Good day, ladies and gentlemen. Welcome to AngloGold Ashanti's first quarter of 2020 market update. All participants will be in listen-only mode. There will be an opportunity to ask questions when prompted. For the benefit of the participants who have joined via the HD web phone, please ensure that you've given your microphone permission to make yourself audible before accessing the question queue. Should you need assistance during the call, please signal an operator by pressing star and then zero. Please note that this conference is being recorded. I'd now to hand the conference over to Mr. Stewart Bailey. Please go ahead, sir.
Thanks, Judith, and thanks, everybody, for joining us for our Q1 2020 conference call, which is a first for us, being done remotely with all of the speakers in different locations. You will also note on the second slide in the presentation, our safe harbor statement, which covers forward-looking statements, has a lot of important information in there, and I'd urge you to look at it. I'm going to hand right over to Kelvin, and then after that, we have Christine, Sicelo, Ludwig, and Graham talking to their respective areas of the business. Kelvin, please go ahead.
Well, thank you Stewart, and thanks everybody for joining us for the Q1 update. Our overall objective is to safely deliver better quality production aimed at widening margins, extending mine lives, and improving the portfolio. The current health crisis does not change that. We're committed to maintaining discipline in the current gold price environment, with emphasis on further de-leveraging the balance sheet, progressing the ongoing divestment processes, enhancing margins, growing Ore Reserves, and ramping up Obuasi to commercial production. Importantly, we'll work to maintain and strengthen our license to operate through effective ESG practices, as demonstrated in our ability to mobilize quickly and effectively to support the global fight against COVID-19. On the safety front, regrettably, there were four fatalities in Q1, which occurred in two separate fatal incidents in March at the Mponeng mine.
The first incident occurred on March 5th, where three of our colleagues were fatally injured in a seismic-related incident caused by a large fall of ground, roughly 3.6 km below surface. The second took place on March 16th in an accident during an underground horizontal transport incident, and sub sequent to the quarter end, an employee of Covalent Water passed away as a result of injuries sustained in an electricity-related incident, suffered earlier in the year. These fatalities were very difficult for us. We went almost two years without a fatality across the portfolio. This is a hard reminder of the essential work and attention required to achieve zero harm at our operations. We will intensify our efforts to eliminate injuries from the workplace. We delivered a strong performance across a number of fronts during the quarter. Production was solid.
Our operations generated exceptionally strong cash flows, even as we invested $90 million in growth capital, principally in the Obuasi redevelopment. Our drilling program to extend mine lives and improve flexibility moved ahead according to the plan, and we announced the deal to sell our South African assets in line with our strategy of streamlining the portfolio and better focusing capital allocation. The business is in very good shape. Production was 716,000 ounces, with strong performances from Kibali, Geita, and Iduapriem. COVID-19 related stoppages impacted production by 11,000 ounces toward the end of the quarter. All-in sustaining costs rose 4% year-on-year or $38 an ounce, about half of which was related to COVID-19 impacts. Cash flow was robust, demonstrating significant leverage to the rise in gold price.
Especially pleasing was the increase in free cash flow before growth capital, the metric on which dividends are calculated, which was up 231% to $94 million. The strong cash flow performance would have been even stronger were it not for some working capital lockups. Christine will talk to that in a few minutes. Net debt continues to fall and was down 10% year-on-year to $1.6 billion. Gearing also continues to get better, with net debt to EBITDA at 0.5x , well below our 1x target through the cycle. We continue to see margins expand, helped by the higher gold price. Our all-in sustaining cost margin grew to a healthy 34%, compared to 28% on average last year. There's room for that to widen further, particularly given where spot prices are.
From a capital allocation standpoint, our strategy and clear approach to managing capital remains unchanged and continues to serve the company well, including as we manage through the pandemic. As we flagged previously, converting our earnings into cash has been a challenge in some areas. At Kibali in the DRC, Barrick is working hard to progress cash repatriation.
In Ghana and South Africa, we're working to reduce care and maintenance costs. In 2019, we announced sales processes for several of our assets aimed at streamlining the portfolio. You'll have seen our decision to retain our CVSA operation in Argentina. This after running a comprehensive process with various offers that surfaced, but none that reflected what we considered to be full value for this asset. We believe that the maximum value from CVSA will be better realized inside the AngloGold Ashanti portfolio.
We're now exploring opportunities across the lease area to unlock further reserves and extend the mine life. The South Africa portfolio sale remains firmly in process, and you will have seen Harmony's plans to finance the transaction announced last week. Competition Commission approval has been achieved ahead of our internal schedule. Now we're awaiting Section 11 approval from the DMRE as the last key regulatory step. The Sadiola sale is also moving ahead, with some delays resulting as we navigate through COVID-19 related logistics. Nothing material, we still anticipate closing the transaction this quarter. Finally, we're very pleased with our partnership with B2Gold, who are managing the Gramalote JV very well, including during these COVID-19 circumstances. We're committed to doing our part to stop the spread of COVID-19.
