Day, ladies and gentlemen, and 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 Please note that this conference I would now like to hand the conference over to Mr. Stuart 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, Sigler, Ludwig and Graeme talking to their respective areas of the business. Kelvin, please go ahead.
Well, thank you, Stuart, 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 deleveraging the balance sheet, progressing the ongoing divestment processes, enhancing margins, growing oil reserves and ramping up Obuasi to commercial production. And importantly, we'll work to maintain and strengthen our licensed operate through effective ESG practices as demonstrated in our ability to mobilize quickly and effectively to support the global fight against COVID-nineteen.
On the safety front, regrettably, there were 4 fatalities in Q1, which occurred in 2 separate fatal incidents in March at the Mponeng mine. The first incident occurred on March 5, where 3 of our colleagues were fatally injured in a seismic related incident caused by a large fall of ground roughly 3.6 kilometers below surface. The second took place on March 16 in an accident during an underground horizontal transport incident and subsequent 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 2 years without a fatality across the portfolio and this is a hard reminder of the essential work and attention required to achieve 0 harm at our operations.
We'll 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 $90,000,000 in growth capital, principally in the Obuasi redevelopment. Our drilling program to extend mine lives and improved 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 Cavalli, Gaeta and Idioprim. COVID-nineteen 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-nineteen impacts.
Cash flow was robust, demonstrating significant leverage to the rising gold price. Especially pleasing was the increase in free cash flow before growth capital, the metric on which dividends are calculated, which was up 2 31 percent to $94,000,000 This strong cash flow performance would have been even stronger were it not for some working capital lockups and Christine will talk to that in a few minutes. Net debt continues to fall and was down 10% year on year to $1,600,000,000 Gearing also continues to get better with net debt to EBITDA at 0.5 times, well below our 1 times 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 managed through the pandemic. As we flagged previously, converting our earnings into cash has been a challenge in some areas. At Cabali and 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 CBSA operation in Argentina, this after running a comprehensive process with various offers that surfaced, but none that reflected what we consider to be full value for this asset. We believe that the maximum value from CBSA 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 and 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-nineteen related logistics, but nothing material and we still anticipate closing the transaction this quarter. Finally, we're very pleased with our partnership with B2Gold. We're managing the Gramalote JV very well, including during these COVID-nineteen circumstances. We're committed to doing our part to stop the spread of COVID-nineteen.
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 provided hand washing stations in areas with low access to reticulated water, we 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 $1,400,000,000 available under the multi currency RCF and securing a new $1,000,000,000 standby facility to help weather any unforeseen events that the pandemic may bring.
That gives us a very healthy $2,300,000,000 of available liquidity. Inventories of critical spares are now at an average of 4 months across the portfolio, which is within our 3 to 6 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 dore 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 27 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 April at our South African assets, Cerro Vanguardia and Cerro Grande. In South Africa, surface processing operations have restarted and the Pooning underground mine started to ramp up on April 15 and is now operating at around 50% of production capacity. Cerro Vanguardia is processing stockpiles and operating at year planned production rates and Cerro 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-nineteen 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.
And 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-nineteen related suspensions, which impacted the latter part of the quarter and the front end of quarter 2. 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-nineteen impact, production would have been 3% down on last year with the remaining shortfall relating to the lost ounces from Marilla and Sadiola due to these operations reaching end of life. We saw stellar results from Gaeta, Kibali and Ideopreme as well as 19,000 preproduction ounces from Abu Dhabi, 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 2 27% increase in cash flow from operating activities to $290,000,000 But the most significant improvement came from free cash flow generation, which at $4,000,000 was a vast improvement on the $109,000,000 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 spent during the quarter. The underlying cash generation of the business is exceptionally strong with all operating regions making a meaningful contribution. We received $25,000,000 in dividends from Kibali for the quarter, and our cumulative attributable share of cash balances in country were $252,000,000 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 DRC government regarding the 2018 minuteing code and the cash repatriation. Non sustaining CapEx for the quarter of $90,000,000 included the project capital of $53,000,000 related to Akwaisi, dollars 25,000,000 for the Quebradona feasibility study and $9,000,000 for Tropicana Boston Shaker underground project.
