Good afternoon, ladies and gentlemen. Welcome to AngloGold Ashanti's Q3 Production Update. All participants will be in listen only mode. There will be an opportunity to ask questions later during the conference. Please note that this call is being recorded.
I would now like to turn the conference over to Stuart Bailey. Please go ahead, sir.
Thanks, Danae, and welcome, everybody, to our Q3 market update. Before we go any further, I would like to direct you to the 2nd slide in the presentation, which provides important information on forward looking statements and information that may appear in the presentation. Important, I urge you to look at it. Today's presentation on our Q3 numbers, and Kelvin will be providing an introduction. Cielo and Tulli, our CIO for Continental Africa will follow.
Ludwig Abe is next with our international portfolio and exploration results, Graham M. Will give an update on Obuasi, Christine will talk through the financials and Kelvin will provide some concluding remarks.
Kelvin, over to you. Thank you, Stuart, and thanks to everybody for joining us on our call today. I'd like to start as we usually do with our strategic focus. Our objective is to deliver better quality production aimed at widening margins, extending mine lives and improving the portfolio. 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 and bringing a royalty into production.
And importantly, we'll work to maintain and strengthen our license stock rate through effective ESG practices. On the safety front, we're making solid progress. The Q3 has been another encouraging period. The group achieved an all injury frequency rate for the quarter of 3.23 injuries per 1,000,000 hours worth, which is near historical lows. We've operated more than a year without a fatality.
And by the end of the quarter, we achieved 5 41 consecutive fatality free days to the new company record. Now I know this should be the expectation and it is, but nonetheless, it shows continued progress from where the business was. And while these are important milestones, there will be no complacency, and our focus remains on achieving our goal of 0 Harm. As we discussed with our Q2 results in August, production for the year was back end weighted. For the 1st 9 months of the year, we produced 2,280,000 ounces of gold, which puts us at 71% achieved relative to the midpoint of our full year guidance range.
Production of 825,000 ounces was 2% higher quarter on quarter due to strong performances from Idioprine, Gaeta and AGO Mineracao. We anticipate a solid uplift in production in Q4. All in sustaining costs rose 12% year on year to $10.31 an ounce, reflecting higher sustaining capital and the lower production levels along with some inflationary pressures when compared to the same period last year. Our operating teams are pulling the necessary levers to drive cost improvement. Farrell, Ludwig and Christine will cover our operating and financial performance in more detail a little later.
We're strongly focused on expanding margins. And this has been achieved even with the growth price at significantly lower levels than we see today. For the Q3, the higher price gave us a healthy tailwind. We remain firm in our commitment to disciplined capital allocation and cost management. This will ensure we take advantage of the positive growth price environment, but we won't rely on it.
As we flagged previously, converting our earnings into cash has been a challenge. We are actively working to improve this by more efficient cash repatriation in certain of our jurisdictions and by reducing care and maintenance costs in Ghana and South Africa, particularly. I'll now hand over to Sotelo to discuss the operational performance of the African business.
Thank you, Kelvin. Let us take a high level look at the Africa operations. In Continental Africa, the region produced 387 kilo ounces at an all in sustaining cost of $900 an ounce compared to 3 91 kilo ounces at an all in sustaining cost of $834 an ounce in the Q3 of 2018. We saw a significant increase in Lidropinsk production and good performance from Geita. There was lower contribution year on year from Siguiri and I'll come back to what we are doing to turn this around.
At Geita, the development of the underground mine is progressing well, and we continue to see great benefits coming through. At Kibali, another solid quarter despite coming off a very high base last year. The Kibali operational team is shifting its focus from open pit mining to predominantly sourcing ore from underground. The Wapim's strong operational performance was underpinned by an increase in grade and tonnage treated. The grade benefit is due to the continuous investment in cutback of the Segaribe pit, whilst the improved throughput rate is due to various operational excellence initiatives.