We're focusing on ensuring we adapt quickly to the changing environment, and that interventions are implemented as effectively as possible at each site. A critical part of this is working with governments and a range of other stakeholders in flattening the curve. We're doing this while ensuring that our mines operate safely, each of which make an important contribution to the economies of the countries where we operate. We have introduced a number of initiatives on our sites and the surrounding communities to help stop the spread of the virus. In doing this, we've applied a lot of the lessons learned in fighting other illnesses over time, including the 2014 Ebola outbreak in West Africa and the ongoing fight against TB and HIV in South Africa, where we've achieved some notable success.
At a country and state level, we've contributed in a number of ways, from donating hospitals as well as running extensive personal hygiene and education campaigns. At the community level, we've provided hand washing stations in areas with low access to reticulated water, and we've provided alcohol-based sanitizers to healthcare facilities, both large and small. At a site level, we have the full suite of mitigation steps in place. These are all in line with best practice and developed in close consultation with national and local health authorities. Our liquidity runway has been bolstered by drawing down the full $1.4 billion available under the multicurrency RCF and securing a new $1 billion standby facility to help weather any unforeseen events that the pandemic may bring. That gives us a very healthy $2.3 billion of available liquidity.
Inventories of critical spares are now at an average of four months across the portfolio, which is within our three to six-month target range, depending on the needs and specific risk profile of each asset. We're also building ore stockpiles to provide additional operating flexibility where needed, and we work closely with our associate partners at the Rand Refinery in Johannesburg to ensure continuity of inbound transport of gold doré from our African operations through accredited private charters. Due to the uncertainty that remains over its severity and duration, as well as the consequences of the different measures taken by governments around the world to safeguard public health, the decision was made on March 27th to withdraw guidance for 2020. That said, internally, we continue to work toward achieving our objectives set earlier in the year.
We saw temporary stoppages during March and April at our South African assets, Cerro Vanguardia and Serra Grande. In South Africa, surface processing operations have restarted, and the Mponeng underground mine started its ramp up on April 15th and is now operating at around 50% of production capacity. Cerro Vanguardia is processing stockpiles and operating at near planned production rates. Serra Grande in Brazil has since restarted and is back to operating at normalized levels.
As you can see from this slide, AGA has stepped up our humanitarian efforts across all of our host countries, working with governments and alongside local communities to stop the COVID-19 spread. There's more work to be done, but I'm very proud of the approach and contributions we've made from the ground level up in every country where we're operating. With that, I'd like to hand over to Christine to cover the financials.
Thanks, Kelvin. Good day, everyone. I'm on slide 13, which deals with the comparison of key metrics. We've again delivered a solid operational and financial performance for Q1, despite the COVID-19 related suspensions, which impacted the latter part of the quarter and the front end of quarter two. Despite the accounting treatment of our South African portfolio as discontinued operations, we'll talk to the group as a whole to make comparisons against last year's performance easier. Production was 5% lower year-on-year, with cash costs 3% higher and all-in sustaining costs up 4%. Excluding the 11,000 ounces COVID-19 impact, production would have been 3% down on last year, with the remaining shortfall relating to the lost ounces from Morila and [ N'Tiola due to these operations reaching end of life.
We saw stellar results from Geita, Kibali, and Iduapriem, as well as 19,000 pre-production ounces from Obuasi, which helped cushion the impacts of lower production in Brazil, Argentina, South Africa, and Australia. The stronger gold price, which was up 22%, as well as weaker operating currencies, helped us to deliver a 54% improvement in adjusted EBITDA and a 227% increase in cash flow from operating activities to $219 million. The most significant improvement came from free cash flow generation, which at $4 million, was a vast improvement on the $109 million outflow for the same period last year, despite being impacted by working capital movements, interest, taxation, and the continued cash lockup in the DRC. This is especially noteworthy when you consider the additional capital spend during the quarter.
The underlying cash generation of the business is exceptionally strong, with all operating regions making a meaningful contribution. We received $25 million in dividends from Kibali for the quarter, and our cumulative attributable share of cash balances in country were $252 million at the end of the quarter. While it's important to note that the cash is available for use at site if needed, Barrick continues to engage with the D.R.C. government regarding the 2018 mining code and the cash repatriation. Non-sustaining CapEx for the quarter of $90 million included the project capital of $53 million related to Obuasi, $25 million for the Quebradona feasibility study, and $9 million for Tropicana Boston Shaker underground project.
Working capital reflected an outflow at quarter end and was impacted by VAT lock-ups in Tanzania, Argentina export duties, higher gold in process levels as Obuasi ramps up production, higher consumable inventory levels, and creditor outflows post year-end. Working capital movements were positive quarter -on -quarter, mainly due to gold refining proceeds received in January for the Brazil operation from gold produced at the end of last year. Despite prepayments of $9 million relating to Obuasi. At the end of the quarter, we had $122 million in outstanding VAT from Tanzania, a net increase of $7 million from year-end. We also have $65 million of historical VAT in the DRC, which was largely steady from year-end. Looking at the cost performance year -on -year, our cash costs increased by 3% to $814 an ounce.
There was a favorable impact of $52 an ounce from weaker currency, which more than offsets the inflationary pressures that continue to prevail across the emerging economies that we operate in, particularly in Argentina. Costs were adversely impacted by lower grades and higher royalty, although stockpile increases mitigated the impact to some extent. Operational efficiency improvements were slightly delayed due to COVID-19. This remains a key group focus to mitigate operational cost pressures.