Working capital reflected an outflow at quarter end and was impacted by BAT lockups in Tanzania, Argentina export duties, higher gold in process levels as the Boisi 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 $9,000,000 relating to Obuasi. At the end of the quarter, we had $122,000,000 in outstanding VAT from Tanzania, a net increase of $7,000,000 from year end. We also have $65,000,000 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
$8.40
an ounce. There was a favorable impact of $52 an ounce from weaker currency, which more than offset 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-nineteen. However, 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-nineteen related impacts of $18 an ounce, the increase is around 2%, which primarily relates to non cash increases in the rehabilitation provision 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 investments in all reserve development. 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 of Wafi and our other growth initiatives. Our adjusted net debt position was lower by 10% or $180,000,000 from March 2019, despite the increased dividend payment and was just under $1,600,000,000 at quarter end. It's also pleasing to see our adjusted net debt to adjusted EBITDA ratio at 0.085 times, which is well below our targeted ratio of 1 times through the cycle. As we said previously, proceeds from the South African asset sale will be applied to further reduce debt. Our liquidity is strong.
As Talben mentioned, we made a preemptive full draw on our $1,400,000,000 RCS facility in the second half of March. Cash and available facilities were around $2,000,000,000 at the quarter end. Subsequent to the quarter end, we repaid $700,000,000 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-nineteen pandemic, we bolstered our liquidity headroom with a 1 year $1,000,000,000 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 $2,300,000,000 in liquidity and headroom, including the new standby facility, and this excludes the Kibali and Sadiola cash. Our credit ratings are unchanged. We have investment grade ratings from Moody's and Fitch and a sub investment grade rating from S and P. All have a stable outlook and Moody's recently reaffirmed our rating following Our cash flows demonstrate the strong leverage we have to both the gold price and currency. And 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-nineteen, we withdrew our guidance on 27th March. In addition to the 11,000 ounces impact of COVID-nineteen in Q1 and the all in sustaining cost impact of $18 an ounce, all our mines are now operating normally, other than Zimponing in South Africa, which commenced production to 50% capacity on 4th May. 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 Abu Dhabi expected to ramp up through the course of the year. The timing of the closure of the sale of the South African assets in 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-nineteen direct impacts and our interventions to provide flexibility and reduce risk across our operations. These include additional logistics relating to transporting gold, increased safety stocks on critical consumables and increased ore stockpile. We expect all in sustaining costs to increase on the back of these COVID-nineteen 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 life. Brazil has also increased spending on the transition to dry stacking at its CSS. Our focus on efficiency improvements, however, will continue to mitigate the rise in all in sustaining costs.
Growth capital for the year relates to Abu Wafi, advancing the feasibility study at Quebradona, Gramalote and Tropicana Boston Shaker Underground. We are well positioned to see further reductions in deck level as we anticipate improved cash flows 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 Sipello to cover the African region.
Thanks, Kristine. Let's take a high level look at the Africa operations on Slide 18, starting with Continental Africa. The region The region production was 22,000 ounces higher than the Q1 of 2019 at 360,000 ounces. I'm pleased to announce the continuation of strong performances at Geita, Itaupreme and Kibali. The all in sustaining cost at $8.79 an ounce was 9% lower than the Q1 of 2019.
Keeping costs under control. This has keeping costs under control. This has helped offset impacts related to inflation and mining scope changes, particularly at Siguri as it transitions from soft rock to hard rock blend. At Geita, production this quarter was the highest in 8 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 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 12. Development is expected to commence in the Q4 onwards after the mining plan has been signed off by the Chief Inspector of Mines at the Mining Commission, subject also to the status of COVID-nineteen and the mobilization of critical skills on-site. This approval is a significant step forward and will unlock an estimated 1,600,000 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. Iguaprim's production was 5% higher and 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 Siguri, 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 and 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.