We are expecting a strong finish through the year after a plant shutdown at the beginning of November this year. At Ciburi, production was lower due to commissioning challenges at the combination plant, which is led with our Q2 results. These were compounded by heavy rainfall and resulted in crusher plant blockages caused by fines, which impacted on grains. However, there are no technical flaws to the project, but that requires some minor one off fixes in sketch crusher capacity and fine screening. Suffice to say, we were somewhat optimistic about the timing to get to certain stage.
That said, we are focused on recovery plans that are materializing that will see higher hard rock volumes and lower costs into the New Year. We have a capable and experienced team on the ground focused on stabilizing the deal. In South Africa, costs rose on the back of lower production and inflationary pressure, particularly offset by weaker exchange rates. As importantly, an increase in seismicity impacted our availability of the planned higher grade stores above 109. This has improved.
And in the beginning of Q4, we are now seeing grades ticking higher, particularly abovebelow 109 level on the new project area. In fact, we have significant improvements on the safety part of the bombing and some efficiency improvements, all as a result of the improved waste quality on the base. This is mainly due to improved base time, which has been the key objective of the new shift arrangement for Alstom. With that, I'll hand over to Luc Berc for International Operations. Thank you.
Thanks, Cielo. In the Americas, the increase in cost was due to lower production and byproduct revenue as well as higher sustaining CapEx. At 80 A, Munozirao, production was 6% higher year on year at 92,000 ounces, mainly due to increased tonnages and grades. We saw poor ground conditions at Kiuba in the deeper areas of the mine. Taking no chances on safety, we took a decision to slow down the rate of mining until the necessary work is done to improve ground conditions.
As we've done in the prior years, when faced with 2 technical challenges, we put in place an enhanced sports regime. We communicated with our quarter 2 results that several draft calls related to TSS were under consideration in Brazil. We have been proactive in reviewing our tailings deposition methodology following RIMODINA. All 7 of our TSS in Brazil have received external stability declarations ahead of the legislated September 30 deadline, and we continue to accelerate the transition to dry stake tailings. The 1st filtration plant at Cuba has been commissioned, and we are building mobile filtration plant at CDS.
We're also pleased to report that we received all our tailings dams permits that could have had an impact on the 2020 production. We are optimistic that we received the outstanding permits for the following years. The impact of the revised rehabilitation provisions under the new laws are forecast to be in the range of $20,000,000 to $28,000,000 This equates to a non cash impact of about $6 per ounce to $9 per ounce at the group level, which will reflect in our full year all in sustaining costs. This impact had not been previously factored into our guidance. At Shilpikana in Australia, lower malt feed grades were offset by higher malt throughput.
This kept production relatively flat year on year. We recently completed our rigoram mall shutdown, which occurred every 17 weeks. The Bauskasaka Underground project remains on schedule, and we're pleased with the 6 50 meters of development during the quarter. At Sunrise Dam, production was impacted by lower underground tonnages. This has had the effect on our ore blending at the mill.
The key for Sunrise Dam is for us to improve on flexibility. This will ensure consistently higher underground tonnes to displace lower grade surface stocks. In part of this strategy, our Q3 development and exploration drilling were way above our targets. The largest subs in Vogue and Cosmo Eats are now being commissioned for production and we expect this result in higher underground volumes in Q4. As we said before, our assets will benefit from additional investment in development and reserve conversion.
We've had a world class exploration effort to support this strategy. During Q3, we completed more than 234,000 meters in brownfields drilling and more than 27,000 meters in greenfields drilling. Going into next year, additional capital will be allocated for brownfields exploration to increase the flexibility and phase availability in our mines. We will take a disciplined approach to this additional inward investment. Our ultimate aim is to extend the visible life of the operations, increase the resource confidence in our ore bodies, do steady reserve replacement and growth support our planning process, allow better operational flexibility, all of which we believe will provide an overall value uplift.
This will allow us to guide accurately beyond the in year outlook we currently provide. With that, I'll hand over to Graeme, who will give us an update on Obolwase.