All-in sustaining costs in Q1 were 4% higher year-on-year, and excluding the COVID-19 related impacts of $18 an ounce, the increase is around 2%, which primarily relates to non-cash increases in the rehabilitation provisions linked to changes in discount rates. We also saw higher sustaining capital of $10 an ounce, which supports our strategy to improve our operating flexibility through investment in all reserve developments. Moving on to the balance sheet strategy.
Our diverse portfolio and proactive management of our balance sheet has given us very good flexibility during what remains an uncertain time. We've continued to delever the balance sheet on the back of stronger cash flows, despite self-funding Obuasi and our other growth initiatives. Our adjusted net debt position was lower by 10% or $180 million from March 2019, despite the increased dividend payment, and was just under $1.6 billion at quarter end. It's also pleasing to see our adjusted net debt to adjusted EBITDA ratio at 0.085x , which is well below our targeted ratio of 1x through the cycle.
As we've said previously, proceeds from the South African asset sale will be applied to further reduce debt. Our liquidity is strong. As Kelvin mentioned, we made a preemptive full draw on our $1.4 billion RCF facility in the second half of March.
Cash and available facilities were around $2 billion at the quarter end. Subsequent to the quarter end, we repaid $700 million bond redemption in mid-April and have kept the balance in our treasury. In addition, in line with our conservative approach of managing through the COVID-19 pandemic, we've bolstered our liquidity headroom with a one-year, $1 billion standby credit facility, which we secured late last month. That facility can be extended at the participating bank's discretion. We currently sit with approximately $2.3 billion in liquidity and headroom, including the new standby facility, and this excludes the Kibali and Bulyanhulu cash. Our credit ratings are unchanged. We have investment-grade ratings from Moody's and Fitch and a sub-investment grade rating from S&P. All have a stable outlook, and Moody's recently reaffirmed our rating following their annual review.
Our cash flows demonstrate the strong leverage we have to both the gold price and currency. With prevailing market conditions, we expect strong improvement to cash flow generation this year. We will, of course, look to augment that tailwind with efficiency improvements across the business. Finally, while we are well-placed to manage through this period, both from a portfolio and balance sheet perspective, the fact remains that there is little clarity for anyone on how severe this outbreak will be. How long it will last or what additional measures governments will put in place to flatten the curve. In line with our conservative posture with respect to managing through COVID-19, we withdrew our guidance on March 27th .
In addition to the 11,000 ounces impact of COVID-19 in Q1 and the all-in sustaining cost impact of $18 an ounce, all our mines are now operating normally other than Mponeng in South Africa, which commenced production to 50% capacity on May 4th . It will continue to produce at that level until current restrictions are lifted. This, in turn, will have a knock-on effect on all-in sustaining costs in Q2. Our performance for the year -to -date is consistent with our prior guidance. In line with past trends, production is expected to be weighted to the second half of the year, with Obuasi expected to ramp up through the course of the year. The timing of the closure of the sale of the South African assets and Sadiola will dictate the impact to production, net debt, and other metrics.
In the meanwhile, operating costs continue to benefit from the lower oil price, primarily in continental Africa and from weaker local currencies. These benefits will be somewhat offset by cost headwinds relating to COVID-19 direct impacts and our interventions to provide flexibility and reduce risk across our operations. These include additional logistics costs relating to transporting gold, increased safety stocks on critical consumables, and increased ore stockpiles.
We expect all-in sustaining costs to increase on the back of these COVID-19 impacts, as well as our higher sustaining capital spending and our planned increase in Ore Reserve Development and underground drilling across our operations, which will improve operating flexibility and extend mine lives. Rosalino has also increased spending on the transition to dry stacking at its TSFs. Our focus on efficiency improvements, however, will continue to mitigate the rise in all-in sustaining costs.
Growth capital for the year relates to Obuasi, advancing the feasibility study at Quebradona, Gramalote, and Tropicana Boston Shaker underground. We are well-positioned to see further reductions in debt levels as we anticipate improved cash flow from our operations. Bearing in mind that we are strongly leveraged to the gold price and along with the proceeds from the South African asset sales and cash repatriation from the DRC. I will now hand over to Sicelo to cover the African region.
Thanks, Christine. Let's take a high-level look at the Africa operations on slide number 18. Starting with continental Africa. The region production was 22,000 ounces higher than the first quarter of 2019, at 360,000 ounces. I'm pleased to announce the continuation of strong performances at Geita, Iduapriem, and Kibali. The all-in sustaining cost at $879 an ounce was 9% lower than the first quarter of 2019.
As our OE 800 program, which targets additional efficiencies, are keeping costs under control. This has helped offset impacts related to inflation and mining scope changes, particularly at Siguiri, as it transitions from soft rock to hard rock blend. At Geita, production this quarter was the highest in eight years, with gold production at 135,000 ounces and 24% higher than the previous period, which includes the plant maintenance shutdown. This was complemented by improved recoveries as a result of more consistent plant feed.