TestWhip has confirmed the presence of pregrobing material in the area in the ore and milling of the ore still presents a high cost gold fraction of material entering the CIL circuit. We have a plan in place to convert 3 more tanks to CIL this year and have initiated a cyclone mill control optimization to address the cost gold particles issue. We expect this to be resolved by the Q4 with incremental recovery benefits being achieved till then as improvements in the milling and classification circuits realized. In South Africa, despite the challenging safety quarter, Mboneng produced 49,000 ounces at an all in sustaining cost of 12.57 dollars per ounce, 4% below the Q1 of 2019. Production decreased marginally compared to the same quarter last year, mainly due to the extended Christmas break with a later startup in January.
Bonnem production was also impacted by safety stoppages due to fatalities and the unplanned closure during the latter part of the quarter due to government's restriction related to COVID-nineteen. The safe restart of underground operations at Mboni began with a return of 50% of the staff in line with regulations as amended on 16 April 2020. The production ramp up is in progress following the first blast on the 30th April and hoisting operations commencing on the 4th May. A successful COVID-nineteen readiness compliance audit of Enlogold Ashanti systems and preparedness was conducted by the DMRE on Friday, 24th April. Recognized unions have been playing an integral part in the formulation of our COVID-nineteen 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 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, Dua Priem 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 Siburi. Proactively manage supply chains and work with host communities and governments to prevent the spread of COVID 19. And finally, maintain focus on increasing ORD and increasing mineral resource to all reserve conversion over the next 2 to 3 years.
On the exploration front, at Geita, we are focusing on identifying and increasing underground ore reserves by targeting extensions of Nyan Kanga Underground, Geita Hill Underground and Steyn Komet 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 Siguri Block 2 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 Pamitubani and Bediemi. At Tidwa Prem, the drilling continues along the extensions of the reef and other satellite targets of Block 1 and Block V Northeast Extension.
At Kibali, ongoing brownfields and grainfields 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 the culture of learning and improvement across our sites. Over to you, Ludwig. Thank you.
Thanks, Cielo. We are on Slide 21. The international operations had a demanding first quarter. In January, we had to deal with the heavy rains in over 100 years in Brazil, along with the introduction of new underground support standards at Cuba and the adoption of new hygiene and social distancing practices resulting from COVID-nineteen. This is reflected in the gold production for Americas, noting that the gold production at AGA in Mendoza Raul was 10% lower than in the corresponding quarter in 2019.
This reduction was largely due to the introduction of new underground supporting standard and a new mining sequence at Guilbeau, 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. However, 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's pleasing to recall that the all in frequency rate for Brazil improved by almost 50% from the previous quarter. As I mentioned earlier, unusual heavy rains impacted coal production.
In Dalla Horizonte, we saw more than 170 millimeters 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 5 days and wet weather slowed production in the Rosalina open pit at CDS. The combination of these inefficiencies and higher inflation resulted in cash cost increasing 14% year on year, which was partially offset by the weaker exchange rate.
On a positive note, at Cuba, Q1 achieved the highest total development meter 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 main ore body in the deeper levels of the mine. Spain in Brazil, Cerro Grande mine was stopped after a COVID-nineteen lockdown was declared on March 26. The site received overwhelming support from the local reserve community, which issued a municipal decree to allow the operation to restart on April 5, demonstrating the importance of having a close relationship with local communities. Cerro del Guardia in Argentina experienced similar shutdown after a presidential decree to stop production on March 20.
We were able to restart the mine operations on April 6 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 claim. The restraining operations had a strong quarter and the new management team at Silanois Dan delivered production in line with the mine plan with exploration drilling and development ahead of the plan. As I previously flagged, a key focus for Sunrise Dam in 2020 to deliver the development and the drilling needed to grow its ore reserve and improve flexibility.
