Good day, ladies and gentlemen, welcome to the AngloGold Ashanti 2019 Annual Results Call. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star then zero. Please note that this call is being recorded. I would now like to turn the conference over to Stewart Bailey. Please go ahead, sir.
Thanks, Claudia. Good afternoon, everyone. To those joining us from North America, good morning. To start, please let me call your attention to the fact that we will be making forward-looking statements during the course of the remarks. On slide two is our safe harbor statement. It's important. Please would you refer to it. We've got a busy presentation today. I'll be pinch-hitting for Graham, whose voice is on its last legs. He will be around to take Q&A, though. Without further ado, I'll hand over to Kelvin.
Thanks, Stewart, and thanks, everyone, for joining us. Our strategy is underpinned by our overall objective, which is to deliver quality production responsibly, with emphasis on widening margins, extending mine lives, and improving the portfolio. We've done well in delivering on each of these focus areas, but there's more to do. The ESG area has become a focus for investors, and I'm pleased to say this has been an area that receives a lot of attention at AngloGold Ashanti, and that will continue. For the seventh year running, the company has met guidance on its key operating metrics. We navigated a challenging year at some operations, but this was offset by exceptional performances at Geita, Kibali, South Africa, and Iduapriem. In fact, Kibali, South Africa, and Iduapriem registered record production numbers in 2019, while Geita's performance was its best in 14 years.
Production for the year was 3.28 million ounces, with an especially strong fourth quarter. All-in sustaining costs for the year was $992 an ounce, including project capital of $321 million, total capital expenditure came in below budget at $814 million. Cash generated by operations was strong, up 22% to just over $1.1 billion. Free cash flow before growth capital doubled year-on-year to $448 million. The board declared a final dividend of $0.11 per share for 2019, up 57% on 2018. We have a steadily improving safety record across all metrics, and that's a driving priority for us. We've lowered injury rates by almost 60% since 2012. In 2019, for the first time in our history, we passed a calendar year without a workplace fatality anywhere in the business. While these are important milestones, there will be no complacency.
Our goal remains to achieve zero harm. We also have a strong commitment to operating a sustainable business. We'll continue to find ways to deepen partnerships with our local communities and host governments to ensure the benefits of modern, responsible mining extend as far as possible. We remain focused on expanding margins. We've seen success in this regard in recent years, even with the gold price at significantly lower levels than we see today. We're remaining firm in our commitment to exercise disciplined capital and cost management. This will allow us to take advantage of the positive gold price environment, but we won't rely on it. As we flagged previously, converting our earnings into cash ahead of time has been a challenge.
We're actively working to improve on this by creating more efficient cash repatriation processes from certain of our jurisdictions and by reducing care and maintenance costs, particularly in Ghana and South Africa. Our recent restart at Iduapriem and agreed sale of the South African business will assist in that process. In 2019, we conducted three sales processes. We're looking to create a more focused business with enhanced operating and financial metrics. We've now announced two sale agreements, first, just before Christmas, with Sadiola, and earlier this month, our South African business. The agreed sale of our South African portfolio to Harmony followed a robust nine-month process.
You'll remember when we embarked on that process in May, we committed to selling to a responsible counterpart with the operating skills and financial capability to invest in and take the asset forward in a sustainable way. We believe that we've achieved that objective, and our engagement with a number of our most important shareholders in the past few weeks confirms that this view is widely shared. Stakeholders, by the way, as well as shareholders. During the year, we also reached an agreement with B2Gold to assume operatorship at our Gramalote JV in Colombia. In each of these cases, we've improved our focus on the remaining portfolio and evaluated adding options open to us. In Argentina, the sales process related to Cerro Vanguardia continues. We'll make a decision whether to accept a firm offer, which we expect to receive or to continue to own the asset by the end of this quarter. We'll continue to position the company to deliver long-term value through performance, effective capital management, proactive portfolio management, and an ongoing review of the corporate structure. Now I'll hand over to Christine to go through the financials.
Thanks, Kelvin. On slide 10. Following the announcements of our South African asset sale, our results have been separated between continuing and discontinued operations. For today, to ensure comparability to what we've previously reported and to reflect how the business was managed for the year, we'll talk to the group as a whole unless otherwise indicated. We had a strong second half. Production was 11% higher than the first half, with cash costs and all-in sustaining costs 4% and 1% lower respectively. The stronger gold price, weaker currencies, and better operating performance resulted in a 50% improvement in adjusted EBITDA.
We also saw a 105% increase in cash flow from operating activity. The most significant improvement came in free cash flow generation, which was $159 million during the second half compared to a $31 million outflow during the first half. This gain came despite continued investment in the Obuasi redevelopment project. The strong second half performance, alongside a higher average gold price, translated into a strong financial performance for the year, with EBITDA up 16% year-on-year to $1.7 billion and free cash flow up 90% year-on-year to $127 million. Production against the prior year was marginally lower by 2% on a like-for-like basis, excluding production from Moab Khotsong and Kopanang, which were sold in February 2018. Strong performances from [inaudible] Iduapriem and Tropicana largely compensated for planned lower production at CVSA, Sunrise Dam, Siguiri and Mponeng.