We continue to be satisfied with Geita's expansion of underground mining activities and exploration success. I'm also pleased to report that the government of Tanzania has granted consent and issued the mining permits for Geita Hill Underground Project, which will be a significant contributor to the future of the operation. The Geita Hill Underground Portal will be positioned on the western side of Geita Hill Pit and will target blocks one and two. Development is expected to commence in the fourth quarter onwards after the mining plan has been signed off by the Chief Inspector of Mines at the Minerals Commission, subject also to the status of COVID-19 and the mobilization of critical skills on-site. This approval is a significant step forward and will unlock an estimated 1.6 million ounces of mineral resource.
At Kibali, another solid quarter with production marginally lower year-on-year as a result of a planned reduction in recovered grade due to the processing of lower grade material from the KCD and Sesenge pits as per plan. Iduapriem's production was 5% higher. The strong performance was underpinned by an increase in grade due to mining higher grade ore from Block 7 and 8, in line with the mining plan. At Siguiri, gold production was 48,000 ounces or 2% lower than the previous period's production of 49,000 ounces. Total tons treated at the mine was 20% higher, confirming that the combination plant upgrades have been successfully completed with planned crusher and mill throughput successfully achieved, with a consistent hard rock to soft rock blend ratio of 50% achieved.
However, the key issue remaining to be resolved is metallurgical recovery, which resulted in a 22% lower recovered grade when compared to the prior period. Test work has confirmed the presence of preg-robbing material in the ore, and milling of the ore still present a coarse gold fraction of material entering the CIL circuit.
We have a plan in place to convert three more tanks to CIL this year and have initiated a cyclone and mill control optimization to address the coarse gold particles issue. We expect this to be resolved by the fourth quarter, with incremental recovery benefits being achieved till then as improvements in the milling and classification circuits realize. In South Africa, despite a challenging safety quarter, Mponeng produced 49,000 ounces at an all-in sustaining cost of $1,267 per ounce, 4% below the first quarter of 2019.
Production decreased marginally compared to the same quarter last year, mainly due to the extended Christmas break with a later start up in January. Mponeng production was also impacted by safety stoppages due to fatalities and the unplanned closure during the latter part of the quarter due to government restrictions related to COVID-19. The safe restart of underground operations at Mponeng began with a return of 50% of the staff in line with regulations as amended on April 16th, 2020.
The production ramp-up is in progress following the first blast on the of April 30th and hoisting operations commencing on the of May 4th . A successful COVID-19 readiness compliance audit of AngloGold Ashanti systems and preparedness was conducted by the DMRE on Friday the of April 24th . Recognized unions have been playing an integral part in the formulation of our COVID-19 response plans right from the beginning.
As employees return to site, the current focus is on increasing screening and surveillance, including health status checks, temperature monitoring, and recent travel history to help facilitate early detection of any cases. Surface operations, however, have returned to full capacity.
Moving on to slide number 19. The key focus areas for the Africa region are to firstly intensify focus on safety and health practices, particularly in South Africa. Maintain solid performances at Geita, Iduapriem, and Kibali. Implement recovery plans to claw back some of the South Africa lockdown production losses while taking advantage of favorable gold price environment. Implement the CIL recovery improvement project at Siguiri. Proactively manage supply chains and work with host communities and governments to prevent the spread of COVID-19. Finally, maintain focus on increasing ORD and increasing mineral resource to Ore Reserve conversion over the next two to three years.
On the exploration front, at Geita, we are focusing on identifying and increasing underground Ore Reserves by targeting extensions of Nyankanga underground, Geita Hill Underground, and Star & Comet underground ore bodies. We are also accelerating infill drilling to add more open pit Ore Reserves at Xanadu and Roberts area. Infill drilling results at Siguiri Block Two satellite area have confirmed a viable pit design for Saraya and Fulata pits. That look to provide additional ore resources to further complement the new plant.
We are also accelerating near mine infill drilling to test for additional hard rock beneath the current pits of Kami, Tubani and Bidini. At Iduapriem, the drilling continues along the extensions of the reef and other satellite targets of Block 1 and Block 5 northeast extension. At Kibali, ongoing brownfields and greenfields exploration opportunities also bode well for the mine to replace its reserve depletion again this year.
In conclusion, we remain focused on improving margins, managing our risk profiles, and instilling a culture of learning and improvement across our sites. Over to you, Ludwig. Thank you.
Thanks, Sicelo. We are on slide 21. The international operations had a demanding first quarter. In January, we had to deal with the heaviest rains in over 100 years in Brazil, along with the introduction of new underground support standards at Cuiabá. The adoption of new hygiene and social distancing practices resulting from COVID-19. This is reflected in the gold production for Americas, noting that the gold production at AGA Mineração was 10% lower than in the corresponding quarter in 2019. This reduction was largely due to the introduction of new underground supporting standards and a new mining sequence at Turvo, which was recommended by global experts to address stubbornly difficult ground conditions in the deeper levels. This required additional meshing and bolting, which slowed access to the high-grade ore.
We believe that the safety critical issue has now been addressed, and we can now focus on improving our efficiencies. Although I'm always reluctant to comment on safety, it is pleasing to report that the all-in frequency rate for Brazil improved by almost 50% from the previous quarter.