We are currently on track with that intervention. Turkicana produced 73,000 ounces, which reflects the plant's 15% drop in production after we completed the grade streaming in late 2019. All mine from Havana South, Boston Shaker and Havana 2 pits were supplemented by stockpiled feeder for the mill and mining and ship it 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 interest, Tropicana Gold production reached 3,000,000 ounces milestone during the quarter, just 7 years after the mine port's first gold.
It's worth noting that the mine was started with ore reserves of 3,300,000 ounces and currently has remaining 4.9 ounces of resource and 2,100,000 ounces of reserves attributable. Next slide. I would like to reiterate that our focus remains on increasing all 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 improved productivity, but also gradually grow reserves and extend life of mines over the next 2 years.
Polarized dams completed the comprehensive drilling program in Q1 in 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 CDX-one and also satellite targets close to the main ore body at Cielo. We continue to see encouraging emphasis with drilling at the Palmyra sale of tenements at Cerro Grande and expect to start mining these later in 2020. On project, Croppadana 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.
Workers' fault per view is seen at both projects. However, 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 oil reserve development and drilling across the portfolio. With many of the initial COVID-nineteen 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 Graeme, who will talk to our Boase.
Thank you, Ludwig. I'm on Slide 34. The Obuasi project continued to make good progress following the 1st gold pour in December last year, despite the country responses and restrictions that have been implemented in response to the COVID-nineteen pandemic. The ramp up of Phase 1 operations to 2,000 tonnes per day has progressed well. The plant achieved the design parameters by the end of the quarter, and plant run time progressively geology perspective, you would recall that last year, we added 1,300,000 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 meters at 22 grams a tonne and 9 meters at 10.8 grams a tonne. 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 contractors been extremely supportive, and most skilled operators continue to work quite productively on-site. As a result, the mine is 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 1 commercial production is now expected to be in the Q3 of 2020.
On Slide 25. With the Phase 1 refurbishment and construction completed, we are now focused on Phase 2. The objective of Phase 2 is to establish an operating capacity of 4,000 tonnes per day. Phase 2 reached 55% completion at the end of the quarter. Concrete works, structural steel erection, mechanical equipment installation and timings 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 KRS shaft, which is required to increase mining capacity to 4,000 tonnes per day and the SAG ball mill installation and plant instrumentation and controls, which are required for the process plant to achieve 4,000 tonnes per day. Based on current circumstances, we expected that Phase 2 commissioning and ramp up will be delayed by about 3 months, the late quarter 1 2021. Please note that the COVID delay that I've discussed is 3 months in a 20 year project, and 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-nineteen. And we're approaching the COVID-nineteen 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. And we'll remain disciplined in managing costs and capital taking a prudent approach in operating the business.
Our aim is unchanged is to build a solid predictable business that delivers value through the cycle. So thank you very much. And with that, we can open up for questions.
Thank you very much, sir. The first question comes from James Bong of RBC Capital Markets.
On margins and free cash flow. So 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 wondered 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? And secondly, in terms of the actual all in cost itself, do you feel that, that metric is a suitable one 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. But in terms of the all in sustaining costs and the transition to free cash flow, Christine, maybe you can respond to that.
And if I miss anything at the start of James' question, we can come back to
it, please.
Okay. Thanks, Colvin, and hi, James. So I also lost the first part of your question, but I think I'm what you're getting at and would have come back in the second half. So I think firstly, just to remind for the benefits of everyone to actually run through the items from the ordering costs and the implied margin to free cash flow. I think that we just want to look at the items that impacted that difference.