Free cash flow of $127 million for the full year was a 90% improvement year-on-year. All of our operating mines were cash positive. Higher gold prices offset lower production, higher capital expenditure, increased profit base taxes and the slower tax repatriation from the DRC. We received $75 million in dividends from Kibali for the year. In addition, our attributable share of cash balances in-country at $202 million at the end of the year. Our partner, Barrick, is in the advanced phase of obtaining final approval to transfer the funds. Capital expenditure at $814 million came in below the guidance. The capital expenditure related primarily to the Obuasi redevelopment project, where $168 million was spent over the last six months. We expect the project to achieve commercial production around the middle of the year.
Non-sustaining capital expenditure included project capital of $321 million related to Obuasi and residual spending at Siguiri, Tropicana, Mponeng and Kwebetane. Working capital outflows for the year included VAT lock-ups in Tanzania, export duties in Argentina, higher level of prepayments at Obuasi, and ore stockpiling and gold increase at Tropicana and Siguiri. At the end of the year, we had VAT of $115 million outstanding in Tanzania, reflecting an increase of $13 million on Q3 and $66 million of historical VAT relating to Geita. $89 million were spent on non-sustaining exploration, of which $65 million was spent on greenfield exploration in [inaudible] in Colombia. Moving on to cash costs. Our cash costs were largely steady, with total cash costs of $776 an ounce in 2030, $3 an ounce higher than in 2018.
Cash costs were favorably impacted by weaker currencies, which helped offset inflationary pressures in the emerging economies that we operate in, particularly in Argentina and South Africa. The main cost drivers being mining contracts, labor and consumables. These are predominantly indexed to inflation. Costs were further adversely impacted by lower production and lower by-product revenue at CVSA as planned. Operational efficiency improvements continue to be a key focus to mitigate operational cost pressures. All-in sustaining costs of $992 an ounce in 2019 were 2% higher than 2018. This excludes $6 an ounce from rehabilitation provisions in Brazil under the new legislation. Lower sustaining business capital of $16 an ounce was largely offset by IFRS 16 lease costs, higher rehabilitation provisions and other non-cash costs. We've implemented a zero cost collar on 70% of CVSA gold production from February to December 2020.
The instrument has a floor of $1,500 an ounce and a cap of around $1,700 an ounce. This will protect cash flows during the sales process and is consistent with the risk mitigation strategy adopted for the South African business last year. We will also be executing the zero cost collar hedge on about a third of our oil needs this year at a range of $45 a barrel to $65 a barrel. This hedging strategy is consistent with past years to partially mitigate the risk of an upwards movement in the oil price. One third of this mandate has been executed. On the balance sheet strategy, we continue to execute on our balance sheet strategy and enforce capital discipline. The group has continued to delever the balance sheet on the back of stronger cash flow, despite self-funding of Wasi and other growth initiatives.
It is pleasing to see a lower adjusted net debt to adjusted EBITDA ratio at ZAR 1.91, the lowest since 2011, and below our targeted ratio of one times through the cycle. Proceeds from the South African asset sale will be applied to further reduce debt. Liquidity remains strong. There is roughly $1.4 billion undrawn on the total available $1.6 billion U.S. dollar facilities and $463 million of cash on hand. We will cancel our undrawn $1.4 billion facility and keep the remaining ZAR 3.5 billion facility. Just to correct that, our undrawn facility that we will be canceling is a ZAR facility. We also plan to redeem the $700 million bonds maturing on April 15th. For this, we will use available cash and the $1.4 billion U.S. dollar facility.
The board has declared dividends of $0.11 per share in line with our policy to pay out 10% of free cash flow before growth capital. This is a 57% increase on 2018 in dollar terms and reflects our focus on disciplined capital allocation, prioritizing debt reduction, reinvestment in core value, and improving returns to shareholders. Our credit ratings are unchanged. We have an investment-grade rating from Moody's and Fitch, and sub-investment grade from S&P. All have a stable outlook, as Moody's has issued a credit positive report following the announcement of the South African asset sale. We're strongly levered both to the gold price and currency. We improved cash flow generation across the business, particularly given strong market conditions we've seen and the efficiency improvements our team are working on. On guidance, we see production this year at 3.05 million ounces to 3.3 million ounces for combined portfolio.
This includes operations related to South Africa for the full year. Guidance will be updated once the sale has concluded. We expect an improved performance from Siguiri and the production ramp-up at Obuasi to offset lower planned production from CVSA and Tropicana whilst reflecting no contribution from Sadiola and Morila. CVSA reflects lower grades in line with the plan, while Tropicana will fall below 300,000 ounces as Boston Shaker reaches commercial production in 2021. In line with our screen, production is expected to be second half weighted as Obuasi ramps up. Total cash costs are expected to be between $775-$825 an ounce, similar to last year. All-in sustaining costs is expected to increase on the back of increased sustaining capital, including Obuasi and additional investment in open pit development and underground drilling across our operations. This will improve operating flexibility and extend mine lives.
Brazil has also increased investment in expanding storage facilities as we transition to dry stacking. Other operating expenses impacting earnings is estimated at between $60 million to $70 million. This includes care and maintenance costs for the South African region, cost of wholesaling facilities in Brazil, fiscal claims, and the post-retirement medical aid liability cost in South Africa. Total capital expenditure is guided at $920 million to $990 million for 2020, which includes the remaining spend of the Obuasi growth project at around similar levels to 2019. About 60% of Obuasi's project capital of $495 million to $545 million has been spent to date.
