1 cents per Ordinary Share, in addition to the US3.2 cents per Ordinary Share that we paid in September. We achieved production of 688,278 ounces of gold for the year, which was marginally below our initial guidance range, primarily as a result of interruptions to production schedules caused by power outages throughout the year. Significant value has again been added to the business in 2011, while navigating a series of challenges in our operating environment. Aaron Regent, Non-Executive Chairman INDUSTRY GOLD PRODUCTION (metric tonnes) 3,000 2,800 2,600 2,400 2,200 Market outlook Gold was rarely far from the headlines in 2011, reaching a record high of US$1,921 per ounce in September as the global macroeconomic backdrop was again characterised by weakness. Government balance sheets came under scrutiny amid increasing concern over the viability of the Euro, the debt ceiling in the US and a slowdown in China. This uncertainty, together with the weakening of the US dollar, has led to strong demand for gold and we continue to be positive on the medium-term outlook as global growth remains weak and Governments attempt to reinflate their economies. Gold s outperformance has not been matched by the performance of gold equities, which have instead tended to follow the wider market. This decoupling from the underlying gold fundamentals is a frustration as we have demonstrated our substantial margin leverage to the increase in the gold price. As one of the largest gold producers in London, with significant growth opportunities, we believe we will be able to continue to deliver shareholder value as we continue to build on our performance over the past 18 months. Industry expertise The African gold mining industry is both an exciting and challenging environment in which to operate. Industry and regional knowledge and expertise are critical in order to drive performance. We believe that ABG is in a unique position as a mid-tier producer with the experience of acquiring, financing and building mines in Tanzania, a country new to commercial mining, as well as access to the world class knowledge and skill base of our supportive majority shareholder Barrick. Indeed it is the breadth of our experience that has assisted us when addressing issues caused by the loss of critical infrastructure and interruptions in core utilities supply during the year, and in the development of action plans to help address and resolve the complex social and economic challenges that have impacted our operations, particularly at North Mara. Overall, and despite the challenges faced this year, our management team has made a number of significant advancements in addressing a range of operational issues and remains committed to developing effective measures in order to strengthen our operations. 2, Source: GFMS 6

9 overview performance governance financial STatements shareholder information We understand the benefits that responsible mining can bring to host communities and stakeholder groups. Responsible mining We recognise the importance of developing our responsible mining practices to develop and support sustainability for the benefit of our stakeholder group as a whole. In particular, we understand and seek to promote the benefits that the mining industry can bring to host communities. Throughout the year we have continued to strengthen our existing commitment to corporate social responsibility, through the development of additional policies and projects, particularly at North Mara. Moreover, we were delighted to launch the ABG Development (Maendeleo) Fund during the year, the largest community development fund of its kind in Tanzania. We are excited by the opportunities that this fund presents to broaden our community investment programmes. Solid governance and controls We have continued to build on the existing strength of our Board throughout the year, with the appointment of Ambassador Mwapachu, whose experience in Tanzania and the wider region brings a new dimension to the Board, and David Hodgson, who brings 30 years experience across Africa. During the course of the year Bobby Godsell decided to step down from the Board to pursue other interests and more recently James Cross has decided to retire from the Board. We thank both of them for their contributions to ABG and wish them well for the future. We also completed our first Board performance evaluation during the year. We view Board assessment as critical to the evaluation of overall Board effectiveness and performance. Further details regarding this process have been provided as part of our corporate governance report. We have continued our focus on effective governance and controls throughout the year in order to support our business. Key to this was the development and adoption of ABG s Business Management Framework, which applies throughout our organisation to guide the implementation of our standards. In addition, we have also reviewed our overall corporate governance framework in the context of our secondary listing on the Dar es Salaam Stock Exchange. Employee development We view our people as our greatest asset and are committed to promoting and developing the skill set of our workforce for the benefit of our business and industry generally. We have continued to invest in our training programmes throughout the year and have seen the first fruits of success from the underground training centre at Bulyanhulu. Further initiatives for employee development are being advanced for Outlook 2012 promises to be an exciting year. We will continue to optimise production from our existing asset base and expect to see some of our growth projects move through Board approval and into the construction phase. We remain positive on the outlook for the gold industry and committed to further advancing our position as one of the leading African gold miners. Finally, I would like to thank my fellow Board members for their hard work, dedication and valuable guidance throughout the year, and I look forward to reporting again on our progress in 12 months time. Aaron Regent, Non-Executive Chairman ANNUAL REPORT AND ACCOUNTS

10 Chief Executive Officer s statement COntinued progress Our core focus for 2011 was to continue to strengthen the business to be able to withstand unforeseen operational challenges and be positioned for future growth. Our operational improvement programmes have begun to bear fruit at all four mines, with Bulyanhulu, Buzwagi and Tulawaka delivering increased production in Our core focus for 2011 was to continue to strengthen the business to be able to withstand unforeseen operational challenges, and to position the Company for future growth. Greg Hawkins, Chief Executive Officer GOLD PRICE LEVERAGE $900 $800 $700 $600 $500 $400 $300 $200 $100 Gold price performance over period Up 80% Operating cash flow ($m) Up 378% EBITDA ($m) Up 280% Cash margin ($/oz) Up 213% The importance we place on shareholder returns is demonstrated by the Directors recommending a final dividend of US13.1 cents per Ordinary Share, in addition to the US3.2 cents per Ordinary Share that we paid in September. With respect to dividend payments in future years, the Board has approved the following policy: subject to the capital requirements and cash flows of the Company and provided that there are distributable reserves available to the Company for this purpose, it is the Board s intention to declare an annual dividend of between 15 and 30 percent of profits after tax and minority interests each year. It is expected that this will be payable in the approximate proportion of one third as an interim dividend and two thirds as a final dividend, dependent on the performance of the Company being in line with the Board s expectations. We have strengthened our commitment to Tanzania throughout the year, notably with the launch of the ABG Development (Maendeleo) Fund, the largest community development fund of its kind in Tanzania, and our secondary listing on the Dar es Salaam Stock Exchange. The site intrusion at North Mara in May served to highlight the importance of promoting social and economic integration in all local communities in which we operate. We are committed to effective dialogue with all stakeholders in the Mara region in order to create an environment that allows for better co-existence and provides for improved law, order and safety for all concerned. We have made encouraging progress in improving relationships in the Mara region during the year and have introduced a number of initiatives to promote further integration within local communities. We will continue to develop projects that support our developing sustainability programme as a part of our approach to responsible mining. To support our commitments and targets in this regard we have recently appointed a Senior Director of Environment and Community Relations to further enhance and support the existing experience of our specialist teams. As regards our employees, it is deeply regretful that we had one fatality at Bulyanhulu, during the year. Our target for all employees to go home safely every day remains our top priority. Operating and financial performance Positive performances at Bulyanhulu, Buzwagi and Tulawaka were able to largely offset the planned reduction at North Mara due to the waste stripping programme and delivered production of 688,278 ounces of gold, marginally below our guidance for the year, at a cash cost of US$692 per ounce sold. The higher average realised gold price helped us to deliver strong financial results, achieving record revenues of US$1,218 million, generating cash margins of US$895 per ounce sold, operating cash flow of US$498 million, and ending 2011 with a cash balance of US$584 million. Our commitment to exploration has continued to bear fruit with a fourfold increase in the in-pit resource at the Tusker deposit at Nyanzaga to over 4.0Moz and in tandem with our wider exploration efforts we have grown our total resource base by 17% to over 31.5Moz, of which 17.1Moz are in the reserve category. $

11 overview performance governance financial STatements shareholder information Optimising Redesign of the flotation tanks and the installation of oversize pebble ports has helped to increase mill recoveries by 9% to 88% at Buzwagi. De-bottlenecking at North Mara has improved plant throughput by 7%. Full back-up power installed at Buzwagi to mitigate grid power reliability issues. Expanding Initiation of a feasibility study for the expansion of the CIL circuit to reprocess the tailings at Bulyanhulu. Tulawaka mine life extended through to the end of Gokona Underground feasibility study concluded positively. Growing Quadrupled the in-pit resource on the Tusker deposit at Nyanzaga to 4.1Moz. Declared initial resource at Golden Ridge. The power situation in Tanzania impacted our operations throughout the year, resulting in an overall reduction in production of approximately 40,000 ounces in The impacts of power outages were predominantly felt at Buzwagi, where unreliable power negated the operational turnaround and contributed to the SAG mill motor failure in May. We have taken steps to address this, firstly in July with the installation of 5 MW of spinning power and then in December with a further 16 MW of back-up diesel power providing full redundancy to this operation. We anticipate that the sporadic interruptions in power supply will continue into 2012 and we will continue to monitor this during the course of the forthcoming year. In addition, we aim to finalise the installation of full back-up power at all of our mine sites by the end of Q2 2012, which when completed, is expected to significantly mitigate the effects of future power outages on production levels. Addressing costs through optimisation The rapid increase in the price of gold and the number of new projects coming on-stream across Africa has introduced considerable inflationary cost pressures across our industry. In particular, competition for skilled labour has intensified, which has led to increasing levels of wage inflation and significant movements in skilled personnel across the mining industry generally, both of which must be monitored on an ongoing basis in order to assess potential impacts on our business and operations. One of our key focuses in 2012 is to further increase our localisation efforts to reduce reliance on international labour. This should enable us to reduce a significant element of our cost base, will continue to develop the technical skill sets in the Tanzanian gold mining industry and will help us to mitigate fluctuations in personnel turnover. We also continue to invest in continual improvement programmes at each of the mines to optimise productivity. These include the revamping of the hoisting schedule at Bulyanhulu, further de-bottlenecking at the North Mara process plant, and the redesigned flotation circuit at Buzwagi. Expanding our existing resources We have continued to evaluate a number of organic expansion opportunities throughout the year, with a view to developing those projects which could expand our existing reserves and resources, a key element of our strategy for the development of our business. We focused much of the budget on Nyanzaga, our key greenfield project, on a number of targets at our North Mara mine and on our major brownfield projects. CASH COST PER OUNCE SOLD 1 (US$/Oz) +22% US$692/Oz ATTRIBUTABLE GOLD PRODUCTION (Oz) -2% ,278Oz Nyanzaga has continued to deliver positive drill results, which underpinned the significantly upgraded in-pit resource announced in January We are now aiming to move the project towards pre-feasibility, increasing its potential to become our fifth mine in Tanzania. At North Mara, the progression of land acquisitions around the Gokona pit has meant that we have the potential to increase the open pit reserve ounces by up to 300Koz through an additional lateral cut back of the open pit, although this would have the effect of reducing the 2010 underground resource by up to 150Koz. Further investigation is required but the potential addition of the lower cost open pit ounces is a positive for the overall North Mara mine, while we believe the potential for an underground operation remains intact. ANNUAL REPORT AND ACCOUNTS

12 Chief Executive Officer s statement (continued) We have continued to evaluate a number of opportunities throughout the year for near mine expansion, a key element of our strategy for the development of our business. At Bulyanhulu we continue to rehabilitate the decline to the Upper East Zone and plan to initiate a test stope in Q3 2012, ahead of seeking Board approval for the project. Subject to their approval, our expectation remains for initial production from the project around the end of In addition, following the announcement of the mineral resource contained within our tailings facility at Bulyanhulu, the feasibility study for production from this resource is close to completion. During 2011 we twice extended the mine life at Tulawaka, currently to the end of The project continues to outperform the original underground feasibility study and generates healthy cash flows. We will continue to explore in the Upper East Zone and have recently begun the process of opening the West Pit Extension in order to provide supplemental mill feed and are confident we can further extend the mine life. Elsewhere, we are looking at alternative options for the Golden Ridge project. The feasibility work conducted at Golden Ridge during 2011 focused on the opportunity to truck the ore to Buzwagi, and whilst generating positive returns, the project did not pass our internal returns threshold. We are currently analysing alternative ways of developing the resource, including trucking the ore to Bulyanhulu, depending on the outcome of our approval process for the Bulyanhulu CIL Expansion project. We also continue to evaluate other opportunities across Africa to supplement our organic growth plans and to diversify our asset base. Our balance sheet strength provides significant flexibility from which to leverage our operational expertise. Taxation Given the prevailing industry backdrop and current level of profitability of the mining sector we have proactively engaged with the Tanzanian government and other stakeholders to ensure we make a contribution commensurate with the financial performance of our business. To that end we have reached a settlement with the Tanzanian Revenue Authority over US$126 million of indirect taxes owed to us and we paid income tax during the year amounting to US$39 million, on top of the royalties we have always paid and the indirect taxation we bring to the country in the form of payroll and other taxes. We will continue to work with the relevant authorities in order to consider ABG s overall tax status in Tanzania in order to ensure we achieve the optimum long-term structure for our Company and all of our stakeholders. Outlook Our focus for 2011 was to continue to build on the foundations of 2010 and to have stable and consistent operational delivery. We have made significant progress in this respect despite the headwinds we faced, primarily from the unreliable power situation in Tanzania as well as the more generalised industry cost pressures. As a result of our continued capital investment and the recruitment of further operational expertise, we enter 2012 from a position of strength, having further enhanced our platform for future growth. We aim to develop the business further in 2012 through the following key objectives: achieving attributable Group production between 675, ,000 ounces; maintaining total cash cost of between US$790 US$860 per ounce sold; and direct cash operating cost of between US$740 US$810 per ounce sold; 10

13 overview performance governance financial STatements shareholder information katrina White (General Counsel & Company Secretary) Kevin Jennings (CFO) Kobus van Vuuren (Head of Human Resources) Greg Hawkins (CEO) Peter Spora (Vice President Exploration) Andrew Wray (Head of Corporate development and Investor Relations) Deodatus Mwanyika (Vice President Corporate Affairs) Marco Zolezzi (COO) PG Details of the executives are on pages 78 and 80 increasing Group throughput and recoveries; completing feasibility studies at our brownfield projects; achieving growth in our overall resource base; improving further our safety record; continuing the development of our sustainability practices; and continuing our focus on opportunities for strategic acquisitions to expand our footprint throughout Africa. Given the mine sequencing at each of our operations together with the forecast grade profiles it is our expectation that our production is likely to be split 45:55 between the first and second halves of the year, with correspondingly higher cash costs in the first half of the year and lower in the second. At mine level, our expectation is for broadly similar production levels to 2011 at our Bulyanhulu, Buzwagi and Tulawaka operations, with higher production expected at North Mara in the second half of the year, with the completion of the waste stripping programme and access to higher grade material. During 2012, we expect to see additional cost pressures at Buzwagi as we will be mining close to the reserve grade of 1.5g/t, which will necessitate mining and processing significantly higher levels of ore in order to maintain production rates. Finally, I would like to thank all of my colleagues for their commitment, enthusiasm and hard work throughout what has been an important year in the development of our business. I would also like to thank our Board for their unwavering support, their wise counsel and their commitment throughout the year. Greg Hawkins, Chief Executive Officer ANNUAL REPORT AND ACCOUNTS

14 Business model creating a high performance organisation At ABG we have a best in class approach to business, for our people, our communities and the host countries in which we operate. Our business model focuses on the creation of a high performance organisation, something that is fundamental for the realisation of our long-term strategy. HIGH PERFORMANCE ORGANISATION LICENCE TO OPERATE PEOPLE & MANAGEMENT INDUSTRY EXPERTISE OPERATIONAL EXCELLENCE QUALITY ASSET BASE RESPONSIBLE MINING GOVERNANCE & RISK MANAGEMENT STRONG FINANCIAL PERFORMANCE HIGH PERFORMANCE ORGANISATION 12

15 overview performance governance financial STatements shareholder information Establishing solid foundations At the heart of our business model lie the foundations which we believe embody our commitment to excellence. Together, these foundations form the base structure for the creation of a high performance organisation. Industry expertise We believe that industry and regional knowledge and expertise are critical in order to drive performance. As such we place a premium on our existing experience of acquiring, financing and building mines in Tanzania and the collective experience of the mining industry and the African region held between our Board members and management team. Quality asset base Our long life, high grade reserve and resource base and the substantial expansion opportunities that are available through near mine projects at our existing operations provide us with a solid basis on which to develop and grow our business into a pan-african player within our industry. Governance and risk management Effective governance and controls is crucial for the realisation of our business strategy. For this reason our business management framework allocates responsibilities for the monitoring, review and management of our business and strategy throughout our organisational structure, ensuring that accountability for performance is shared across our governance functions. We use the same approach for risk management to ensure that business risks are identified, mitigated and controlled and focus our business practices on best practice and international standards. Developing key strengths When combined, the foundations of our organisation create our core standards, which in turn will create and develop key strengths in operational excellence and financial performance. They also safeguard and help to promote our licence to operate. All of these factors are fundamental qualities of a high performance organisation. Operational excellence We believe that the alignment of our operational and governance standards with international, industry and peer group best practice provides us with the framework to achieve the highest possible levels of productivity, safety and efficiency within our operations, all being components of operational excellence that drives business performance. Strong financial performance Our business and operational processes are focused on the achievement of targets while maintaining a strict cost discipline, optimising capital efficiency and maintaining a conservative balance sheet. This allows us to produce strong financial results to support the development of our business and for our shareholders. Licence to operate We maintain our reputation as a good corporate citizen by mining in a responsible manner for the benefit of our people, the environment and the host countries in which we work. In turn this status provides and supports our licence to operate in the eyes of all relevant stakeholders, allowing us to progress our business on the basis of common expectations and objectives. Responsible mining We conduct our business in a way that reflects our commitment to excellence, for the benefit of all stakeholders as a whole. We ensure that our community relations, environmental, health and safety, human resources and security functions work closely together and with the management teams at each of our operations to ensure that all key components of responsible mining are addressed throughout the exploration and mining cycle and across all of our locations. People and management An organisation is only as good as its people. It is for this reason that we are committed to promoting and developing the skill set of our workforce for the benefit of our business and our industry in general. We ensure that we fairly compensate our employees for their contributions, provide meaningful performance feedback to them and offer them professional development and training opportunities to develop employee potential and reward best performance. ANNUAL REPORT AND ACCOUNTS

16 Our strategy and performance Our Focus Remains The main focus of ABG s strategy is to increase our production levels to one million ounces of gold per year by 2014 through three strategic priorities. Strategic priorities Optimise the existing asset base We aim to increase production across our existing assets through operational improvements. Expand through near mine projects We pursue organic growth opportunities to expand our existing resources. Grow through greenfield opportunities and acquisitions in Africa We are committed to growing our operations in Tanzania and transforming our business into a truly pan-african player within our industry. We aim to deliver our strategy through these three priorities, which are all underpinned by our philosophy. Responsible mining maintaining our licence to operate We recognise the importance of developing our responsible mining practices for the benefit of our stakeholder group as a whole. We aim to maintain our licence to operate through acting responsibly in relation to our people, the environment and the host countries we work in. 14

17 overview performance governance financial statements shareholder information We aim to deliver on the strategic priorities through continually optimising and re-sequencing our asset base, expanding our existing resources, accessing ore in satellite deposits and pursuing organic development opportunities and acquisitions, with the goal of increasing metal exposure per share. We plan to achieve our production targets while maintaining strict cost discipline and optimising capital efficiency to create shareholder value on an absolute as well as a per share basis. At ABG, we strive to empower and incentivise our employees to realise and deliver the full potential of our assets in order to enhance shareholder value. Above all else, we are committed to being a responsible member of the communities where we operate and are determined to contribute not only to the national economy but also to the socio-economic development and wellbeing of our host communities. Brownfield Satellite Greenfield Nyanzaga M&A and JVs Nyabirama Underground Golden Ridge Organic growth Gokona Underground Bulyanhulu Upper East Zone Bulyanhulu CIL Expansion lom production base Tulawaka Extension ANNUAL REPORT AND ACCOUNTS

18 Optimising the existing asset base At Bulyanhulu, we have recruited a number of highly skilled trainers to help develop and increase our pool of skilled in-country employees. Their training centre: a converted space in the mined-out 4700 level, which serves as an underground mining school. KOBUS VAN VUUREN, HEAD OF HUMAN RESOURCES 16

19 overview performance governance financial statements shareholder information Our progress and future priorities 2011 Progress Increased production at three of our four mines, with North Mara producing in line with expectations Improvements in productivity at Bulyanhulu with an optimised hoisting schedule Underground training centre beginning to deliver results with the first two Tanzanian Alimak crews now certified Buzwagi operational improvement substantially complete, but output hindered by power reliability issues Substantial completion of the waste stripping programme in the Gokona and Nyabirama pits at North Mara Back-up power installed at Buzwagi to eliminate power reliability issues Mining fleet expansion at Buzwagi to optimise the pit scheduling Priorities for 2012 Continue to develop the local workforce to reduce reliance on international labour Complete underground workshop at Bulyanhulu to improve maintenance downtime Completion of the Buzwagi detoxification plant Completion of the North Mara Gold plant project to enhance recoveries Buzwagi Plant enhancement Redesign of the flotation tanks and the installation of oversize pebble ports has helped to increase mill recoveries by 9% to 88% and to lift copper production by 17% to 7.2Mlbs. Mill recoveries UP to 88% Copper production UP to 7.2Mlbs ANNUAL REPORT AND ACCOUNTS

20 Expanding through near mine projects As we progress our development projects, our commitment to Tanzania continues to grow and as a result we place the highest importance on engagement with the Government and other national stakeholders to ensure everyone benefits from this. DEODATUS MWANYIKA, vice PresidenT corporate affairs 18

21 overview performance governance financial statements shareholder information Our progress and future priorities 2011 Progress Feasibility study at Gokona Underground completed Bulyanhulu Upper East Zone feasibility study concluded positively, with test stope to be initiated in order to validate assumptions Tulawaka mine life extended through to the end of 2012 Initiation of a feasibility study for the expansion of the Bulyanhulu CIL plant to reprocess tailings Scoping study for Nyabirama Underground initiated Priorities for 2012 Complete feasibility study for Bulyanhulu CIL Expansion Project Complete the test stope for the Bulyanhulu Upper East Zone Project Finalise analysis of potential Gokona lateral pit extension and resulting re-sequencing of the Gokona Underground project Continue to investigate opportunities to extend the Tulawaka mine life beyond 2012 Progress the Nyabirama Underground project into a feasibility study Rework the Golden Ridge feasibility study Bulyanhulu CIL Expansion Project ABG is investigating the potential to expand the Carbon in Leach Circuit to 2.4Mtpa in order to reprocess the tailings at Bulyanhulu. This would allow incremental low cost production whilst increasing plant flexibility for future projects. Expand CIL to 2.4Mtpa ANNUAL REPORT AND ACCOUNTS

22 Growing through greenfield opportunities We have a strong operational platform from which to target geographic diversification. Together with the financial flexibility we have, we are well positioned to take advantage of future opportunities. ANDREW WRAY, HEAD OF CORPORATE development AND INVESTor relations 20

23 overview performance governance financial statements shareholder information Our progress and future priorities 2011 Progress Updated in-pit resource at Tusker deposit at Nyanzaga in excess of 4Moz Au, consisting of 3.48Moz at 1.47g/t Au Indicated and 598Koz at 2.05g/t Au Inferred Encouraging drilling results from the Kilimani deposit at Nyanzaga Declared initial resource at Golden Ridge Declared an indicated resource from Bulyanhulu tailings Positive drilling results along the Gokona corridor Continued to assess opportunities within the African mining industry Priorities for 2012 Continue resource definition drilling at Nyanzaga Complete the drilling programmes at both Gokona Underground and Nyabirama Underground Follow-up on initial Gokona corridor drilling Continue to assess potential M&A and joint venture opportunities Nyanzaga ABG successfully completed a 65,247 metre drilling programme on the Nyanzaga deposit in 2011, quadrupling the in-pit resource to 4.1Moz. total in-pit Resource UP to 4.1Moz ANNUAL REPORT AND ACCOUNTS

24 Responsible mining The launch of the ABG Development (Maendeleo) Fund highlights the importance we place on community and social development. We view this as a key step in the development of our community and social strategies, which we will use across our operations, to ensure that our social contributions remain both visible and substantial. KATRINA WHITE, general COUNSEL AND COMPANY secretary 22

25 overview performance governance financial statements shareholder information Our progress and future priorities 2011 Progress Launch of the ABG Development (Maendeleo) Fund with an annual budget of US$10 million to broaden community development initiatives Introduction of the North Mara Co-Existence Plan Construction of the North Mara Water Treatment Plant Further development of Health & Safety controls, including Community Health Impact Assessments Development of Human Rights Policy Priorities for 2012 Progress our objectives under the North Mara Co-Existence Plan Complete the commissioning of the North Mara Water Treatment Plant for the discharge of the EPO Complete the permitting process for the creation of further PAF waste dumps at North Mara Obtain initial certification of Buzwagi and recertification of Bulyanhulu under the International Cyanide Management Code Achieve 10% improvement in both our lost time injury frequency rate and our total reportable injury frequency rate North Mara Water Treatment Plant Building of the treatment plant should allow North Mara to process and ultimately discharge up to 4,000m 3 of clean water per day. This forms a key part of the long-term water strategy to provide clean and sustainable water to all of the communities surrounding the mine. Clean Water discharge up to 4,000m 3 ANNUAL REPORT AND ACCOUNTS

26 Our strategy and performance (continued) Key PerFOrmance IndicaTOrs We assess the performance of our business against a number of KPIs on a continuous basis. The use of KPIs in this way allows us to monitor and measure progress made in realising and implementing our strategy 1. Financial Data EBITDA 2 (US$ 000) EARNINGS PER SHARE 3 (US$/share) OPERATING CASH FLOW PER SHARE 2,3 (US$/share) CASH COST PER OUNCE SOLD 2 (US$/Oz) CASH COST PER TONNE MILLED 2 (US$/tonne) +30% % % % % US$544,091 US67.0cents/share US$1.22share US$692/Oz US$65/tonne Definition (full definitions for Non-IFRS measures are provided on page 50). EBITDA (earnings before interest, taxes, depreciation and amortisation) is the net profit or loss for the period excluding: income tax expense; finance expense; finance income; and depreciation and amortisation (including goodwill impairment charges). Earnings per share (EPS) is calculated as the net profit attributable to equity shareholders divided by the weighted average of the number of Ordinary Shares in issue. Operating cash flow per share is the cash generated from or utilised in operating activities, divided by the weighted average of the number of Ordinary Shares in issue. Cash cost per ounce sold is calculated by dividing the aggregate of cash costs by attributed gold ounces sold. Cash cost per tonne milled is calculated by dividing the aggregate of cash costs by attributed ore tonnes milled. Performance in 2011 EBITDA totalled US$544,091 million in 2011, an increase of 30% on 2010, as a result of improved gold prices and record revenue. Earnings per share amounted to US67.0 cents for 2011, an increase of 26% on The increase was driven by net profit for the year. Operating cash flow per share was US$1.22, a 44% increase on 2010, as a result of improved revenue. Cash cost per ounce sold was US$692 per ounce for 2011, a 22% increase on The increase was primarily due to increased costs incurred as a result of industry-wide inflationary pressures and lower production. Cash cost per tonne milled was US$65 per tonne for 2011, 18% higher than in 2010 primarily as a result of increased direct mining costs and lower tonnes milled. Relevance EBITDA is a valuable indicator of ABG s ability to generate operating cash flow that can fund its working capital needs, service debt obligations and fund capital expenditures. Earnings per share serves as an indicator of ABG s profitability and is a primary indicator in determining share price and value. Operating cash flow per share helps to measure ABG s ability to generate cash from its business. Cash cost per ounce sold is a key indicator used by ABG to monitor and manage those factors that impact production costs on a monthly basis. Cash cost per tonne milled is a key indicator used by ABG management to track cash costs against productivity. Link to strategy Optimise Expand/Grow Grow Optimise Optimise 1 historically and prior to our initial public offering, the operations of the ABG Group comprised the Tanzanian gold mining business of Barrick. 2 cash costs per ounce sold, EBITDA, operating cash flow per share and cash costs per tonne milled are non-ifrs financial performance measures with no standard meaning under IFRS. Refer to Non-IFRS measures on page 50 for the full definitions of each measure. 24