Thank you, Ludwig. I'll spend a little bit
of time giving a reasonably thorough update on Obuasi. I'm on Slide 14. At September 30, the overall project was 76% complete. Phase 1, to achieve 2,000 tonnes per day and first gold by the end of this year has progressed very well and is now 79% complete. I consistently commented that this was a pretty tough target, and I'm pleased to say that our confidence has grown this quarter.
Our Phase 2 to achieve 4,000 tonnes per day is 44.5% complete and is confidently on schedule. From a safety point of view, the construction team have done particularly well with a team of mostly Ghanaian contractors and had just clocked over 2,000,000 man hours with just one lost time injury. The photos on this slide are the primary crusher discharge conveyor, the concentrate discharging into a concentrate storage pond and the fully automated twin boom jumbo. I'll move on to Slide 15. In early October, the Phase 1 crushing, grinding, flotation and tailing circuits were commissioned.
Approximately 5,000 tonnes of ore at 6 grams per tonne was milled to generate around 500 tonnes of sulfide concentrate. Growth of the BIOX bacteria starting from laboratory scale is progressing well and has progressed to the 500 liter scale. The sulfide concentrate produced early this month enables the growth to continue to the commercial scale over the next 4 to 5 weeks. The rebuild and the dry commissioning of the remainder of Phase 1 circuit, the BIOX leach train, the CCD, the CIL circuit and Aleutian and the gold room will continue over the next couple of months. Milling is scheduled to commence in December, leading to 1st gold pour at the year end.
And in the photographs, you see is the primary crusher discharge conveyor, a fairly happy metallurgical team when we fired up the mill for Phase 1 and flotation concentrates at the in the rougher circuit. On Slide 16, our Phase 2 is progressing very well. Engineering by DRA has been completed. The SAG bull mills have been stripped to their shells. Civils have made good progress in the SAG bull area.
The red line, in the CCD, in the cooling tower, in the new gold room and in the emergency gensets area. Civil fabrication is on schedule. Refurbishment of the remaining biops strains, blowers, carbon kilns and so on is progressing. In the photographs of the concentrate thickener, the BIOX leach train, the civil works for the new gold room and the main mill substation. The KRS shaft and the underground materials handling contracts were awarded this quarter, and the paste fill plant design and construct contract is also awarded.
The current structural mechanical piping and the electrical instrumentation and control contractors will roll over into Phase II works. We've had some challenges, and the challenges now are really associated with equipment manufacture and shipping requiring active expediting. We've been consistently tracking operational readiness also, which is about putting everything in place to commence operations. This is ahead of schedule at 72%. Underground mine development year to date is 6,600 meters.
Of the deepening of the Obuwati Beach decline and access to the KRS shaft, which is needed in quarter 3 2020, are on schedule. Access to the 1st stoping areas and stripping of the old narrow development at the Sansu area has been achieved. All of the Phase 1 production area, that is for all of 2020, has now been grade controlled. So, all of it is now in proven reserves. Production drilling of the first Samsoo stope commenced in early October.
And just last week, we fired the first stope in the Sansu area. The Sansu stopes are secondary stopes. We've well tested the adjacent filled primary stopes, which are quite solid. And grades in these initial stopes are around 8 grams to 10 grams, but we are expecting some dilution from the old paste fill. We've had a few challenges in stripping old drives and re supporting the ground.
However, we're on track, and first stoping is clearly on schedule for Phase 1. The new GCS vent shaft pilot hole has been completed, and piling for the commencement of the initial sink has commenced. Geological drilling has ramped up, and we now have 5 diamond drills operating underground. The initial project capital for Obuasi remains in the range of $495,000,000 to $545,000,000 And note that this includes the 45,000,000 dollars for the mining fleet purchase, which we noted earlier this year. 10% was spent in 2018.
