• Cash position strong despite significant investments
• Dividend increased for the fifth year in a row

Total revenue for the group of US$484.6 million increased by 12% on the previous year on the back of a 32% increase in the average gold price received of US$1 180/oz, partially offset by a 15% decrease in attributable production to 440 107 ounces. Profit for the year was US$120.6 million, an increase of 43% compared to the previous year.

Higher revenues were partially offset by higher mining costs at Loulo primarily due to increased open pit mining costs resulting from deepening pits, revised mining rates and general cost increases in diesel, reagents and other consumables. Costs at both operations were also impacted by the increased royalties payable resulting from the higher average gold price received.

Profit was increased by US$13.0 million in respect of the write back of provisions made in prior years against investments in auction rate securities following the successful conclusion of the arbitration proceedings in relation to this matter. The sale of shares in Volta Resources, received as part consideration for the sale of the Kiaka exploration project in Burkina Faso, also boosted profit by a further US$19.3 million during the year.

Basic earnings per share of US$1.14 increased by 33% from the previous year, and would have increased by 60%, had 23 428 ounces of gold not remained unsold at  Tongon at year end - a result of the impact on the mine of disruptions following the disputed November presidential elections in Côte d’Ivoire. Cash operating costs for the group were US$632/oz, an increase of 37% on 2009, on the back of the reduction in ounces sold and the higher cost environment described above. The drop in ounces sold was largely the result of a reduction in the average grade of ore mined, both at Loulo and Morila, and the delayed sales at Tongon.

Cash operating costs per ounce increased by 36% at Loulo, following a 19% drop in the average ore grade processed, with the mine being unable to benefit from higher
underground grades due to the slower underground production build up. At Morila
the mine transitioned to a stockpile treatment operation in April 2009, and the  continued impact of processing lower grade ore and adverse stockpile adjustments had a material impact on the mine’s reported cash costs, which increased by 39%. Grades at Morila decreased from 2.7g/t in 2009 to 1.9g/t, while Loulo’s grade  decreased to 3.4g/t (2009: 4.2g/t).

Expenditure on exploration and corporate costs decreased by US$3.9 million. Extensive drilling programmes were undertaken on the group’s exploration targets. Following the successful completion of prefeasibility studies at the Massawa project in Senegal (now at feasibility stage) and the Gounkoto project in Mali (now in construction), a higher proportion of expenditure was capitalised in 2010. Since the company was listed on the London Stock Exchange in 1997, it has discovered  approximately 24 million reserve ounces which, when divided by the exploration and corporate costs over this period, equates to a cost of less than US$15/oz of
gold.

Morila’s five year corporate tax holiday ended in November 2005 while Loulo’s tax holiday ended in November 2010. Consequently, the accounts include a charge of US$24.5 million for the tax payable compared to US$21.5 million the previous year. Tongon will benefit from exoneration from corporate tax for five years until the end
of 2015.

The company’s cash position is very healthy with US$366.4 million of cash (2009: US$589.7 million) on the balance sheet, and borrowings of US$3.0 million (2009: US$4.2 million), notwithstanding the substantial investments made in its growth  projects during the year.

This included capitalised expenditure of US$239.6 million at Tongon, bringing the mine into production in the fourth quarter, US$80.9 million at Loulo, principally on the Yalea and Gara underground mine developments, US$33.2 million at Kibali,  completing the updated feasibility study and advancing infrastructure, US$16.6 million on completing the Gounkoto feasibility study, US$13.3 million on furthering the Massawa feasibility study and US$28.3 million on RAL1, the group’s JV mining asset leasing company.

In total, property, plant and equipment increased by US$394.7 million, net of  depreciation, year on year. The decrease in long term ore stockpiles (US$25.1 million) over the year is due to the decrease in stockpiles at Morila following its conversion from open pit mining to stockpile processing. The decrease in non-current receivables from December 2009 to December 2010 (US$4.0 million) is the result of the continued decrease in TVA and fuel duty balances at Morila. The decrease in non-current available-for-sale financial assets to nil arises following a settlement being reached in relation to these investments and their subsequent sale.

The increase in current inventories and ore stockpiles of US$86.4 million is partially due to Tongon stockpiles and consumables now being included, since the start of mining during the year, as well as the Tongon doré unsold at year end, as referenced above. The decrease in short term receivables is primarily due to the settlement of US$26.0 million of TVA at Loulo and Morila, the settlement of contractor receivables and improved debtors management. The decrease in cash and cash equivalents to US$366.4 million at 31 December 2010, down from US$589.7 million at 31 December 2009, is the consequence of significant investments in property, plant and equipment, as outlined above, offset by strong cash flows from operations and the cash received from the ARS settlement, TVA repayment at Loulo and Morila and the sale of Volta Resources shares.

During the year the number of Volta shares held decreased by 14 million as a result of sales in the market. Consequently the current available-for-sale financial assets represent primarily an investment in 6 million Volta Resources shares with a market value at the year end of US$14.4 million. The increase in deferred tax liability of US$12.6 million in the current year compared to US$4.8 million in the previous year is attributable to the continued capital development at the Loulo mine. The increase in rehabilitation provisions from US$16.9 million at 31 December 2009 to US$29.6 million at 31 December 2010 is the result of the new provision for the Tongon mine of US$9.7 million, as well as an increase in the provision for the Loulo mine due to the larger footprint left by the additional satellite pits.

The financial instruments liability decreased from US$25.3 million at 31 December 2009 to nil at the end of December 2010 following delivery of the final 41 748 ounces of the Loulo hedge programme. The group is now fully exposed to the spot gold price on all gold sales. The increase in trade and other payables of US$13.2 million in the current year mainly reflects the effect of additional contractors and accruals at Tongon of US$18.4 million, offset by movements in the balances elsewhere in the group. The current tax payable balance of US$8.0 million at 31 December 2010 is higher than the balance of US$3.6 million at 31 December 2009 following the expiration of the Loulo tax exoneration period (November 2010) and the timing of tax payments at Morila.

Looking forward to 2011, notwithstanding the additional noncash adjustments relating to the Morila stockpiles, total cash costs per ounce for the group are forecast to be less than US$600/oz, depending on the actual oil price, Euro/Dollar exchange rates and other input costs which movements have a significant impact on operating costs. The group will continue to make significant investments in its future growth, and consequently capital expenditure is estimated at US$310.0 million, the focus being on the development of the Gara underground mine, which is expected to come into production mid-year, the continued development of the Yalea underground mine, the development of the Kibali project, assuming a final construction decision is made mid-year and building gets underway soon thereafter, and the completion of the Gounkoto mine including the plant upgrade at Loulo. At the Massawa project, a feasibility study is being targeted by year end, and as always, the group will continue to spend on its exploration portfolio in search of the next development project. Based on our current forecasts, the group has sufficient cash resources to fund all its existing capital projects and ongoing exploration programmes.

In view of the significant profit increase, strong cash flows from operations and the  company’s robust balance sheet, the board has proposed an 18% increase in the  annual dividend of 20 cents per share (US$18.2 million), representing the fifth year in a row that the dividend has been increased.


Graham Shuttleworth
Financial director and chief financial officer