The balance of the growth capital relates to feasibility studies for projects at Quebradona, Gbalahati, and Tropicana Boston Shaker, as well as Siguiri Block 2 mine. Sustaining capital expenditure of $650 million to $680 million amounts to approximately 70% of the total capital guidance for 2020 and is estimated at approximately $205 a ounce. We are well positioned to see further reductions in debt as we anticipate cash repatriation from the DRC, proceeds from the South African asset sale, and improved cash flow along with our strong leverage to gold prices. I will now hand over to Sicelo, who will talk about the Africa operations.
Thank you, Christine. I am on slide number 15. I am pleased to report on the safety front that the all-injury frequency rate across our Africa operation improved by 41% to 2.83 million hours worked. The Continental Africa region, which excludes South African operations, had a strong 2019 with increased gold production and reduced costs. The region produced 1.54 million ounces at a total cost of $759 an ounce for the year. This was an improvement on the 1.5 million ounces at $773 an ounce in 2018. All-in sustaining cost of $896 an ounce was better by $9 an ounce when compared to the previous year. To put this into context, this is 6% cost reduction from our Continental Africa operations over the past three years, starting at $953 an ounce. This was despite both geological inflation and other cost inflation.
We have been driving continued progress year-on-year as we use our OE program to achieve sustainable efficiency. Looking in more detail and starting with Geita and Kibali, our two marquee assets. Geita had a stellar year, producing a record of 208 kilo ounces in the fourth quarter. This was also the highest annual production for the last 14 years at 604 kilo ounces. Total cash costs came in at a world-class level of $695 an ounce, and this was a 14% improvement on 2018. What makes this even more impressive is that these levels were achieved as the operation continued to transition underground. Last year, underground operations contributed 44% of production at a recovered grade of 5.3 grams per tonne. The all-in sustaining cost at Geita also fell 5% to $894 an ounce. At Kibali, the site had another record year.
Attributable gold produced was at 366 kilo ounces at an all-in sustaining cost of $704 an ounce. At Iduapriem, production improved once again to a record of 275 kilo ounces at an all-in sustaining cost of $890 an ounce, was the lowest cost in the decade. This was achieved despite the SAG mill 21-day maintenance shut in Q4, as flagged at our Q3 update. Again, this showed our operational excellence strategy bearing fruit. At Siguiri, attributable production was at 213 kilo ounces. This was lower compared to 242 of 2018. This was due to commissioning challenges with the new hard rock package as flagged to the market. It was pleasing, however, to note that in Q4, production moved in the right direction, up 14% quarter-on-quarter. In 2020, we started the year tracking production to plan.
We have an excellent team on site working hard to keep the plant recovery on trend. Moving on to South African operations. The implementation of Mponeng Mine's 11-hour shift arrangement last year was a strategic intervention in support of our safe production strategy. We continue to believe that a safe workplace is a more productive workplace. The outcome of this implementation has seen Mponeng Mine achieve the first ever fatal-free year in its history, 2 million fatal-free shifts, and 11% improvement in productivity matrix. Looking ahead on slide 16. We expect another strong year for Continental Africa with the following priorities. Geita will continue its underground drilling program, which has shown success at both Nyankanga and Star and Comet.
At Nyankanga underground, in the past three years, we have started with block 5 and have continued to expand the underground mining profile with additions of block three and four, and now block one and two. Drilling to date shows that there is significant down-pillar opportunity. On slide number 17. Star and Comet is another good example. Once we enter an underground project, we continue to expand in terms of its development and drilling. All the four bodies we have developed today indicate that they are implemented. In 2019, Geita delivered 800,000 ounces of ore reserve net of depletion, primarily from Star and Comet and Nyankanga underground operations, thereby extending life of mine. We are looking to build on this success and have earmarked additional capital to ensure that this happens.
As we look to further unlock our endowment potential within the lease area at Geita, we are testing promising open pit targets at the Roberts area and have filed for a permit application for a new underground site at Geita Hub. In 2019, Iduapriem brought Block five into inventory, which added 500,000 oz of ore reserve, net of depletion, thereby also extending its life of mine. Our priority this year will be getting Cut six into reserve by lowering mining costs and targeting other brownfields opportunities. At Siguiri, we are testing potential for more fresh rock targets to supplement and extend current life of mine. Block two will reach a stage gate this year to be declared into reserve. In conclusion, we remain focused on improving margins, managing our risk profile, and instilling a culture of learning and improvement across our sites. Thank you, over to you, Ludwig
Thanks, Sicelo. We've spoken during the year about our challenges in much of 2019. We are [inaudible] . In a nutshell, we lack flexibility and we're now in the middle of a program to address that. Tropicana was a standout last year, delivering a record production of 260,000 ounces during the year. This was helped by higher gold throughput, which set a record in December. The site ended the year with its best ever safety performance by passing 14 months without a lost time injury. Going into 2020, we are banking a stockpile strategy, which will result in lower production profile in the next 12 months and then building it back to the 2019 levels over the next three years. Production at Sunrise Dam was impacted by lower underground volumes and grades. Larger studs came online in Q4, and that has improved flexibility.
We've launched an extensive exploration program to grow reserves and support development due to deeper mining areas, in the medium and long term. Our [inaudible] operations had a challenging year, starting with the permanent interlude results in Q1, which resulted in increased operating complexity. With the use of creative thinking from the ground, the impact was limited to brief stoppages immediately post the event. I'm happy to say we received external stability decorations for all seven of our DLC systems this year. We're also making good progress in our continuous drive savings. At Serra Grande we experienced difficult ground conditions during the year. We responded to the challenge by slowing the mining rate. Leading internal and external rock engineering experts were engaged to provide advice. Subsequently, mass surface support has been used to rehabilitate access ways, while new controls and mine sequencing has also been introduced.