27 overview performance governance financial statements shareholder information Operational non-financial TOTAL SHAREHOLDER RETURN (TSR) (%) ATTRIBUTABLE GOLD PRODUCTION 4 (Oz) TOTAL RESERVES AND RESOURCES PER SHARE (Oz/1,000 shares) LOST TIME INJURY FREQUENCY RATE (frequency rate) TOTAL REPORTABLE INJURY FREQUENCY RATE (frequency rate) -30.7% % % % % % 688,278Oz 76.9Oz/1,000 shares Total shareholder return is the return on investment a shareholder receives over a specified time frame and takes into consideration the share price appreciation/depreciation and dividends received. Attributable production is the aggregate of the Group s equity interest in gold ounces produced from its mines. Total reserves and resources per share are calculated as the total of proven and probable reserves, plus measured, indicated and inferred resources expressed in contained ounces, divided by the total numbers of shares in issue, using a ratio of 1:1000. Lost time injury frequency rate (LTIFR) is calculated as the number of lost time injuries multiplied by 200,000 then divided by the total number of hours worked at each ABG operation and in aggregate at ABG. Total reportable injury frequency rate (TRIFR) is calculated as the total reportable injuries multiplied by 200,000 then divided by the total number of hours worked at each ABG operation and in aggregate at ABG. Total shareholder return was -24.3% for the year compared to 6.4% in 2010, primarily due to the decrease in the ABG share price over the year. Attributable production for the year was 688,278 ounces, 2% lower than 2010, primarily due to the impact of power outages in Tanzania. Total reserves and resources per share equalled 76.9Oz/ 1,000 shares an increase of 17% on Lost time injury frequency rate for the year was 0.1, a 10% increase on Total reportable injury frequency rate was 1.2 for the year, a 14% improvement on Total shareholder return is a key indicator that is used to compare the performance of ABG s shares over time against industry peers. Attributable production demonstrates progress towards achieving our target of increasing production to one million ounces per year by Total reserves and resources per share is a measure of our ability to discover and develop new ore bodies and to replace and extend the life of our operating mines. Lost time injury frequency rate focuses on employee and contractor injuries in the workplace that result in days lost from work. It is used to measure progress towards our health and safety goal of ensuring that every employee goes home safe and healthy every day. Total reportable injury frequency rate encompasses a wider range of injury reporting, tracking all employee and contractor reported workplace injuries that require medical treatment, including lost time and restricted duty. It is also used to measure progress towards our health and safety goal of ensuring that every employee goes home safe and healthy every day. Grow Expand/Grow Grow Responsible mining Responsible mining 3 The years basic earnings per share and operating cash flow per share comparatives were calculated using the 2010 number of average weighted shares as the Company was not incorporated in the prior years stated, and thus had no share capital. 4 Production reflects equity ounces which exclude 30% of Tulawaka s production base. ANNUAL REPORT AND ACCOUNTS

28 Chief Operating Officer s review Driving process and PerFOrmance The underlying performance of each of our assets has improved over the year with three of our four mines achieving production increases. However, the instability of power supply created a number of challenges to production through the year, something that ultimately led to a reduction of approximately 40,000 ounces in the year against plan. As such, whilst we made significant strides in improving each of our assets, we ended the year with 688,278 ounces of production, 2% below The underlying performance of each of our assets has improved over the year with three of our four mines achieving production increases. Marco Zolezzi, Chief Operating Officer Our cash costs for the year saw a 22% increase over 2010 to US$692 per ounce sold. The increase was primarily due to wide ranging inflationary pressures principally on labour, due to increased competition across the industry for skilled personnel and increased staffing levels, energy, due to higher oil prices and increased usage especially in back-up power generation, consumables and contract services as well as lower than expected capitalised costs and a lower production base. Cash costs of US$65 per tonne milled for the year have increased from the 2010 figure of US$55 per tonne, as a result of the above and a decrease in milled tonnes as a result of power related issues and an increased proportion of ore from the underground at Tulawaka. We continued to reduce our gold product inventory levels and as a result sold 699,539 gold ounces for the year, 2% above production. We mined 45.1 million tonnes of ore and waste for the year, compared to 40.0 million in The increase was driven primarily by the focus on waste stripping at the Gokona and Nyabirama open pits at North Mara, in order to access high grade ore from 2012 and at Buzwagi, which entered Stage 2 of the mine plan. Tonnes of ore processed for the year totalled 7.4 million, a 4% decrease on 2010 levels. The change was predominantly driven by reduced throughput at Buzwagi due to the failure of the SAG mill motor, frequent power interruptions and enforced shutdowns for maintenance. The average grade processed for the year was 3.3 grams of gold per tonne, in line with the prior year. The increase in grades at Tulawaka and Buzwagi were offset by lower grades from Bulyanhulu and North Mara due to planned mine sequencing. Our copper production for the year of 14.9 million pounds represents a 6% increase on 2010, which reflects improved recoveries at Buzwagi due to process plant enhancements. Bulyanhulu delivered another year of production increases, exceeding the prior year amount by 2,161 ounces mainly driven by increased ore tonnes hoisted and milled. This was partially offset by a lower processing grade of 8.5g/t (9.2g/t in 2010), mainly due to mine sequencing impacting on the mining grade and blockages in the paste fill lines limiting access to primary stopes. Cash costs per ounce sold increased from US$539 per ounce sold to US$610 driven by the increase in direct mining costs. 26

29 overview performance governance financial statements shareholder information Key operational focus areas Deliver maximum sustainable production and cost discipline Maintain focus on best leadership, management and technical practices Complete the enhancement of site security infrastructure and processes Build on improvements to health and safety systems and processes Continue the development of training for workforce and local communities Translate strategy into capital allocation, optimise capital allocation and realise key business opportunities Operating results Tonnes mined (thousands of tonnes) 45,053 40,016 Ore tonnes mined (thousands of tonnes) 7,013 7,970 Ore tonnes processed (thousands of tonnes) 7,409 7,706 Process recovery rate (percent) 87.7% 86.1% Head grade (grams per tonne) Attributable gold production (ounces)¹ 688, ,934 Attributable gold sold (ounces)¹ 699, ,083 Copper production (thousands of pounds) 14,875 14,093 Copper sold (thousands of pounds) 15,069 13,370 Cash cost per tonne milled² Per ounce data (US$/ounce) Average spot gold price³ 1,572 1,225 Average realised gold price² 1,587 1,240 Cash cost² Amortisation and other costs Total production costs Cash margin² Average realised copper price (US$/lb) 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, cash cost per ounce sold, amortisation and other costs per ounce, cash margin and total production costs per ounce are non-ifrs financial performance measures with no standard meaning under IFRS. Refer to Non-IFRS measures on page 50 for definitions. 3 reflects the London PM fix price. An explanation of mine statistical information is included on page 51. It was deeply regrettable that we suffered an employee fatality at Bulyanhulu as a result of a rock fall in March. We continue to place great importance on sending every employee home safely every day and instigated a thorough investigation into the incident to prevent future occurrence. As part of ongoing reviews into Health and Safety reporting during the year, we have maintained Lost Time Injury Frequency Rate (LTIFR) as a key performance indicator and have increased reporting on our Total Reportable Injury Frequency Rate (TRIFR), such that we will report this as an additional key performance indicator going forward. Together, these indicators track the number of overall reportable injuries within our operating environment. For the reporting period, ABG s aggregate LTIFR for the year was 0.1, a 10% increase on We ended the year with a TRIFR of 1.2, a 14% improvement on 2010, which is highly encouraging overall. As ever, we will continue our focus on progressing and achieving further improvements in health and safety in As a result of the waste stripping programme in the Gokona and Nyabirama pits, North Mara delivered production in line with management s expectations, but 20% lower than During the second half of the year tonnes mined were lower than planned as a result of PAF waste dumping constraints. Provisional permits have now ANNUAL REPORT AND ACCOUNTS

30 Chief Operating Officer s review (continued) been granted and construction of further PAF dumps is underway to alleviate the constraint. Cash cost per ounce sold increased as expected to US$810 per ounce from US$472 per ounce when compared to 2010 as a result of the reduced production base and increased direct mining costs. Our focus in 2012 will remain on achieving operational excellence in order to deliver stable production levels. Mining operations at North Mara were overshadowed by events relating to the illegal site intrusion in May, when approximately 1,500 intruders, a number of whom were armed, stormed the ore stockpile. In addition to working with the Tanzanian police force as part of their investigations, we have undertaken our own investigation into this incident. To date, preliminary findings from the police work have led to a number of arrests of individuals suspected of having been involved in provoking or organising the incident as well as other illegal activities in the area. We also continue to review and implement a number of measures to address key legacy issues, many of which pre-date Barrick s and subsequently ABG s ownership of the operation, in order to promote effective dialogue with the surrounding communities and support dialogue on wider law and order considerations in the region. These enhancements to our existing programmes are already delivering tangible improvements and we expect to achieve further progress over the course of We continued to liaise with the relevant government departments for the renewal of the North Mara mining licence throughout the year. At present, the approval process continues to await the formation of a Mining Advisory Board for the purposes of processing our renewal application and until then we will continue to operate under our existing licence, in accordance with applicable mining legislation, until such time as our application can be determined. Ultimately, we expect the licence renewal to be on substantially the same terms as our existing licence and for the remainder of North Mara s mine life. We have also made significant progress in addressing outstanding issues relating to the discharge of the EPO at North Mara and progressing permitting processes for purposes of accommodating future mining activities. The Tanzanian National Environmental Council (NEMC) has recently confirmed our compliance with all requirements under the EPO, further to the construction of the water treatment plant; commissioning of the plant is now underway. We expect to complete this process during the first half of 2012, following which we expect the EPO to be lifted. From a permitting perspective, we are currently seeking regulatory approvals for life of mine PAF waste rock dumps to accommodate future mining activities; a process we anticipate will be achieved during the second half of In the interim, we have obtained a provisional construction permit, which allows for dump construction at an extension to the existing PAF waste rock dumps, to provide support for North Mara s waste stripping schedule in the intervening period. 28

31 overview performance governance financial statements shareholder information Buzwagi s production for the year was 6% higher than the prior year period, although was around 35,000 ounces below management s expectation as a result of the power reliability issues. The lower than expected production for the year was primarily driven by the decrease in ore tonnes milled as a result of plant downtime due to the SAG mill motor failure, a direct result of increased power disruptions and further power related unplanned maintenance and critical component replacement. To help mitigate interruptions to power supply, we installed 21 MW of back-up power at Buzwagi during the year. Although the addition of back-up power at a cost of US$19.3 million will have an ongoing impact on operating costs, we continue to believe that the benefits of continuous power significantly outweigh the cost. We continue to see the positive effects of the operational turnaround at Buzwagi due to investment in the process plant, expansion of the mining fleet, optimisation of the drill and blast and load and haul, stringent security measures and ongoing training programmes, and are confident that we are well positioned as we enter Tulawaka has continued its good performance with production increasing 40% year on year mainly driven by the increased underground grade delivered. As the stockpiles from the exhausted open pit ran down, we began the process of opening the West Pit Extension in the fourth quarter to provide supplemental mill feed to the high grade underground ore to enable the mill to run at optimal levels. We will continue to explore and, where feasible, progress opportunities to increase production from this operation in Looking forward, we believe that we are well positioned to deliver on the potential of the Company s asset base as we enter This year, our focus will remain on achieving operational excellence in order to deliver stable and profitable production levels. Marco Zolezzi, Chief Operating Officer ANNUAL REPORT AND ACCOUNTS

32 Operating review Bulyanhulu Delivering on strategy Lake Victoria Bulyanhulu progress against our 2011 priorities Continuation of rehabilitation work on the decline to the Upper East Zone, test stope area identified Certification of the first two full crews of Tanzanian Alimak miners Initiation of feasibility study for the Bulyanhulu CIL Expansion Project for the reprocessing of tailings Significant increase in ore hoisted and mill throughput Implementation of revised corporate standard for ground control management plan 2012 priorities Complete the construction of Underground Workshop and shaft dewatering project Complete the CIL Expansion Project feasibility study and Upper East Zone test stope Continue our commitment to training and localisation Optimise gold plant performance Commission Cell 3 of tailings storage facility key mine statistics Year ended % variance Underground ore tonnes hoisted (Kt) 1, % Ore milled (Kt) 1, % Head grade (g/t) (8%) Mill recovery (%) 91.2% 92.2% (1%) Ounces produced (Oz) 262, ,873 1% Ounces sold (Oz) 269, ,442 3% Cash cost per ounce sold (US$/Oz) % Cash cost per tonne milled (US$/t) % Copper production (Klbs) 7,675 7,958 (4%) Copper sold (Klbs) 7,716 7,896 (2%) Capital expenditure (US$ 000) 95,432 80,539 18% The statistical information presented includes Non-IFRS measures. An explanation of Non-IFRS measures is included on page 50 and 51. ContribUTion to total group ounces 262,034Oz 38% 1.41TRIFR 16.9Moz TOTAL RESERVES AND RESOURCES 30

33 overview performance governance financial statements shareholder information Bulyanhulu mine overview The mine consists of an underground mine, a process plant, waste rock dumps, tailings containment, water management ponds and associated facilities. The mine is an underground trackless operation using long-hole as its principal stoping method, with alimak, drift and fill and conventional cut and fill the other primary mining methods. The process plant has the capacity to process an average of approximately 3,300 tonnes of ore per day (approximately 1.1 million tonnes per year) operating 24 hours a day on a 365 day per year basis. As at 2011, a total of 2,853 individuals were employed at Bulyanhulu, consisting of 2,448 Group employees and 405 contracted personnel. Bulyanhulu is a narrow-vein gold mine containing gold, silver and copper mineralisation in sulphides. Mineralisation of Bulyanhulu is associated with steeply-dipping reefs. To date a number of distinct reefs have been identified including Reef Zero, Reef One and Reef Two. Bulyanhulu s life of mine is currently estimated to be over 25 years, based on its proven and probable gold reserves of 10,632,000 ounces. Operating performance Bulyanhulu delivered positive results in 2011, hitting key production targets for the year. Gold production for the year was 262,034 ounces, 1% higher than the prior year s total of 259,873 ounces, mainly due to a 9% increase in ore tonnes hoisted and an 11% improvement in mill throughput, partially offset by a reduction in head grade. Head grade of 8.5g/t was lower than the prior year (9.2g/t) as a result of mine sequencing, which resulted in increased tonnes from lower grade zones together with blockages in paste fill lines limiting access to primary long hole stopes. The lower mined grade together with lower recoveries in the CIL circuit led to a lower recovery rate of 91.2%. Gold ounces sold for the year were 269,981 ounces, which was 3% higher than the production figure and also 3% higher than The increase in sales was due to improved working capital management, combined with an increase in the production base of 2,161 ounces. Copper production for the year of 7.7 million pounds was 4% lower than that of the same period in This was mainly due to lower recoveries as the result of operational issues experienced in the flotation plant. Cash costs for the year of US$610 per ounce sold were 13% higher than the prior year of US$539. Inflationary pressures on costs were widely felt as a result of the high gold price environment, principally in labour, from both increased staffing levels and increased salaries as a result of competition for skilled labour, and energy, reflective of higher levels of mining and milling activity. Consumables and maintenance also saw increases due to increased activity levels and inflationary pressure, while sales related costs were higher due to higher revenue. Increased co-product revenue, driven by increased realised copper prices, partially offset the increase. Cash costs per tonne milled increased to US$156 in 2011 (US$148 in 2010) as a result of the costs outlined above. Capital expenditure for the year of US$95.4 million was 18% higher than the prior year of US$80.5 million. The key areas of capital investments include capitalised underground development expenditure (US$32.7 million), ventilation equipment (US$4.4 million), business optimisation systems (US$4.2 million), expansion of the power generation capacity (US$4.0 million), workshop construction (US$2.0 million), tailings storage facility expansion (US$1.7 million), shaft dewatering system (US$1.3 million), expansion of the process plant (US$1.1 million) and various other investments in mine equipment. Included in total capital expenditure is a non-cash reclamation adjustment, which amounted to US$13.3 million. We suffered one fatality at the mine this year, which is deeply regrettable. Details of the fatality and the actions that we have taken in response to this are provided as part of our health and safety report on page 63. ANNUAL REPORT AND ACCOUNTS

34 Operating review Buzwagi constrained by power Lake Victoria Buzwagi progress against our 2011 priorities Expansion of mining fleet to improve pit scheduling Installation of full back-up diesel power to provide plant stability Further development and training of workforce Installation of oversize pebble ports to improve mill throughput Completion of flotation tank automation to improve copper recoveries Acceleration of mine plan recovery to improve ore supply throughout 2011 and into priorities Complete the detoxification plant upgrade and initial certification process under the International Cyanide Code Continue the mining fleet expansion Maintain name-plate throughput in the mill Improve mill availability and utilisation Improve efficiencies in power supply with the installation of capacitors Complete the Knelson free gold concentrator upgrade key mine statistics Year ended % variance Tonnes mined (Kt) 21,534 18,848 14% Ore tonnes mined (Kt) 3,545 4,285 (17%) Ore milled (Kt) 2,993 3,553 (16%) Head grade (g/t) % Mill recovery (%) 88.0% 81.0% 9% Ounces produced (Oz) 196, ,019 6% Ounces sold (Oz) 200, ,221 1% Cash cost per ounce sold (US$/Oz) % Cash cost per tonne milled (US$/t) % Copper production (Klbs) 7,201 6,135 17% Copper sold (Klbs) 7,353 5,473 34% Capital expenditure (US$ 000) 83,203 29, % The statistical information presented includes Non-IFRS measures. An explanation of Non-IFRS measures is included on page 50 and 51. ContribUTion to total group ounces 196,541Oz 29% 1.43TRIFR 4.6Moz TOTAL RESERVES AND RESOURCES 32

35 overview performance governance financial statements shareholder information Buzwagi mine overview Buzwagi consists of an open pit mine, ore-processing facilities, a waste rock storage facility, a tailings storage facility, water management and other ancillary facilities. The mill is designed with a throughput capacity of 12,000 tonnes of ore per day, and the mine is capable of moving approximately 4.4 million tonnes of ore per year. As at 2011, a total of 2,099 individuals were employed at Buzwagi, consisting of 1,004 Group employees and 1,095 contracted personnel. Buzwagi is a shear-hosted quartz-veined deposit hosted in porphyritic granite. Buzwagi s life of mine is currently estimated to be approximately 12 years, based on its proven and probable gold reserves of 2,915,000 ounces. Operating performance Despite an increase in production, 2011 has been a frustrating year at Buzwagi as the impact of power disruptions masked the operational improvements at the mine. Gold production increased to 196,541 ounces compared to 186,019 ounces in the previous year, a direct result of higher grades and a step up in recoveries to 88%, but mill throughput was down by 16% mainly due to the impact of power outages and resulting unplanned maintenance and critical component replacement. The SAG mill motor failure in May, and power related maintenance and critical plant replacements, a result of the frequent restarts caused by continuing interruptions to electricity supply, had a significant impact on milling capacity. We estimate these power disruptions and related issues led to a loss of production of approximately 35,000 ounces for the year. The installation of 5 MW of spinning power in July had a positive impact but it was not until the installation of a further 16 MW of back-up power at the beginning of December that full redundancy was provided for the mill. Gold ounces sold increased by 1% to 200,518 ounces from 198,221 ounces, exceeding production by 2% due to the increased production levels. Copper production for the year of 7.2 million pounds was 17% above the prior year s production. This was mainly due to the improvements made to the plant increasing recoveries for the current year. Cash costs for the year were US$691 per ounce sold compared to US$685 in Cash costs have been affected by increased labour costs, due to inflationary increases and increased headcount, specifically in the security and mine production areas, with increased mining activity leading to increased consumable, maintenance and energy costs. Energy costs were also impacted by the installation of diesel back-up power and increased mining fleet. The increases were partially offset by increased capitalised stripping costs due to the waste stripping undertaken, increased co-product revenue as a result of increased copper production, up 17% on 2010, increased realised copper pricing and the increased production base. Cash costs per tonne milled increased to US$46 in 2011 from US$38 in The increase in costs was primarily due to the key factors explained above and the impact of the shutdown from the SAG mill motor failure and power outages and related issues. During 2012 we expect to see additional cost pressures as we will be mining close to the reserve grade of the mine of 1.5g/t, which will necessitate mining and processing significantly higher levels of ore in order to maintain production rates. Capital expenditure for the year was US$83.2 million compared to US$29.8 million in Capital investment in 2011 was primarily focused on back-up power generation (US$19.3 million), capitalised waste stripping (US$15.6 million), mining equipment (US$13.7 million), security infrastructure (US$5.0 million) and process enhancements (US$4.1 million). Included in total capital expenditure is a non-cash reclamation adjustment, which amounted to US$9.7 million. ANNUAL REPORT AND ACCOUNTS

36 Operating review North Mara Laying the foundations Lake Victoria North Mara progress against our 2011 priorities Completion of feasibility study at Gokona Underground Completion of construction of water treatment plant Introduction of the North Mara Co-Existence Plan and establishment of Search for Common Ground Partnership Substantial completion of waste stripping programme in the Gokona and Nyabirama pits Further success in resource definition drilling beneath the Gokona and Nyabirama pits Significant progress made on the upgrade of the gold plant circuit and detoxification plant Progressed critical land acquisitions around the Gokona and Nyabirama pits 2012 priorities Complete the commissioning of water treatment plant for the discharge of the EPO Finalise analysis of potential Gokona lateral pit extension and resulting resequencing of the Gokona Underground project Progress our objectives under the North Mara Co-Existence Plan Complete licence renewal and permitting process Complete construction of site safety walls Complete the upgrades to the gold plant circuit and the detoxification plant Progress the Nyabirama Underground project into a feasibility study key mine statistics Year ended % variance Tonnes mined (Kt) 21,808 20,106 8% Ore tonnes mined (Kt) 2,254 2,624 (14%) Ore milled (Kt) 3,070 2,860 7% Head grade (g/t) (25%) Mill recovery (%) 80.6% 82.9% (3%) Ounces produced (Oz) 170, ,947 (20%) Ounces sold (Oz) 170, ,684 (22%) Cash cost per ounce sold (US$/Oz) % Cash cost per tonne milled (US$/t) % Capital expenditure (US$ 000) 123,146 91,442 35% The statistical information presented includes Non-IFRS measures. An explanation of Non-IFRS measures is included on page 50 and 51. ContribUTion to total group ounces 170,832Oz 25% 0.51TRIFR 5.1Moz TOTAL RESERVES AND RESOURCES 34

37 overview performance governance financial statements shareholder information North Mara mine overview The North Mara mine consists of three open pit deposits: Nyabirama, Gokona and Nyabigena and development potential at Komarera. There is also a process plant, waste rock dumps, a tailings containment pond and other associated facilities. Current capacity of the mill operations is approximately 8,000 tonnes per day (or approximately 3 million tonnes per year). As at 2011, a total of 2,329 individuals were employed at North Mara, consisting of 1,029 Group employees and 1,300 contracted personnel. The North Mara gold deposits are situated in the Mara Musoma greenstone belt, and there are several types of gold mineralisation, including shear-zone-related quartz vein and disseminated gold. North Mara s life of mine is estimated to be over ten years based on its proven and probable gold reserves of 3,485,000 ounces. Operating performance The focus for North Mara in 2011 was a planned and substantial waste stripping programme in both the Gokona and Nyabirama pits in order to open up higher grade zones for future years. Due to this, a substantial portion of mill throughput has come from low grade stockpiles, which has led to an expected reduction in gold production and an associated increase in cash costs per ounce. As a result of the waste stripping, the total tonnes mined increased by 8% on 2010 and the ore tonnes mined decreased by 14%. Towards the latter part of the year, waste stripping activities were slowed down due to capacity constraints at the PAF waste dumps. Provisional permits have now been granted and construction of further PAF dumps is underway to alleviate the constraint. As a result, we expect to complete the bulk of the waste strip programme by mid 2012, following which we expect to see a substantial improvement in head grade. Gold production for the year was 170,832 ounces, down significantly on 2010 but in line with expectations. De-bottlenecking of the mill allowed for a 7% increase in throughput, which partially offset the expected reduction in grade from 2.8g/t in the prior year to 2.1g/t. Gold ounces sold amounted to 170,625 ounces for the year, in line with production and down 22% compared to 2010, reflecting the decline in production. Cash costs for the year were US$810 per ounce sold compared to US$472 in the prior year period. The increase in cost was primarily driven by the lower production base, higher labour costs due to inflationary pressures and an increase in headcount, increased energy costs as a result of increased back-up power usage, especially in November and December due to the failure of the grid transformer resulting in the mine being solely run on diesel power, and increased contractor services costs. Cash costs per tonne milled increased to US$45 in 2011 from US$36 in 2010, mainly as a result of the increased cost profile. Capital expenditure for the year totalled US$123.1 million, 35% higher than the US$91.4 million in the prior year. Key capital expenditure included capitalised waste stripping mainly relating to the Gokona and Nyabirama pits (US$26.4 million), expansion of the gold plant (US$21.3 million), capitalised drilling (US$14.3 million), investment in the water treatment plant (US$8.4 million), tailings storage facility expansion (US$4.9 million) and the upgrade to the crushing circuit (US$2.1 million). Included in capital expenditure is a non-cash reclamation adjustment, which amounted to US$18.8 million. As reported during the year, approximately 1,500 intruders, many of whom were armed, stormed the ore stockpile in May. This resulted in a confrontation between the Tanzanian police force and the intruders, during which a number of intruders and police officers were injured. Police reports state that five intruders were killed. We have made the re-engagement of the communities surrounding the mine a key objective. Core to this is the progression of our Co-Existence Plan (further details on page 57), which aims to solidify community trust and credibility by fulfilling all outstanding legacy commitments, and to develop longer-term sustainability programmes in the region. ANNUAL REPORT AND ACCOUNTS

38 Operating review Tulawaka continues to outperform Lake Victoria Tulawaka progress against our 2011 priorities Mine life extended twice through to the end of 2012 West Pit Extension delivered first ore to the ROM pad in the fourth quarter Enhanced site security controls Obtained recertification under the International Cyanide Code 2012 priorities Develop the second access portal to the underground Increase current mining rates Continue to evaluate additional opportunities to further extend the mine life Further development of surface deposits to ensure sufficient feed to run plant at optimal levels Complete closure plan key mine statistics (70%) Year ended % variance Underground ore tonnes hoisted (Kt) % Open pit ore tonnes mined (Kt) % Open pit waste tonnes mined (Kt) % Ore milled (Kt) (14%) Head grade (g/t) % Mill recovery (%) 95.1% 93.2% 2% Ounces produced (Oz) 58,871 42,094 40% Ounces sold (Oz) 58,415 44,736 31% Cash cost per ounce sold (US$/Oz) % Cash cost per tonne milled (US$/t) % Capital expenditure (US$ 000) (100%) 31,652 15, % The statistical information presented includes Non-IFRS measures. An explanation of Non-IFRS measures is included on page 50 and 51. ContribUTion to total group ounces 58,871Oz 9% 2.15TRIFR 193Koz TOTAL RESERVES AND RESOURCES 36