As I mentioned earlier, unusual heavy rains impacted gold production. In Belo Horizonte, we saw more than 170 mm of rain over 24 hours in late January. In the state of Minas Gerais, at least 70 people died and about 46,000 people lost their homes. Some of these are employees. The floods prevented transport of employees to the mines for almost five days, and wet weather slowed production in the Rosalino open pit at CdS. The combination of these inefficiencies and high inflation resulted in cash costs increasing 14% year-on-year, which was partially offset by the weaker exchange rate.
On a positive note, at Turvo achieved the highest total development meters in its history during the quarter, which was helped by a new record from the contracted development in March. The impact of these improvements will not be immediate, but it's critical for us to reach the high-grade nine ore body in the deeper levels of the mine. Staying in Brazil, Serra Grande mine was stopped after a COVID-19 lockdown was declared on March 26th. The site received overwhelming support from the local resort community, which issued a municipal decree to allow the operation to restart on April 5th, demonstrating the importance of having a close relationship with local communities. Cerro Vanguardia in Argentina experienced similar shutdown after a presidential decree to stop production on March 20th.
We were able to restart the mine operations on April 6th, after constructive engagement with the federal government, chamber of mines, and local unions. We have since started the open pits and expect underground mining to follow soon. Resulting gold production at 45,000 ounces was 13% lower year-on-year, which is in line with the life of mine planning.
The Australian operations had a strong quarter, and a new management team at Sunrise Dam delivered production in line with the mine plan, with exploration drilling and development ahead of plan. As I previously flagged, a key focus for Sunrise Dam in 2020 is to deliver the development and the drilling needed to grow its Ore Reserve and improve flexibility. We are currently on track with that intervention. Tropicana produced 73,000 ounces, which reflects the planned 15% drop in production after we completed the grade screening in late 2019.
All mined from the Havana South, Boston Shaker, and Havana Two pits were supplemented by stoped ore feed to fill the mill, and mining has shifted to waste stripping to the future Havana Stage 1 cutback. The development of the new Boston Shaker underground mine remains on track to begin production in H2 2020, and underground infrastructure remains on schedule. For instance, Tropicana Gold production reached 3 million ounces milestone during the quarter, just seven years after the mine poured first gold. It's worth noting that the mine was started with Ore Reserves of 3.3 million ounces and currently has remaining 4.9 ounces of resource and 2.1 million ounces of reserves that's suitable. The next slide. I would like to reiterate that our focus remains on increasing Ore Reserve Development and reserve conversion at all our underground sites.
Increasing development is critical for us to establish underground drilling platforms and increase production flexibility. This will not only give us better resource confidence and improve productivity, but also gradually grow reserves and extend life of mines over the next two years. Sunrise Dam completed a comprehensive drilling program in Q1 near both extension and other near infrastructure targets, and the team is incorporating these results into new geological models.
In Brazil, drilling has continued at all sites, returning positive intersections near existing underground development, in CdS I, and also satellite targets closer to the main ore body at Turvo. We continue to see encouraging intercepts with drilling at the Palmeiras South tenements at Serra Grande and expect to start mining these later in 2020. On projects, Quebradona feasibility study is progressing well, and the National Environmental Licensing Authority completed the site evaluation as part of the environmental impact study.
The Gramalote joint venture suspended drilling after the declaration of a national state of emergency and quarantine by the Colombian government. Work has slowed progress between both projects. There may be a delay in delivering both of these feasibility studies by year-end. In conclusion, we've seen stable performance from the assets, including a steady improvement in Ore Reserve Development and drilling across the portfolio. With many of the initial COVID-19 challenges behind us, we will be turning our attention to our operational excellence program to deliver additional cost and productivity improvements. With that, I'll hand over to Graham, who will talk to you about asset.
Thank you, Ludwig. I'm on slide 34. The Obuasi project continued to make good progress following the first gold pour in December last year, despite the country responses and restrictions that have been implemented in response to the COVID-19 pandemic. The ramp-up of phase I operations to 2,000 tons per day has progressed well. The plant achieved the design parameters by the end of the quarter, and plant runtime progressively improved as commissioning issues associated with the refurbished plant were resolved. From a geology perspective, you would recall that last year we added 1.3 million ounces in reserves to Obuasi. We have continued with the grade control and the infill drilling programs, and the results have confirmed that the resource model, and on several sections, we're seeing improvements in grade and tonnage.
I think this is an important point as one starts to move into the commencement of operations for a redeveloped project. This quarter, we progressed drilling at Block 10 and have seen some rather spectacular intercepts in the first sections, including 63 m at 22 g a ton and 9 m at 10.8 g a ton.
In mining, international travel restrictions and the encouragement by home countries for expatriates to return home has had some impact on the mining operation. Some key expatriate contractors have returned home, though many have remained on-site. Mining contractor has been extremely supportive, and most field operators continue to work quite productively on-site. As a result, the mine's currently operating at about 80% capacity. We're monitoring the domestic and international travel situation very closely and are looking for the earliest opportunity to rotate crews and get back to full strength.