Early indications show these measurements are working well, but we will monitor conditions closely as we move into the deeper, higher grade areas. Cerro Vanguardia has delivered a solid performance. We are excited to start the mining in the new Formerida ore body later this year after fast-tracking its development in 2019. This ore body will extend life of mine, improve flexibility, and depending on exploration results, give us the opportunity to scale this mine up. At Cerro Vanguardia, production was in line with the schedule with lower planned grades. Unit cost growth, mainly due to the lower gold sold production as well as inflation, which remained very high in Argentina. This was partially offset by a weak peso. The exploration team is currently working on drilling programs to replace mine depletion and extend life. Looking ahead, we will continue to drive the operational excellence programs.
As we've said, our emphasis is on increasing our ore reserve development and reserve conversion, on our existing sites over the next two to three years. We plan to increase our greenfield drilling by 30% this year from seven to 40 km across the international operations. This will give us better resource confidence, improved productivity, and over the next two years, increased reserve and life of mine. On projects, we are progressing well with the feasibility study at Providenca, which is expected in early 2021, and we're expecting the FS for Carballosa at around the same time. The international operations team has its work cut out this year. The good news is that we're seeing steady improvements in the portfolio. With that, I'll hand over to Stewart, who will talk through Obuasi.
Thanks, Ludwig. I'm pleased to report on excellent progress that we've made on the Obuasi redevelopment project. Firstly, on slide 23, to recap on the project dimensions. Obuasi has a large resource of around 30 million ounces. I'll highlight a little later the reserve that increased to around seven million ounces at almost 10 grams a ton. Gold production in the first 10 years is in the range of 350,000-400,000 oz per annum. Margins are also strong. Life of mine, all-in sustaining costs averaging around $800 an ounce in money terms. When you put it all together, you get an after-tax IRR of 23% and payback in around six years using conservative assumptions. At spot, the after-tax IRR is close to 40% with about a 4.5-year payback. On the 18th of December, the redeveloped Obuasi completed its first gold pour.
This was a significant milestone for the company, our supportive stakeholders, and indeed for the country of Ghana. On the 29th of January, we celebrated the restart with the President of Ghana, the Ashanti king, and over 3,500 traditional and elected leaders, employees, contractors, and the Obuasi community. Moving to slide 25. At the end of 2019, we saw the completion of phase one of the project, which had the objective of establishing a production capacity of 2,000 tons per day. Phase one was mostly about demolition, refurbishment, and operational readiness. It was completed with a very good safety record. Commissioning was completed in December. We're now ramping up. Growth of bacteria progressed to commercial scale leading to first gold, though we are still building significant gold inventory in the BIOX-CIL circuit.
I'm pleased to say that even at this early stage, plant performance is in range of design, though run times in a refurbished plant are presenting the sort of challenges that we expected. In 2020, we are targeting production of around 150,000 oz. On to slide 26. Following a focused effort on resource modeling, re-logging, and data validation, reserves increased to 7.12 million ounces from 5.86 million ounces using the same $1,100 an ounce gold price. Mineral resources reduced slightly to 31 million ounces after cleaning up some non-minable areas based on the new ore reserve. The geological program is well underway with four drills now operating. All of 2020 and most of 2021 is now grade control drills providing good resource confidence. As shown in this section on slide 27, from the current mining area at Sansu, the grade control drilling is confirming and expanding the resource.
With phase I completed, we're now focused on phase II. The objective of phase II is to establish an operating capacity of 4,000 tons a day by the end of this year. phase II is about new plant build, new tailings and water facilities, a new GPBS vent shaft, a paste filter plant, and refurbishment of the KRF hoisting shaft. Mining will progress to block 8 lower, establishing a second mining front. Stakeholder relationships, Ghanaian participation, and mine reclamation are equally important elements of this project. In our social management plan, we've completed and facilitated a number of developments, including the expansion of the Obuasi school and establishment of the Obuasi campus for the Kwame Nkrumah University of Science and Technology. There are now approximately 4,000 people employed on the project, 96% of whom are Ghanaian, and most of whom are from Obuasi and the Adansi area.
Notably, 80% of the spend to date has been spent in Ghana. The reclamation security agreement with the EPA was one of the key agreements enabling us to proceed with the project. We're ahead of plan in regards to our reclamation obligations, and we've completed the earthwork in the northern area of the lease. This work has been done in consultation with the community through the Community Consultative Committee. With that, I'll hand over to Tim to walk us through the exploration.
Thank you, Stewart. On slide 31, our generative and mine site exploration programs were active across the portfolio, delivering acquisitions of $34 per ounce. Our mine site exploration programs drilled over 860,000 meters in 2019, which is 30% more than in 2018, more than double the levels that we were achieving four or five years ago. Our program this year was designed to unlock ore reserve additions linked to better development, advanced rates in our underground operations. In 2019, we saw ore reserve gains above depletion at Obuasi, Geita, Kibali, [inaudible] , Agia, Brazil Minas South, and Terra Grande. This is a combination that we believe will continue to produce stable year-on-year replacement and growth, support our planning process, and allow for better operational flexibility.