39 overview performance governance financial statements shareholder information Tulawaka mine overview The mine consists of a completed open pit mine with an underground access ramp located at the bottom of the pit, waste rock dumps, an ore stockpile area and crushing plant, as well as a processing plant, water, waste disposal and ancillary facilities. Current operating capacity of the mill operations is approximately 1,320 tonnes per day. As at 2011, a total of 1,043 individuals were employed, comprising 493 Group employees and 550 contracted personnel. Pangea Minerals Limited owns and operates the Tulawaka mine assets. However, all capital and operating costs associated with the Tulawaka mine and net cash generated by the mine are divided on a 70:30 basis between ABG s subsidiary Pangea Goldfields Inc (70%), and MDN (30%), ABG s joint venture partner for the mine. Further details regarding this relationship and the related Tulawaka Agreement are provided on page 96. The Tulawaka mine comprises two ore bodies, the East Zone and the West Zone. The East Zone is the main gold deposit. The West Zone is still being explored. Tulawaka s life of mine is currently estimated to take this operation to the end of 2012, based on its proven and probable gold reserves of 64,000 ounces. Operating performance Tulawaka continued to outperform expectations, both in regards to production and cash costs, and we have been able to extend the mine life twice in 2011, through to the end of Due to the further life of mine extension, the mine s management team has been able to refocus on production and has been able to deliver a 40% uplift in ounces on 2010 at a comparable cash cost. We continue to invest in exploration drilling and hope to be in a position later this year to make a commitment to further mine life extensions. production level resulted from an increased proportion of the mill feed coming from higher grade ore from the underground and less lower grade material from the stockpiles than in In the fourth quarter the West Pit Extension was progressed in order to provide incremental mill feed in place of the existing low grade stockpiles to supplement production from the underground operation. Gold ounces sold were broadly in line with production and up 31% on 2010 reflecting the increased production. Cash costs for the year were US$727 per ounce sold compared to US$709 in the prior year. This cost increase was mainly due to the increase in mining activity, which resulted in increased headcount, maintenance and contracted services as well as higher sales related costs driven by higher revenue. The cost increases were almost totally offset by the increased ounces produced and increased capitalised costs associated with deferred stripping and underground development. Cash costs per tonne milled increased to US$146 in 2011 from US$93 in 2010, primarily as a result of the higher cost of underground mining and a lower mill throughput due to the higher grind index associated with higher head grade. Capital expenditure for the year totalled US$31.7 million compared to US$15.5 million for the previous year. Expenditure was focused on increased investment to extend the mine life and includes capitalised underground development (US$6.5 million), security infrastructure (US$3.7 million), drilling costs (US$2.8 million), capitalised open pit stripping costs (US$2.5 million) and additional mining equipment. Included in capital expenditure is a non-cash reclamation adjustment, which amounted to US$11.0 million. The mine s attributable gold production for the year was 58,871 ounces compared to the 42,094 ounces achieved in The increased gold ANNUAL REPORT AND ACCOUNTS

40 Exploration and project development Progress across the portfolio During 2011, US$48.1 million (including capitalised exploration expenditure of US$17.8 million) was spent on exploration and evaluation activities leading to a total resource addition of 3.5Moz for US$13.7 per ounce, thereby maintaining our solid track record of delivering high quality, low cost resource ounces. Key achievements during the year included the declaration of an updated in-pit resource in excess of 4Moz for the Tusker-Kilimani deposit at the Nyanzaga project, indicating this deposit has the potential to become ABG s fifth stand-alone operation in Tanzania. We also declared an initial resource at Golden Ridge and further extended the mine life at Tulawaka through to the end of 2012, with the potential for further extensions. In addition, we are able to declare a resource from the Bulyanhulu tailings, which underpins the CIL Expansion project. One of ABG s key focus areas has been to invest in exploration to lay the foundations for the Company s continued growth. Peter Spora, Vice President Exploration We made positive progress on feasibility studies at three key projects: Gokona Underground, Bulyanhulu Upper East Zone and the Tulawaka East Zone Underground extension, and commenced a new feasibility study looking at expanding the CIL capacity to reprocess the tailings at Bulyanhulu. Further to this, we initiated scoping studies after successful drilling at Nyanzaga and Nyabirama Underground and continue to assess the best method to develop the resource at Golden Ridge. In addition to the major development projects we continued to advance regional exploration programmes in Tanzania. During 2011, ABG reviewed further opportunities for regional expansion throughout Africa. We are continuing to undertake exploration and evaluation work in a number of countries, assessing the potential for projects that would be accretive to our business through enhancing our growth profile, strengthening our project pipeline, and adding strategically important geographic diversification. Overall, the positive progression of our exploration projects and efforts throughout the year by the Exploration and Technical Services teams clearly show ABG s ability Exploration and project development pipeline Grassroots Programme Target Delineation Advanced Exploration & Resource Development Scoping & Feasibility Studies Africa-wide M&A Kahama Gokona Corridor Masabi Extensions Nyanzaga Regional Buly Reef 1 & 2 East Dett Buly Reef 2 West Nyakafuru JV Komarera Nyabirana UG Nyanzaga Golden Ridge Buly Upper East Zone Gokona Gena UG Tulawaka Deeps Buly CIL Production Target Size >1 Moz >750 Koz >500 Koz >100 Koz Opportunity Mine site Satellite Lake Victoria Goldfields Africawide 38

41 overview performance governance financial statements shareholder information 2011 highlights Continued successful drilling intercepts at the Nyanzaga project have resulted in a significant uplift in the previously declared mineral resource estimate for the Tusker deposit. The updated in-pit resource is in excess of 4Moz consisting of 3.48Moz at 1.47g/t Au Indicated and 598Koz at 2.05g/t Au Inferred, representing a fourfold increase in the previously declared resource of 313Koz Indicated and 650Koz Inferred. Exploration drilling at Tulawaka continued to demonstrate the potential to extend the mine life beyond Advanced exploration and resource development drilling around the Gokona pit at North Mara has the potential to increase the open pit reserve by 300Koz with an updated resource for the Underground due in Initial resource declared at Golden Ridge. Advanced exploration drilling beneath the planned final Nyabirama open pit has identified high grade zones likely to be amenable to mining. Identified higher grade zones at the large Dett prospect, system open below 300m vertical depth priorities Continuation of drill programmes at the Nyanzaga project on the Tusker and Kilimani resource areas to target further depth and strike extensions to the current resource. Expansion of the Tulawaka Deeps Underground drill programmes to further extend the life of mine. Complete infill and expansion resource drilling for both the Gokona and Nyabirama Underground projects at North Mara. Continued testing of regional targets within the wider North Mara region for new stand-alone deposits. Further testing of additional targets on the Nyanzaga property. Complete drill programmes and metallurgical test work on Komarera project, 4km south west of Nyabirama. Continued testing of Dett project to expand higher grade zones, and scope out size of the mineralised system. Surface drilling programmes around Bulyanhulu for open pit opportunities. to recognise both regional and near mine opportunities. This is strategically important, as it supports our existing production platform, organic growth prospects and medium to longer-term growth. abg s commitment to exploration continues, and for 2012 our exploration budget remains strong, with budgeted total exploration expenditure, both expensed and capitalised, of US$35 million. 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 high quality stand-alone and satellite deposits; and to progress regional exploration in order to evaluate new opportunities throughout Africa through partnerships and acquisitions. Organic growth projects Brownfield projects North Mara Gokona Underground This project is focused on developing underground resources beneath the planned final Gokona and Nyabigena open pits. The objective is to bring high grade underground resources into production in order to provide increased flexibility to mining operations as well as extending the life of mine at North Mara. Deep diamond drilling in and around the current Gokona Underground resource area was completed early in This drill programme was successful at extending known higher grade mineralised zones to at least 600 metres below the currently planned final open pit depth. Based on the positive results of the programme, abg commenced a significant resource drill-out programme in Q aimed at expanding the total underground resource to greater than one million ounces. By year-end 2011 we had completed 65 holes for approximately 28,174 metres of reverse circulation and diamond drilling. The infill drill programme is 50% complete, and is expected to be finalised by the end of Q These additional drilling results will also be incorporated during the mid-year Resource and Reserve evaluation, which is expected to increase the overall underground potential. ANNUAL REPORT AND ACCOUNTS

42 Exploration and project development (continued) The Gokona Underground feasibility study was successfully completed during Q and was based on the 2010 year-end resource. At the same time, during the latter part of 2011 we were able to progress land acquisitions around the Gokona pit and remove a western side road constraint. This provides the potential to increase the open pit reserve ounces by approximately 300Koz through an additional lateral cut back of the open pit, subject to waste dumping constraints and permitting. If implemented, this would provide additional near term production in excess of that anticipated from the underground project. It would, however, have the effect of reducing the underground resource by approximately 150Koz, but the potential addition of the lower cost open pit ounces is a positive for the overall North Mara mine. Should the extended Gokona open pit cut back prove the more favourable option, then the underground project feasibility will need to be recalculated so as to provide for a revised portal position, the successful 2011/12 drilling programme, mining design and infrastructure requirements. While this will lead to some delay in accessing underground production, with the evaluation likely to be concluded by Q we remain confident that the project will continue to be viable and our production profile would be enhanced by both the additional open pit ounces as well as the underground project. North Mara Nyabirama Deeps The project is aimed at defining underground ounce potential from areas previously not able to be drilled from the open pit or during early exploration drilling. Infill drilling is targeting the addition of at least 700Koz of material into the Nyabirama resource base. The current reverse circulation and diamond core drilling programme is ~80% complete with 86 holes completed for 30,181 metres in 2011, and the remainder of the programme is anticipated to be completed during early Results from the drilling to date have returned intercepts showing multiple zones of higher grade mineralisation, including some wider zones (in excess of 10 metres) with grades in excess of 5g/t gold. We are very encouraged by the progress of this programme to date and expect to initiate an underground feasibility study during North Mara Gokona Corridor We are also undertaking significant additional exploration elsewhere around the North Mara mine, particularly along the Gokona Corridor, where historically very little effective drilling has been completed outside the immediate mine area. For this reason, during 2011 we completed a reverse circulation scout drilling programme along this corridor to test for additional gold deposits. The scout drilling has been successful at identifying favourable rock types and alteration similar to those observed at the Gokona and Nyabigena deposits. Several areas of anomalous gold geochemistry have been identified; warranting more extensive and deeper drilling in order to more fully understand the source of the anomalous gold and test for satellite or stand-alone opportunities. In 2012, a programme of 18,500 metres of reverse circulation and diamond core drilling has been budgeted to test identified gold anomalies. Tulawaka East Zone Underground Extension We were able to successfully extend the mine life twice at Tulawaka in 2011, through to the end of 2012, and our ongoing drilling programmes are focused on extending this further. Much of the focus in 2011 was on the East Zone Underground extensions where we continued to extend the known high grade mineralised shoots below 7-Level, down to 12-Level, indicating potential to extend the mine life further. Drilling to date indicates that existing mineralised zones continue to at least 180 metres below the floor of Tulawaka s now-completed open pit. A second portal into the Tulawaka East Zone Underground is anticipated to commence in early 2012 to further assist with access sites for additional resource expansion drilling and increase production from gold ore in this part of the underground. We expect to continue drill programmes throughout 2012, which will focus on extensions of mineralisation below the eastern end of the final open pit. In this way, we will be able to assess the possible significant expansion of our current resource base to add further reserves and extend the mine life through an exclusively underground operation. Tulawaka Surface Deposits In 2011, we also tested the Mojamoja and West Zone prospects, which lie approximately 4 kilometres northwest of the Tulawaka plant, and abg is looking at the potential to delineate further open pit resources to be trucked to the plant. The current infill programme is aimed at delineating additional resources between the two previously drilled areas and was completed in January Golden Ridge The Golden Ridge project represents an opportunity for ABG to exploit a satellite gold deposit that is potentially amenable to trucking and processing at one of ABG s current operations. Feasibility work during 2011 focused on the opportunity to truck the Golden Ridge ore to Buzwagi, and whilst generating positive returns, the project did not pass our internal returns threshold. As a result, we are analysing several alternatives for developing the resource at the Golden Ridge project, with initial analysis suggesting that utilising the expanded process plant at Bulyanhulu could be a viable option. The feasibility study will be reworked during the course of 2012 to establish the viability of these options. During 2011, ABG s exploration team also completed a programme of infill reverse circulation drilling and metallurgical test work diamond drilling. 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 main Bulyanhulu shaft and contains approximately 1Moz ounces of gold at 10g/t Au within Reefs 1 and 2. The mineralisation in the Bulyanhulu Upper East Zone is included in current reserves, but it was 40

43 overview performance governance financial statements shareholder information not scheduled for mining until later in the mine life. A feasibility study to bring forward the mining of the area has been positively completed, with work continuing on the geotechnical and metallurgical drill test work. A test stope to validate the planned mining method will be instigated in Q If this confirms our expectations, Board approval will be sought for the project. Bulyanhulu CIL Expansion We expect to complete the feasibility study shortly for the expansion of the CIL circuit at Bulyanhulu in order to reprocess the tailings at the mine. We have undertaken drill testing of the tailings dam through As a result of this, we are able to declare an Indicated resource of 8Mt at 1.23g/t for 315Koz from the Bulyanhulu Tailings, which underpins the project. As well as delivering increased production, the expansion of the CIL circuit will give increased flexibility to the development of the mine as we look to increase the overall production profile over the coming years. Bulyanhulu Reef 1 & 2 East Open Pit testing Reverse Circulation drilling was carried out along strike to the east on both Reef 1 and Reef 2 structures through Some significant results were attained on both structures, which warrant a continuation and escalation of the programme in The targeting of open pit resources complements both the proposed Bulyanhulu CIL Expansion and the proposed Upper East mining area. Successful delineation and development of open pits in the Reef 1 and 2 East area could provide a means of ingress and service supply for planned Upper East underground workings. Bulyanhulu Underground Reef 2 Deep Central The target area is immediately down dip of high grade Reef 2 Reserves. Though there were delays in the drilling programme, approximately 80Koz Inferred have been added to the resource base. This area is within 700 metres of current mine infrastructure, which can be accessed within two years, giving an opportunity to mine shallower ounces. Utilising drill sites located deep on the Reef 1 footwall provides an opportunity to drill Reef 2 below 3800 mrl; an area which remains essentially untested, allowing for a large area of ground to be targeted for resource and reserve additions. Targeted Reef 2 reserves can be brought into the life of mine plan sooner than the majority of existing Reef 1 reserves, the bulk of which lie below 3800 mrl. Bulyanhulu North-East Pole-Dipole IP An Induced Polarisation ( IP )/Resistivity survey was carried out approximately 3.5 kilometres north of Bulyanhulu mine infrastructure. Seven IP/Resistivity anomalies were identified, the largest of which has been selected for drill testing in This target presents an opportunity for a shallow, potentially open pitable ore source within a short distance of the Bulyanhulu process plant, should drill testing be successful. Greenfield projects Nyanzaga project Since acquiring 100% of the Nyanzaga Project in May 2010, ABG has undertaken an extensive step-out and infill drilling programme at both the Tusker and Kilimani deposits with the aim of extending mineralisation on the northern, western and southern domains of the project. A total of 91,537 metres have been drilled at the project since May 2010, representing an investment of US$21.7 million. This highly successful programme has extended the known gold mineralisation and delineated additional resources closer to surface and as a result ABG was able to release an updated in-pit resource in excess of 4Moz Au, consisting of 3.48Moz at 1.47g/t Au Indicated and 598Koz at 2.05g/t Au Inferred. This represents a fourfold increase on the previously declared resource. The drilling has also identified the potential for further higher grade resource extensions at depth and as a result we are initiating preliminary studies to assess the potential for underground mining. Further exploration has commenced with the objective of defining the resources at depth at Tusker. At the same time, the scoping study for the project continues, with the current work programme focusing on detailed geotechnical and metallurgical drilling and modelling across the potential Tusker pit area, infrastructure trade-off studies, environmental and social baseline studies and licensing for the project. It is estimated that the scoping study will be completed during Q Assuming positive economics from the current desktop level scoping study and approval from the Board, we aim to initiate a pre-feasibility study during Q Dett The Dett prospect lies in the western part of the Mara-Musoma Greenstone Belt and is located approximately 65 kilometres north east of North Mara gold mine. Any target in this area would be for a stand-alone operation. Historic surface mapping and shallow drilling outlined a large 4 kilometres by 2 kilometres zone of alteration associated with intercalated intrusions and sediments, and limited deeper drilling to 200 metres vertical showed a low-grade (~0.70g/t) gold mineralised system, associated with copper and molybdenum mineralisation, open in all directions including at depth. In 2011, the Exploration team reviewed the historical data across the Dett prospect and drilled three wide-spaced diamond holes to test the potential for higher gold grade structures. These holes were drilled to approximately 300 vertical metres, and all holes showed the gold system remained open at depth. The drilling to date has confirmed ABG s interpretation of the structural controls to mineralisation and further review of the 2011 results will be undertaken in planning for future drill programmes aimed at further validating and extending the higher grade gold zones and investigating the potential of delineating a large, in excess of g/t Au, mineable resource. ANNUAL REPORT AND ACCOUNTS

44 Financial review Continued strong performance The ABG Group achieved strong financial results over the course of the year with an increase of 26% in net earnings and earnings per share. Record gold prices lifted revenue and margins during the year, despite marginally lower production levels, positively impacting Group net profit attributable to owners and EBITDA. This enabled us to fund sustaining and expansionary capital expenditure while generating a further US$183 million in net cash flow to reach a year-end cash position of US$584 million. Cash margins per ounce improved to US$895 in 2011 from US$671 per ounce in the prior period as we were able to capture most of the increase in the gold price despite industry-wide cost pressures. These cost pressures together with a slightly lower sales and production base meant that cash costs per ounce sold in 2011 increased from US$569 to US$692 per ounce sold. We achieved strong financial results over the course of the year. Increased revenue from stable production levels combined with a higher average realised gold price for the full year have had a very positive impact on Group earnings and cash flow. kevin jennings, Chief Financial Officer REVENUE (US$ 000) +25% US$1,217,915 EBITDA (US$ 000) +30% US$544,091 The key finance initiatives during the year were: An amicable resolution of indirect tax recoverability through a future tax offset settlement with the TRA. Extension of the US$150 million undrawn revolving credit facility for a further 24 months with evergreen provisions to maintain financial flexibility going into Rebalancing of working capital requirements focusing on: Shortening the bullion and concentrate sales and receipts cycle, resulting from a factoring arrangement and also leading to a second consecutive year of sales exceeding production. Increasing investment in critical spares and supplies to address the long logistics chain and lead time challenges emerging in the market. Focus on input cost management, specifically around foreign currency, oil and co-product revenue hedging. The following review provides a detailed analysis of our consolidated 2011 results and the main factors affecting financial performance. It should be read in conjunction with the financial statements and accompanying notes on pages 116 to 164, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. Year ended % change Attributable gold production (Oz) 1 688, ,934 (2%) Attributable gold sold (Oz) 1 699, ,083 (3%) Cash cost (US$/Oz) % Average realised gold price (US$/Oz) 2 1,587 1,240 28% Revenue (US$ 000) 1,217, ,021 25% ebitda (US$ 000) 2 544, ,167 30% Cash generated from operating activities (US$ 000) 498, ,141 44% Net profit attributable to owners (US$ 000) 274, ,103 26% Basic earnings per share (EPS) (cents) % Dividend per share (cents) % Operating cash flow per share (cents) % 1 attributable production and sold ounces reflects equity ounces which excludes 30% of Tulawaka s production and sales base. 2 cash costs per ounce sold, average realised gold price, EBITDA and operating cash flow per share are non-ifrs financial performance measures with no standard meaning under IFRS. Refer to Non-IFRS measures on page 50 for the definitions of each measure. 3 Includes final recommended dividend to be paid in

45 overview performance governance financial STatements shareholder information Market overview The key external drivers of our financial results are commodity prices, exchange rates and the price of oil. Their impact in 2011 and our positioning going into 2012 are set out below. Commodity prices Gold prices have a significant impact on ABG s operating earnings and its ability to generate cash flows. In 2011 the price of gold reached an all-time high, trading in a range of US$1,308 to US$1,921 per ounce and closing at US$1,531 per ounce. Gold prices averaged US$1,572 per ounce, a new annual average record and a US$347 per ounce improvement on the US$1,225 per ounce average in the prior year period. The market price of gold has been influenced by low US dollar interest rates, sovereign debt concerns, investment demand and the monetary policies put in place by the world s most prominent central banks. As a result of the global easing of monetary policy, as well as large fiscal deficits incurred in the US and other major developed economies, there is a possibility that both inflation and US dollar depreciation could emerge in the coming years. Gold is viewed as a hedge against inflation and has historically been inversely correlated to the US dollar. Therefore, higher inflation and/or depreciation in the US dollar should be positive for the price of gold. AVERAGE MONTHLY SPOT GOLD PRICES VS. DXY INDEX (US$/Oz) 2,000 1,800 1,600 1,400 1,200 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Average Spot Price DXY Index Dec Gold prices also continue to be influenced by negative long-term trends in global gold mine production, the impact of central bank gold purchases and investor interest in owning gold. In 2011, central banks purchased an estimated 430 metric tonnes of gold, and investor interest led holdings by major global exchange traded funds to increase by 10 million ounces in the year to total 77 million ounces at the end of the period. Historically, gold has been viewed as a reliable store of value in times of financial uncertainty and inflation and as a de facto global currency. Investor interest in gold as an asset class has increased greatly as a result of this. abg also produces copper as a co-product that is recognised as part of revenue. Copper prices traded in a wide range of US$3.08 to US$4.60 per pound and averaged US$4.00 per pound. Copper s fall during the second half of 2011 occurred mainly due to uncertainty regarding the global economic recovery, and slightly softer demand from emerging markets, especially China. We expect copper to benefit as the US domestic recovery accelerates and the effects of the European financial crisis become clearer. Copper prices will likely also be boosted by a resurgence of Asian demand, and by the limited availability of scrap metal and lower production levels of mines and smelters. ANNUAL REPORT AND ACCOUNTS

46 Financial review (continued) Utilising option collar strategies, we have put in place floor protection on approximately 74% of our expected copper production for 2012 at an average floor price of US$3.34 per pound and an average ceiling price of US$4.84 per pound. SOUTH AFRICAN RAND (Rand per US$) Currency exchange rates 8.0 A portion of the Company s costs are incurred in currencies other than US dollars. The exposure relating to other currencies is approximately 25% of the Company s total expenditure, of which the main contributing currencies are the Tanzanian shilling and the South African rand. In 2011 the shilling and the rand declined significantly against the US dollar as investors shunned riskier assets in favour of US dollar denominated investments Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Using collar option strategies, we have put in place ceiling protection on approximately 75% and 13% of our expected rand expenditure for 2012 and 2013 respectively, at average ceiling prices of R8.10 and R9.10 respectively. TANZANIAN SHILLING (Shillings per US$) 1,750 1,700 Fuel During 2011, Brent crude oil traded between US$94 and US$123 per barrel and averaged US$109 per barrel. We consume approximately 450 thousand barrels of diesel fuel annually across all our mines. Diesel fuel is refined from crude oil and is therefore subject to the same price volatility affecting crude oil prices. Volatility in crude prices has a significant direct and indirect impact on our production costs. 1,650 1,600 1,550 1,500 1,450 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Using three-way option strategies, we have put in place ceiling protection on approximately 50% and 22% of our expected oil exposure for 2012 and 2013 respectively. The hedges cap our oil exposure at US$110 per barrel should oil trade between US$110 US$130 per barrel and US$110 and US$135 per barrel for 2012 and 2013 respectively. Should the price of oil fall, we will participate in the lower price to a floor of US$85 and US$77 per barrel for 2012 and 2013 respectively. BRENT CRUDE (Brent per US$) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 44

47 overview performance governance financial STatements shareholder information Revenue Revenue for the year of US$1,217.9 million was 25% higher than the prior year period of US$975.0 million. The year on year attributable gold sales volume decreased by 24,544 ounces but revenue benefited from the higher average realised gold prices. The decrease in sales ounces was primarily due to the lower production base as well as excess concentrate ounces on hand sold in The average realised gold price was US$1,587 per ounce in 2011 compared to US$1,240 per ounce in Gold revenue amounted to US$1,150.0 million compared to US$921.3 million in Co-product revenue included in total revenue amounted to US$67.9 million for the year and increased by 26% from the prior year (US$53.7 million). The increase in the production of gold/copper concentrate at Buzwagi contributed to the increase in copper sales volumes. The increased 2011 average realised copper price of US$3.82 per pound compared to the prior year of US$3.54 per pound further drove co-product revenue. Cost of sales Cost of sales was US$704.1 million for the year ended 2011, representing an increase of 20% from the prior year period of US$589.0 million. The key aspects that impacted cost of sales during the year were: (i) the higher inflationary environment that increased the cost of both international and national labour, the higher cost of renewing contractor services and significant increases in commodity inputs for key operating consumables; (ii) increased fuel usage, driven by the higher level of open pit mining, which also led to additional maintenance hours, and mine contractor services; and (iii) continuing power disruptions leading to higher maintenance costs as a result of plant equipment failure due to wear and increased fuel usage to provide self generated back-up power. Revenue related costs such as royalties, third party smelting and refining fees increased by US$7.6 million following the rising trend in metal prices and concentrate volume. Depreciation and amortisation was US$134.1 million for the year representing an increase of 22% from the prior year period (US$109.5 million). This increase was driven by a higher capital investment base employed and depreciated in 2011 and increased capital spending during The change in inventories related predominantly to the higher ore stockpile valuation as a result of increased mining costs allocated to stockpiles specifically at North Mara and Buzwagi. The table below provides a breakdown of cost of sales: (US$ 000) Year ended Cost of sales Direct mining expenses 531, ,420 Change in inventories (21,016) (9,753) Direct mining costs 510, ,667 Third party smelting and refining fees 21,400 20,308 Royalty expense 38,100 31,549 Depreciation and amortisation 134, ,515 Total 704, ,039 The consolidated direct mining expenses totalled US$531.5 million for the year. This represents an increase of 22% from the prior year (US$437.4 million). The key reasons for the increase can be attributed to an overall increase in the operating cost of operations. A detailed breakdown of direct mining expenses is shown in the table below. (US$ 000) Year ended Direct mining expenses Labour 168, ,594 Energy and fuel 105,201 81,381 Consumables 93,646 82,841 Maintenance 79,491 64,441 Contracted services 99,414 81,873 General administration costs 71,614 72,272 Capitalised mining costs (86,666) (84,982) Total direct mining expenses 531, ,420 Individual cost components comprised: Labour costs, which were 21% higher than 2010, driven by a 16% increase in headcount together with increased remuneration levels in a competitive market for personnel. The increase in headcount was driven by additional security and management resources at Buzwagi; the labour intensive nature of conventional mining methods used at Bulyanhulu; and the life of mine extension at Tulawaka. Energy and diesel fuel expenses account for all electricity, diesel fuel, and oil/lubricant expenditures. The 29% increase over the year was driven by Buzwagi and North Mara due to higher open pit mining activities and the use of diesel spinning and back-up generated power in order to ensure stable and consistent power supply because of the difficulties in sourcing from the national power grid. The increased mining and milling activity at Bulyanhulu and greater underground activity and production at Tulawaka also increased energy costs. ANNUAL REPORT AND ACCOUNTS