We're on track to spend about 50% of that capital in 2019 or around $270,000,000 and the remainder will be in 2020. In terms of community and government affairs, I think I had reported that there was high expectations within the community for employment. Through constant dialogue and discussion with the communities, that level of agitation has subsided considerably as we focused on local employment in Abu Dhabi for ourselves and also for our contractors. The chief mines inspector visited site and he approved the commissioning of the areas that I mentioned before. We've also met with the Chief of Defense and the Chief of Police and both expressed the government's commitment to the support of ongoing security at Babuasi.
We rolled out our social management plan, which was part of building a relationship with the community. And just last quarter, the university campus, which commenced operations in Obuasi with about 3 40 students. And the school expansion program is on track, and we've just launched an apprenticeship program for which we've received many applications. And you'd also be aware of the reclamation security agreement agreed with the government for to deal with the old legacy areas around Obuasi. Rehabilitation of the old treatment plants in the sharp areas in the north has commenced, and the design in the Boerte area and the northern Timing facilities has also commenced.
With that, I'll hand over to Christine, who will cover the company's financials. Thank you.
Thanks, Graham, and good morning, everyone. I'm on Slide 18, which talks to the comparison of key metrics. Overall, we've had a supportive macroeconomic environment with the gold price in Q3, 22% higher than the prior year at $14.64 amount, which together with weaker currency significantly benefited EBITDA and cash flow from operations. Group production was down by 3% compared to last year due to planned volume and grade reductions at CBSA, lower sorry, lower open pit ounces at Kibali in accordance with the mine plan, lower grades at Mpumeng and challenges experienced with the integration of the combination plant at Siguvi. As Kelvin mentioned, production in Q3 reflects an improving trend being 3% higher compared to Q2 on the back of strong performances from Gazestone Brazil.
This bodes well for further production improvements in Q4. We did expect costs to be higher in Q3 due to higher sustaining CapEx profiling. However, this was exacerbated by inflationary pressures and lower grades across a number of our operations. Capital expenditure increased by 44% in Q3 compared to the prior year, reflecting a 3% increase in sustaining capital and a tripling in growth capital, primarily due to Obuasi. Free cash flow improved significantly in Q3 to $87,000,000 after self funding increased of WASI growth capital expenditure of $76,000,000 for the quarter.
Cash conversion remains a focus area for us, in particular improving cash repatriation from the BRC, reducing working capital lockups and reducing care and maintenance costs. Free cash flow would have been higher by $177,000,000 for the year to date at approximately $230,000,000 has the cash generated from Kibali being received time. We have received $53,000,000 from the DRC for the year to date in the form of dividends and our operating JV partner Barrick continues to have constructive discussions with the DRC government in this regard. The VAT agreement signed with the DRC government late last year continues to be honored reflecting a reduction in VAT receivables from the jurisdiction. We therefore remain cautiously optimistic that we will see an upward trend in the cash repatriation from the DRC in Q4.
We also saw positive working capital movement of $37,000,000 despite higher ore stockpiles in Australia, increased VAT receivables in Tanzania and increased Argentina export duty receivables. The Argentinian export duty should be recovered over the next year and we continue our efforts to offset the verified against corporate taxes in Tanzania. In addition, the transition to OMA mining at Swan Comet at Geita from 1 July 2019 has already reduced the quantum of VAT lockup at Geyser by approximately $800,000 a month. Here remaintenance costs for 2019 is expected
to be
$80,000,000 and relate to Obuasi in South Africa. We expect these costs to less than half next year with Obuasi coming online and this cost will reduce further with the South African asset sales. Looking at the year on year cost performance on Slide 19, headwinds relating to the lagging impact of inflationary pressures, lower grades, higher royalties and lower byproduct sales from CBSA, weighed on the 9% increase in cash costs to $7.86 an ounce despite the currency volume and efficiency gains delivered during the quarter. All in sustaining costs increased by 12% to $1031 an ounce on the back of higher cash costs. The expected increase in sustaining capital and increased non cash impact such as environmental provision receipts and share based payments included in corporate costs.