As a result of the uncertainties around COVID, the declaration of phase I commercial production is now expected to be in the third quarter of 2020. On slide 25. With the phase I refurbishment and construction completed, we are now focused on phase II. The objective of phase II is to establish an operating capacity of 4,000 tons per day. Phase II reached 55% completion at the end of the quarter. Concrete works, structural steel erection, mechanical equipment installation, and tailings facility earthworks have all progressed well. Refurbishment of the underground materials handling system and installation of new pump stations are also progressing well. While procurement is almost complete, some manufacturing and deliveries have been delayed due to lockdowns in supply countries. While international travel restrictions and country lockdowns have also hampered mobilization of some critical skills.
The areas that are most affected are the KMS shaft, which is required to increase mining capacity to 4,000 tons per day, and the SAG ball mill installation and plant instrumentation and controls, which are required for the process plant to achieve 4,000 tons per day. Based on current circumstances, we expected that phase II commissioning and ramp-up will be delayed by about three months to late quarter one 2021.
Please note that the COVID delay that I've discussed is three months in a 20-year project. We are delivering the project into a high gold price market compared with that in 2018 when the project was first committed. With respect to costs, we've looked at the impact of the delays on the overall capital cost and can manage these delays within the project contingency. Therefore, the project remains on budget. With that, I'll hand back to Kelvin to conclude.
Thank you, Graham. To wrap up, our strategy remains clear and we continue to execute on our key objectives. Our historic and ongoing focus on ESG is paying dividends, as demonstrated in the fight against COVID-19, and we're approaching the COVID-19 operating landscape conservatively from an operating and financial perspective. We're making good progress on streamlining the portfolio and aim to close both ongoing transactions this quarter. We're generating strong cash flow, and we're working to ensure that we can safely keep delivering strong all-in sustaining cost margins, especially with the higher gold price. Leverage is below our target level and is improving further given the strong fundamentals in place. You just heard from Graham, Obuasi remains on track even with the minor movement in its ramp-up schedule.
We expect positive results from the important Ore Reserve Development and reserve conversion investment we're making in our key ore bodies, both in terms of extending mine lives and creating greater operating flexibility. We'll remain disciplined in managing costs and capital, taking a prudent approach in operating the business. Our aim is unchanged, to build a solid, predictable business that delivers value through the cycle. Thank you very much. With that, we can open up for questions.
Thank you very much, sir. Ladies and gentlemen, at this time, if you'd like to ask a question, you're welcome to press star and then one on your touch-tone phone or the keypad on your screen, at which time you'll hear a confirmation tone. Following this process, we'll place you in a question queue. If you decide your question has been addressed and you wish to withdraw your question, you're welcome to press star then two on your touch-tone phone to remove yourself from the question queue. And just a reminder, if you'd like to ask a question, you're welcome to press star and then one. The first question comes from James Bell of RBC Capital Markets.
On margins and free cash flow. When I look at your all-in margin, it looks relatively healthy, but obviously free cash flow was lower than that would imply. I just wonder, when you look at your all-in cost profile going forward and your projected free cash flow, is there anything we should be thinking about in terms of flowback from what we've seen in Q1? Secondly, in terms of the actual all-in cost itself, do you feel that that metric is a suitable one to be judging the cash generation potential of the business?
James, it's Kelvin. I apologize. I lost the first part of your question. Hopefully, it may have just been on my end. In terms of the all-in sustaining cost and the transition to free cash flow, Christine, maybe you can respond to that. If I missed anything at the start of James' question, we can come back to it, please.
Okay. Thanks, Kelvin, and hi, James. I also lost the first part of your question, but I think I know what you're getting at and would have come back in the second part. I think firstly, just for the benefits of everyone to actually run through the items from the all-in costs and the implied margin to free cash flow.
I think certainly if one looks at the items that impacts that difference, it is running down the list of working capital, tax, interest, and then the Kibali cash build-up. When one looks at working capital, we did see a large trade creditors outflow relating to year-end payments that came through. That was about $82 million. We saw an increase in inventories of $21 million. Half of that related to COVID-19 impacts in terms of us building up safety stock and stockpiles for safety stocks for consumables.
We also saw increased Obuasi selling process. When one looks at the third element of working capital, it's trade receivables. Half of that related to Obuasi pre- payment for long lead items, and then the balance related to the VAT build-ups that we saw. Tax certainly was higher at $75 million. The interest bill is $31 million. We saw $57 million cash build-up relating to Kibali. In terms of what one would expect moving forward into the year, I think bear in mind that free cash flow generation is expected to improve, not only because of the higher gold price and efficiency improvements that we are expecting, but production is weighted to the second half of the year, similar to in the past. There you would expect to see improvements in free cash flow generation.
As regards working capital, I think specifically, yes, we do expect to see unwind in the second half of the year, and so some of that will come back.
Thanks, Christine and James. Just in a point summary, and I, again, apologize for missing the start of the question, but I think longer-term all-in cost is a good measure as we're addressing longer-term cash conversion. To summarize, the operating cash flow is very strong and we're working on releasing the cash lockup issues with that in DRC and care and maintenance. Thanks for that. Thanks, Christine.