48 Financial review (continued) The cost per barrel of Brent crude oil, the key input of diesel, rose from an average of US$86 in 2010 to US$109 in 2011, also contributing to higher energy costs. Consumable costs increased 13% mainly due to the increased mining activity, resulting in greater explosives and tyre consumption, together with the overall inflationary increases in consumables. Maintenance costs rose 23% primarily driven by plant and heavy equipment breakdowns at Buzwagi. In addition, Tulawaka costs rose due to the overhaul of the existing underground mining equipment in line with the extension of its life of mine. At North Mara and Bulyanhulu, increased mining activities resulted in higher maintenance costs. The inconsistent power supply caused greater wear on plant machinery, increasing required plant maintenance and critical component replacements specifically at Buzwagi and Bulyanhulu. Also, North Mara s maintenance costs increased during the second half of the year due to the transition from a maintenance and repairs contractor (MARC) to an owner maintenance model. Contracted services increased 21%, mainly as a result of: (i) increased drilling activity at North Mara; (ii) the open pit mining for the West Pit extension at Tulawaka, which commenced towards the latter part of the year; and (iii) increased MARC costs at Buzwagi. General and administrative costs decreased 1%, as additional security costs at Buzwagi were offset by decreased warehousing and logistic costs was adversely affected by stock related adjustments. Capitalised direct mining costs were 2% higher and consisted of capitalised operating costs to reflect deferred stripping at North Mara, Buzwagi and to a lesser extent Tulawaka as well as underground mine development at Bulyanhulu and Tulawaka. Corporate administration Corporate administration expenses totalled US$50.5 million for the year ended This equated to a 43% increase from the prior year period of US$35.4 million. Corporate administration comprised the expenses associated with maintaining the Dar es Salaam, Johannesburg and London offices. Costs include salaries, office rent, consulting, legal, audit fees and investor relations expenses. The increase is mainly due to the increased headcount in order to run an effective centralisation model and publicly listed company combined with inflationary increases compared to 2010; increased costs from the London office, which was not fully functional until mid-year 2010; continuous improvement costs of US$6.8 million; legal costs driven by a number of ongoing cases and the TRA settlement; and increased aviation and travel costs. Exploration and evaluation costs Exploration and evaluation costs are incurred to advance the exploration at our greenfield projects. For 2011, US$30.3 million was incurred, 103% higher than the US$14.9 million spent in 2010 and reflective of our increased commitment to exploration. The key focus areas for the year were exploration and step out drilling at Nyanzaga of US$15.1 million, US$2.2 million at Golden Ridge to perform metallurgical sampling and resource modelling, US$4.5 million along the corridor surrounding North Mara and US$0.3 million at Tulawaka area to test satellite open pit opportunities. Where it is probable that resources at adjacent reserve areas will be converted into reserves, the expenditure is capitalised. During 2011 an amount of US$17.8 million of exploration costs were capitalised, compared to US$12.2 million in Capitalised costs predominantly relate to the Gokona and Nyabirama Underground drilling projects at North Mara and Tulawaka underground drilling. Corporate social responsibility expenses Corporate social responsibility expenses incurred amounted to US$7.4 million for the year compared to the prior year of US$3.5 million. The increase has been driven by site focused projects and larger contributions to general community projects funded from the new ABG Development (Maendeleo) Fund, which was set up in September Other charges Other charges amounted to US$15.6 million for the year, 31% down from the 2010 amount of US$22.6 million. Other charges comprise mostly of foreign exchange gains and losses, gains and losses on disposals, unrealised gains and losses on derivative contracts, asset write downs and certain provision movements. The main contributors to the expense were: (i) foreign exchange losses of US$6.0 million (US$7.9 million in 2010) from the continued devaluation of the Tanzanian shilling against the US dollar impairing the TZS denominated assets on the balance sheet; (ii) disallowed indirect tax claims of US$7.1 million as agreed as part of the Memorandum of Settlement with the TRA; (iii) write downs relating to obsolete construction inventory at Buzwagi of US$1.6 million; (iv) severance costs of US$1.6 million; (v) historical construction supplies related write downs of US$3.0 million; and (vi) asset write downs of US$1.3 million. This was offset by ABG s entry into zero cost collar contracts as part of a programme to protect it against copper market volatility, which resulted in an unrealised mark-to-market revaluation gain of US$7.9 million compared to a loss of US$3.7 million in the prior year. 46

49 overview performance governance financial STatements shareholder information Finance expense and income The finance expense increased to US$8.7 million for the year, compared to US$1.8 million in The key drivers were full year finance expenses of US$4.6 million relating to the US$150 million revolving credit facility agreement closed during the fourth quarter of 2010, increased accretion expenses relating to the discounting of the environmental reclamation liability and interest payable on finance leases. Currently, ABG has no external debt. Finance income relates predominantly to interest charged on non-current receivables and interest received on time deposits. Taxation matters The taxation expense increased to US$117.9 million for the year, compared to US$86.5 million in The 2011 expense consists of deferred tax of US$79.1 million and current corporate taxes of US$38.8 million incurred in The higher tax expense was driven by increased profits before tax, predominantly due to higher revenue. Corporate taxes include a prior year adjustment of US$28.7 million relating to the corporate tax liability agreed per the Memorandum of Settlement with the TRA. This was fully offset by a corresponding adjustment to deferred tax income. The effective tax rate in 2011 amounted to 29% compared to 30% in During the year, we executed a binding Memorandum of Settlement with the TRA to address the treatment of certain outstanding indirect tax refunds in respect of fuel levies and value added taxation. The terms of the Memorandum of Settlement allow ABG to offset income tax payable against outstanding refunds for VAT and fuel levies. This has resulted in Tulawaka having a US$38.8 million corporate tax liability, as at 2011, which is offset against amounts owed to ABG, leaving a net receivable of US$80.1 million as part of the settlement. As part of ongoing arrangements, an escrow account has been agreed with regular reconciliations in order to prevent future fuel tax refunds accruing. Net profit for the period As a result of the factors discussed above, net profit for the year ended 2011 was US$284.8 million. This represents an increase of 28% from the prior year period (US$222.6 million). The key driver was increased revenue as a result of record gold prices during the year, slightly offset by lower sales ounces. This was partially offset by increases in our cost base as well as increased taxation due to the increased profit before tax. Key financial performance indicators and reconciliations Cash costs With respect to our cash costs for the year, we saw a 22% increase over 2010 to US$692 per ounce sold from US$569 per ounce sold. Refer to the operational overview on page 26 and cost of sales explanations as part of the financial review detailing the year on year change. The table below provides a reconciliation between cost of sales and total cash cost to calculate the cash cost per ounce sold. (US$ 000 except for ounces sold) Year ended Total cost of sales 704, ,039 Deduct: Depreciation and amortisation (134,149) (109,515) Deduct: Co-product revenue (67,890) (53,719) Total cash costs 502, ,805 Total ounces sold¹ 724, ,256 Cash cost per ounce sold Equity ounce adjustment² (1) (4) Attributable cash cost per ounce sold Reflects 100% of ounces sold. 2 Reflects the adjustment for non-controlling interests at Tulawaka. EBitda EBITDA for the year ended 2011 increased by 30% to US$544.1 million compared to the prior year period (US$419.2 million) as a result of record gold prices supported further by increased co-product revenue. This was partly offset by an increase in the direct mining cost base predominantly driven by increased direct mining costs across all sites, as well as increased revenue related costs such as royalties, smelting, refining and transport costs. Note that EBITDA includes the impact of other charges totalling US$15.6 million. A reconciliation between net profit for the period and EBITDA is presented below: Year ended (US$ 000) Net profit for the period 284, ,606 Plus: income tax expense 117,924 86,471 Plus: depreciation and amortisation 134, ,515 Plus: finance expense 8,725 1,777 Deduct: finance income (1,484) (1,202) EBITDA 544, ,167 ANNUAL REPORT AND ACCOUNTS

50 Financial review (continued) Basic earnings per share Earnings per share for the year ended 2011 amounted to US67.0 cents; an increase of 26% from the prior year period of US53.2 cents. The increase was driven by higher net profit for the year. There was no change in the underlying issued shares. Cash flow summary Year ended (US$ 000) Cash flow from operating activities 498, ,141 Cash used in investing activities (281,532) (275,555) Cash(used in)/generated by financing activities (32,682) 261,978 Increase in cash 184, ,564 Foreign exchange difference on cash (967) (278) Opening cash balance 401,012 69,726 Closing cash balance 584, ,012 Cash flow from operating activities was US$498.3 million for the year, an increase of US$153.2 million. The increase primarily related to increased EBITDA partially offset by the increase in working capital. The working capital movement related to: increased investment in supplies inventory of US$75.3 million in order to address the availability concerns of critical spares and consumable inventory impacted by long lead times; an increase in ore inventory of US$21.6 million, which was primarily driven by higher mining costs; offset by an increase in trade and other payables of US$42.0 million mainly due to timing differences in payments and increased capital and supplies cost; and a reduction in trade receivables (US$29.4 million) driven by the factoring arrangement and finished gold inventory. Cash used in investing activities was US$281.5 million for the year, an increase of 2% from the prior year of US$275.6 million. Total cash capital expenditure for the year of US$273.2 million increased by 39% from the prior year figure of US$196.4 million driven by both increased sustaining and expansionary capital expenditure. Cash used in financing activities for the year ended 2011 of US$32.7 million decreased from the prior year cash generated of US$262.0 million. The inflow in 2010 was predominantly funded by abg s IPO and was further supported by the partial exercise of the overallotment option. In total the IPO and the overallotment option proceeds resulted in US$865.3 million after deduction of transaction costs. This was, in part, offset by the payment of a special dividend and the repayment of intergroup loans to other members of Barrick Group as part of the Pre-IPO Reorganisation. The 2010 final dividend and interim 2011 dividend totalled US$28.3 million and were paid during the year. Finance lease instalments amounted to US$2.2 million and distributions to non-controlling interests amounted to US$2.2 million. A breakdown of total capital and other investing capital activities for the year end is provided below: Year ended (US$ 000) Sustaining capital 125, ,781 Expansionary capital 63,273 11,485 Capitalised development 3 83,990 82,177 Total cash capital 273, ,443 Rehabilitation asset adjustment 52,761 27,948 Non-cash sustaining capital 4 19,266 Total capital expenditure 345, ,391 Other investing capital Tusker acquisition 1 72,805 Non-current asset movement 2 8,325 6,307 1 The Tusker acquisition includes the acquisition of the subsidiary, net of cash for US$63.1 million and the Tusker stock options settled for US$9.7 million in total. 2 non-current asset movement relates to the investment in the powerline and land acquisitions reflected as prepaid operating leases; Tanzania Tanesco government receivables; village housing project; and other items. 3 The prior year segment capital expenditure has been restated to separately reflect capitalised development. 4 Total non-cash sustaining capital relates to the capital finance lease at Buzwagi for the back-up power generators. Sustaining capital Sustaining capital expenditure includes major projects such as investment in the hauling fleet at Buzwagi (US$9.7 million), investment in continuous improvement systems relating to North Mara, Buzwagi and Bulyanhulu (US$6.9 million); expansion of the tailings facility and waste dumps at North Mara (US$6.5 million), ventilation and dewatering systems at Bulyanhulu (US$5.7 million) and workshop construction at Bulyanhulu (US$2.0 million). Expansionary capital Expansionary capital expenditure includes major capital projects such as the gold plant expansion project at North Mara (US$21.3 million); capitalised exploration drilling (US$17.8 million); the water treatment plant project at North Mara (US$ 8.4 million); Tulawaka extension (US$8.0 million); Upper East expansion at Bulyanhulu (US$5.4 million); and North Mara crusher circuit enhancements (US$2.1 million). Capitalised development Capitalised development capital includes capitalised deferred stripping for North Mara (US$26.4 million), Buzwagi (US$15.6 million) and Tulawaka (US$2.5 million) and Bulyanhulu and Tulawaka underground development capitalised of US$32.7 million and US$6.5 million respectively. 48

51 overview performance governance financial STatements shareholder information Non-cash capital Non-cash capital for the year totalled US$72.0 million consisting of back-up power finance lease assets of US$19.3 million and reclamation adjustments of US$52.8 million, compared to US$27.9 million in The reclamation adjustments were driven by cost estimate increases for security, contractor fuel rates, contractor equipment rates, additional disturbance caused by the expansion of the mine sites and due to a change in discount rate. Other investing capital Included in total investing activities for 2010 was the acquisition of Tusker for US$63.1 million net of cash. During the year North Mara incurred land purchases totalling US$7.6 million. Financial position ABG had year-end cash and cash equivalents of US$584.2 million (US$401.0 million in 2010). The Group s cash and cash equivalents are with counterparties whom the Group considers to have an appropriate credit rating. Location of credit risk is determined by physical location of the bank branch or counterparty. The maximum allowable term of maturity for any individual security is 12 months. Investment counterparties must have a credit rating of at least Baa2 or better by Moody s Investor Services or BBB by Standard and Poor s. No more than 25% of the aggregate market value of the investment portfolio is maintained in any one country, with the exception of the United States of America, United Kingdom and Barbados, or in any one industry group. Investments are held mainly in United States dollars and cash and cash equivalents in other foreign currencies are maintained for operational requirements. Debt remained at zero, as in On 24 November 2010, the Group concluded negotiations with a syndicate of commercial banks, led by Citibank, for the provision of 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 the Group and to fund potential acquisitions. All provisions contained in the credit facility documentation have been negotiated on normal commercial and customary terms for such finance arrangements. The term of the facility has been extended to 2014 and when drawn the spread over LIBOR will be 350 basis points. At 2011, none of the funds were drawn under the facility. Goodwill and intangible assets remained in line with The net book value of property, plant and equipment increased from US$1.6 billion in 2010 to US$1.8 billion in The main capital expenditure drivers have been explained in the cash flow used in investing activities section above, and have been offset by depreciation charges of US$134.1 million. Total indirect tax receivables, net of a discount provision applied to the non-current portion, decreased from US$121.2 million in 2010 to US$85.3 million in The decrease was mainly due to the impact of the Memorandum of Settlement agreement where the indirect tax receivable was used to offset income tax liabilities of US$38.8 million relating to Tulawaka. The net deferred tax position increased from a net deferred tax liability of US$14.9 million in 2010 to a net deferred tax liability of US$94.0 million. This was driven by the taxable income generated during 2011 and the prior year adjustment relating to the Tulawaka corporate tax position. Tax losses carried forward have reduced from US$428.6 million to US$384.5 million and US$65 million of deferred tax assets were not recognised as at Net assets attributable to owners of the parent increased from US$2.5 billion to US$2.8 billion at The increase reflects the current year profit attributable to owners of the parent of US$274.9 million. This was offset by the payment of the final 2010 and interim 2011 dividend of US$28.3 million to shareholders during Dividend An interim dividend of US3.2 cents per share was paid to shareholders on 26 September The Directors recommend the payment of a final dividend of US13.1 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 require management to make judgements and/or estimates. These judgements and estimates are continuously evaluated and are based on management s experience and best knowledge of the relevant facts and circumstances, but actual results may differ from the amounts included in the consolidated financial information included in this annual report. Information about such judgements and estimation is included in the accounting policies and/or notes to the consolidated financial statements, 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; ANNUAL REPORT AND ACCOUNTS

52 Financial review (continued) 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; Determination of the cost incurred in the productive process of ore stockpiles, gold in process, gold doré/bullion and concentrate, as well as the associated net realisable value and the split between the long-term and short-term portions; Determination of fair value of derivative instruments; and Determination of fair value of stock options and cash-settled share based payments. Going concern statement The ABG Group s business activities, together with factors likely to affect its future development, performance and position are set out in the Overview and Performance sections of this report. The financial position of the ABG Group, its cash flows, liquidity position and borrowing facilities are described in the preceding paragraphs of this financial review. In assessing the ABG Group s going concern status the Directors have taken into account the above factors, including the financial position of the ABG Group and in particular its significant cash position, the current gold and copper price and market expectations for the same in the medium term, and the ABG Group s capital expenditure and financing plans. After making appropriate enquiries, the Directors consider that ABG and the ABG Group as a whole has adequate resources to continue in operational existence for the foreseeable future and that it is appropriate to adopt the going concern basis in preparing the financial statements. Non-IFRS measures ABG has identified certain measures in this report that are not measures defined under IFRS. Non-IFRS financial measures disclosed by management are provided as additional information to investors in order to provide them with an alternative method for assessing ABG s financial condition and operating results. These measures are not in accordance with, or a substitute for, IFRS, and may be different from or inconsistent with non-ifrs financial measures used by other companies. These measures are explained further below. Average realised gold 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 include all 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 from non-hedge currency and commodity contracts, depreciation and amortisation and social development costs. Cash cost is calculated net of co-product revenue. The presentation of these statistics in this manner allows ABG to monitor and manage those factors that impact production costs on a monthly basis. ABG calculates cash costs based on its equity interest in production from its mines. Cash costs per ounce sold are calculated by dividing the aggregate of these costs by gold ounces sold. Cash costs and cash costs per ounce sold are calculated on a consistent basis for the periods presented. Refer to page 47 as part of the financial review section for a reconciliation of cost of sales to cash 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 be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. EBITDA excludes the impact of cash costs of financing activities and taxes, and the effects of changes in operating working capital balances, and therefore is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate EBITDA differently. Refer to page 47 as part of the financial review section 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. 50

53 overview performance governance financial STatements shareholder information Amortisation and other cost per ounce sold is a non-ifrs financial measure. Amortisation and other costs include amortisation and depreciation expenses and the inventory purchase accounting adjustments at ABG s producing mines. ABG calculates amortisation and other costs based on its equity interest in production from its mines. Amortisation and other costs per ounce sold is calculated by dividing the aggregate of these costs by ounces of gold sold. Amortisation and other costs per ounce sold are calculated on a consistent basis for the periods presented. 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. Cash cost per tonne milled is a non-ifrs financial measure. Cash costs include all 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 from non-hedge currency and commodity contracts, depreciation and amortisation and social development costs. Cash cost is calculated net of co-product revenue. ABG calculates cash costs based on its equity interest in production from its mines. Cash costs per tonne milled are calculated by dividing the aggregate of these costs by total tonnes milled. Cash margin is a non-ifrs financial measure. The cash margin is the average realised gold price per ounce less the cash cost per ounce sold. Operating cash flow per share is a non-ifrs financial measure and is calculated by dividing net cash generated by operating activities by the weighted average number of Ordinary Shares in issue. 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 includes open pit material plus underground ore tonnes hoisted. Strip ratio measures the ratio waste to 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. ANNUAL REPORT AND ACCOUNTS

54 Corporate responsibility Responsible Mining Responsible Mining is a key component of our business model and its achievement is fundamental to the successful realisation of our strategy. In furtherance of this, we have established a broad sustainability programme, supported by specific commitments as regards governance and ethics, employment practices, environmental practices, community relations, health and safety, security standards and human rights. Our community relations, environmental, health and safety, human resources and security functions work closely together to ensure that all key components of responsible mining are addressed throughout mining and exploration cycles and across all of our operations. We also work with a number of international organisations, including the International Council on Mining & Metals and the World Bank, to help advance our overall sustainability programme and align our practices wherever possible with international standards. Responsible Mining means conducting our business in a way that reflects our commitment to excellence, to the benefit of all stakeholders as a whole. Our sustainability focus is influenced by ongoing operational performance reviews and the outcomes of our annual risk assessment review to ensure that we prioritise areas that are material to our business and operations and report publicly on these accordingly. Over the longer term, we aim to develop our reporting in line with appropriate elements of the Global Reporting Initiative (GRI) guidelines. Our material areas KEVIN D SOUZA, Senior DIRECTor, environment AND COMMUNITY RELATIONS Business Ethics Code of Conduct Corporate Governance Stakeholder Engagement Social Impacts Community Development Resettlement Stakeholder Engagement Training & Development Emergency Preparedness Incident Reporting SECURITY & HUMAN RIGHTS GOVERNANCE & ETHICS RESPONSIBLE MINING COMMUNITY RELATIONS EMPLOYEES Labour Practices Local Employment Employee Development Talent Retention HEALTH & SAFETY ENVIRONMENT Occupational Health & Safety Emergency Preparedness Community Wellbeing Incident Reporting Conservation & Protection Biodiversity Climate Change Management of Hazardous Materials 52

55 overview performance governance financial STatements shareholder information Highlights from 2011 and our targets for 2012 Focus Community relations 2011 Target 2011 Key Achievements 2012 Targets Devote additional resources to community relations at exploration and development projects Establishment of the ABG Development (Maendeleo) Fund Establishment of additional ngo partnerships Introduction of the North Mara Co-Existence Plan Progression of social incident reporting Implementation of Community Relations Management System Progression of the North Mara Co-Existence Plan Employees Continued development of ABG as an employer of choice Continued improvement of employee skillsets Negotiation of Union recognition agreements at Bulyanhulu and Tulawaka First intake of ABG apprenticeships completed IMTT programme Further development of employee benefit packages Development of collective bargaining agreements Further development of ABG training and development programmes Environment Continued improvement in energy efficiency Further reduction in carbon dioxide emissions Positive progress made towards the discharge of the EPO at North Mara Obtained Tulawaka s recertification under the International Cyanide Code Improved reporting of environmental incidents and risks across all ABG sites Successfully complete the commissioning of the North Mara Water Treatment Plant for the discharge of the EPO Complete the permitting process for the creation of additional PAF waste dumps at North Mara Obtain initial certification of Buzwagi and recertification of Bulyanhulu under the International Cyanide Management Code Health and Safety Implementation of an ABG health and safety plan to emphasise developing leadership skills in line management and common OHS standards Continued development of Tanzanian employees in the OHS profession Development of Critical Risk Standards Implementation of Inthinc Improvements in total reportable injury frequency rate Development of Health Impact Assessments Achieve 10% improvement in both our lost time injury frequency rate and our total reportable injury frequency rate Continue the implementation of Critical Risk Standards Complete Community Health Impact Assessments at all operations Security and Human Rights Adoption of ABG Security Management Framework Completion of security system upgrades at Buzwagi, North Mara and Tulawaka Progression of Voluntary Principles training across security team Further progression of Human Rights Policy and Procedures Ongoing Voluntary Principles training for Tanzanian Police Force Further upgrades to the Group security management system For 2011 reporting purposes, material areas include community relations, employee and contractor relationships, environmental performance, health and safety and security and human rights. As a matter of good practice we also report on governance and business ethics. We monitor and review a number of performance indicators across all material areas throughout the year for purposes of analysing performance and setting future targets. Further details on 2011 performance and 2012 targets in each material area are provided in this report. ANNUAL REPORT AND ACCOUNTS

56 Corporate responsibility (continued) ABG s economic contribution ABG has had a presence in Africa for over 10 years and we continue to contribute to the economic growth of communities, regions and countries to bring sustainable socio-economic benefits to the places where we work. IN 2011 ABG CONTRIBUTED $186m of taxes borne and collected AND DIRECT ECONOMIC CONTRIBUTION OF $1,063m through taxes and government royalties, dividends, suppliers, contractors and community payments, employee wages and salaries DIRECT ECONOMIC CONTRIBUTION The graph below shows the distribution of revenues generated by our business in 2011 to different stakeholder groups: TAXATION CONTRIBUTION The graph below shows the total of tax distributions by type: 12% 2% 1% 11% (US$15m) 28% (US$39m) 11% 15% 59% Suppliers, contractors and communities Available for reinvestment Taxes and government royalties Employees (net of tax) Dividends Interest and non-controlling shareholders 48% (US$72m) -10% (-US$15m) 23% (US$33m) Corporate Income Tax 1 Royalty Government Indirect Taxes (VAT and fuel levies) 1 Payroll taxes (incl. social security) Other taxes (incl. WHT, Stamp duties, environmental levies) Our direct economic contribution is made up of the economic value we add by paying our employees, governments, suppliers, shareholders, contractors and communities. Our true economic contribution is far greater once the greater effect of our presence is considered. These include the indirect effects of people spending their wages, governments distributing tax and royalty revenues, and neighbouring communities using the infrastructure developed for our operations. The basis of preparation for the tax data reported in the context of our taxation contribution above is outlined on page 184 of this report as part of the Glossary of terms. The table entitled Country Analysis shows the total of all tax payments for each of the main countries where ABG has operations or projects. The distribution of taxes paid by the Group reflects the geographical spread of ABG s business. The majority of our taxes are paid in Tanzania followed by South Africa. Although ABG s headquarters are in London, only a small proportion of our operations are located in the UK. A large proportion of our administrative, finance and technical support functions are located in South Africa. All of our operating mines are located in Tanzania. Country analysis All amounts are in thousands of US$ Net payments to governments Taxes borne Taxes collected Subtotal Taxes refunded Tanzania 130,912 44, ,654 (40,158) 135,496 South Africa 1,397 6,397 7,794 (700) 7,094 Other 1,012 1,302 2,314 (616) 1,698 Total 133,321 52, ,762 (41,474) 144,288 1 during the year we settled US$38.8 million in corporate income tax through settling outstanding indirect tax refunds in respect of fuel and VAT taxes as agreed with TRA per the Memorandum of Settlement. 54

57 overview performance governance financial STatements shareholder information ABG Development (Maendeleo) Fund Investment Criteria Investments made by the ABG Development (Maendeleo) Fund focus on community development, health, education, environment, water projects, skills and training programmes. We also intend to provide support to non-governmental organisations with demonstrated capacity to deliver on community development initiatives and other forms of philanthropic initiatives, such as donations, sponsorships and partnerships, which fall within the overall focus of our investment objectives. Due consideration is also given to funding broader development initiatives that support Tanzania s national development strategy. Generally, we will give funding priority to programmes that: We established the ABG Development (Maendeleo) Fund during the year as part of our commitment to promoting sustainable development. We intend to make an ongoing annual contribution of US$10 million to the fund, making it the largest community development fund of its kind in Tanzania. The fund will be used to support all of our community investment programmes and has already provided support for a number of important community and social projects. It is administered under the guidance of abg s newly established Community Investment Committee. are developed from participatory community needs assessment and planning; are aligned with village and District development plans; prioritise mitigation of social impacts and risks; include fulfilment of existing social obligations; leverage ABG s core business and comparative advantage, including in relation to infrastructure and existing facilities and services; maximise inclusivity and minimise dependency; and balance visible short-term projects with longer-term development programmes. The launch of the ABG Development (Maendeleo) Fund highlights the focus that we place on community and social development in Tanzania and is an important step in the development of our community and social strategies, which we use to harness synergies across our operations. ABG s Community Investment Committee Our Community Investment Committee is responsible for setting community support and investment priorities and oversees all community investments made by the Fund. Its members include ABG s Vice President of Corporate Affairs, ABG s Community Relations Manager Operations, ABG s Head of Corporate Development and Investor Relations, ABG s PR & Communications Manager and the General Counsel. The committee liaises with ABG s community relations team and other appropriate departments whenever necessary for purposes of assessing and monitoring our community support and investment commitments. ANNUAL REPORT AND ACCOUNTS