All in sustaining costs for our Africa operations at $9.50 an ounce was 8% about the prior year despite 10% lower all in sustaining costs in South Africa. All in sustaining costs for the international operations increased by 17% to $10.92 an ounce for Q3, reflecting lower plant production in Argentina, lower grades in Brazil and inflationary pressures in the Americas region. We expect all in sustaining costs in Q4 to benefit from further operational efficiency improvements supported by improved production in line with fast trends. Moving on to the guidance, our full year guidance in all key operating costs and capital metrics remain on track. We expect production to be in the lower half of the guidance range, while costs are expected at the upper end of the range.
In line with cost trends, both production and capital are back weighted to the second half with a significant uptick expected in Q4. Improved production is expected at Geita, Brazil, Australia and Siguiri. Both cash costs and all in sustaining costs are also expected to improve on the back of improved production and current commodity price assumptions. Lucic spoke about the impact of the change in the Brazilian savings regulations earlier. The estimated non cash financial impact of approximately $20,000,000 to $28,000,000 or 6 dollars to $9 an ounce impact on all in sustaining costs at group level will impact Q4 and was unplanned.
Therefore, it has not been included in the cost guidance range provided. Capital expenditure will be skewed to Q4, in particular relating to the Abuasi growth capital. Graham spoke about the Abuasi capital, which is on budget at $545,000,000 including the mine on fleet of which 10% was spent in 2018, 50% will be spent in 2019 and the balance will be spent in 2020. The remainder of the growth capital of approximately $60,000,000,000 relates to Queguodonna, Tropicana Boston Shaker, Peggui and Hinsaling. Sustaining capital guidance is unchanged at $160 to $170 an ounce, which is at the low end of the spectrum.
However, going into 2020, we expect this to step up as we invest to improve reserve confidence in 2020. Finally, on our balance sheet strategy, our strategy is to continue to enforce capital discipline through capital prioritization, deleveraging the balance sheet and improving returns to shareholders. Net debt declined by 6% to 1,646,000,000 year on year and reflects a 47% reduction from the fixed debt level in 2014. Our net debt to adjusted EBITDA ratio is 1.06x, largely in line with our target through the cycle. This provides ample headroom to our 3.5x covenant.
Liquidity remains strong and continues to provide good flexibility. The local cost base in a number of economies that we are exposed to continues to benefit from weaker currencies, which provides a natural hedge to inflationary pressures. In addition, our strong leverage to the gold price is expected to further benefit cash flows in Q4. Finally, our 2 investment grade ratings with saving outlook with Moody's and Fitch positions the company well once we decide to proceed with the refinancing of the 2020 bond. SMT affirmed our rating at 1 notch below investment grade with a
stable outlook. I will now hand over to Kelvin to conclude. Thanks, Christine. To wrap up the year going well, There are some operating improvements to be made and the necessary work is underway to do so, as you've heard from our COOs. They provide a clear example of the opportunity that exists for us increase the investment in our ore body and the benefits we expect to see from the inside.
Our strategy remains firmly on track. To generating strong cash flow with the promise of more to come, given the higher gold price and better cash repatriation from the BRC. Our leverage is near our target level and will improve further. Our asset sale processes are progressing well. Our major growth project, Abbate, which makes the complement of our portfolio, is on track to sell production at the end of the year.
We thought it was appropriate for Graham to spend a little more time with you on Obuasi, given that the next time you hear about the project, so hopefully be this year at the year end with 1st Q4. Lastly, we remain disciplined in managing costs and capital to ensure investors see the leverage as they expect. Our aim remains to build a solid political business that delivers value through the cycle. In fact, let's open the line for questions. Thanks.
The first question we have is from James Dahl from RBC Capital. Please go ahead, sir.
Yes. Good afternoon and thanks Just the first question
is really around the asset and sales process, firstly
in South Africa and then more widely. In terms of South Africa, you talked about steady progress and due diligence that
has been completed. Is there a chance to get an announcement around that before year end? And do you think that the gold price being materially higher than when you announced this deal that that's changed your perception of value for these assets?