That's great. Just one more, if I may, on Tanzania. You've got ongoing ORD work or reserve development going on at Geita.
Yeah.
That could yield some pretty interesting results this year. I realize with COVID-19 things are probably shut down now, but have you had any more discussions with the Tanzanian government as to the ownership structure of Geita, following on from, obviously, Barrick's agreement with the government around the Acacia assets?
James, two things. First of all, thank you. I think some very good news to start in Tanzania relates to the permit we received in the quarter for Geita Hill Underground. That's key for us, and it's good to see that the government processes are working there favorably for us. We continue to maintain very good relationships at the local level and working on up. Lines of communication are open, again, locally and at state and federal level. There's been no discussions regarding anything other than that or anything in terms of agreement context. We continue to work hard locally. We're seen as, I think, a respectable taxpayer in Tanzania and all those things. Nothing's changed as far as that goes. Even in the COVID-19, we're able to continue with our drilling work on the ground as well.
Sicelo, you may want to add a little color to that, if there's anything else I've left unanswered.
No, I think we have mentioned all of it, Kelvin. Thanks.
Business as usual as right now in Tanzania, James.
Okay. There's still an expectation that there will be some discussions around the ownership structure of Geita this year, or do you feel like, it's business as usual, and actually the ownership structure will likely remain as it is for the foreseeable?
Well, we don't anticipate any change at this point. As I said, we've had dialogue on lots of things in Tanzania. We're in no direct discussions regarding any ownership changes in that regard. At this point, our plans are business as usual at Geita.
Perfect. Thanks for taking my questions.
You're welcome. Thank you.
Thank you. The next question comes from Shalin Mody of UBS.
On mute.
Shalin, we are not hearing you clearly. If you can please repeat that.
Hi. Can you hear me clearly now?
That is much better. Thank you.
Okay. Afternoon, team. Given the decision to keep CVSA, can you give us what you think the outlook is for the asset? On the last set of numbers, I think the asset has about a four-year life remaining.
Yeah.
Secondly, how did your credit rating change with the divestments that you've announced? I noticed your CapEx declined by $63 million over sequential quarters. On the face of it looks like you're in cash preservation mode in some form. Can you maybe talk to that? The last question, what is the annual cost of resource-to-reserve conversion across the group for the next three years? You can give it in dollar million or dolla r pound?
Okay. Well, thank you. I'll start with those and then ask colleagues to chime in as appropriate. Starting with CVSA, when we initiated that process, about a year ago, the reason for it was CVSA, it's always been a great asset for the company. You may recall we made the decision strategically that it's sensible to do so, we want to focus on clusters of assets and critical mass, and we want to continue to build on that. With limited capital, you've got to make those decisions, hence process around CVSA. Having said that, we were also clear, no fire sales. When we went through the process, it was certainly an active process, comprehensive.
There were a number of bids surfaced, but none that we felt reflect full value, especially when you consider CVSA at $1,500 gold price and generating a range of $70 million in free cash flow, generating good cash now and will continue. You're right, the mine life, presently around four years.
As Ludwig intimated, it's also an asset now where we're going to spend a little more on reserve development and brownfield drilling at CVSA, and we're hopeful that we can actually extend that out a little. That's the objective for CVSA. The other thing with it is it's got a very strong operating team. As we've gone through the process, it was important that when we made the decision, we're going to keep it, we want to make sure that that team stays motivated. There's high level of talent there.
Again, we're happy to keep it in the family, and we're doing that for all the right reasons. The second comment we'll come back to regarding the credit rating. The CapEx, no, we're not conserving cash. It's just about sequencing and consistent with the plan for the year. The cost of the reserve conversion, as we indicated in February with our results, we've been targeting in the range of $30 an ounce for ORD, both underground development and reserve conversion this year. So far, where that remains on track, I think in Q1, we are around $10 an ounce. Someone will correct me if I'm wrong on that, but just to give you a sense. That hasn't changed. We'll see as we go through the year.
We're continuing to be able to target and kind of zero in strategically where we want to do that drilling. We mentioned Geita. Ludwig, I think, indicated Sunrise Dam, Brazil as well, Iduapriem. We're able to continue to do that. We think it will disproportionately add value both in terms of mine flexibility and extending reserve life as well in doing so. The other question, I apologize if I missed any, was regarding credit rating. Christine, you may want to comment on that.
Yes. Thanks, Kelvin. Apologies. I thought one of the questions on CapEx was what was the change from Q4 to Q1. If I can just give that information as well. From Q4 to Q1, we saw the CapEx drop by $40 million. It was $262 million in Q4 last year, and in total CapEx, it's $199 million in Q1. The drop was split really between growth CapEx and sustaining capital. $20 million drop in sustaining capital in Q1, the balance was really the drop in growth capital in Q1. As regards the credit rating in particular, we do not anticipate the South African asset disposal to have an impact on our credit rating.
I think, bear in mind that South Africa constitutes a relatively small component of our overall production and EBITDA, so we're not anticipating any change to our credit rating as a consequence of the asset disposal.
Okay, thanks very much.
Thanks for the questions.