58 Corporate responsibility (continued) Community relations Our approach We believe it is critical to establish mutually beneficial relationships with the communities in which we operate and to ensure local communities have the opportunity to share in the benefits of our activities. abg s strategy is to engage with communities, governments and other stakeholders to earn their support for our operations and build effective community programmes. We have adopted specific policies and procedures in order to set community relations standards, which include a grievance management procedure, to ensure dialogues with host communities and other local stakeholders are managed in a transparent and systematic manner across our operations. All members of our community relations team have expertise in social management achievements and 2012 targets We have made a number of positive developments in our community relations programme throughout the year, notably with the establishment of the ABG Development (Maendeleo) Fund. We have also strengthened Group procedures and controls, with the adoption of a specific community relations policy and a Group wide community relations standard, which sets our expectations and prescribed minimum performance requirements for our community relations practices. Our key area of focus for the year has been the progression of meaningful dialogue with local stakeholders and the management of trespassing and illegal mining activity at North Mara following the site intrusion in May. In this regard, a number of positive developments have been made throughout the year, including the progression of a Co-Existence Plan between the mine and surrounding communities. As part of this, we have also established a new partnership with Search for Common Ground to progress constructive dialogue around the mine. We aim to further progress this year s achievements in 2012 with the implementation of the following: Establishing an ABG standard and approach for stakeholder engagement. Commence implementation of community relations management system, in particular the development of community risk assessments and social incident reporting. Further development of the North Mara Co-Existence Plan. Community investment Corporate social responsibility expenses incurred amounted to US$7.4 million for the year, compared to the prior year of US$3.5 million. The increase has been driven by site focused projects and larger contributions to general community projects funded from the new ABG Development (Maendeleo) Fund. The launch of this fund greatly enhances the available funding for community investment and will be used as the primary source of funding for all community development and assistance projects going forward. The fund has already made significant achievements since its inception in September 2011, with funding granted for a number of key projects during the year. Village Benefit Agreements entered into in the North Mara region form part of overall action items, which will be provided for as part of the progression of the North Mara Co-Existence Plan. Funding for these arrangements will be provided under the ABG Development (Maendeleo) Fund. In addition to ABG community assistance programmes, ABG also provides donations to CanEducate, a registered charity launched in 2010 by ABG and Barrick employees to provide educational support to students in communities located around our Buzwagi and Bulyanhulu mines. In 2011 CanEducate raised US$47,000 funds, which was used to support a total of 697 students. CanEducate aims to raise funds to support a total of 1,300 students for Community engagement We are committed to inclusive and transparent community engagement in order to build and maintain trust with our host communities and to ensure that our activities are informed by their perspectives, concerns A snapshot of our community support and investment commitments through the ABG Development (Maendeleo) Fund Coalition for Rural Resource, Research and Action Networks (CORRA) Health/Youth Implementation of CORRA Drug Control Programme in the Tarime district, aimed at defining the drivers of drug abuse and delivering solutions to abate drug abuse 56

59 overview performance governance financial STatements shareholder information and priorities. This process involves identifying stakeholders, engaging in disclosure and consultation processes and operating appropriate and effective feedback mechanisms. We maintain an ongoing dialogue with individuals, community leaders, government representatives and non-governmental organisations. We have trained and employed local community members to act as liaison officers at Bulyanhulu and North Mara, dedicated ABG community liaison officers at all ABG sites and created community liaison centres within the communities around Bulyanhulu and Buzwagi to ensure that all community members have easy access to information about mine activities. We are currently developing plans for a community liaison centre at North Mara and will review the need for a centre at Tulawaka as part of mine closure plans. We use our community grievance management and resolution procedures to manage and respond to community concerns. Day to day management of this process is conducted at each of our operations by site based members of our community relations team. In 2011, 535 new matters were lodged using our grievance procedures. The majority of new concerns were lodged in respect of land compensation at North Mara, the majority of which related to previous compensation paid for land acquisitions prior to our acquisition of the mine. The North Mara Co-Existence Plan includes the resolution of these issues as part of its objectives. BREAKDOWN OF GRIEVANCES LODGED IN Bulyanhulu: 10 Buzwagi: 10 North Mara: 507 Tulawaka: 8 Over the course of the year we developed a social incident reporting pilot scheme for purposes of monitoring emerging social issues in our surrounding communities. The procedure is aimed at introducing proactive management and engagement in potential social issues from the outset, in order to develop community engagement and dialogue. The scheme was well received, such that we intend to develop it across all of our operations in North Mara Co-Existence Plan Throughout the year we have improved community dialogue across the Mara region, developing overall communications with village leadership, religious leaders, local contractors and representatives of local government. As part of this, we have embarked on the process of creating a comprehensive plan with community leaders around the North Mara mine with the objective of achieving a harmonious co-existence with the surrounding communities. The plan is focused on the following objectives: solidifying community trust and credibility by fulfilling all outstanding legacy commitments; enhancing investment programmes in order to achieve tangible and equitable benefits to all communities; developing realistic and sustainable alternative livelihoods in the region; and promoting proactive communication and engagement with stakeholders. Key 2011 achievements under this plan include the following: Development of Social Management Plan: All direct and indirect legacy social commitments have been identified, verified, agreed and submitted to the relevant government authorities for approval as part of an updated site Social Management Plan (SMP). This will be used to help monitor and record progress in implementing all agreed commitments and to record progress on the completion of all agreed SMP obligations. Progression of Village Benefit Agreements (VBA/VBias): We have assessed and quantified all obligations under our existing village benefit agreements. As a second stage, we have formulated Village Benefit Implementation Agreements (VBIAs) to focus on the implementation of VBA commitments. As at the end of 2011, we had signed binding agreements with three of the seven villages located in proximity to North Mara and we are close to the signing of agreements with the remaining local villages. Access to water: We have implemented a three stage water strategy for communities, based on interim, medium-term and long-term solutions for water supply. The first phase interim plan has focused on community water supply from locally contracted water bowsers to deliver 90,000 litres on a daily basis at no cost to the community. The second mediumterm plan involves the creation of new well boreholes, 10 of which were drilled during the year with the intent to provide at least two wells per village. The third long-term phase involves the detailed assessment, design and construction of a potential water distribution system from the North Mara Water Treatment Plant. All of these plans will be progressed throughout Human Capital Health/Education Support of the roll out of a national education campaign on the effects of Female Genital Mutilation (FGM) Zanzibar Disaster Fund Philanthropy Provision of support to families affected by the Zanzibar ferry disaster in September 2011 ANNUAL REPORT AND ACCOUNTS

60 Corporate responsibility (continued) Improvement to road infrastructure: Through consultation with local authorities and other interested parties, we have helped to drive improvement to existing road infrastructure in the area. As a result of discussions, construction has now commenced on the new Western road and upgrading of the Gokona Eastern Bypass roads. In addition, local contractors have been hired to rehabilitate village roads in Kewanja, Nyangoto and Kerende. ABG has also provided funds to rehabilitate 45 kilometres of the Old German Road. Progression of other livelihoods: We have progressed our relationships with local contractors, for road construction, rehabilitation and maintenance, dust suppression and waste collection. In particular, we have worked with a local business to create a waste collection scheme focused on the employment of women from local villages. This scheme is one of the few sources of employment for women in the area and is helping to promote the independence of women as a result. In addition to progressing existing project areas, we aim to develop the Co-Existence Plan in the following key areas in 2012: Artisanal and Small Scale Mining: We are looking at opportunities to develop an artisanal and small scale mining project to provide both immediate and sustainable benefits to artisanal miners within the vicinity of the site. Our objective is to identify a low entry project concept, with definable resources and obligations to meet all stakeholder expectations. Resettlement programme: We are developing a Resettlement Action Plan for land acquisition, compensation and relocation in accordance with international standards for resettlement. As part of this we are developing a town plan to secure a land footprint for the remaining mine life at North Mara, for all future resettlement programmes in the area. Employees Our approach We aim to establish ABG as the employer of choice. We respect and value each of our employees and observe the fundamental tenets of human rights, safety and non-discrimination in the workplace. We fairly compensate our employees for their contributions and award best performance. We provide meaningful feedback to them and offer them professional development and training opportunities to develop employee potential. We encourage accountability and employee involvement in issues affecting the workplace to help improve safety and work conditions, as well as our efficiency and our business. As an employer, we are committed to fair employment practices and a workplace in which all employees are treated with dignity and respect. We do not tolerate or condone any type of discrimination on the basis of race, gender, national origin, religion, age, sexual orientation, politics or on the basis of any personal characteristic protected by law. Our Head of Human Resources is responsible for day to day management of our employment practices and employee relations. He is part of the Senior Leadership Team employee achievements and 2012 targets Our key focus this year has been on the progression of relationships which promote collective employee dialogue and conducting a review of compensation and benefit packages across our operations. We have also maintained our focus on employee training and development. Key achievements include: Execution of recognition agreements at Bulyanhulu and Tulawaka. Introduction of enhanced cost of living and housing allowances. Apprentice completion of IMTT programmes. Our focus for 2012 will remain on the progression of labour consultation and communication processes, namely with the development of ABG collective bargaining agreements and further development of our employee development and training programmes. Workforce and turnover We employed a total of 5,379 employees and 3,357 contractors in 2011 compared to 4,815 and 3,651 respectively in Our turnover rate for 2011 was 17% compared to 18.5% in 2010, a satisfactory achievement given the growing level of demand across the mining industry in general for skilled personnel. Turnover rates at each of our operations were largely comparable to 2010, save for the decrease at North Mara and the increase in turnover at Tulawaka. further information regarding the ABG Development (Maendeleo) Fund and the Community Investment Committee is provided on our website: Comprehensive Community Based Rehabilitation Hospital in Tanzania (CCBRT) Health Fundraising for a maternity wing in a hospital that provides health services to the disadvantaged 58

61 overview performance governance financial STatements shareholder information We are closely monitoring our ability to recruit and retain qualified personnel given the increasing demand for technical skillsets across our industry. Our focus is to remain competitive from a compensation and development perspective in order to promote employee retention. GROUP WIDE TURNOVER accordance with functional and mine site requirements. New employees receive an overview of ABG policy through an orientation process within a reasonable amount of time following the commencement of their employment. We aim to complete an annual review of core Company policies with all ABG employees. The structure of our organisation encourages sites to transfer employees to value-added roles when appropriate. We also promote wider internal transfers as a means of broadening employees experience and their value to our organisation. 17% 2011 Bulyanhulu: 14.3% Buzwagi: 19.6% North Mara: 13.3% Tulawaka: 27.6% 18.5% 2010 As of 2011, 56% of our employees had participated in technical training courses, compared to 50% in Technical training covers mining, process plant, maintenance, geology and metallurgy training and is based on employee specific roles and site functions. We place a premium on diversity in the work place and this is reflected in the makeup of our workforce. While internationals are often necessary for the design and construction phase of a mine s development, we actively favour national employment and, wherever possible, we seek to reduce international employment levels over the productive life of our mines. We have an ongoing commitment to the localisation of our workforce and aim to maintain national employment levels at at least 90% of our overall employee base. This is largely reflected in the overall composition of our Group workforce in 2011 and the composition of our workforce at individual operations. LOCALISATION OF WORKFORCE In addition to internal training programmes, out of 147 ABG sponsored apprentices 19 completed the Integrated Mining Technical Training (IMTT) programme during the year. We have developed the IMTT programme in collaboration with AngloGold Ashanti, the Tanzanian Chamber of Minerals and Energy (TCME) and the Vocational Education and Training Authority Directorate. The programme is a vocational scholarship which has been developed to help promote and progress technical training for the mining sector in Tanzania. In addition to building technical skills, we also place great emphasis on developing leaders in business. During the year 84 of our employees participated in our Supervisory Development Programme, 12 employees enrolled in our Intermediate Management Development Programme and five employees enrolled in our Management Development Programme. 89% 2011 Bulyanhulu: 93% Buzwagi: 87% North Mara: 84% Tulawaka: 85% 90% 2010 The Management Development Programme and Intermediate Management Development Programme are run by the University of Cape Town. Both aim to equip managers with essential business knowledge and basic management and leadership skills to further career development opportunities. The Supervisory Leadership Development Programme helps potential supervisors acquire the skills necessary to manage others. Development and training We ensure that appropriate training and development programmes are established and maintained to support and develop our employees, in Tanzania breast cancer foundation Health Sponsorship for a charity who are raising funds to promote awareness of breast cancer As regards career development systems, we are in the process of developing a Learning Management System at our operations to support our training and development function, which will assist all employees in tracking and monitoring their respective training and development histories and plans. The implementation of the system commenced in early 2012 and should be operational across all sites by the end of Zinduka Health/education Establishment of youth clubs in secondary schools for malaria prevention, sensitisation and awareness ANNUAL REPORT AND ACCOUNTS

62 Corporate responsibility (continued) Employee compensation and benefits We aim to provide our employees with competitive compensation and benefit packages in line with our industry and peer group. As part of employee benefit reviews conducted during the year, we introduced an increase of 7% to cost of living allowances for all national employees to help offset the impact of local increases in inflation and volatility in the valuation of the Tanzanian shilling in the context of global currencies. We also harmonised housing allowances for all national employees to 15% of base salary. As part of ongoing benefit reviews, we introduced new medical insurance plans during the course of the year and are reviewing life insurance arrangements for improved alignment with the needs and requirements of our employees. We continuously monitor our benefit schemes to ensure that they remain appropriate for employee needs across our employee base. Industrial relations We respect the rights of employees to freedom of association and collective bargaining. This includes the right of our employees to join trade unions or other labour associations. We work closely with relevant labour groups to develop and manage effective labour relations programmes. Overall, approximately 48% of our national employees were members of unions in Trade union membership of our national workforce in 2011 at each of our operations ranged from 62% at Tulawaka to 38% at North Mara at various points. Throughout the year we have seen a general increase in union membership at our operations, particularly as a result of membership of the Tanzanian Mining and Construction Workers Union ( Tamico ), primarily as a result of the unionisation movement, which is occurring throughout Tanzania. We recognise the importance that trade unions play within our stakeholders and we are in the process of further developing our labour consultation and communication processes. Initiatives in 2011 included the introduction of workers forums, capacity building in terms of labour legislation and business ethics and regular meetings between management and union representatives. We also concluded recognition agreements with Tamico at Bulyanhulu and Tulawaka during the year in accordance with applicable legal recognition requirements. In 2012 we will look to develop a collective bargaining agreement at Bulyanhulu, as part of developments in our relationship with employee unions. During the year the Commission for Mediation and Arbitration dismissed claims relating to unfair dismissal brought against the Bulyanhulu mine by former employees who were involved in an illegal labour strike at this operation in This decision is currently under appeal. No new material industrial relations actions were commenced during UNION MEMBERSHIP 48% 2010: 46% Environment Our approach Bulyanhulu: 57% Buzwagi: 42% North Mara: 38% Tulawaka: 62% We conduct our business in accordance with recognised industry standards and applicable environmental laws and regulations. In furtherance of this, we have adopted specific environmental standards and incident reporting requirements. ABG s Environmental Director is accountable for day to day management of ABG s environmental practices and is required to work in close collaboration with ABG s mine site managers, project managers and other members of ABG s management team to ensure our standards are maintained. ABG s Environmental Director reports directly to ABG s Senior Director, Environment and Community Relations. Energy, water, greenhouse gases, biodiversity and land are the main environmental areas affected by our operations. We use a number of metrics to measure our environmental impact across these areas. As part of overall environmental controls, we also monitor our management processes for handling and disposing of waste and hazardous materials used at our operations. further information regarding the ABG Development (Maendeleo) Fund and the Community Investment Committee is provided on our website: Nyamongo Court House Community Building of Court House and living quarters to assist in provision of law and order in the Mara region 60

63 overview performance governance financial STatements shareholder information 2011 environmental achievements and 2012 targets In 2011 we have seen a general improvement in our overall environmental performance, primarily as a result of improved environmental controls and reporting procedures. Key achievements this year include: the positive progress made towards the discharge of the EPO at North Mara; Tulawaka s recertification under the International Cyanide Management Code (International Cyanide Code); improved use of our environmental management systems; improved reporting of environmental incidents and risks across all ABG sites; and positive progress made with permit applications and permitting processes. During the year we increased our available resources in order to progress the implementation of our environmental management system and to promote uniform application of environmental management practices across our operations. As part of this process, we conducted a review of social and legal obligations registers at all of our operations in order to develop environmental compliance action plans at each of our sites. The roll out of these actions plans will continue into Key targets for 2012 include the following: successful completion of the commissioning of the North Mara Water Treatment Plan, required for the discharge of the EPO; completion of the permitting process for the creation of further PAF waste dumps at North Mara; completion of Buzwagi s initial certification and Bulyanhulu s recertification under the International Cyanide Code; reducing ABG s overall fresh water usage by 3%; and continuing the implementation of our environmental management system. Biodiversity and land management We manage 15,531 hectares of land that we either own or lease (including surface rights and mineral rights). Of this land, less than 16.6% has been disturbed for mining activities. Of the disturbed area, 82.7 hectares have been reclaimed to agreed post-mining uses. Sungu Sungu Hospital upgrade Health Rehabilitation and upgrade of district hospital in the Mara region Reclamation occurs throughout the mine life. We revised closure plans and related cost estimates for each of our operations over the course of These plans have been submitted to the Tanzanian regulators for review, as part of the overall approval processes. Consultation with wider stakeholder groups will commence in 2012 as part of our overall long-term closure planning process. We are in the process of developing various processes to assess the impact that our operations may have on biodiversity, which should allow us to report in accordance with GRI standards going forward. Energy use The largest consumption of energy within our operations is represented by diesel use, which is used for mobile fleet operations and electricity generation on site. We examine opportunities to reduce reliance on diesel generated power wherever possible and notably through connection to the TANESCO power system. However, our ability to reduce our reliance on diesel generated power in 2011 was greatly hindered by interruptions and stoppages in electricity and power supply across Tanzania generally. We will continue to monitor this issue closely and the overall impact that this may have on our energy consumption and energy profile. We use our fuel management systems to monitor our energy consumption. Electricity consumption is measured using power metering at each of our operations. Overall diesel usage for 2011 equalled 71% of our total energy profile, compared to 68% in 2010, primarily as a result of the increased use in diesel generated power at our mine sites caused by the interruptions to electricity power supply throughout the year. Purchased electricity totalled 28%, compared to 32% in 2010, again primarily as a result of overall reductions to electricity supply across Tanzania. Our use of explosives, propane, petrol and other fuels remained largely equivalent to the amounts used in Over the course of 2011 we implemented a number of energy conservation improvements across our organisation, to improve overall control and management. In 2012 we aim to improve our power consumption controls at Bulyanhulu with the implementation of a plant efficiency programme to improve controls in plant energy use. At Buzwagi we aim to install capacitors to improve overall connections between this operation and the AGGY Classic Entertainment Sports/Culture Support of a sports gala in the Mara region to promote community engagement ANNUAL REPORT AND ACCOUNTS

64 Corporate responsibility (continued) National Grid in order to improve the consistency and efficiency of energy supply. This should improve overall power factors within the operation s electricity usage, thereby improving energy efficiency. MEGAJOULES OF ENERGY USED PER TONNE OF ORE PROCESSED Water Bulyanhula: 780 Buzwagi: 399 North Mara: Tulawaka: 1, We use water mainly for ore processing, dust suppression and rock blasting. We obtain our water from both surface and ground water sources. Each of our operations face water challenges, largely as a result of either a surplus or lack of rainfall in the regional areas in which they are located. Issues in water supply can impact our production and operations in a variety of ways, due to the important role that this plays in overall mining and processing procedures. abg had a total volume of approximately 7.1 million cubic metres of water in circulation during To maintain this volume for production requirements, a total of 4.3 million cubic metres of makeup water was imported compared to 5.1 million cubic metres in The decrease is primarily due to the reduction in tonnes milled at Buzwagi during the reporting period as well as the use of increased water efficiencies at North Mara. Our water consumption for 2011 is divided into 0.4 million cubic metres sourced from ground water and 3.3 million cubic metres from surface water, with an additional 0.6 million cubic metres purchased from commercial sources. TOTAL WATER USED (in litres used per tonne of ore produced) 2011 Bulyanhulu: 844 Buzwagi: 557 North Mara: 456 Tulawaka: Water usage at each of our operations is dependent on a variety of factors including ore characteristics, design of the operation s process plant, reagent usage, which in turn is dependent on the mining technique used, and differences in overall processing and throughput capacities. We aim to recycle water as much as possible through our process facilities and also seek to improve water consumption by the use of other water management processes, including rainwater harvesting methods, which is currently used as a key water management tool at our Buzwagi operation. In this regard, of the total amount of water used in 2011, 2.8 million cubic metres represents recycled water. Going forward and over the longer term, we aim to reduce overall Group use of fresh water by 3%. We strive to improve efficiencies in our overall water management and conservation systems. All of our operations use programmes to monitor water supply, storage, use and discharge. During 2011 we improved data management systems, developed hydro-geological models for three of our operations and upgraded water balance predictions at all of our operations. In 2012 we plan to implement a water conservation standard across all of our operations and increase overall water management training to further enhance our water conservation procedures. We have also made significant progress in addressing outstanding issues relating to the discharge of the EPO at North Mara. The Tanzanian National Environmental Council (NEMC) has recently confirmed our compliance with all requirements under the EPO, further to the construction of the water treatment plant. Commissioning of the plant, in accordance with Tanzanian requirements, is now underway. Mwendakulima Dispensary Health An initiative to assist with the health situation around Buzwagi (particularly HIV/AIDS, Malaria and child illnesses) Chapulwa School Repair / Development Project Education To assist with educational facilities at local primary school where two buildings have been condemned 62

65 overview performance governance financial STatements shareholder information We expect this exercise to be completed during the first half of 2012, following which we expect the EPO to be lifted. GHG emissions We recognise that the mining industry is an energy intensive sector and the related effects that energy consumption has on greenhouse gas (GHG) emissions and, in turn, climate change. As part of energy conservation efforts, we pay particular attention to the tracking of ghg emissions. We also seek to identify ways in which we can improve our energy efficiency or use alternative energy sources. Our total GHG emissions for 2011 equalled 290,400 metric tonnes, of which 92,000 metric tonnes represented indirect emissions and 198,400 metric tonnes represented direct emissions. All of our indirect emissions are associated with electrical power supply from the National Grid. Overall, our GHG emissions in 2011 increased by 5.4% when compared to that of 2010, primarily as a result of our increased mining activity and increased reliance on diesel generated power to address electricity supply interruptions. We will continue to work with TANESCO, the Tanzanian National Power Utility, to progress the provision of stable electricity supply in Tanzania which should help to reduce our GHG emission levels. We will also seek to manage the use of diesel fuel at our operations, to the extent practicable, pending resolution of overall issues in power supply. We will look to establish longer-term targets for the reduction of GHG emissions in 2012, in the context of overall power supply considerations. Hazardous materials We have adopted a number of processes to mitigate environmental risks associated with the use, transportation and disposal of hazardous materials at our operations, particularly cyanide. As regards cyanide management, our core focus is to comply with the requirements of the International Cyanide Code. This code encompasses all areas of cyanide management and is generally recognised as setting best practice standards within the gold mining industry. Bulyanhulu and North Mara were originally certified as compliant under the International Cyanide Code in Tulawaka obtained original certification in Compliance recertification must be obtained every three years. Bulyanhulu and North Mara are currently categorised as being in full compliance with the code. Each will undergo a recertification process in Tulawaka is categorised as being in substantial compliance with the International Cyanide Code, following completion of its recertification in Buzwagi has yet to receive its initial compliance certification, however, the application process for its certification is underway. At present, Buzwagi s compliance certification is subject to the successful completion of the upgrade of its detoxification plant. We expect to complete the upgrade of this plant in 2012 and we aim to complete Buzwagi s certification process in conjunction with this. The storage of tailings may present additional risks to the environment, property and individuals, in the event of a leakage or failure of Group tailings dams. As part of overall environmental risk assessments, our tailings facilities are subject to specific risk assessments and are independently audited on an annual basis. All of our tailings facilities passed the 2011 audit process without material issues. Upgrades to the current tailing storage arrangements at Bulyanhulu are being assessed in the context of the Bulyanhulu CIL Expansion Project. Environmental assessments and permitting processes to support this project were commenced in 2011 and will continue into From a permitting perspective, we are currently seeking regulatory approvals for additional PAF waste rock dumps at North Mara to accommodate future mining activities. For the time being we have obtained provisional permits, which provide for the construction of certain waste rock dumps at an extension to our existing PAF dumps. These dumps will provide support for North Mara s waste stripping schedule in the interim period. Governance and business ethics The ABG Business Management Framework sets out the core standards and practices for the way we work. In addition to this, our Code of Conduct embodies our commitment to conducting our business in accordance with all applicable laws, rules, regulations and the highest ethical standards. We have also adopted specific policies in the areas of bribery, corruption and fraud to underline our position on unacceptable and illegal actions. Together with our Code of Conduct, these make up ABG s Business Ethics Policies, and are used to safeguard our core ethical standards during the day to day performance of our operations and business functions. We use specific incident reporting procedures to ensure that all alleged or suspected violations of our business ethics are reported. These include the use of our compliance hotline, which is available to all employees on a global basis. All members of senior management are also required to complete training on our Code of Conduct and to certify their compliance as part of annual business ethics assessments. In 2011 the majority of reports submitted in connection with our Code of Conduct related to employee matters at our operations. None of the reports made are expected to have a significant effect on ABG. An overview of our core corporate governance practices, procedures and performance for 2011 is provided as part of our corporate governance report on page 81. Health & Safety Our approach The health and safety of our workforce is a critical component of our culture. We have a comprehensive health, safety and risk management ANNUAL REPORT AND ACCOUNTS

66 Corporate responsibility (continued) system for our underground and surface mining operations. We also require all contractors to provide and maintain a safe and healthy work environment, and ask that they meet, at a minimum, our health and safety standards. Our vision is to ensure that every ABG employee and contractor goes home safe and healthy every day and we are committed to keeping health and safety as a value that drives our overall performance. abg s Director of Health and Safety is responsible for day to day management of ABG s health and safety practices and works in close collaboration with ABG s mine site managers, project managers and other members of ABG s management team to ensure our standards are maintained. ABG s Director of Health & Safety reports directly to ABG s Chief Operating Officer. Work related injuries and fatalities, driving incidents and occupational illnesses are key focuses of our health and safety programmes and are monitored on an ongoing basis for purposes of evaluating our health and safety performance Health and Safety achievements and 2012 targets Our Health and Safety Plan was refreshed during the year to focus on three core areas: staffing, visible felt leadership and enhanced critical risk standards across all of our operations. The critical risk standards focus on the promotion of best practice health and safety standards as regards ground control, hazardous energy isolation, working at heights, cranes and rigging and mobile equipment and driving. A total of 15 Critical Risk Standards will be implemented across ABG operations by the end of We have adopted a new departmental organisation structure to support the implementation of this initiative. This included the creation of an occupational Health and Safety Project Superintendent at each operation to supervise the implementation of the critical risk standards. Going forward, we aim to develop the critical risk standards so as to include other key operational areas. Capacity building within the Health and Safety function has been a core focus this year and we have seen a number of promotions within our existing employee base, increasing the overall skill set of our team. We view investment in our existing team as essential to our long-term health and safety effort. We have also progressed our health and safety management training with the introduction of our Visible Felt Leadership Training initiative. The Visible Felt Leadership programme includes training to understand the basic laws of human behaviour, organisational dynamics, organisational culture, and how a leader can productively and effectively influence employee values, beliefs, and behaviours to improve health and safety performance. It teaches leaders how to have highly focused and positive interactions with employees in their work areas. To support this training, targets for minimum interaction have been set for every level of management for 2012 onwards. All targets will be measured and assessed as a leading performance indicator for health and safety Visible Felt Leadership Targets: General Managers Managers and Superintendents 1st & 2nd line supervisors Safety professionals Visiting senior management 2 per week 3 per week 2 per shift 5 per week every site visit In addition to the Visible Felt Leadership, during 2012 we intend to continue the focus on Critical Risk Standards, building capacity in our OHS team, and improving our governance regarding the timely completion of action items associated with audits and incidents to help correct identified deficiencies and prevent recurring incidents. Another key area will be continuing to work with our Security Department to reduce the number of injuries sustained in association with intruder incidents. Incidents in the work place We measure progress towards our health and safety goal of ensuring that every employee goes home safe and healthy every day by monitoring lost time injury frequency rate (LTIFR) and total reportable injury frequency rate (TRIFR). Both of these indicators are industry standards used to bench mark health and safety performance within the mining industry. LTIFR focuses on employee and contractor injuries in the workplace that result in days lost from work, whereas the wider TRIFR category tracks all employee and contractor reported workplace injuries, including lost time, restricted duty and those requiring medical treatment. Together, these indicators track the number of overall reportable injuries within our operating environment. For 2011, abg s aggregate LTIFR was 0.1, a 10% increase on However our TRIFR was 1.2 for the year, a 14% improvement on We aim to achieve 10% improvement in both LTIFR and TRIFR in Mine LTIFR * TRIFR ** Hours worked Bulyanhulu ,104,033 Buzwagi ,466,739 North Mara ,388,907 Tulawaka ,981,029 Exploration ,016,520 abg Corporate Offices ,774 abg ,615,002 * ltifr is calculated as the number of lost time injuries multiplied by 200,000 then divided by the total number of hours worked at each ABG operation and in aggregate at ABG. ** TRIFR is calculated as the number of total reportable injuries multiplied by 200,000 then divided by the total number of hours worked at each ABG operation and in aggregate at ABG. 64

