Case Study: AngloGold Ashanti - The Role of Finance in Value Creation and Integrated Reporting
Presentation by Ian Kramer, Interim CFO, AngloGold Ashanti | November 2, 2020
AngloGold Ashanti is the largest gold producer in Africa, and the world’s third largest and most widely geographically dispersed global mining company. It employed 34,263 in 2019 with a market capitalization of $9.28bn.
Mining has specific sustainability-related challenges because regeneration of natural resources is not physically possible, and it is dependent on a social license to operate afforded by society. Once established, most mines have large communities that develop around them. In its unique operating environment, community relations and ensuring these communities continue to be self-sustaining after mining ends are important sustainability considerations. Consequently, there is a need for transparency on total running cash costs and all-in sustaining costs related to mining activities.
AngloGold Ashanti’s integrated thinking and value reporting process are based on its strategy and values. Its strategy and values (covering safety and health, dignity and respect, accountability, communities, diversity, and the environment) help direct and steer its integrated thinking and the preparation of its integrated report for its providers of financial capital and various stakeholders. The integrated report brings together all relevant elements of value creation from other reporting streams including the financial statements, sustainability report, and mineral resource and ore reserve report.
The company strategy is aimed at driving investments to deliver improved margins, extended mine lives and a pipeline for the future while applying the company values in all decisions.
Core Strategic Focus areas
- Portfolio improvements
- Replace and grow reserves
- Excellence in ESG
- Robust balance sheet
- Disciplined capital allocation
As part of the integrated thinking process, AngloGold Ashanti identifies and engages all key stakeholders with a specific focus on
- Working towards zero harm, excellence in environmental stewardship and employee safety and development, community development and community interaction with the mines
- Identifying and working with government and government agencies across various jurisdictions.
80 percent or more of the executive’s time is spent on value creation and sustainability matters discussing matters beyond financial capital and performance.
The Finance Team’s Role in Integrated Thinking and Reporting
The finance team’s contribution is rooted in managing the risk management process. AngloGold Ashanti’s risk team also reports to the CFO, identifying all relevant opportunities and threats and linking these to financial impacts where appropriate.
The finance team focuses on:
- Identifying risks and relevant performance measures across the six (integrated reporting) capitals aligned directly to the strategy and values.
- Ensuring all external and internal reporting is consistent in content and messaging.
- Providing the company’s overall value creation story to management and to shareholders. This increasingly involves dealing with environmental, social and governance (ESG) matters and questions about protecting staff and the environment.
The integrated reporting process has been helpful in providing useful information on ESG matters as well as financial strength and performance. As a result of its transparency and comprehensive disclosures on relevant matters, AngloGold Ashanti achieves consistently high rankings in sustainability indices such as the Dow Jones, FTSE4Good and responsible mining index.
The integrated thinking mindset also extended to the company’s response to the COVID-19 pandemic by:
- Ensuring the health and safety of employees and limiting the spread of COVID-19 in operations
- Deploying their contingency action plan, which had been developed following the Ebola outbreak in 2017 and which limited disruption to operations
- Understanding and anticipating the impact of the pandemic on operations and proposing swift actions.
Key Finance Inputs into Integrated Reporting
- Ensuring financial flexibility and a robust balance sheet which are both key focus areas of the finance team
- Improving disclosures related to joint ventures which are often an integral part of the company’s business as the projects undertaken require high capital investments but with limited disclosures
- Applying IFRS globally, including IFRS 6 and IFRIC 20 which are extractive industry specific. There is diversity in their application across the mining industry related to different interpretations of recognition and measurement
- Determining relevant non-financial metrics and how these are calculated and relate to enterprise value creation. Key performance and non-GAAP measures captured and managed by the finance team include:
- Gold price received
- Ounces produced
- Total cash costs
- All – in sustaining costs
- All – in costs
- Free cash flow
- Adjusted EBITDA
- Adjusted net debt.
Many of these performance measures are used as a basis of remuneration and incentives across the organization and are used by investors and analysts in their investment process. The CFO and finance team spend time to clearly explain to investors and analysts how they have been calculated and reasons for any disparity against their industry peer group.
Finance team’s strengths in integrated thinking and reporting
- Robust data collection and analysis, and processes and systems
- Ongoing monitoring of metrics and performance and discussing feedback with business units
- Measurement and presentation of alternative performance measures
- Reporting analysis and results to the executive, including forecasts and scenarios, to help the evaluation of strategy and capital allocation
- Internal and external reporting to tight deadlines and in a timely fashion for providers of financial capital.
In new finance hires, the key criteria for recruiting finance talent is skills in communication, technology, and analytical and problem-solving areas with professionals comfortable working with financial and non-financial information.
This was a presentation to the IFAC Professional Accountants in Business Advisory Group during their September 2020 meeting. See here for the full report: Accountants Supporting Sustainable Recovery