Well, thanks, James, for the question. Starting point, our processes are continuing. And I'll come back to Sathasta in a second. On the other 2, that since we moved from Q2 to Q3, there's been new entrants in the process and there are various ways of diligence, the new prospective bidders. So I'll let those play out.
With regard to South Africa, that process really is going exactly according to plan and that as well as we could have expected. Been very strong interest by a strong group of bidders. The site due diligence is now complete. And we're expecting the next phase is we're expecting final bids in the coming weeks. So at this point, all things are very positive.
I mean, certainly, the gold price is supportive. And it really doesn't change our view about the assets other than clearly being in this environment is helpful. But from our perspective, we expect to be taking the height of the asset. And at this point, we expect to see strong goods.
Okay. That makes sense. And then just one on your potential for a medium term production profile. I know Ludwig touched on it a little bit earlier. When do you think we could see that?
And do you think that will be on both ounces and costs or?
James, look, I'm glad you mentioned that because I recall, I mentioned when I first joined the company about a year ago that one of the objectives that I've seen and as a group we have is to be able to guide out more than in year. And so let's become clear is we need to spend time in 2020 in the additional ORD and reserve conversion that we discussed, so that we're in a position that we can guide out longer starting with kind of 1 year and then where I'd like to go is 2 and then to 3 years. So we're going to have to take measured steps in getting there. I'd love to be in a position where as we come through next year, we can guide out a year further. But we do need to make sure that we're we're at the worst than not guiding out further than in years is not being confident in our guidance.
And so we want to make sure that we're in that position. But at this point, that's direction where we'd like to go.
Okay. That's very clear. Thank you.
Welcome. Thank you.
The next question we have is from Andrew Kaip from BMO. Please go ahead, sir.
Hi, good morning. Kelvin or Christine, this is a question Do you have a sense of where sustaining capital for AngloGold should be? Is it 20% higher on a go forward basis than what you're thinking or what we might be thinking in 2020 compared to 2019 levels. Can you give us a bit more visibility on that?
Yes. Andy, look, I think we've indicated before that and Christine touched on it, that our kind of sustaining CapEx guidance range should be between $160,000,000 $170,000,000 $200,000,000 It's kind of wrong numbers. As we move into 2020, one only things we've talked about is the need to spend more on ORD and reserve conversion that we think will provide disproportionate benefit in terms of not only adding additional reserves, but in our ability to create flexibility at the mine phase as well as predictability and helping our mine planning. So as we move into 2020, we expect to be at the upper end of that range. And as we move out beyond 2020, we'll be working hard to bring that number back more toward the midpoint of that range?
I think that's probably the best way to characterize it. Christine, I mean
Yes. I would agree with that. We are still in the middle of our business planning process, and we'll give you more visibility on that at the year end results call.
Okay. Thank you very much.
You're
welcome.
So at this stage, it seems we have no further questions.
Perfect. Thanks. And I'm going to
hand over to Kelvin for some concluding remarks. So thank you very much. As a closing comment, I'd say I've been in the post for a year now. I set out our long term vision for the business and we're making real progress on it. It.
With regard to the shorter term, we spent a lot of time looking at our mines, the operations are in good shape, but in areas we need a short reset in order to support the long term quality of the business. Specifically, our whole reserve development needs more focus in order to provide to great flexibility, less grade variability, confidence in setting short term performance metrics and support to the objective of providing operating guidance beyond the year, as we just touched on. We have the talent in place to achieve our goals, now it's about staying focused and delivering. And I guess in conclusion, I'd like to take the opportunity to say thank you for the support that you've given us over the years. And since it's quickly approaching, I don't see as early, but we'd like to wish everyone a safe and enjoyable holiday season, I look forward to engaging with everyone in February 2020 with our year end results.
So thank you very much.
Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.