Ladies and gentlemen, just a reminder, if you'd like to ask a question, you're welcome to press star and then one when it touches and goes to place yourself in the question queue. The next question comes from Rich Hatch of Berenberg Capital Markets.
Thanks very much. A couple of questions. First one, just on Obuasi, would you be able just to expand a little bit more on where you see the biggest risks in terms of delivering on your plan there? Second question is just on inflation. You talked to it earlier in the call, I just wonder whether you might be able to quantify what kind of mining cost inflation you're seeing globally, and I appreciate you're probably seeing more in certain jurisdictions than others. If you're able to put some kind of handle on that. Thirdly, just on returns to shareholders, I completely understand you raised your dividend earlier this year, but also, with the generation of free cash flow expected to pick up in the second half, plus net debt to EBITDA moving below your 1x target.
What's your thought process on returns to shareholders into the medium term? Thanks.
Well, thank you Richard. Look, if you don't mind, I'll work backwards on your questions. In terms of dividends, as you may know, Richard, our dividend policy is pay out 10% of free cash flow before growth capital. As we're working hard to increase free cash flow generation, as you saw at the end of last year and as we do in this quarter, we will by definition, be paying out at an increased dividend, presuming everything stays full and gold price stays supportive, et cetera. That's the objective. Now, having said that, and this is a board decision, but there's unanimity in the board discussions that with time, as we move through the phase of bringing, ramping up Obuasi and so forth, structurally would we like to increase the dividend policy with time? Absolutely, we will.
We want to make sure we do that prudently, no lurching, kind of sure and steady as far as that goes. In the meanwhile, take advantage of these good gold prices and the margin expansion and continue to increase dividends again through the existing formula. If you don't mind, what I'd like to do is on Obuasi, I'll ask Graham to comment on where he sees the areas of risks and how we're managing them. Christine will come back to yourself on the inflation, what we're seeing globally, how we're managing it. Feel free to have Ludwig and Stellar chime in if you'd like. Maybe we'll start with Graham on Obuasi.
Thanks, Kelvin. Thanks, Richard. In answering a question in regard to delivery risk on the project now, let me say that it's almost entirely COVID risk now. The project's at a point where phase II's up to sort of 55% completion. Procurement is virtually all complete, contracting all complete. In terms of setting things up to deliver on the project, I think we're in very good shape. From a COVID point of view, let me explain it in a few different ways. In terms of operations, it's mostly to do with the mining expatriate skilled workforce. In this quarter, we've experienced a shortage of those skills, which is limiting our production to about 80%. We're also limited to being able to rotate the expat crews, and this is true for most expatriate workforces globally.
As long as that, we've got a workforce that are committed to continue to work, but we'll look for every opportunity to be able to rotate that crew and get that crew back up to full strength. In terms of the project itself, it's two parts, would be materials delivery and manufacture. A critical path through the mills was the manufacturer of the mill heads and bearings in China. That was delayed but has now been completed, and those components are on the wharf ready for dispatch. The global shipping and transport is in a state of disarray, so we're not exactly sure when those components will get to site. There are a few other material components. One is coming up from South Africa. That's a case of manufacturing getting going again in South Africa and then the transport.
The other key issue for construction is around the key skills required as we get to the pointy end of construction. By there I mean, the biggest impact is on the KMS shaft, installing the winding equipment and the instrumentation and controls. We would need to get those skills back to site. The procurement for all of that and the engineering's all complete, but we need to get those people back to site.
The other key one would be on the instrumentation controls for PLCs and SCADA, getting those people on site. As much work's being done offsite, actually in Perth, then finish that work, we need to get people back to site. The issues are around manufacturing and getting key skills to site. The timing on that will be all dependent on how quickly countries open up their borders for international travel. Hope that answers your question.
Yeah, very much so. Very helpful. Thank you.
If I could answer the question on the cost inflation that we've seen. It's Christine speaking.
Thanks, Christine.
Hi. The cost inflation that we've seen has averaged at around 4.5% across the group. I think if one looks at the big buckets of spend categories in our group, it's labor, contractors, costs, and consumables of 25% each. We've been able to, across all of those categories, contain the increases in costs. I think in particular in certain jurisdictions like Argentina and South Africa, we've seen higher cost inflation. For Argentina, the inflation has averaged around 25%-30%. In South Africa, at around 8%. However, in a large part of continental Africa and in Australia, you're really looking at more dollar-based costs. There we were actually able to contain the increases as well. Overall it does average at the 4.5% for the group.
Very helpful. Thanks, all, to your answers and wishing you the best. Cheers.
Thank you very much.
Thank you. That was the final question. Can I hand over back to Kelvin for closing comments?
Well, thank you very much, operator, and thanks again, everyone, for joining the call today. I'll just wrap up very quickly. End result, listen, the business is performing very well. We're generating strong cash flow. Our liquidity is strong and we're in very good position that way. We're managing the COVID-19 situation. I think I'm very proud of how our team's responded. The relationships that we have on the ground and all the way up through dealing with senior governments are obviously paying dividends. We're going to continue to stay focused on that. Look, we look forward to reporting back with our H1 results in August. In the meanwhile, I hope everyone, you and your family stay safe, and we'll look forward to speaking to you again soon. Thank you very much.