67 overview performance governance financial STatements shareholder information Regrettably, we suffered one work related fatality as a result of a rock fall incident at Bulyanhulu. Mining activities were immediately suspended to allow the mine rescue team to commence the rescue and recovery mission, but unfortunately rescue attempts were unsuccessful. Geotechnical experts thoroughly investigated this incident. Ground support systems were also reviewed and assessed to ensure they provide a safe working environment and employees were retrained in the installation of these systems. Regular inspections are made to ensure that the correct ground support system is both used and installed properly. As part of health and safety training initiatives, members of ABG s mine rescue teams participated in the Barrick Global Mine Rescue Summit during the year. Events included surface and underground mine rescue procedures, fire fighting, first aid, team and equipment function, as well as technical skills such as high angle rope rescue. In turn, participating employees have held follow-up training sessions with wider ABG team members to further enhance our emergency training programmes. Driving safety programmes To support existing safety initiatives, 2011 saw the roll out of Inthinc technology across our mobile equipment and light fleet vehicles. Inthinc is an electronic in-cab coaching device that monitors and measures real time seat belt use, speeding, and aggressive driving behaviours. This significant investment in leading edge technology represents our belief that the application of technology as an engineering control can have a favourable impact on behaviour for improvements in health and safety performance. In 2012 we will look to further enhance our driving safety initiatives in three ways. Firstly, we intend to participate in a Barrick global driving safety study group focused on defining ways to reduce driving related incidents. Secondly, we will continue the process of refreshing, improving, and implementing our Driving Critical Risk standard. In collaboration with these initiatives, we will also continue to work with our local communities and government to improve awareness, traffic controls, and safe driving behaviours, which benefit wider stakeholders within our operating environment. Occupational health and illnesses Health risk assessments form a key part of our health and safety management system, and we are continuously seeking to identify hazards, to evaluate exposure potential, to control and manage health risks, and to monitor health-related incidents. The operational aspects of the programme comprise health surveillance, training and competence, medical care and management, record keeping and reporting, health promotion, employee assistance programmes, mine life cycle planning and community health. Prior to 2011, ABG did not have a robust system for the diagnosis and documentation of occupational illness. During the year we developed a procedure to guide the process of diagnosis, notification and investigation of occupational illnesses. Going forward we expect to collect comprehensive data of such illnesses, which should allow us to monitor progress in this area. We are in the process of implementing abg health standards, which are designed to prevent industrial illnesses. These standards will address illnesses such as occupational respiratory disease, noise exposures, musculoskeletal risks, ergonomics and fatigue. The development of ABG health standards will progress throughout In addition, all ABG operations will be required to review their health risk assessments in 2012 and subsequently update their monitoring and surveillance programmes as part of overall plans to progress our procedures for the mitigation of work related illnesses. As part of wider employee health programmes, we have also implemented HIV/AIDS awareness and prevention programmes, as well as tuberculosis and malaria programmes for our employees and their families and the local communities at all ABG s operating mines. These programmes are conducted through mine site clinics, which also provide voluntary counselling and testing for all employees and their families and follow-up care and treatment for HIV-positive employees. Community Health Impact Assessments (HIAs) hias are a combination of procedures, methods and tools that systematically judge the potential, and sometimes unintended, effects of a project on the health of a population and the distribution of those effects within the population. They generate information on the potential negative health impacts of mining to help identify mitigation measures and further accentuate positive impacts in a sustainable and replicable manner. They are recognised as an essential part of overall community impact assessments by The World Bank and a number of Multilateral and Bilateral donors and Development NGOs. abg commenced a work stream of HIAs in 2009 at all operations and development projects to assess potential impacts on public health for purposes of formulating community health programmes. We have retained an internationally renowned Health Consultancy Firm to help drive this process. The objective is to create Community Health Management Plans (CHMPs) for each of our sites. At present, initial studies have been completed at Buzwagi and Tulawaka, which should allow for the creation of CHMPs in the first quarter of The process for production of HIAs at North Mara and Bulyanhulu will commence in 2012 and run throughout the year. Implementation of HIAs Mine Status Target Bulyanhulu Outstanding Commencement 2012 Buzwagi Ongoing Completion 2012 North Mara Outstanding Commencement 2012 Tulawaka Ongoing Completion 2012 ANNUAL REPORT AND ACCOUNTS

68 Corporate responsibility (continued) Security and Human Rights Our approach We believe that effective security controls, standards, policies and procedures contribute to the safety and protection of our employees, assets and reputation as well as the communities in which we operate. Central to this are the Voluntary Principles on Security and Human Rights (the Voluntary Principles ). Our majority shareholder, Barrick, is a signatory participant to the Voluntary Principles, and ABG is committed to alignment with the Voluntary Principles. Above all else, we respect the human rights of all individuals impacted by our operations and we do not tolerate any violations of human rights committed by our employees, affiliates or any third party acting on our behalf. Our security practices are governed by our Security Management Framework. This includes our Security Code of Conduct, Security Policy, Security Management System, Security Standard for compliance with the Voluntary Principles and a number of guidelines for security processes and procedures, incident reporting and investigations. This framework applies to all of our operations and must be adhered to by all ABG employees. The implementation and enforcement of our Security Framework requires the involvement and co-operative efforts of a wide range of ABG employees, including operations, security, legal, community, environmental and human resources staff. Our Director of Security oversees day to day management of our security function and reports directly to our Chief Operating Officer. As part of our commitment to the protection of human rights, we have a Human Rights Policy, which defines our commitment to human rights and provides guidance to all ABG employees and third party service providers of their responsibilities in this regard. We also maintain specific reporting and investigation procedures for all suspected human rights violations. We expect all ABG employees to conduct themselves with the highest ethical standards and to respect the rights of all individuals, be they fellow ABG employees or members of local communities achievements and 2012 priorities We made a number of achievements in the overall progression of our security management programme during the year, notably in connection with our overall action plan to help progress law and order in the North Mara region. Key achievements include the enhancement of the ABG Security Management Framework, the establishment of our partnership with Search for Common Ground, enhancements to the North Mara security systems, adoption of a formal ABG Human Rights Policy, initiation of our updated human rights training programme and increased training of security personnel. Key targets for 2012 include implementation of further improvements to security controls and systems, namely in the form of the completion of safety walls, enhanced security technology for monitoring and surveillance, further developing training and understanding of the Voluntary Principles within our local communities and at regional and national level and further development of security standards in line with best practice. In particular, we are participating in the development of a national working group to promote the use of the Voluntary Principles in Tanzania in collaboration with Search for Common Ground. Key participants include representatives of the Tanzanian government, the Tanzanian Minister for Minerals and Energy, members of the international community, such as US and Canadian representatives, and other NGOs. Security systems and training We employ security staff, retain security contractors and engage with the Government of Tanzania in connection with matters relating to law and order in the localities in which we operate. As part of our Security Management Framework all security site personnel must participate in security training at induction level and on a regular basis. We also assist with the provision of training on the Voluntary Principles to the members of the Tanzanian Policing Unit that are assigned to provide security in the areas surrounding our operations. In 2011, we also assisted our NGO partner Search for Common Ground with the provision of training on the Voluntary Principles to members of the police force. We will continue to support the training of further members of the police force in this way in Overall our objective is to ensure all members of the police working in the vicinity of our operations receive training on the Voluntary Principles. As of 2011, our security personnel, including contractors, totalled 1,012. In 2011, we provided security training, including training on Human Rights and the Voluntary Principles to 1,823 individuals. We conduct security risk assessments as part of overall security control reviews at our operations. We have concluded security risk assessments at all of our operations during the year and are in the process of implementing recommendations. The North Mara mine has advanced numerous initiatives to improve and enhance security arrangements during the year. Key achievements include: Completion of a review of the mine s security perimeter to identify improvements. Construction is now underway on a new 14 kilometre safety wall to prevent illegal miners from accessing hazardous areas. Construction is expected to be completed by Q Installation of GPS tracking functionality to security radios, allowing for better oversight and co-ordination of security personnel at the mine. Installation of additional CCTV cameras in sensitive areas at the mine. New camera equipment has also been ordered to support the upgraded safety wall. 66

69 overview performance governance financial STatements shareholder information Recruitment and deployment of additional female security officers for strategic deployment on the mine site where potential for sexual harassment exists. Further development of mandatory human rights training, to encompass sexual assault issues. All ABG security personnel have participated in updated training. Upgrading procedures for escalation of allegations of human rights violations. Distribution in nearby communities of new materials and information to improve understanding of the inherent dangers associated with illegal mining and intrusions on the mine site. This builds on previous public education campaigns. In addition, ABG and the Tanzanian Ministry of Home Affairs have completed a review of existing security arrangements with police in the North Mara area. The review recommended that ABG continue to operate under an existing Memorandum of Understanding with police while security upgrades are underway. Once new perimeter fencing and other enhanced security features are complete, both parties will review progress with the intention of shifting resources to community policing activities and capacity building for local law enforcement. Human Rights initiatives During the year, and unrelated to the site intrusion in May, we learned of disturbing allegations of sexual assaults by police and mine security around the North Mara mine. After conducting preliminary inquiries, abg launched a full investigation and urged Tanzanian police to do the same. To date, ABG investigators have conducted more than 200 interviews and have provided relevant information to police. Police investigations remain ongoing. We are unwavering in our commitment to respect human rights at all of our operations and we have a zero-tolerance approach to human rights violations. In addition to our existing Code of Conduct and procedures, which provide for human rights training as part of our commitment to the Voluntary Principles, during the year we have adopted a specific human rights policy based on international best practices. In furtherance of this, we are implementing an updated human rights compliance programme. Progress is underway in numerous areas, including: New procedures for reporting and investigating allegations of human rights violations. Human rights training for employees, relevant contractors and other stakeholders. New procedures related to employee hiring and due diligence requirements for certain employees and third party suppliers. Human rights assessments to be conducted by third party experts at all operations and projects, encompassing leading human rights indicators, including sexual violence. Our activities in 2012 will focus on the continued development of human rights training and compliance programmes across our operations. Search for Common Ground We have established a partnership with an internationally recognised ngo, Search for Common Ground, to facilitate conflict resolutions and to help strengthen trust and improve collaboration at all ABG operations and in the local communities. Active in 27 countries, Search for Common Ground uses a multi-faceted approach, working with local partners to find culturally appropriate ways to deal with conflicts constructively, to understand differences and act on commonalities. Representatives from Search for Common Ground are undertaking the following activities around ABG s mine sites: Providing training on the Voluntary Principles on Security and Human Rights to Tanzanian police. Implementing conflict reduction, resolution and negotiation training programmes for community members, including leaders, traditional authorities (elders), youth and women. Creating and distributing culturally-appropriate educational materials to inform community members about the Voluntary Principles on Security and Human Rights, U.N. guidelines on the use of force by law enforcement officials, sexual harassment, community policing and universal human rights. Assisting ABG in reviewing its external grievance mechanism to deal with community concerns for use in connection with historical grievances as well as present and future concerns. Facilitating negotiation processes between ABG and the communities on a range of issues of concern, such as resettlement. Designing alternative sources of economic development to help reduce poverty in the area and, as a result, reduce the number of mine intruders. Evaluating an appropriate remedy programme for victims of sexual assault, aligned with international human rights norms. Developing a proposal for specific initiatives to help address violence against women in the Mara region. Organising sporting events with mixed teams comprised of community representatives, police, mine employees and district government officials, with the objective of developing collaborative community spirit. In 2011 Search for Common Ground provided training on human rights and conflict resolution to 508 members of the Tanzanian Police Force. We will continue to support Search for Common Ground in the progression of these activities and its promotion of the Voluntary Principles across Tanzania as we move into ANNUAL REPORT AND ACCOUNTS

70 Corporate responsibility (continued) Operating sustainability across the mine life cycle Exploration & Feasibility Informed consultation: we follow an approach that demonstrates sensitivity, patience and commitment to help build relationships that are based on trust and mutual understanding. From the very beginning we strive to engage in a culturally appropriate manner that respects traditional protocols, to help establish and maintain support for our activities. Access to land: we work with our local stakeholders to understand individual and communal land use, and both constitutional and customary land rights. We focus on conducting access negotiations in a courteous and transparent manner to gain ongoing acceptance and local approval. Baseline studies: before we begin our operations we seek to capture accurate quantitative and factual qualitative information using internationally accepted mapping and participatory methodologies. We seek to gain a thorough understanding of the complexities and subtleties of the locality in which we wish to operate to help us proactively manage our activities in a responsible and sustainable manner. Impact assessment: we recognise that our presence can affect local conditions in a myriad of ways. To help us understand this effect we follow international good practice and conduct a variety of assessments that help to ensure we properly identify and fully assess the potential impact, risks and opportunities that our proposed activities may have on host communities. Management planning: we develop methodical plans to help mitigate the impacts of our activities. To help us drive towards true sustainable development our planning continuously seeks to identify and address the key risks, challenges and opportunities that our presence may bring. Planning & Construction Public disclosure & consultation: through stakeholder engagement we aim to maintain transparency and consistency to help build and maintain credibility, trust and broad community support. We focus on providing a timely and meaningful exchange of reliable and appropriate information that works towards a balance of interests with our diverse range of stakeholders. Permitting: we keep abreast of Tanzanian regulatory requirements in order to apply for formal permits for our activities in a timely and transparent manner. Land acquisition & resettlement: we are mindful of the prevailing traditional customs for gaining access to land, land allocation, land use and compensation in rural Tanzania. We aim to avoid or minimise the economic, or physical, displacement of communities. When resettlement is necessary we seek to align with international standards to minimise the impact on the affected individuals, households and communities. Our internal governance structures help to ensure that evaluations, negotiations, compensation, relocation and subsequent monitoring are all undertaken in a systematic, sensitive and transparent manner giving due consideration to more vulnerable social groups. Influx management: population growth and project induced in-migration has become a significant challenge for the mining industry throughout Africa. We plan for influx through our proactive engagement with government and our own strategic and fully integrated approaches; especially with respect to local hiring, employee housing, resettlement and our social investment interventions. 68

71 overview performance governance financial STatements shareholder information Operations Natural resource management: we have focused initiatives at various stages of development and implementation for cyanide management and certification and reducing GHG and other emissions. Where possible, we aim to improve our renewable energy use, water conservation, and biodiversity management. Local content (employment & procurement): we are aware of the significant potential economic effect of local hiring and purchasing. We therefore focus on using the comparative advantage of our business to create inclusive procedures for local employment, and maximising commercial opportunities for local suppliers through business linkages. We appreciate that effective localisation will add significant value to Tanzania, our local communities and our Company and work on a variety of programmes to develop local skills, provide our local employees with opportunities to advance in the Company and meet both our ongoing and future workforce needs. Social investment: our presence always raises expectations that we will assist communities in meeting their basic needs. Our social investment in Tanzania always seeks to encourage equality, local ownership, active partnerships and sustainability with the objective of avoiding the creation of dependency. Management systems: we govern all our sustainability interventions through management systems that define performance requirements for all core functions. Our systems and tools help us to promote consistency across our operations, manage our risks, opportunities and relationships, and satisfy our legal obligations and voluntary commitments. Assurance and reporting: we endeavour to monitor, evaluate and report on the effectiveness of our actions, and the outcomes, through both external independent assessments and internal performance audits. We are keen to share our achievements and discuss our challenges with our stakeholders and shareholders. Closure Integrated closure planning: we are developing processes to support closure planning, which we will develop throughout the life of our mines. We aim to provide for continual stakeholder engagement and will seek independent advice, where necessary, in order to develop our understanding and knowledge of the various risks, impacts and associated mitigation strategies required for effective closure planning. Our approach aspires to leave a lasting positive legacy in Tanzania by working with our stakeholders to prepare for our eventual departure and the closure of our operations. Disclosure & consultation: the responsible closure of our operations will necessitate the active participation of a range of affected and interested stakeholders, including Government, to define mutually agreed closure criteria and thereafter plan and implement actions that will underpin successful closure. Reclamation & Rehabilitation: wherever practical we try to focus on progressive reclamation during the operational mine life. For all our operations we aim to develop competent decommissioning, reclamation and rehabilitation plans that detail the technical remediation solutions to provide for the biophysical integrity and chemical stability of our closed operations. Custodial transfer & relinquishment: throughout the closure process we aim to adopt participatory methodologies to promote broad internal and external stakeholder acceptance, minimise grievances, and to provide for tenure relinquishment, and eventual transfer to the Tanzanian government. Long-term monitoring: we will co-define the closure goals and benchmarks with our stakeholders. We will endeavour to use qualitative and quantitative monitoring metrics that have external and internal focuses and that are relevant to different target groups. ANNUAL REPORT AND ACCOUNTS

72 Risk management Committed to effective risk management The realisation of ABG s strategy depends on its ability to take calculated risks in a manner that does not jeopardise the direct interests of ABG s stakeholders. For this reason, we use a number of processes and procedures to progress and manage our corporate strategy, assets, capital, projects and people. Overview These processes are reviewed and developed on a continuous basis to support our initiatives and corporate goals. Our risk management framework incorporates the key requirements of ISO 31000:2009, UK corporate governance standards and other generally accepted governance principles. This framework includes the Company s risk management charter, its risk management policy and a number of detailed risk management procedures. All members of the ABG Group, its material operations, its service organisations, its support functions and its processes and projects must comply with and adhere to the requirements of this risk management framework. Management of risk across the business We believe that effective risk management requires collective responsibility and engagement across our organisation. For this reason, in addition to making risk management a Board level responsibility, members of ABG s Senior Leadership Team, functional department heads and in-country senior management are accountable for identifying, mitigating and managing risk in accordance with the responsibilities of their function and role. ABG s Internal Audit function also plays a critical role in advising and producing guidance on risk-related matters. It assists management in conducting risk studies, reviewing risk profiles, interpreting risk data and integrating risk management in business processes. Risk management processes Risk management and identification forms part of our overall performance and operational reviews throughout the year. Our annual business plan and budget process are agreed in conjunction with risks that may affect delivery of operational and financial targets and project development. Quarterly business reviews, which include a component of risk management and mitigating actions at appropriate stages of the business cycle, are conducted by the Senior Leadership Team and reviewed by the Board and its committees. Updates on key risks also form part of monthly business reporting on operational and financial performance. abg Management conducts a number of risk reviews throughout the year in preparation for the Board s annual internal controls and risk management assessment. In 2011 Management s risk review activities focused on the following: Group level risk workshops with members of senior management to consider overall strategic risks, the occurrence of which could affect our long-term objectives. Operational risk workshops focused on operational specific risks and uncertainties, which could affect life of mine or wider business plans. Functional risk workshops with various centralised departments, including financial reporting and planning, treasury, tax, technical services, supply chain and human resources. Residual risks are identified based on the effectiveness of existing controls and mitigating action plans prepared for all high impact areas. When compiled, all risk assessments are assessed by the Senior Leadership Team in the first instance, where relevant, the Audit and EHS&S committees, and ultimately form the basis of a detailed Board review. Further details as regards the Board s risk management review for the year is provided on page 86. Risk management process Establish the context Communications & consultations Risk assessment Risk identification Risk analysis Monitoring & review Risk evaluation Risk treatment 70

73 overview performance governance financial STatements shareholder information Risk management across the business BOARD Ultimately responsible for effectiveness of internal control systems defines ABG s risk appetite and tolerance has overall responsibility for risk management compliance approves all key components of risk management and internal control systems AUDIT COMMITTEE Plays a key role in reviewing effectiveness EHS&S COMMITTEE Responsible for environmental, security, health & safety systems reviews effectiveness of internal control systems approves the annual internal and external audit plan reviews the effectiveness of ABG s environmental management programmes and systems, security systems, health and safety systems and social performance reviews all material findings of the internal and external audit functions reviews effectiveness of financial reporting risk management systems SENIOR LEADERSHIP TEAM Accountable for the design and implementation of risk management processes and the consistent application of risk management systems GENERAL MANAGERS AND FUNCTIONAL HEADS Ensure risk management compliance is embodied in ABG s culture, practices and operations INTERNAL AUDIT FUNCTION Assists the Board and Management in executing their responsibilities a critical role in advising and producing guidance on risk-related matters assists management in conducting risk studies reviews risk profiles interpretation of risk data ANNUAL REPORT AND ACCOUNTS

74 Risk management (continued) 2011 Risk management developments and assessments We have further progressed our risk management tools and internal controls processes throughout the year. In particular, additional procedures have been developed to support our annual risk assessment, which provide for ongoing risk reviews within quarterly reporting structures, monthly operating reviews and overall mine management reporting. We have also taken a number of steps to further mitigate our principal risks and will continue to evaluate ways in which we may manage and mitigate these risks on an ongoing basis. In particular, we have made the following improvements to our internal controls and risk mitigation processes as part of our overall assessments of the operational challenges faced at Buzwagi and North Mara this year: Procedure for management of critical supplies and assets: Further management plans have been developed to identify and address critical assets and supplies in order to minimise the potential operational impacts of interruptions or losses of critical supplies, assets and/or infrastructure. We have performed a full review of critical parts and spares at our Buzwagi operation following the SAG Mill motor failure in May Critical spares identification is an ongoing process and will continue across our operations in Security reviews: We have completed security risk assessments at Buzwagi, Tulawaka and North Mara and are in the process of implementing a risk assessment at Bulyanhulu. We have also made a number of improvements to our overall security function and systems following the North Mara site intrusion. Further information regarding relevant actions is provided as part of our security review on page 66. Over the course of 2011, we have made a number of developments in the identification and management of our risk profile in order to focus on the most significant risks and events that could affect our operations, financials and performance. While the overall makeup of our principal risks has not significantly changed from 2010, certain risk profiles have increased as a result of developments in our operating environment and continuing uncertainties and trends within the wider global economy and/or the mining industry. Where appropriate, risk ratings have also been reviewed as a result of the further implementation of controls and other mitigating factors. Overall, ABG s risk and rating as regards exposure to fluctuations in commodity pricing has remained the same despite the continuing movements and fluctuations in the average realised gold price, given the overall strength of our balance sheet, positive cash flows and the processes that we have adopted to continuously assess our exposure to rapid gold price movements. Due to overall industry cost pressures and increased cash costs at our operations, primarily relating to increases in labour, energy and capital equipment costs, we have decided to increase the risk rating applicable to increases in our operating costs and capital expenditure going forward. Further information regarding cash costs and operational cash flow is provided as part of our finance review. We will continue to monitor operating costs vigorously at all of our operations and across our industry in general. In connection with this and as a result of competition for qualified personnel across the mining industry generally, we will also continue to monitor our ability to recruit and retain qualified personnel. This will also require continual progression of training and development and employee and industrial relations programmes across our operations. Power supply With its significant reliance on hydro power generation, the Tanzanian power network has been under particular strain throughout 2011, as a result of unusually low rainfall levels and the impact of ongoing drought conditions in the East African region leading to regular power outages. This has been exacerbated by maintenance work on the transmission network as well as on gas pipelines feeding the network. The majority of the impact to ABG has been experienced at Buzwagi, as a result of its reliance on grid power. In response to this situation we invested in a first phase of 5 MW of back-up power installed in July, followed by a second phase of 16 MW, which was commissioned in December and which now provides full back-up power for the site. At our other mines, Tulawaka draws its power entirely from diesel generators, North Mara has full diesel back-up, and at Bulyanhulu we have around 85% back-up coverage, which will move to 100% by the end of Q

75 overview performance governance financial STatements shareholder information We have made good progress in increasing power generation capacities at our operations, to help mitigate the effects of stoppages and interruptions. Therefore, although we have experienced intermittent issues in utilities supply throughout the year as a result of ongoing power supply issues throughout Tanzania, our risk rating as regards interruptions in key utilities supplies remains unchanged. We will continue to monitor overall factors that could impact our production and cost estimates, given the overriding importance placed on achieving production and cost estimates for our investor base. In connection with this, further enhancements to life of mine planning will remain a management priority in In a wider operational context, whilst the operating environment within Tanzania and across Africa generally continues to evolve, we have continued to maintain a good working relationship with the Tanzanian government and legal policy makers. During 2011, we have achieved a number of positive outcomes as regards our commitments to Tanzania, notably through the agreement reached with the TRA to address the treatment of certain outstanding indirect tax refunds and our secondary listing on the Dar es Salaam Stock Exchange. Therefore our outlook for political and legal risks and taxation reviews remains unchanged. Risks relating to security, trespass and vandalism are inherent to our operations due to the industry and geographical locations in which we operate. Throughout the year we have continued to strengthen our security systems and further strategically assess our security action plans, notably as part of overall reviews and investigations into the North Mara site intrusion, such that our overall assessment of security risks remains unchanged. We have also made a number of important steps to progress relationships with local communities and to support our licence to operate, notably with the creation of the ABG Development (Maendeleo) Fund and the progression of a number of community projects. However, the overall achievements of our community relations programmes must also be viewed in the context of stability, and therefore the security incident at North Mara. As a result of this, we have decided to increase the overall impact rating allocated to community relations risks to high; however we do not envisage any change in the likelihood of further community related incidents occurring over the longer term. The following pages set out the principal risks affecting the ABG Group. In addition, there may be additional risks unknown to ABG and other risks, which are currently believed to be immaterial, could turn out to be material to the Group. These risks, whether they materialise individually or simultaneously, could significantly affect the Group s business and financial results. In addition, ABG could also be affected by risks relating to the gold mining industry generally and the risks and hazards involved in the business of mining metals, which are largely outside its control. Lastly, due to the very nature of risks, mitigating factors stated should not be viewed as assurances that actions taken or planned will be wholly effective. Additional discussions of certain trends and uncertainties that may affect our operations are provided as part of our operating review. As we go into 2012, we will benefit from our investment in additional back-up generating capacity. We are also encouraged by the commitment from the Tanzanian government and the national utility provider TANESCO to add to the installed generating capacity as well as to improve maintenance of the existing infrastructure in the country. ANNUAL REPORT AND ACCOUNTS