In 2020, we expect continued positive ore reserve results in general from Africa and Brazil and from Sunrise Dam, where the drilling ramp-ups will enable us to grow reserves. On slide 32, we have core exploration hubs in Australia and North America, with drilling programs completed in both areas during the year. In Australia, exploration progressed in the Laverton area around Sunrise Dam, with two new projects advancing in 2019 at Bismarck and Creighton. In Nevada, an exploration plan of operations for the Silicon project was submitted to the Bureau of Land Management and is advancing through the permitting process. At Rhyolite, also in Nevada, drill target definition was completed in 2019, and I'm pleased to say that drilling started earlier this week as scheduled.
Target generation activities were ongoing in South America and West Africa. We expect this work to provide new projects for our portfolio. On slide 33, we had a strong year in brownfield exploration. For 2019, the ore reserves at the assets outside of the South Africa group is a third straight year, adding an impressive 1.1 million ounces of net addition. This was achieved at a consistent and conservative $1,100 per ounce gold price. This is a great result as we step up reinvestment into our ore bodies. We continue to see strong geological potential across our operating group portfolio with a robust pipeline of targets in each site. On slide 34, we have an excellent record of discoveries with 53 million ounces added to ore reserves between 2004 and 2019 from our portfolio outside of South Africa.
This averages roughly 3.5 million ounces a year at a cost of $33 per ounce. We have, at some sites, more than doubled the reserve base, which underpins the life of mine plan. The $30 per ounce investment in ORD and drilling was built up on our integrated mine planning process linked with first principle-based drill plans, coupled with historical resource to reserve conversion rates that we have maintained over the past 15 years. Keep in mind that ore reserves are not necessarily unlocked by drilling on an annual basis and will sometimes be realized in the medium term in an 18-24 month increments, depending on the target. Our success and strong understanding of our ore bodies more than justifies our investment in ore reserve development and reserve conversion. I'll hand back now to Kelvin to conclude.
Thanks, Tim. We're committed to cost control and keeping a tight rein on our share capital to ensure strong leverage to the gold price. The fundamentals of the business remain solid, and we're generating strong cash flow. That said, we recognize that we can do even better. Repatriation of cash, VAT lockups, and care and maintenance costs are challenges we're working to address. As we do, our cash flow will continue to improve. To put this into perspective, when you add back cash from the DRC and unwind the VAT lockup, free cash flow before growth capital would have increased nearly fourfold to $832 million. To wrap up, we're excited about the year ahead. Our ongoing focus on ESG is paying dividends, including our steadily improving safety record. We've made good progress streamlining the portfolio.
We're generating strong cash flow with the promise of more to come, especially given the higher gold price. Our dividend increased year on year, and at current gold prices, we see it increasing again this year. Leverage is below our target level and is expected to improve further given the strong fundamentals in place. Obuasi is an important addition to our portfolio, and it's ramping up production on plan, as you heard. We expect positive results from increased reserve development and reserve conversion, and we'll remain disciplined in managing costs and capital to ensure investors see the operating leverage they expect. With that, thank you very much, and let's open it up for questions.
Thank you. If you would like to ask a question, please press star then one on your touchtone phone or on the keypad on your screen. If you decide to withdraw the question, please press star then two to remove yourself from the list. Again, ladies and gentlemen, if you would like to ask a question, please press star then one. We will pause to see if there are any questions. We have a question from James Bell from RBC Capital Markets. Please go ahead.
Yep. Good afternoon. Thanks for the call and taking my question. The first one is really around the spend on ore reserve conversion and development. Should we expect that to lead to increases in reserves at full year 2020, or is this going to be longer dated in terms of improvements? Secondly, would that feed into some more clarity on your production profile over the next, say, two to three years? Could we get a disclosure or a future plan on that by the end of this year? Thanks.
Hi, James. Kelvin. I'll start then turn to Tim. Regarding the expenditures this year on ORD and reserve conversion, yes. By the way, we're tracking that like an investment as we do with all of our other investments, so we'll be giving updates as we go along. We do expect to see the increase in 2020 and as we move into 2021. Tim, why don't you give a little more color on that?
Thanks, Kelvin. If you look at the past three years, we've added ore reserve above depletion, and we expect that to continue with this additional investment going into 2020.
As well, James, sorry, we didn't touch on the second part of your question, long-range planning. Yes, that's a key aspect of this, in fact. We want to be in a position where we've got better predictability, reliability, so you will see that in our long-range plans. As we've discussed before, I want to be in a position where we move beyond guiding in year, and this will put us in a position to be able to do that. Of course, first one year out, then beyond that, two and three. Beyond three at this point, I'd like to pause and we'll see where we go directionally. I'd love to be able to give guidance out to five years. We'll walk before we run, and I think it's important that we get to a position where we can confidently guide on at least three years, and that's the objective.
Okay, that's great. Just one more on the cost side. Your unit costs are going up year-over-year on a cash cost basis more than some of your peers. Can you give us some color on what your inflation assumptions are and maybe talk about anything you can do to offset those increases through operational efficiencies or other measures?
Sure. Christine, touch on inflation and then Ludwig and Sicelo, you may want to talk about what we're doing from an OE perspective as well. Do you want to start with how we're managing inflation from a general perspective?