It is running down the list of working capital, tax, interest and then the Kibali cash build up. So 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 $82,000,000 We saw an increase in inventories and half of $21,000,000 Half of that related to COVID-nineteen impact in terms of us building up safety stocks and stockpile for safety stocks for consumables. And then we also saw increased OIC's holding process. And then when one looks at the 3rd element of working capital, it's trade receivables, half of that related to Obuasi's prepayment for long lead items and then the balance related to the VAT build up that we saw.
Tax certainly was higher at $75,000,000 The interest flow is $31,000,000 And then we saw $57,000,000 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. So there you'd expect to see 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 a point summary and I again probably miss an exciting question, but I think longer term all in cost is a good measure. We're addressing longer term cash conversion. And 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. So thanks for that.
Thanks, Christine.
That's great. And just one more, if I may, on Tanzania. You've got ongoing ORD work or reserve development going on at Gaeta, and that could yield some pretty interesting results this year. Have you had I realize with COVID-nineteen, things have probably shut down now, but have you had any more discussions with the Tanzanian government as to the ownership structure of Gaeta, following on from, obviously, Barrick's agreement with the government around the Acacia assets?
Yes, James, 2 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 Gator Hills Underground. That was key for us and it's good to see that the government processes are working there favorably for us. And we continue to maintain very good relationships at the local level and working where it's gone up, lines of communication are open locally and at state and federal level.
There's been no discussions regarding anything other than that and anything in kind of agreement context. We continue to work hard locally. We're seen as, I think, a respectable taxpayer in Tanzania and all those things. So nothing's changed as far as that goes. And even in the COVID-nineteen, we're able to continue with our drilling work on the ground as well.
And Sotelo, 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.
Business as usual right now in Tanzania, James.
Okay. But there's still an expectation that there will be some discussions around the ownership structure of Beta 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?
We don't anticipate any change at this point. As I said, we've had dialogue on lots of things in Tanzania. We are in no direct discussions regarding any ownership changes in that regard. So at this point, our plans are business as usual at Gaida.
Perfect. Thanks for taking my questions.
You're welcome. Thank you.
Thank you. The next question comes from Hello, Charlotte. 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 CBSA, 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 4 year life remaining. Secondly, how does your credit rating change with the divestments that you've announced?
And then I noticed your CapEx declined by $63,000,000 over sequential quarters. On the face of it, it looks like you're in cash preservation mode in some form. Can you maybe talk to that? And then the last question, what is the annual cost of reserve resource to reserve conversion across the group for the next 3 years? You can give it in dollar 1,000,000 or dollar by 1.
Okay. Well, thank you. I'll start with those and then ask colleagues to chime in as appropriate. Starting with CVSA, we initiated that process about a year ago. The reason for it was CDSA, it's always been a great asset for the company.
So but you may recall, we made a decision strategically that the extent 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. So and with limited capital, you've got to make those decisions, hence the process around CDSA. Having said that, we were also clear no fire sales. And so when we went through the process, it was certainly an active process, comprehensive.
There are a number of bids surfaced, but none that we felt reflect full value, especially when you consider CVSA $1500 gold price will generate in the range of $70,000,000 in free cash flow generating good cash now and will continue. You're right, The mine life presently around 4 years. But as Lindwigg intimated, it's also an asset now where we're going to spend a little more on reserve development and brownfields drilling at CBSA and we're hopeful that we can actually extend that out a little. So that's the objectives for CBSA. The other thing with it is, it's got a very strong operating team.
And so 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. And so 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.
This is just about sequencing and consistent with the plan for the year. The cost of the reserve conversion, we had as we indicated at the 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 were around $10 an ounce. Someone will correct me if I'm wrong on that, but just to give you a sense.
So that hasn't changed. We'll see as we go through the year. We're continuing to be able to target and kind of 0 in strategically where we want to do that drilling. And we mentioned Gaeta Ludwig, I think indicated the Sunrise Dam, Brazil as well, Idioprine. So we're able to continue to do that and we think that we'll disproportionately add value both in terms of mine flexibility and extending reserve life as well in doing so.