76 Principal risks and uncertainties Risk Strategic risks Single country risk All of the ABG Group s revenue is derived from production at its four facilities in Tanzania. In order to ensure continued growth, the Group needs to identify new resources and development opportunities through exploration and acquisition targets. Key management responsibility Vice President of Exploration and Head of Corporate Development and Investor Relations. Reserves and resource estimates The ABG Group s stated mineral reserves and resources are estimates based on a range of assumptions, including geological, metallurgical and technical factors; there can be no assurance that the anticipated tonnages or grades will be achieved. Chief Operating Officer and Vice President Exploration. Financial risks Commodity prices The ABG Group s financial performance is highly dependent upon the price of gold and, to a lesser extent, the price of copper and silver. The prices of these commodities are affected by a number of factors beyond ABG s control. Rapid fluctuations in pricing of these commodities will have a corresponding impact on ABG s financial position. Chief Financial Officer and Group Treasurer. Costs and capital expenditure abg operates a cyclical business where fluctuations in operating cash flow and capital expenditure may adversely affect ABG s financial position. In addition, industry cost pressures, notably as regards labour, capital equipment and energy may affect ABG s cash flow and capital expenditure. Chief Financial Officer and Group Treasurer. External risks Political, legal and regulatory developments The ABG Group s exploration, development and operational activities are subject to extensive laws and regulations governing various matters in the jurisdictions in which it operates. Changes to existing law and regulations, or more stringent application or interpretation of current laws and regulations by relevant government authorities, could adversely affect the ABG Group s operations and development projects. In particular, as abg s revenue is currently derived exclusively from the production of its facilities in Tanzania, its business operations and financial condition may be adversely affected by legal and regulatory changes and developments in Tanzania, or if existing mineral development agreements are not honoured by the Tanzanian government. Vice President of Corporate Affairs and General Counsel. The 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 be adversely affected in the event of the introduction of revised royalty or corporate tax regimes in Tanzania that go beyond agreements reached and contained in ABG s Mineral Development Agreements. Chief Financial Officer and Group Treasurer. abg s financial condition may also be adversely affected if it is unsuccessful in its current appeals and/or discussions with the TRA regarding outstanding tax assessments and unresolved tax disputes. Utilities supply Power stoppages, fluctuations and disruptions in electrical power supply or other utilities could adversely affect Group operations and impact its financial condition. In addition, an increase in power costs would make production more costly and alternative power sources may not be available. Chief Executive Officer, Chief Operating Officer and General Managers. 74

77 overview performance governance financial STatements shareholder information Mitigation/comment Progress made in 2011 Potential impact Change from 2010 Further information ABG assesses a wide range of potential growth opportunities to build on its existing portfolio, including external acquisition and development opportunities outside Tanzania to maximise growth potential. ABG management has implemented a number of processes to continuously monitor and evaluate the current life of the Company s mine plans and production targets. The ABG Group s resources and reserves are updated annually. ABG follows NI of the Canadian Institute of Mining Metallurgy and Petroleum when calculating its mineral reserves and resources. Continuing evaluation of corporate development opportunities across the region. Creation of reserves and resources committee to support Senior Leadership Team and Board. Improvement of management processes for the monitoring of production targets and long-term life of mine planning. High ( ) A review of exploration activities is set out in the Exploration review on pages 38 to 41. High ( ) Details of the ABG Group s reserves and resources are set out on pages 112 to 115. Details of ABG s management committees are provided on page 83. ABG s strategic objective is to provide maximum exposure to the price of gold. As such a no-gold-hedging policy has been adopted. ABG has implemented a number of processes to assess its exposure to other commodity price fluctuations. ABG has also entered into hedging facilities in connection with copper, silver and diesel price fluctuations and is reviewing appropriate hedging facilities to assist in the management of exposure to other commodities. Entry into hedging facilities for copper, silver and diesel. High ( ) Further information is set out in the Financial review on pages 42 to 51. ABG management continuously monitors operational costs and capital expenditure. It holds a conservative balance sheet and has a rigorous cash flow planning process to mitigate liquidity risks. It also has a commercial credit facility to support general working capital purposes, which remains undrawn. Entry into receivables financing arrangements to assist with operational cash flow and reduce credit risk. Extended term of existing revolving credit facility. Entry into arrangements in order to hedge South African rand exposure. High Further information is set out in the Financial review on pages 42 to 51. The Group assesses legal and political risks as part of its evaluation of potential projects. It actively monitors legal and political developments in countries in which its existing operations are located. The Group actively engages in dialogue with the Tanzanian government and legal policy makers to discuss all key legal and regulatory developments applicable to its operations, in particular developments in connection with the Tanzanian Mining Act and applicable environmental legislation. The ABG Group has entered into a series of ongoing discussions with the Tanzanian government with the goal of resolving outstanding tax disputes and recovering amounts owed and continues to review taxation matters generally on an ongoing basis. Further development and improvement of Government Relations Strategy. Progression of Government dialogue on material issues, such as taxation. Entry into Memorandum of Settlement with the TRA for the treatment of certain outstanding indirect tax refunds in respect of fuel levies and value added taxation. High ( ) Further information is set out in Note 31 to the consolidated financial statements on page 161. High ( ) Further information on the status of these discussions is provided on page 47. Capacity of back-up or alternative power generation at all of our operations has been increased to maintain critical systems. Continuing upgrades to back-up power at operations. Implementation of back-up and spinning power at Buzwagi to maintain critical systems. High ( ) Further information on the status of power supply and Buzwagi initiatives is provided on page 72. ANNUAL REPORT AND ACCOUNTS

78 Principal risks and uncertainties (continued) Risk Community relations A failure to adequately engage or manage relations with local communities and stakeholders could have a direct impact on the ABG Group s ability to operate at its existing operations. Key management responsibility Chief Operating Officer, General Counsel, Vice President Corporate Affairs, Senior Director for Environment and Community Relations. Operational risks Variations to production and cost estimates The ABG Group s actual production and costs may vary from estimates of future production, cash costs and capital costs for a variety of reasons, including actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; short-term operating factors relating to ore reserves; revisions to mine plans; risks and hazards associated with mining; natural phenomena; and unexpected labour shortages or strikes. Costs of production may also be affected by a variety of factors, including: changing waste-to-ore ratios; ore grade metallurgy; labour costs; the cost of commodities; general inflationary pressures; and currency exchange rates. Failure to achieve production or cost estimates or material increases in costs could have an adverse impact on the ABG Group s future business, cash flows, profitability, results of operations and financial condition. Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and General Managers. Loss of critical processes The ABG Group s mining, processing, development and exploration activities depend on the continuous availability of its operational infrastructure, in addition to reliable utilities and water supplies and access to roads. Any failure or unavailability of operational infrastructure, for example through equipment failure or disruption, could adversely affect production output and/or impact exploration and development activities. Deficiencies in core supply chain availability could also adversely affect Group operations. Chief Operating Officer and General Managers. Environmental hazards and rehabilitation The ABG Group s activities are subject to environmental hazards as a result of the processes and chemicals used in its extraction and production methods. The Group may be liable for losses and costs associated with environmental hazards at its operations, have its licences and permits withdrawn or suspended as a result of such hazards, or may be forced to undertake extensive clean-up and remediation action in respect of environmental hazards and incidents relating to its operations. Any such action could have a material adverse effect on the Group s business, operations and financial condition. Chief Operating Officer, Senior Director for Environment and Community Relations, Director of Environment and General Managers. Employee, contractor AND INDUSTRIAL RELATIONS The ABG Group s business significantly depends upon its ability to recruit and retain qualified personnel, in particular members of the Senior Leadership Team and its skilled team of engineers and geologists. The loss of skilled workers and a failure to recruit and train equivalent replacements may negatively impact on ABG s operations and production. The ABG Group s business also depends on good relations generally with its employees and employee representative groups, such as trade unions. A breakdown in these relations could result in a decrease in production levels and/or increased costs, which in turn could have a material adverse effect on the Group s business, results of operations and financial condition. Head of Human Resources. In addition to employees, ABG depends on certain key contractors. Interruptions in contracted services could result in production slowdowns and/or stoppages. Security, trespass and vandalism abg faces certain risks in dealing with trespass, theft, corruption and vandalism at its mines and unauthorised small-scale mining in proximity to and on specific areas covered by ABG s exploration and mining licences. The impact of such risks may have an adverse effect upon ABG s operations and financial condition. Chief Operating Officer, General Counsel and Director of Security. Health and safety, infectious diseases Due to the nature of the Group s operations, a wide range of occupational health diseases, such as noise-induced hearing loss and lung diseases, pose a risk to the Group s workforce. In addition, tropical and infectious diseases, such as malaria and HIV/AIDS, pose significant health risks to the Group s employees, due to the epidemic proportions that such diseases may have in areas at which the Group s operations are located. The potential liabilities related to such diseases and the impact that these diseases may have on the Group s workforce may have an adverse effect upon the Group s operations and financial condition. Chief Operating Officer and Director of Health & Safety. 76

79 overview performance governance financial STatements shareholder information Mitigation/comment Progress made in 2011 In addition to existing corporate social responsibility programmes, the Group is implementing a number of initiatives to improve and build on local community relations, and continues to assess and, where necessary, increase its social management team s capacity generally. Creation of the ABG Development (Maendeleo) Fund. Partnership established with Search for Common Ground. Appointment of Senior Director for Environment and Community Relations. Potential impact Change from 2010 Further information High ( ) Details of the Group s community relations activities are set out in the corporate responsibility section on pages 56 to 58. ABG s management has implemented a number of processes to continuously monitor and evaluate ABG s production and cost estimates and targets. Improvement of management processes for the monitoring of production targets and long-term life of mine planning. High ( ) Management assesses the critical components of ABG s operational infrastructure on a continuous basis. In addition to external resources and, when required, ABG has established channels through the support of the Barrick Group network to address critical disruptions to its technical services and plant equipment. Supply chain management and support are assessed and reviewed against business requirements on a regular basis. The Group has committed itself to the application of global standards and implementing relevant International Council on Mining and Metal practices, and the International Cyanide Code standards. Compliance with applicable environmental standards is assessed on a continuous basis. Remediation and rehabilitation costs are assessed and reviewed annually. Development of additional critical spares review programmes. Completion of critical spares review at Buzwagi. Cyanide Code Certification progressed for all ABG sites. Improvement in use of environmental management systems. Continuing development of actions for discharge of EPO at North Mara. High ( ) Further discussion regarding critical spares reviews and loss of critical processes during the year are provided at page 72. High ( ) Details of the ABG Group s environmental activities and compliance programmes are set out in the corporate responsibility section on pages 60 to 63. ABG regularly assesses its staff recruitment and retention policies to assist with labour stability, and maintains appropriate investment in training and development to safeguard the skills of its workforce. It is also focused on furthering the nationalisation of its workforce in Tanzania and participates in a number of training programmes to help develop local industry expertise. Assessments of employee and key contractor relationships are undertaken on a regular basis to ensure that the relevant support balances business requirements and wider expectations. Development of employee benefit packages. Continued progression of programmes for workforce localisation. Progression of industrial relations programme. High Further details on employee arrangements and related initiatives are provided in the corporate responsibility section on pages 58 to 60. Measures have been taken to protect employees, mines and production facilities from various security and theft risks. Steps include increasing existing security personnel, the installation of additional perimeter fencing, surveillance equipment and the imposition of 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 as part of its membership of the Barrick Group. The Group has implemented a number of malaria and tuberculosis programmes and HIV/AIDS awareness and prevention programmes for its employees, their families and the local communities surrounding its operations. It also provides occupational health services to its employees at its mine clinics and it continues to improve preventative hygiene initiatives. Health and safety and risk management systems are in place onsite at all of ABG s operations. Upgrades of security infrastructure at Buzwagi, North Mara and Tulawaka. Increased training of security personnel across all operations. Progression of Health Impact Assessments at Buzwagi and North Mara. Development of ABG health standards. High ( ) Further information on security developments and initiatives can be found in the corporate responsibility section on pages 66 and 67. Medium ( ) Further details of health and safety awareness programmes and initiatives are set out in the corporate responsibility section on pages 64 and 65. ANNUAL REPORT AND ACCOUNTS

80 Board of Directors QUALITY LEADERSHIP 1 Aaron Regent, age 46 (Non-Executive Chairman) Appointment: February Skills and experience: Mr Regent has held a number of senior management positions within the mining industry. He has been the President and Chief Executive Officer and a Director of Barrick since Prior to joining Barrick, Mr Regent was Senior Managing Partner of Brookfield Asset Management and Co-Chief Executive Officer of its Infrastructure Group. Mr Regent previously served as President and Chief Executive Officer of Falconbridge Ltd. Mr Regent holds a Bachelor of Arts Degree from the University of Western Ontario and is a Chartered Accountant. Executive Directors 2 Greg Hawkins, age 43 (Chief Executive Officer) Appointment: February Skills and experience: Prior to joining ABG, Mr Hawkins was previously employed by Barrick, where since June 2006 he served as Chief Financial Officer of the Australia Pacific Business Unit. From 1999 to 2006, Mr Hawkins served in finance management roles for Barrick Australia/Africa and for Homestake Mining before its acquisition by Barrick. Mr Hawkins also previously held roles as the Finance Manager for Normandy Mining and as an Audit Manager for Deloitte. He holds a Bachelor of Commerce Degree from the University of Western Australia. He is a Chartered Accountant and a member of the Australian Institute of Company Directors. 3 Kevin Jennings, age 42 (Chief Financial Officer) Appointment: January Skills and experience: Mr Jennings was previously employed by Barrick where he served from August 2009 as Vice President of Corporate Development. Mr Jennings has held a variety of senior management positions in the mining industry over the last 13 years, including Director, Business Optimisation at Xstrata plc, Director, Strategic Business Analysis at Falconbridge Ltd, and Chief Financial Officer at American Racing Equipment Inc, a wholly owned subsidiary of Falconbridge. Mr Jennings holds a Bachelor of Arts Degree in Economics from the University of Western Ontario and a Bachelor of Administrative Studies, with Honours in Accounting, from York University. He is a Chartered Accountant. 9 Board committee membership as at 2011 EHS&S committee David Hodgson (Chair), Derek Pannell, Stephen Galbraith, Ambassador Mwapachu Audit committee Andre Falzon (Chair), James Cross, Michael Kenyon 10 Compensation committee Michael Kenyon (Chair), Aaron Regent, James Cross, Andre Falzon Nomination committee Derek Pannell (Chair), Aaron Regent, Ambassador Mwapachu Non-Executive Directors 4 Derek Pannell, age 65 (Senior Independent Non-Executive Director) Appointment: February Skills and experience: Mr Pannell is a metallurgical engineer with over 40 years of experience in the mining and metals industry. He is former Chair of the Mining Association of Canada and a Board member of the International Council on Mining and Metals. He holds several other 78

81 overview performance governance financial statements shareholder information Board appointments, including Agrium Inc, and is Chairman of the Board of Directors of Brookfield Infrastructure Partners LP. Mr Pannell was formerly President, Chief Operating Officer and Chief Executive Officer of Noranda Inc, and Falconbridge Ltd. Mr Pannell holds a Bachelor of Science Degree in Engineering from Imperial College London, England, and is a professional engineer registered in Quebec and Peru. He is also an Associate of the Royal School of Mines and a Fellow of the Canadian Academy of Engineers. 5 Ambassador Juma V. Mwapachu, age 69 (Independent Non-Executive Director) Appointment: July Skills and experience: Ambassador Mwapachu has held a number of senior positions in both the public and private sector of Tanzania and was appointed as Tanzania s Ambassador to France from 2002 to He was the founding Secretary General of the Chamber of Commerce, Industry and Agriculture, served as Chairman of the Confederation of Tanzania Industries between 1996 and 2000 and Chairman of the East African Business Council from 1999 to He has also served on a number of Presidential Commissions that consolidated Tanzania s market economy and was a member of the team that crafted Tanzania s Development Vision He has played a leading role in the regional integration of East Africa, holding the position of Secretary General of the East African Community prior to his appointment to the Board. Ambassador Mwapachu holds a Bachelor of Law Degree with Honours from the University of Dar es Salaam, a post graduate Degree in International Law from the Indian Academy and a Doctorate of Literature (Honoris Causa) from the University of Dar es Salaam. 6 Andre Falzon, age 57 (Independent Non-Executive Director) Appointment: February Skills and experience: Mr Falzon is a senior financial executive with over 25 years of financial and management experience within the mining industry, including a period as Vice President and Controller at Barrick between 1994 and He is a financial consultant, and a Director of Aurizon Mines Ltd. He holds a Bachelor of Commerce Degree from the University of Toronto, Canada and is a Certified General Accountant (Canada) and a Chartered Accountant (Canada). 7 David Hodgson, age 64 (Independent Non-Executive Director) Appointment: October Skills and experience: Prior to joining ABG, Mr Hodgson was employed by the Anglo American and De Beers group of companies for over 30 years and from November 2001 through to his retirement in April 2005, he served as the Chief Operating Officer of Anglogold Ashanti. He has also held a number of previous non-executive public company directorships at Moto Gold Mines Limited, Uranium One Inc and Goliath Gold Mining Limited. Mr Hodgson is currently a non-executive director of Auryx Gold Corporation. Mr Hodgson holds a BSc in Civil Engineering from the University of Witwatersrand in Johannesburg, South Africa, a BSc Mining (Honours) from the Royal School of Mines in London, and B Comm (majors in Economics and Business Economics) from UNISA in South Africa. He also attended an Advanced Management Program at Harvard University in the USA. 8 James Cross, age 63 (Independent Non-Executive Director) * Appointment: February Skills and experience: Mr Cross has held a number of senior positions across the financial and mining sectors. He is also a Board member of the Financial Services Board of South Africa, Deputy Chairman of the Policy Board of South Africa, Chairman of the Financial Markets Advisory Board and Non-Executive Chairman of Swiss Gold DMCC Dubai. He was formerly Senior Deputy Governor of the South African Reserve Bank, Chairman of Highland Gold Mining Ltd, and a Director of Namakwa Diamonds Ltd and MKS Finance Geneva. He has a Bachelor of Commerce Degree from the University of Witwatersrand, South Africa, and is a Fellow of the Institute of Bankers of South Africa. 9 Michael Kenyon, age 62 (Independent Non-Executive Director) Appointment: February Skills and experience: Mr Kenyon has more than 35 years of experience in the mining industry and is a geologist by training. He is Executive Chairman of the Board of Directors at Detour Gold Corporation and Chairman of the Board of Directors at Troon Ventures Ltd. He has previously been President and Chief Executive Officer at both Canico Resource Corp and Sutton Resources Ltd, and a Director of Cumberland Resources Ltd. He holds a Master of Science (Geology) Degree from the University of Alberta in Canada. He was also the recipient of the 2005 Developer of the Year award from the Prospector and Developers Association of Canada in recognition of his accomplishments. 10 Stephen Galbraith, age 40 (Non-Executive Director) Appointment: January Skills and experience: Mr Galbraith has been employed by Barrick since August 2000 in treasury and finance functions, and is currently Managing Director of Barrick International (Barbados) Corporation. He previously held the role of Audit Manager for PricewaterhouseCoopers. He holds a Bachelor of Arts Degree in Accountancy from Strathclyde University, is a member of the Institute of Chartered Accountants of Scotland and is a Chartered Financial Analyst Charterholder. * James Cross retired from the Board at the beginning of March 2012 ANNUAL REPORT AND ACCOUNTS

82 Senior management CommITTED to high PerformanCE In addition to ABG s Executive Directors listed on previous page, Senior Management includes the following: Marco Zolezzi, age 56 (Chief Operating Officer) Skills and experience: Mr Zolezzi was previously employed as Director of Technical Services for Barrick s Australia Pacific Region. Prior to that, Mr Zolezzi held a number of senior project roles in the industry, including five years with Newcrest Mining, where he was General Manager at the Telfer Mine, taking it from the project stage through to full production, as well as 13 years with WMC Resources in a number of senior operational and technical roles. In total, Mr Zolezzi has over 30 years of experience in complex open pit and underground operations in Australia and South Africa, with a variety of operational, technical and project management roles. In addition to Diplomas in Mining and Mechanical Engineering from Witwatersrand Institute of Technology in South Africa, Mr Zolezzi holds Bachelor Degrees in Applied Science, Mechanical from the New South Wales Institute of Technology and in Applied Science, Mining from the Western Australian Institute of Technology. Deodatus Mwanyika, age 49 (Vice President, Corporate Affairs) Skills and experience: Mr Mwanyika was previously employed by Barrick, which he joined in 1999 as a Legal Consultant and where he occupied various managerial positions over the last 11 years, culminating in his appointment in 2008 as Executive General Manager, Tanzania. Mr Mwanyika holds a Bachelor of Law Degree with Honours from the University of Dar es Salaam and a Masters in Law from the University of Cambridge. Mr Mwanyika is a member of the Tanganyika Law Society and the East African Law Society. Peter Spora, age 42 (Vice President, Exploration) Skills and experience: Mr Spora was previously employed by Barrick, where he served as Principal Geologist, Africa, from 2006 to 2008 and Exploration Manager, Africa, from 2008 to Mr Spora has over 17 years of experience as a geologist in Australia and Africa. He holds a Bachelor of Applied Science in Geology Degree from the University of Technology, Sydney, Australia. He is a member of the Australian Institute of Mining and Metallurgy (AusIMM), a member of the Tanzanian Chamber of Minerals and Energy, and is a member of the Society of Economic Geologists. Katrina White, age 36 (General Counsel and Company Secretary) Skills and experience: Ms White was previously employed by Barrick, where she served as Regional General Counsel and Company Secretary for Barrick Australia Africa, subsequently Barrick Australia Pacific from 2005 to Prior to joining Barrick, Ms White was employed as a senior associate at Hunt & Humphry in Australia. Ms White has an Honours Degree in Law from the University of Western Australia. She is admitted to practise as a barrister and solicitor in Western Australia, the High Court of Australia and the Federal Court of Australia. Andrew Wray, age 48 (Head of Corporate Development and Investor Relations) Skills and experience: Mr Wray was previously employed by JP Morgan Cazenove, where he was a Director in the Corporate Finance team. Mr Wray has over 13 years of experience in advising a range of mining and other companies in their capital-raising activities and in other strategic objectives. Prior to joining JP Morgan, Mr Wray worked for the Kuwait Investment Office in London, dealing with their portfolio of investments in Spain. Mr Wray holds a Bachelor of Arts Honours Degree in Modern Languages from University College London. Kobus van Vuuren, age 52 (Head of Human Resources) Skills and experience: Prior to joining Barrick, Mr van Vuuren was Senior Director Human Resources and Services at Midroc Gold Ethiopia, and occupied various managerial positions over the previous 24 years at AngloGold and Harmony Gold. He joined Barrick in 2007 as Human Resources Manager at North Mara, and served in a number of capacities, including Organisational Effectiveness Manager and Mine General Manager, before being promoted to his current position in Mr van Vuuren is a diplomat of the Institute of Personnel Management and has several qualifications in HR, Training and Development and Industrial Relations. He is a member of the Society for Human Resource Management (SHRM). 80

83 overview performance governance financial statements Corporate governance effective governance shareholder information Dear Shareholder Our commitment to excellence must be supported by effective and strong governance principles. For this reason, the Board places a premium on establishing and maintaining appropriate governance procedures and controls throughout our organisation, tailored to support our business model and progress our long-term strategic objectives. Effective governance is fundamental to the success of ABG s business. It is a cornerstone of the way we operate and work in all areas of our business. Derek Pannell, Senior IndEPEndent Non-Executive Director During the year, we conducted our first Board and committee evaluations in line with applicable corporate governance standards, the outcomes of which are outlined in this report. Furthermore, we have continued to strengthen the Board s spectrum of expertise with the appointment of Ambassador Mwapachu and David Hodgson as independent Non-Executive Directors. We are delighted to welcome individuals of their calibre to our Board and believe that they will be valuable resources for our Company and business. Bobby Godsell stepped down from the Board in July of this year to pursue other interests. More recently, James Cross has also decided to retire from the Board. We thank both Bobby and James for their contributions to ABG and we wish them well for the future. Throughout the year the Board has focused on further strengthening our governance practices and controls to support our existing governance framework. In particular, we have developed ABG s Business Management Framework, which applies throughout our organisation to guide the correct implementation of our standards. We have also conducted a review of all corporate policies and standards in light of recent corporate governance developments, notably the introduction of the UK Bribery Act and in the context of our recent secondary listing on the Dar es Salaam Stock Exchange. Furthermore, we have continued to build our risk management processes and internal controls assessments throughout the year, and achieved satisfactory conclusion of our overall annual risk management and internal controls assessment Governance highlights and key activities Strengthening Board composition with new appointments Completion of a review of all ABG Group Policies Development of ABG Business Management Framework Completion of Board and Committee performance evaluations Review of ABG Group strategy and risk profile Further development of risk management processes ANNUAL REPORT AND ACCOUNTS

84 Corporate governance (continued) Structure of ABG standards Values & Code of Conduct Business Management Framework Group Policies, Procedures & Standards Departments/ Mine Site Rules & Requirements Group Policy Guidelines COMPLIANCE REQUIREMENT Mandatory Mandatory Mandatory Mandatory Dictated in accordance with stated functional and mine site requirements For use in understanding and implementing compliance obligations ABG s Business Management Framework has been developed to form an integral part of our global compliance programme for the conduct of our business, setting out the key corporate policies, procedures, standards and practices that apply to the ABG Group as a whole. The framework is further supported by departmental and mine site standards and requirements, tailored to specific functional requirements and operational needs. Overall, our Business Management Framework defines the way we manage the economic, social, political, environmental and governance practices for our operations. It also helps to safeguard the satisfaction of our continuing regulatory obligations under our stock exchange listings. All members of the ABG Group, our material operations, support functions, and every ABG Director, officer, employee and all other members of ABG personnel are required to comply with the ABG Business Management Framework and all other guidance and standards that apply to their respective roles and positions. Specific obligations also extend to ABG contractors, other associated parties and members of ABG supply chains. Responsibilities across our Business Management Framework Our organisational structure is founded on the basis of sound business practice and in accordance with applicable corporate governance standards. Accordingly, responsibilities are allocated between our Board, its committees, our Senior Leadership Team and other members of senior management to ensure that our business operates as it should on a day to day basis. BOARD COMPOSITION (as at 2011) BOARD INDEPENDENCE (as at 2011) Board composition Board balance As at 2011, the Board comprised a Non-Executive Chairman, two Executive Directors and seven Non-Executive Directors, of whom six are independent. For the reporting period, the Board considers this to be the appropriate structure and Board balance between executives and non-executives for ABG to achieve its objectives. abg regards all of its Non-Executive Directors other than Aaron Regent and Stephen Galbraith as independent within the meaning defined in the UK Corporate Governance Code. The Board regards Andre Falzon as independent within the meaning of the UK Corporate Governance Code, although he was an employee of the Barrick Group until 2006 and then provided consultancy services to the Barrick Group until Executive Non-executive Skills and experience Independent Non-independent All of the Directors have considerable knowledge and experience of the mining industry and bring other relevant experience to the Board to assist ABG in achieving its strategic goals. Director biographies are provided on pages 78 and 79. The appointment of Ambassador Mwapachu and David Hodgson as independent Non-Executive Directors during 2011 enhances the skill set and collective experience of our Board in terms of regional affairs and the African gold mining industry. 82

85 overview performance governance financial statements shareholder information Responsibilities across our Business Management Framework BOARD Responsible for the overall management of our organisation and our business Supported by Senior Leadership Team sets standards, values, policies and strategic aims ensures we have the resources in place to meet our objectives monitors and reviews: material strategic issues financial performance risk management BOARD COMMITTEES Specific review and oversight functions THE AUDIT COMMITTEE THE EHS&S COMMITTEE THE COMPENSATION COMMITTEE THE NOMINATION COMMITTEE reviews and monitors financial statements oversees relationships with external auditors oversees external audit process reviews internal audit plans oversees the development of strategy and policy on environmental, CSR and security matters reviews effectiveness of environmental, CSR and security management programmes and systems sets, reviews and recommends overall compensation policy and strategy reviews and approves compensation arrangements for Executive Directors and senior management makes recommendations to the Board on its composition and that of its committees SENIOR LEADERSHIP TEAM Day to day management of our business and operations, and responsibility for monitoring detailed performance of all aspects of our business MANAGEMENT COMMITTEES Further support the Board and Senior Leadership Team COMMUNITY INVESTMENT COMMITTEE THE DISCLOSURE PANEL RESERVES AND RESOURCES COMMITTEE EXECUTIVE INVESTMENT COMMITTEE GENERAL MANAGERS AND FUNCTIONAL HEADS Work with the Senior Leadership Team to manage our operations and business and to progress business goals ANNUAL REPORT AND ACCOUNTS