Yeah. I think specifically, the cost inflation assumptions that we've assumed is 6%, which is what we are experiencing, and this is across the economies that we operate in. I think in particular, in some of the emerging economies, like Argentina and South Africa, even though treated as a different country operation, we are seeing quite high inflation levels. In terms of how we're managing it, I think we certainly, if you look at our three big cost buckets, I think in particular, it's labor, it's consumables, and then it's mining contracts.
As regards managing it, labor, I think we're certainly managing it within that inflation level. As we do mining contracts, these are typically three to five year mining contracts related to index to inflation, but we certainly try and manage that even below inflation. I think similarly as it would apply to consumables, it's about really leveraging our global supply chain to achieve more efficiency.
Thanks, Christine. I don't know, Ludwig and Sicelo, do you have anything to add?
I think Christine answered the question. Maybe just an additional comment on that. Part of the operational flexibility and the investment into the joint will give us the certainty around the production will also help with the unit cost. On top of that, we've got operational excellence programs that we monitor on a monthly basis. Actually, with clear targets that we try to offset at least the inflation as we go forward.
Good. Thanks, Ludwig. Graham, how's that?
In terms of portfolio, you see [inaudible] , Obuasi coming in in 2021, coming in around 350 and around that $800 an ounce level. That will start to improve and help our cost compete.
Great. Thank you. James, is that good?
Okay. We have a question from Shilan Modi from UBS. Please go ahead.
Afternoon, guys. Just a couple of questions from my side. Can you talk us through the change in guidance versus your current production base? Why does it effectively step down? Just give us more color on that. In terms of your balance sheet, it's relatively strong. You're just below 1 times net debt to EBITDA. Could you talk us through your outlook for dividends? Talk us through the rank of where your CapEx will be or where your cash will be spent. Projects, stay in business type of capital, deleveraging dividends, just rank those for us and give us an idea of how to think about that. Thanks.
Sure. Thanks, Shilan. I'll start, and then others can weigh in. As far as guidance goes, from a production perspective year-on-year, the delta transition year, the delta would be first, as you know, we sold ounces in Sadiola. Likewise, Morila will cease some operations. As Ludwig explained, we're seeing a lower production from CVSA and Tropicana, which is in line with their respective production plans. Importantly, as Graham just touched on, Obuasi ramping up. We're budgeting in 2020, about 150,000 oz, Obuasi, and then ramping that up to the 350,000, 400,000 level as we move to 2021 and beyond. That's generally where we are in terms of production. The cost delta for the year.
Our all-in sustaining costs, we average over the last while, it's usually in the range of $160, $170 up to $200 an ounce. This year, if you take the all-in sustaining cost production and you back out the $30 an ounce for the additional reserve conversion, that puts us around $180, which is reasonably consistent. As Graham touched on as well in 2020, we do see the higher all-in sustaining costs as we ramp up Obuasi. I believe it's around $1,200 we're budgeting for this year. Tropicana, as we're moving stream stockpiles. I think those touch on the key buckets. The question regarding the balance sheet. You're right. We're pleased. We started last year with a 1.5 x target. We moved it down to 1 time during the course of the year, and we ended the year below that, which we're happy with.
We're going to continue to chip away on it. In terms of priorities for the year, for cash, I would say, again, we'll nip away at the balance sheet, although we're in good shape. We have lots of liquidity, and it doesn't have the kind of urgency that it had a few years ago. We think it's prudent to continue to work down the debt. At the same time, we are reinvesting nicely in the business this year. When you think about bringing Obuasi, about $220 million on Obuasi to bring it to full production. Between Gramalote and Quebradona, it's around $45 million to bring both those projects to feasibility. Ludwig said Boston Shaker, about $30 million. That project, very high return. We're going to be investing back into the business on top of the $30 million additional on ORD and reserve conversion.
On dividends, look, we're pleased. Our policy is 10% free cash flow before growth. If gold prices stay supportive and we continue to run the business well and execute, we do anticipate increased free cash flow generation, in which case the dividend will rise commensurately with that. From a dividend policy perspective, that's the board decision, but it gets discussed regularly at the board. There is a view that we will likely be in a position to steadily increase yield as we go forward with time, but we don't want to lurch. We want to do that steadily and progressively. That will be the plan. The return to shareholders is obviously important to us. I think I touched on both questions, Shilan.
Okay
Anything else, let me know.
One more, if I may. Given the corporate restructuring that you guys are doing, selling certain assets and changing the structure of the business, should we be thinking about special dividends at some stage, or is that off the cards for the next year or two?
I guess nothing is off the table, but we are focused on the other areas as we discussed. I wouldn't necessarily see a special dividend at this point. That's a board decision, and so we discuss dividends from time to time. At this point, though, we really are focused on the priorities that I've outlined.
Okay, cool. Thanks very much.
Thank you.
We have a question from Dominic O'Kane from JPMorgan. Please go ahead.
Hi, guys. Thank you for the presentation. Just a quick question. Could you maybe define for us what your strategy now is? Specifically, what is your capital allocation framework? What are your hurdle rates? If I look at your gold price for calculating your reserves, you're using $1,100 an ounce. Is that a price that we should sort of bake into our assumptions for the long term, i.e., how we think about cutoff grades and cost management? I suppose my question is, can you help us just understand what the strategy is given the fairly substantial portfolio transformation in 2019?