And the other question, and I apologize if I missed any, but was regarding credit rating. And Christine, you may want to comment on that.
Yes. Thanks, Calvin. Apologies. I thought one of questions on CapEx was what was the change from Q4 to Q1. So if I can just give that information as well.
So from Q4 to Q1, we saw the CapEx drop by $40,000,000 It was $262,000,000 in Q4 last year, and in total CapEx, it's 199,000,000 in Q1. And the drop was split really between growth CapEx and sustaining capital, €20,000,000 drop in sustaining capital in Q1. And then the balance is 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.
The next question comes from Richard Hatch of Berenberg Capital Markets.
Thanks very much. A couple of questions. First one, just on the Boisi. 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, but I just wonder whether you might be able to quantify kind of what kind of mining cost inflation you're seeing kind of globally. And I appreciate you're probably seeing more in certain jurisdictions than others, but if you're able to kind of put some kind of handle on that. And then 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 one times 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 10% payout 10% of free cash flow before growth capital. And as we're working hard to increase free cash flow generation, as you saw at the end of last year and as we're doing this quarter, we will by definition be paying out at an increased dividend presuming everything stays full and gold price stays supportive etcetera, etcetera. So that's the objective.
Now having said that and this is a Board decision, but there's unanimity in the Board discussion that over time as we kind of move through the phase of bringing ramping up Oguaase and so forth. Structurally, would we like increase the dividend policy at times? Absolutely, we will. But we want to make sure we do that prudently and no lurching and so kind of sure and steady as far as that goes. And in the meanwhile, take advantage of these good gold prices and the margin expansion and continue to increase dividends again through the existing formula.
And if you don't mind, what I'd like to do is on Obuasi, I'll ask Graeme to comment on where he sees the areas of risks and how we're managing them. And then Christine, we'll come back to yourself on the inflation, what we're seeing globally, how we're managing it. And if you feel free to have Ludwig and Cicella chime in if you'd like. But maybe we'll start with Graham on Abwasi.
Thanks, Melvin. Thanks, Richard. In answering your 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 2 is up to sort of 55% completion. Procurement is virtually all complete.
Contracting all complete. So 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 workforce globally. And 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 price itself, it's 2 parts,
would be
materials delivery and manufacture. 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. But the global shipping and transport is in a state of disarray, so we're not exactly sure when those components will get to size. There are a few other material components.
One is coming up from South Africa. That's the 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. And by there, I mean the biggest impact is on the Cairo shaft, installing the winding equipment and the instrumentation and controls. So we need to get those skills back to site.
The procurement for all of that and the engineering is all complete. So we need to get those people back to site. And 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 off-site actually in Perth and finish that work we need to get people back to site. So the issues are around manufacturing and getting key skills to site.
And the timing on that will be all dependent on how quickly countries open up their borders for international travel. Hope that answers your question.
Yes, very much. Very helpful. Thank you.
If I could answer the question on the cost inflation that we've seen. It's Kristine speaking.
Thanks, Kristine.
Hi. So 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, contractor costs and receivables of 25% each. And we've been able to across all of those categories contain the increases in costs. I think in particular in certain jurisdictions, we've seen higher cost inflation.
For Argentina, the inflation has averaged around 25% to 30%, in South Africa, that's around 8%. And however, inflation because in the large part of Continental Africa and in Australia, you're really looking at more dollar based costs. And so there, we were actually able to contain the increases as well. And so 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. Sir, that was the final question. Can I hand it back to Kelvin for closing comments?
Well, thank you very much, operator. And thanks again, everyone, for joining the call today. We I'll just wrap up very quickly. And as I'll listen, the business is performing very well. We're generating strong cash flow.
The liquidity is strong and we're in very good position that way. And we're managing the COVID-nineteen situation. I think I'm very proud of how our teams 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.
And 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 look forward to speaking to you again soon. So thank you very much.