86 Corporate governance (continued) BOARD SKILLS (as at 2011) Diversity Geology Engineering Financial African operations Regional affairs abg strives to attract a broad mix of individuals from both the traditional and non-traditional mining labour markets. This approach reflects our philosophy of equal opportunity and rests on the belief that a diverse workgroup gives a competitive advantage to our business, and allows us to create a unique company culture. In the context of Board appointments, the Board and the Nominations committee regularly review the structure, skills and composition of the Board and will consider the recommendations of the Davies Report as part of overall Board appointment requirements and composition considerations, to ensure that the composition of ABG s Board remains appropriate for our business. Generally, it is ABG s policy to hire the best candidates for all positions at all levels and we review all candidates accordingly irrespective of gender. Board changes As previously noted, we made two additions to the Board during the reporting period with the appointment of Ambassador Mwapachu and David Hodgson as additional independent Non-Executive Directors. In addition to these appointments, Bobby Godsell stepped down from the Board in July 2011 and James Cross has recently decided to retire from the Board. Retirement and re-election Under ABG s articles of association, the Directors may appoint additional members to join the Board during the year. Directors appointed in this way must offer themselves for re-election at the first Annual General Meeting following their appointment. abg s articles of association require all Directors to retire and offer themselves for re-election by the shareholders at the first Annual General Meeting following their appointment and every three years thereafter. Save for Ambassador Mwapachu and David Hodgson, all existing ABG Directors were last elected to their positions at the 2011 agm. In light of the new provisions of the UK Corporate Governance Code, ABG intends to submit all Directors for annual re-election with effect from the 2012 AGM and therefore all Board members will offer themselves for re-election at the forthcoming AGM. The Board determines that all of these Directors are eligible for re-election. Board leadership Chairman and Chief Executive Officer In line with best practice, the roles of Chief Executive Officer and Chairman and their related responsibilities are separated. The divisions of responsibilities have been set out in writing and agreed by the Board. abg s Chairman is principally responsible for the leadership of the Board. He is responsible for ensuring that the Board plays a full and constructive part in the development and determination of the Company s strategy and overall commercial objectives. The Chairman is responsible for setting the Board agenda, leading its discussions and ensuring effective communication with shareholders. The Chairman promotes the highest standards of integrity, probity and corporate governance throughout ABG, particularly at Board level. abg s Chief Executive Officer is responsible for all executive management matters affecting ABG and is principally responsible for running the Company s business. All members of executive management report directly to him. He is responsible for proposing and developing ABG s strategy and overall commercial objectives, and for implementing the decisions of the Board and its committees. He is also required to ensure that ABG Group affairs are conducted with the highest standards of integrity, probity and corporate governance. Senior Independent Director abg s Senior Independent Director (SID) is available for discussions with other Non-Executive Directors who may have concerns which they believe have not been properly considered by the Board as a whole. He also acts as an alternative point of contact for the Executive Directors, if required, in addition to the normal channels of the Chairman and Chief Executive Officer. A key responsibility of the SID is to ensure he is available to shareholders if they have concerns that have not been resolved by contact through the normal channels of Chairman, Chief Executive Officer or other Executive Directors, or where such contact is inappropriate. At least annually and on other occasions, as deemed appropriate, our Senior Independent Director leads a meeting of the Non-Executive Directors without the Chairman present to appraise the Chairman s performance. 84

87 overview performance governance financial statements shareholder information Board effectiveness Board meetings and attendance Board decisions are predominantly made by achieving a consensus at Board meetings. In exceptional circumstances, decisions may be taken by the majority of Board members. Questions arising at any meeting are determined by a majority of votes. In the case of an equality of votes, abg s articles of association do not provide the Chairman with a second or casting vote. All Directors are required to take decisions objectively and in the best interests of the Company. abg s Non-Executive Directors are expected to apply independent judgement to contribute to issues of strategy and performance and to scrutinise the performance of management. In addition, the committees of the Board play an active role in reviewing management s performance and achievement of ABG objectives on the basis of responsibilities falling within the remit of each committee. The Board is scheduled to meet at least four times a year, and at such other times as are necessary to discharge its duties. During the year the Board decided to hold at least one scheduled meeting per year in Tanzania to provide senior managers from across the business with an opportunity to present to the Board and meet Board members informally. This also provides the Board with an opportunity to further develop its relationships across the ABG workforce. During 2011 the Board met on five occasions. In addition, members of the Board also participated in a formal strategy review with members of senior management outside scheduled board meetings in Johannesburg. The attendance record for scheduled Board and committee meetings for each Director for 2011 is shown below. Both Ambassador Mwapachu and David Hodgson were appointed in the third quarter of As such, their attendance at Board and committee meetings speaks as of their date of appointment. Bobby Godsell stood down from the Board in July 2011, and therefore he was not eligible to attend meetings scheduled in the second half of Board briefings and development The Board receives monthly management reports and quarterly reports outlining all material operational, financial and strategic developments. These ensure that members remain properly briefed on the performance and financial position of the ABG Group. Board and committee papers are circulated prior to all meetings to allow Directors to be briefed in advance of discussions. All Board meetings include a quarterly business and financial review to ensure that, in addition to specific scheduled matters and any other business, core operational matters are reviewed on a continuous basis. In addition to scheduled Board meetings, all Directors have access to members of the Senior Leadership Team and to whatever further information they need to perform their duties and to satisfy their responsibilities. ABG s independent Non-Executive Directors and committee chairmen meet with members of the Senior Leadership Team to receive more in-depth briefings on Board and committee matters, whenever required or requested. In addition, all Directors continue to have free access to visit operations outside scheduled Board arrangements. All Directors appointed as of year-end undertook operational site visits in Number attended Board meetings Audit committee Compensation committee Nomination committee EHS&S committee Maximum possible Number attended Maximum possible Number attended Maximum possible Number attended Maximum possible Number attended Maximum possible Aaron Regent N/A N/A Greg Hawkins N/A 5 N/A 2 N/A 4 N/A Kevin Jennings N/A 0 N/A 0 N/A 0 N/A Derek Pannell N/A 1 N/A James Cross N/A 0 N/A Andre Falzon N/A 0 N/A Stephen Galbraith N/A 0 N/A Bobby Godsell ** N/A 0 N/A Michael Kenyon N/A 0 N/A Ambassador Juma V. Mwapachu * N/A 0 N/A David Hodgson * N/A 0 N/A 0 N/A 1 4 * Directors appointed mid-year. ** Director resigned mid-year. ANNUAL REPORT AND ACCOUNTS

88 Corporate governance (continued) Our Senior Independent Director and the Company Secretary review training and development needs on an ongoing basis and ensure that new members receive an appropriate induction to the Company and our business. Training standards and requirements also form part of Board evaluation criteria. For the year under review, the Board noted that it was generally satisfied with the level of training and development provided. In addition, as part of agreed actions from evaluations conducted, the Company will look to conduct further training and reviews on UK Corporate Governance practices generally and developments in market remuneration practices and trends. Directors may take independent professional advice, as necessary, at abg s expense in the furtherance of their duties. In addition to this, each Board committee is entitled to seek independent professional advice at ABG s expense, where necessary, to assist or guide the committee in the performance of its functions. Board performance and evaluation Summary of Board s work in 2011 The Board considered all relevant matters within its remit for the reporting period, but focused in particular on the following items: Strategy management Operational and financial performance reviews, with a particular focus on production performance and targets Development of the ABG Development (Maendeleo) Fund Corporate policy and compliance review Growth opportunities and exploration project reviews Board evaluation In addition, in light of the challenges faced at North Mara and Buzwagi, the Board, in collaboration with its committees, conducted specific reviews of Group security systems and environment, programmes for stakeholder engagement, management and control of critical supplies and progression and development of optimisation plans. Board evaluation During the reporting period, the Board conducted its first performance evaluation process under the guidance of the Company Secretary. The evaluation was carried out by way of anonymous questionnaires that were collated by the Company Secretary and then reviewed and discussed. As the evaluation was the first conducted since ABG s initial public offering, the questionnaire focused on a range of topics including the following: Establishment and role Composition, appointments, skills, experience and training Attendance at meetings, contribution, internal relationships Leadership Strategic aims and objectives Risk management Procedures and internal controls Communication with shareholders and others A report on the outcome of the overall performance evaluation was provided to the Board for discussion and review purposes. Each committee followed a similar process, under the leadership of the committee chairman. In addition to the Board and committee evaluations, the Senior Independent Director led a review of the Chairman s performance, in line with UK Corporate Governance requirements, which took into account the views of all independent Non-Executive Directors. Overall, the results of these evaluations found that the Board and its committees are operating effectively, that the individual Directors performances continue to be effective, that each individual has committed sufficient time for the discharge of their duties. Further details as regards the evaluation process, in particular the assessment conducted and key areas agreed for further action and improvement are set out in the diagram on page 87. Internal control The Board is responsible for the ABG Group s system of internal control and risk management and for reviewing its effectiveness. In line with this responsibility, the Board has established ongoing processes and systems for identifying, evaluating and managing those significant risks that the Group faces. ABG s system of internal controls and risk management takes into account the recommendations contained in the Turnbull Guidance on Internal Systems and Controls published by the Financial Reporting Council in October 2005 (the Turnbull Guidance ). The system is designed to manage rather than eliminate the risk of failure to achieve ABG s business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board principally bases its monitoring of internal controls on its review of management reports and assessments and on the quarterly reports it receives on the status of ABG s internal control environment. This is supported by the risk profile reviews that ABG s Internal Audit function carries out to help the Board identify and manage the most significant risks and events that could affect the Company s operations, financials and performance. Where necessary, the Board is assisted by its committees in reviewing internal systems and controls, particularly the Audit committee which is responsible for reviewing the effectiveness of the Group s internal control and financial risk management systems. An overview of the governance structure used for ABG s approach to risk management and the processes and procedures used in the context of risk management is provided as part of the risk management section of this report. 86

89 overview performance governance financial statements shareholder information Performance evaluation process In 2011, the Board conducted its first performance evaluation process under the guidance of the Company Secretary, by way of anonymous questionnaires. As the evaluation was the first conducted since ABG s initial public offering, the questionnaire focused on a range of key topics including the following: BOARD EVALUATION FOCUS COMMITTEE EVALUATION FOCUS Establishment and role Leadership Roles and responsibilities Leadership Compensation, appointments, skills, experience and training Attendance at meetings, contribution, internal relationships Strategic aims and objectives Risk management Procedures and internal controls Communication with shareholders and others Composition, appointments, skills, experience and training Attendance, contribution, internal relationships Procedures and internal controls DISCUSSION WITH COMPANY SECRETARY Each Director specifically discussed his evaluation feedback with the Company Secretary for purposes of discussing individual performance and future development needs. ASSESSMENT FOR THE COMMITTEES The evaluation results were used to produce a performance report which was used as a basis for discussion and debate and to agree key performance targets and actions for ASSESSMENT FOR THE BOARD Overall Board evaluation results were used to produce a performance report which was presented to the Board. The Board evaluation was used as a basis for discussion and debate and to agree key performance targets and actions for KEY PERFORMANCE TARGETS AND ACTIONS FOR 2012 Assessment of terms of reference, effectiveness of members skills, experience and qualifications. Key performance targets and actions for 2012 individually set by each committee, as detailed in each committee report. KEY PERFORMANCE TARGETS AND ACTIONS FOR 2012 Development of succession planning. Further development of orientation and training processes. Further enhancement of risk management procedures. Progression of stakeholder engagement. Further development of strategy. ANNUAL REPORT AND ACCOUNTS

90 Corporate governance (continued) In compliance with its obligations, the Board has conducted an annual assessment of the effectiveness of the Company s risk management and internal control systems. This review has covered all material controls, including financial, operational and compliance controls. In conjunction with ABG s Internal Audit Function and members of the Senior Leadership Team, the Board has conducted a specific assessment of internal controls for the purposes of this report. This assessment considered all significant aspects of internal control arising during the period covered by this report. During the course of its review of the system of internal control, the Board did not identify or hear of any failings or weaknesses which it determined to be material. Therefore a confirmation of any necessary actions undertaken is not required. Relationship with shareholders Dialogue with the investment community The Head of Corporate Development and Investor Relations is primarily responsible for maintaining ABG s ongoing relations with the investor and shareholder community, acting as the primary point of contact for members of this community. During the course of 2011, ABG conducted a number of international investor meetings and analyst presentations. ABG intends to meet with investors and analysts at least twice a year to discuss Group performance and respond to queries. ABG also conducts periodic telephone calls and meetings with the investment community to discuss results, and participates in mining conferences to meet with current and prospective investors. During the reporting period ABG added to its investor relations team with the appointment of an Investor Relations Manager in London, increasing its capacity in this regard. In addition to its annual and half-year reports, ABG publishes quarterly reports to the market, which provide further information on production and financial results, and updates on its business and operations. Majority shareholder abg was a wholly owned subsidiary of Barrick prior to its IPO in March Barrick continues to hold approximately 74% of ABG, making it the Group s majority shareholder. As a result of this relationship, ABG continues to have access to the Barrick Group for a number of support services and receives strategic shareholder support for its initiatives and goals. ABG and Barrick executed a number of agreements and arrangements as part of the IPO process to ensure that their ongoing relationship was appropriately structured, including a relationship agreement. The principal purpose of the relationship agreement is to ensure that ABG is capable of carrying on its business independently of the Barrick Group and that transactions and relationships with the Barrick Group are conducted at arm s length and on normal commercial terms. Under the terms of the relationship agreement, Barrick has agreed to exercise its powers, so far as possible, to ensure that ABG is managed in accordance with the UK Corporate Governance Code. It has also agreed that it will not exercise its voting rights or powers that would cause ABG to breach any of the key eligibility criteria for its listing on the Main Market of the London Stock Exchange. Barrick is entitled to appoint Directors to the Board in line with a sliding scale that depends on Barrick s percentage shareholding. Pursuant to the sliding scale Barrick is entitled to appoint the higher of: three Non-Executive Directors and the maximum number of Non-Executive Directors that may be appointed while ensuring that the composition of the Board remains compliant with the UK Corporate Governance Code for so long as Barrick holds an interest in 40% or more of the issued share capital or voting rights of ABG; two Non-Executive Directors and one less than the maximum number of Non-Executive Directors that may be appointed while ensuring that the composition of the Board remains compliant with the UK Corporate Governance Code, for so long as it has an interest in 25% or more of the issued share capital or voting rights of ABG; and one Non-Executive Director and two less than the maximum number of Non-Executive Directors that may be appointed while ensuring that the composition of the Board remains compliant with the UK Corporate Governance Code, for so long as it has an interest in 15% or more in ABG. In addition, subject to certain exceptions and only for so long as Barrick holds 30% or more of the issued share capital or voting rights of ABG, Barrick has undertaken that it shall not, and shall procure that other members of the Barrick Group shall not, carry on the exploration of gold or silver in Africa or acquire, whether through an asset purchase or the purchase of securities, a gold or silver mining business in Africa that competes with the Company, unless Barrick has first notified ABG in writing of such opportunity. If ABG indicates that it wishes to pursue such opportunity within 15 business days of receiving the notification, then neither Barrick, nor any other member of the Barrick Group, shall pursue the opportunity unless the Company subsequently decides not to pursue the opportunity or fails to do so within a reasonable period of time. abg has given a reciprocal non-compete commitment to Barrick in this regard. The relationship agreement will continue for so long as ABG is listed on the London Stock Exchange and Barrick owns or controls in aggregate 15% or more of its issued share capital or voting rights. 88

91 overview performance governance financial statements shareholder information AGM ABG s 2012 AGM will be held on 19 April 2012 at 2.00pm (UK Time). The business of the meeting will be conducted in accordance with Companies Act 2006 requirements and standards promoted by the UK Corporate Governance Code. The Chairman and the chairmen of each of ABG s Board committees will be available to answer questions put to them by shareholders at the meeting. The AGM Notice is included in the documentation that has been provided with this report and is also available on the Company s website. In accordance with best practice, the notice has been sent to shareholders at least 20 business days prior to the date of the meeting. Conflicts of interest Aaron Regent and Stephen Galbraith are nominee Directors appointed by Barrick in line with its rights under the relationship agreement. These individuals hold a number of cross-directorships with members of the Barrick Group. In particular, Mr Regent is Chief Executive Officer of Barrick and Mr Galbraith is Managing Director of Barrick International (Barbados) Corporation. These directorships and positions give rise to situations in which these Directors could have a direct or indirect interest that conflicts, or possibly may conflict, with those of ABG. Greg Hawkins, Kevin Jennings and other members of senior management hold interests under Barrick s restricted stock unit plan, which are not deemed to be material interests and will ultimately be replaced by interests under ABG s share plans. The Companies Act 2006 requires Directors to avoid situations where they have, or can have, a direct or indirect interest that conflicts, or may possibly conflict, with Company interests. However, the Act does allow Directors of public companies to authorise conflicts and potential conflicts of interest where a company s articles of association contain a provision to that effect. ABG s articles of association contain such provision and a procedure for this. In accordance with this procedure, the conflicts outlined above were declared and authorised by the Board prior to the reporting period. The monitoring and, if appropriate, authorisation of any actual or potential conflict of interest is an ongoing process. Directors are required to notify the Company of any material changes in positions or situations that have already been considered and any new situations. In addition, Directors are required to declare interests in potential or actual transactions and are required to abstain from voting on such transactions, subject to permitted exceptions. If a question arises as to whether any interest of a Director prevents him or her from voting or being counted in a quorum in the context of a potential or actual transaction, the matter is referred to the Chairman, whose findings are final and conclusive. In the context of questions relating to any such conflict of the Chairman, the question may ultimately be decided by a resolution of the other Directors. Specifically as regards Directors appointed by Barrick, the relationship agreement provides that if any transaction or arrangement arises directly between a member of the Barrick Group and a member of the ABG Group and does or could, in the opinion of a majority of Directors (excluding any Director(s) appointed by Barrick), give rise to a conflict of interest between ABG and any Director appointed by Barrick, any such matter must be approved and authorised at a duly convened Board meeting or in writing by a majority of Directors (excluding any Director(s) appointed by Barrick) prior to the Company taking further action in relation to such matter. The Board reviews conflicts of interest on a periodic basis and maintains a record of all declared conflicts. In addition, as part of training and development, the Board participated in an updated training session for the management of conflicts of interest. Save for the matters set out above, no other conflicts of interest were disclosed to the Board during the reporting period. Corporate Governance Compliance ABG corporate governance practices are structured so as to comply wherever possible with the requirements of the UK Corporate Governance Code. For the year under review, as a UK company with a premium listing on the Main Market of the London Stock Exchange, abg is required to make certain statements regarding the way it is governed, as required by the UK Corporate Governance Code. Accordingly, this report explains how ABG has applied and complied with the Main Principles of the UK Corporate Governance Code during It is the Board s view that ABG has complied with the Main Principles of the UK Corporate Governance Code and its detailed provisions save that ABG s Chairman, Mr Regent, was not independent on appointment. The Directors consider that given Mr Regent s expertise in the industry, his familiarity with the assets comprised within the ABG Group and his leading role with Barrick, his presence as Chairman is in ABG s best interests, even though he was not independent on appointment within the meaning of the UK Corporate Governance Code. abg s external auditor has reviewed those parts of this statement, which it is required to review under the Listing Rules of the United Kingdom Listing Authority. In addition to compliance with the UK Corporate Governance Code, as part of commitments given in connection with ABG s secondary listing on the Dar es Salaam Stock Exchange, the Board has undertaken to comply with the Corporate Governance Guidelines issued by the Tanzanian Capital Markets and Securities Authority to the extent that these requirements are equivalent to applicable UK corporate governance standards. In the case of any conflict between the two, the requirements of the UK Corporate Governance Code prevail. ANNUAL REPORT AND ACCOUNTS

92 Corporate governance (continued) Audit committee report Andre Falzon, audit committee chair I am the chair of the committee and have over 25 years of practical financial and management experience within the mining industry. I am also a member of the Certified General Accountants (Canada) and the Institute of Chartered Accountants (Canada). Together, this provides me with the relevant financial experience required for my position under applicable governance standards. For the reporting period, James Cross and Michael Kenyon comprise the other committee members. All of us are determined to be independent in accordance with UK corporate governance standards. Under the terms of reference, we are required to meet at least four times a year. The Chief Executive Officer, Chief Financial Officer, the ABG Group Financial Controller, members of the Treasury function, the Head of Risk and Internal Audit and the external auditors also attend committee meetings on a regular basis. We also hold individual meetings with ABG s external auditors and the Head of Risk and Internal Audit without management present to discuss matters within our remit of responsibilities. Our key responsibilities include oversight of financial reporting and internal controls over financial reporting, overseeing the Group s relationship with its external auditors and ABG s internal audit function, overseeing the external and internal audit processes generally and reviewing the effectiveness of the ABG Group s systems of internal control and financial reporting risk management. Further details regarding the committee and its terms of reference are available for inspection on ABG s website. Activities in 2011 We met six times during the year, four times in London, once in Johannesburg and once in Dar es Salaam; members individual attendance is provided on page 85. The committee s key achievements this year focused on the following: Assessment of the Committee s terms of reference, the effectiveness of the Committee and the skills, experience and qualifications of its members Reviewed the performance of the Company s auditors, made recommendations to the Board on the appointment and compensation of the external auditors and reviewed and approved the auditors terms of engagement Developed and implemented a policy for review and approval of non-audit fees and the provision of non-audit services by the external auditor Reviewed the external audit plan and scope of work, and the findings arising from all audit work performed by external audit, including reviewing the auditors view on the Company s internal control environment and fraud risk management Reviewed and made recommendations to the Board in respect of annual financial statements, quarterly and interim financial statements and related releases Reviewed key accounting policies and developments in financial reporting, regulatory and other changes Reviewing and monitoring the internal audit plan, together with internal audit reports, findings and monitoring of action plans Met directly with the CFO s and Head of Internal Audit s direct reports and reviewed finance group structures, succession planning and compensation and remuneration for these employees Reviewed enterprise risk registers, tax disputes and litigation, legal and regulatory compliance and the policies, procedures and whistle blowing arrangements in place in relation to the Code of Conduct, fraud and bribery Reviewing specific areas of focus inventory movement, critical spares and finance and supply chain IT systems upgrades Reviewed and approved, or recommended for approval to the Board, the Financial Management Policy, expanded financial delegation matrix and procedures Reviewed the integrity of processes and obtained certifications in relation to the public disclosure of information and the Company s external website Review of senior management and Directors expenses Reviewed tax, hedge and deferred stripping accounting Review of taxation matters Plans for 2012 Looking to 2012, we aim to continue the development of certain key elements of our work plan and have introduced two new activities for the following year: Continuing activities Assess the committee s terms of reference, the effectiveness of the committee and the skills, experience and qualifications of its members 90

93 overview performance governance financial statements shareholder information Review the performance of the Company s auditors and make recommendations to the Board on the appointment and compensation of the external auditors and review and approve the auditor s terms of engagement Review and approve non-audit fees Review the external audit plan and scope of work, and the findings arising from all audit work performed by external audit, including reviewing the auditors view on the Company s internal control environment and fraud risk management Review and make recommendations to the Board in respect of annual financial statements, quarterly and interim financial statements and related releases Review key accounting policies and developments in financial reporting, regulatory and other changes Review and monitor the internal audit plan, together with internal audit reports, findings and monitoring of action plans Meet with direct reports to the CFO and Head of Internal Audit and review finance group structures, succession planning and compensation and remuneration for these employees Review enterprise risk registers, tax disputes and litigation, legal and regulatory compliance and the policies, procedures and whistle blowing arrangements in place in relation to the Code of Conduct, fraud and bribery New activities Review deployment of key finance and supply chain systems upgrades Review implementation of key information system upgrades that impact the financial reporting system. Nomination committee report I act as chairman of the committee, Aaron Regent (as of 29 November 2011) and Ambassador Mwapachu comprise the other committee members for the reporting period. Until 29 November 2011, Stephen Galbraith formed part of the committee, and we thank him for his contribution to its work. It has been determined that the majority of the members are independent, in line with UK corporate governance requirements. We play a leading role in reviewing the structure, size and composition of the Board and in reviewing prospective new Board appointments. We have primary responsibility for making recommendations to the Board on its composition and the composition of Board committees generally. We also manage recommendations for the retirement and replacement of Directors. Under the terms of reference, we are required to meet at least once a year. Further details regarding the committee and its terms of reference are available for inspection on ABG s website. Activities in 2011 Derek Pannell, Nomination committee chair We met twice during the year; members individual attendance is provided on page 85. The committee s key achievements this year were: A review of the Board s structure, size and composition in the context of the Company s position and strategy and development of a Board skills matrix. We also reviewed the current Board against that matrix to identify opportunities to strengthen the Board Recommendations for Board appointments and the reappointment of Directors in accordance with the Board assessment and skills matrix The identification and recruitment of two new Directors with recognised expertise in areas important to the development of ABG and the ABG Board Recommendations for appointments to EHS&S chair and committee membership ANNUAL REPORT AND ACCOUNTS

94 Corporate governance (continued) Preparation of letters of appointment for new Directors setting out the Company s expectations of Directors Review of the performance of the committee, its constitution and the terms of reference and inclusion of these recommendations in the committee s objectives for 2012 Review and development of material relevant to the committee s mandate for inclusion in public reports and documents Review of key regulatory and other developments, including the Davies Report, and making recommendations to the Board in relation to developments Identified focus and methodology for identification of a talent pool for future appointments Plans for 2012 In 2012 we aim to continue the development of certain key actions within the remit of our responsibilities and have introduced additional new actions to support our work plan: Continuing activities A further review of the Board s structure, size and composition and if necessary, adjustment of the Board skills matrix and succession pool methodology Review the performance of the committee, its constitution and the terms of reference and develop any necessary action plans Recommend Board appointments and reappointment of Directors in accordance with the Board assessment and skills matrix Recommend appointments to Chair and committee membership as required Prepare letters of appointment for new Directors setting out the Company s expectations of Directors Review and develop material relevant to the committee s mandate for inclusion in public reports and documents Review key regulatory and other developments in relation to the committee s mandate and make recommendations to the Board as appropriate New activities Develop a list of potential Directors in accordance with the priorities identified by the skills matrix including a thrust to increase diversity on the Board Develop formal succession plan for Directors Review senior management succession planning and make appropriate recommendations to the Board Further develop the orientation process for new Directors. EHS&S committee report David HODGSON, EHS&S committee chair I joined the Company during the year, and succeeded Bobby Godsell as chair of the committee as a result of my years of experience within the operating environment of the African mining industry. Stephen Galbraith, Derek Pannell and (as of August 2011) Ambassador Mwapachu, make up the other members for the reporting period. Under the terms of reference, we are required to meet at least twice a year. The Chief Executive Officer, Chief Operating Officer and members of senior management within our security, environmental and community relations teams also attend committee meetings on a regular basis to discuss matters within our remit of responsibilities. Our key responsibilities include oversight of ABG s development of strategy and policy on environmental, occupational health and safety, corporate social responsibility (CSR) and security matters; reviewing the effectiveness of Group environmental, health and safety and security management programmes, systems and controls and generally overseeing management s monitoring and evaluation of emerging CSR issues to assess the potential impact on ABG s business and operations. Further details regarding the committee and its terms of reference are available for inspection on ABG s website. Activities in 2011 We met four times during the year; members individual attendance is provided on page 85. All members of the committee have also spent a number of days on various occasions visiting the Company s operations in Tanzania. The committee s key achievements this year focused on the following: Assessment of the committee s terms of reference, the effectiveness of the committee and the skills, experience and qualifications of members of the committee Review and revision of terms of reference to include responsibility for security and CSR Oversight of EHS&S and CSR strategy, performance, metrics, trends and incident reports Increasing measurement of key metrics, internally and against external benchmarks 92