Yeah. Thanks, Dominic. Look, I think the most important thing is our strategies unchanged. We're obviously happy with gold price, but we're going to continue to focus on pre-mining the business as we have been and conclude the asset sales. That's priority one. We're going to keep driving Obuasi and bring in those kind of new lower cost, long life ounces as we go through this year and into 2021, as well as progress the projects that we have in front of us in Gramalote and Quebradona. We will maintain the focus on our leverage one time and lower, and we'd love to continue to chip away on the debt.
As far as the reserve price at $1,100 an ounce is conservative, I'm guessing we're probably, if not the lowest, we should be among the lowest in the peer group, and we're going to maintain that reserve price. We want to maintain the cost discipline that comes with that. We're not moving off the $1,200 15% after-tax IRR. That stays in place. We're going to manage our cost discipline as well as manage our overhead tightly, too. Those are the keys. The other really important thing that we don't talk about a lot, but if you look out over the last decade, I think we're the only company in the peer group that hasn't issued equity, and that obviously is something that's important to us. We're going to maintain the share count.
I'm asked the question often, will we look at doing M&A, and the answer is no. Our plates are full. We don't need to. I'm really happy with the pipeline that exists. We're going to move it forward, of course. That's really the objective. The portfolio is changing. As we sell the South African business, that's the last kind of ultra deep hard rock underground mine. We shift more towards shallower underground and open pit production. That's an important transformation. Otherwise, we just going to stay really focused, and this year is all about executing.
Just to push you on that a little bit, can you help us sort of gravitate towards a hurdle rate? Obviously, the capital expenditure is not insignificant, and there are obviously, there's a good project pipeline.
Yeah.
Can you help us sort of pin some capital allocation numbers to a hurdle rate?
Yeah, 100%. Look, all of the projects, and by the way, the reinvestment in the business and reserve as well, our hurdle rate hasn't changed. It's a 15% after-tax return at a $1,200 gold price. All the projects that we're pursuing right now do at least that. Some of them much more, as you heard, Boston Shaker, Obuasi, et cetera. That's a minimum. By the way, that minimum doesn't mean that just because you pass a 15% hurdle rate, then it's automatically a green light. The project is going to compete. We're going to invest in those that give the best return, but that is the minimum.
Thanks very much.
You're welcome.
We have a question from Adrian Hammond from Standard Bank. Please go ahead.
Hi, Kelvin. I have a question for you, and I have some for Christine. Just to look back to your goals that you originally had for AngloGold regarding the portfolio and the assets that you wanted to relinquish in certain jurisdictions, are you now satisfied with what you've achieved so far, which pretty much is complete bar Serra Grande, which you point out? Is there some more adjustments you would like to do for the business?
Hi, Adrian. Listen, thank you. No, look, we announced those three processes. We're pleased with how they've come along. We'll decide on Serra Grande , and it's a nice position to be in. We take a good price or we keep the asset and it's generating good cash and it will. The answer is, I'm happy with how we've streamlined the business. I don't see any more transactions at this point. We're de-risking nicely. From that perspective, I'm pleased with progress.
Thanks. Christine, could you give us some indication on your expectations for closing the deal on SA, and what do you intend doing with the cash? On your guidance for interest charges was flat year-on-year, could you explain that, given that you plan on de-gearing? Could you give us a guidance on the actual cash flow portion of that interest bill, please?
Okay. I think with the asset, the SA asset sales process, the agreement has been concluded and subject to conditions, as we know. It really depends on when those conditions are met, and primarily it's the competition approval, and the Section 11 from the DMR. Our target date for closing the deal is the 30th of June. Charlie will keep you updated on that. As regards proceeds, we announced that we will apply the proceeds to further debt reductions. On the interest charges, which was your other question, why it's been flat year-on-year. Are you talking about in terms of the guidance?
Yeah.
I think a large part of our interest bill is related to the hardened debt. What we are planning on doing is with the bond redeeming in April, we do expect to see some interest reduction, although small. It's the differential between the cost of the RCF and what we pay on the bond, which is about a 1% differential. Of course, we are looking at canceling the commitment fee relating to the ZAR 1.4 billion facility. In addition to that, I think what you've got to bear in mind here is there's some unwinding of environmental obligations and the whole IFRS 16 leases that do impact finance costs. That, by and large, results in the flat for the second year-over-year comparison. It's not just pure interest costs.
What is the cash component of the interest?
It's $120-$130. That is the cash component of the interest. We've provided on that.
Lastly, if I may, just the mechanism that you're trying to iron out with the DRC regarding the remittance of those funds, is this something that's going to be concrete going forward? Perhaps you can give us some color as to how will that mechanism work and in so doing, how we should be modeling the profits on your cash flow one line item, please.
Adrian, starting point is, as you know, Barrick is the JV partner managing the operation. We're respectful of that. We've been having, as you can imagine, regular discussions, twice daily discussions as of recently. The positive news is that Barrick's meetings have been constructive, right at the highest level with the DRC government. They've received confirmation that the cash can be used to pay dividends and repay the shareholder loans to the JV. As of very recently, yesterday in fact, the sense we received from Barrick is that they're kind of dotting the I's and crossing the T's.
What we expect is of the $202 million tied up right now in our account, that will come out probably in pretty big chunks. Importantly, what they've been working on is a mechanism going forward, so we can do this with regularity and we're not having the same kind of buildup. I think that was the first part of your question, and from our perspective, it's taking a little more time, but we'd rather be in a position where we can have a steady release as opposed to these big buildups and coming out in chunks.
Does that steady release relate to future profits or were you expecting a big chunk right now from that $202 million?
Yeah, we're expecting a good chunk right now out of the 202.
Thanks.
You're welcome. Thanks, Adrian.
The next question is from Arnold van Graan from Nedbank. Please go ahead.
Yes, good afternoon. Kelvin, I've got a question on the possibility of moving your rating. There's obviously been a lot of talk about that it could drive a re-rating. My question is, have you done a detailed study on whether a change in your primary listing would actually lead to a re-rating for a gold stock? Do you have empirical evidence to show that this is indeed the fact and that it's worth the cost? If so, what do you think actually drives that re-rating? Is it the inclusion in global tracker funds and global indexes, or is it just opening up the investment to a wider pool of potential institutional clients that are not able to invest in the JSE or through the ADR? Thank you.
Well, thank you. Good question. We get asked it a lot, as you can imagine. I think the starting point is we don't want to be distracted. We're focused on concluding the transaction and all the other things we described that are on our plate. It would take us through the middle of the year to close on the South African asset sale. We've also been clear that anything that unlocks value, we're open to and is on the table.
Of course, some of the speculation with regarding a change in primary listing comes to indexation and other things that, of course, if that were available, we'd certainly consider. At this point, we're not really doing anything further than that. We'll just kind of walk our way through the process and make sure we conclude that well. Other things in terms of the corporate structure, whatever we can do that is sensible, then we'll look at then.
Okay, thank you.
You're welcome.
The next question is from Patrick Mann from Bank of America Securities. Please go ahead.
Hi, good afternoon. I wanted to ask about how your projects coming up rank. You've got Quebradona and Gramalote, which the feasibility studies coming up, both of them in the second half of this year. If those are positive and those projects look likely to progress to construction, is it possible for you to do both of them at the same time? How would you think around funding those? It looks like it's quite a chunky project pipeline coming up at the same time. Yeah.
Yeah. Look, Patrick, that's a good question. I consider it a Hollywood problem to have two good projects moving through the pipeline at the same time with feasibility studies approaching. Look, the good news and part of the reason that we elected to allow our partner, B2Gold and Gramalote, to earn back to 50% is, as you know, they're funding the drilling program that's underway and the feasibility work flowing from it. B2Gold, I think they're a great company. I think they develop projects well, they operate well. In some ways, they approach projects the exact same way as I want us to.
From our perspective, the fact that they're moving it forward and allocating 100% of their time and attention to it, lets us allocate 100% of our time and attention to Quebradona, which is also moving along very nicely, and we're enthusiastic about it. I think the best thing for us to do is increase value in both projects, and then as we come to the end of the year and we evaluate the feasibility studies, we'll assess it against market conditions, where we sit then. We've got options available to us. We can proceed on our own. We can bring in partners. There's lots of things we could do if we choose to from a funding mechanism. From that perspective, we'll wait and see.
Again, the bottom line is we're not going to do anything unless it passes our hurdle rates and more, and we'll evaluate the opportunities then relative to everything else in the mix. I consider it a good thing, like I said, to have two good projects like that moving down the pipeline. It's one of the reasons we're not considering doing M&A and looking at other projects. We don't need to.
Great. Thank you.
You're welcome.
Our final question is from Guilherme Lima from JP Morgan. Please go ahead.
Thank you. Thank you very much for the call. Having divested about 13 million ounces in reserves from South Africa, can you give us an indication on roughly how long it would take to replace those reserves? Second question is, production from continuing operations is roughly 2.6 to 2.8, coming off from around 3.3 million. How long might it take for us to get back to a production of about three million ounces? Thank you.
Well, let me try both those questions, and anyone else can weigh in. I'll work backwards. In terms of the production profile, you see our guidance for this year, which is 3.050 to 3.3 million ounces. That's for the combined portfolio. As we divested the South African business and bring in Obuasi, those two, the production levels kind of balance each other. We're trading kind of a different kind of mine for the Obuasi, kind of longer life, lower cost ounces. That kind of keeps us around the same level.
The portfolio feels like on a sustainable basis, that 3 million mark feels about right. Importantly, it's not just about ounces. If we produce a little less than 3 million, but are producing a much greater margin, we're okay with that. At this point, it does feel like a kind of a sustainable and reasonable production level. As far as the reserve replacement, the first question, I've lost I'm sorry, could you repeat the first question?
How long would it take to replace 10 million ounces?
Well, first of all, as Tim indicated, and probably others, this year is about focusing on inward investment into reserve development around the existing assets. We don't have a target of replacing 10 million ounces. It turns out that this year we added four and a half million ounces before depletion, and we've had a very good track record of resource to reserve conversion and reserve additions over the last number of years that Tim touched on. During the process, I forgot to mention there are a number of the key sites this year added more than half a million ounces alone. Obuasi added 1.3, Geita, 800,000 oz, Kibali, 800,000, Brazil, 500,000, Iduapriem, 500,000 oz. It just shows you the potential. As far as picking an actual number for a target, that's not really what we're about.
Okay. Thank you.
Thanks very much. I think that was the last question, and if so, that will conclude the call. I just want to thank everybody for joining us. We've got a busy day, and I know it's morning in North America, afternoon here. We're really excited about 2020. We've got lots in front of us to do, and it's all about execution. We look forward to updating you with our Q1 results. In the interim, thank you again for joining us today.
Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.