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. 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, Danae, welcome everybody to our Q3 market update. Before we go any further, I would like to direct you to the second slide in the presentation, which provides important information on forward-looking statements and information that may appear in the presentation. Important, so I urge you to look at it. Today's presentation on our Q3 numbers, Kelvin will be providing an introduction. Sicelo Ntuli, our CEO for Continental Africa, will follow. Ludwig Eybers next with our international portfolio and exploration results. Graham Ehm 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, Stewart, 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 Obuasi into production. Importantly, we'll work to maintain and strengthen our license to operate through effective ESG practices. On the safety front, we're making solid progress. The third quarter has been another encouraging period. The group achieved an all-injury frequency rate for the quarter of 2.23 injuries per million hours worked, which is near historical lows.
We've operated more than a year without a fatality, and by the end of the quarter, we achieved 541 consecutive fatality-free days, which is a new company record. I know this should be the expectation, and it is, but nonetheless, it shows continued progress from where the business was. While these are important milestones, there'll be no complacency, and our focus remains on achieving our goal of zero harm. As we discussed with our Q2 results in August, production for the year is back-end loaded. For the first nine months of the year, we produced 2.28 million 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 Iduapriem, Geita, and AGA Mineração.
We anticipate a solid uplift in production in Q4. Our all-in sustaining costs rose 12% year-on-year to $1,031 an ounce, reflecting higher sustaining capital and 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 improvements. Sicelo, 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 gold price at significantly lower levels than we see today. For the third quarter, the higher price gave us a helpful tailwind. We remain firm in our commitment to disciplined capital allocation and cost management. This will ensure we take advantage of the positive gold 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 from certain of our jurisdictions and by reducing care and maintenance costs in Ghana and South Africa particularly. I'll now hand over to Sicelo 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 391 kilo ounces at an all-in sustaining cost of $834 an ounce in the third quarter of 2018. We saw a significant increase in Iduapriem's 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.
Iduapriem'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 Teberebie pit. While the improved throughput rate is due to various operational excellence initiatives. We are expecting a strong finish to the year after a planned shutdown at the beginning of November this year. At Siguiri, production was lower due to commissioning challenges at the comminution plant, which we flagged with our Q2 results. These were compounded by heavy rainfall and resulted in crusher plant blockages caused by fines which impacted on grade. However, there are no technical flaws to the project. It does require 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 a 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 Teberebie. In South Africa, costs rose on the back of lower production and inflationary pressures, particularly offset by a weaker exchange rate. At Mponeng, an increase in seismicity impacted availability of the planned higher-grade stocks above 109. This has improved. In the beginning of Q4, we are now seeing grades ticking higher, particularly above below 109 level on the new project area. In fact, we have seen significant improvements on the safety front at Mponeng and some efficiency improvements, all as a result of the improved work quality on the face. This is mainly due to improved face time, which has been the key objective of the new shift arrangement process.
With that, I'll hand over to Ludwig for information on operations. Thank you.
Thanks, Sicelo. In the Americas, the increase in cost was due to lower production and by-product revenue, as well as higher sustaining capital. At AGA Mineração in Brazil, production was slightly higher year-over-year at 92,000 ounces, mainly due to increased tonnages and grades. We saw poor ground conditions at Cuiabá 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 prior years, when faced with geotechnical challenges, we put in place an enhanced support regime. We communicated with our Quarter 2 results that several draft calls related to TSFs were under consideration in Brazil. We have been proactive in reviewing our tailings deposition methodology following Brumadinho.
All seven of our TSFs in Brazil have received external stability declarations ahead of the legislated September 30th deadline. We continue to accelerate the transition to dry stack tailings. The first filtration plant at Cuiabá has been commissioned. We are building mobile filtration plant at CdS. We're also pleased to report that we received all our tailing dam permits that could have had an impact on the 2020 production. We are optimistic that we receive 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 million-$28 million. This equates to a non-cash impact of about $6 per ounce to $9 per ounce at the group level, which will affect in our full-year all-in sustaining costs. This impact had not been previously factored into our guidance.
At Tropicana in Australia, lower mill feed grades were offset by higher mill throughputs. This kept production relatively flat year-on-year. We recently completed our regular mill shutdown, which occur every 17 weeks. The Boston Shaker underground project remains on schedule, and we're pleased with the 650 meters of development during the quarter. At Sunrise Dam, production was impacted by lower underground tonnages. This has had an 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 support of this strategy, our Q3 development and exploration drilling were way above our targets. The larger stopes in Vogue and Cosmo Howley 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 world-class exploration efforts 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 face 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, use steady reserve replacement and growth to 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 Graham, who will give us an update on Obuasi.
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 the 30th, the overall project was 76% complete. Phase One, 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've consistently commented that this was a pretty tough target, and I'm pleased to say that our confidence has grown this quarter. Phase two to achieve 4,000 tons 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 have just clocked over 2 million man-hours with just one lost time injury.
The photos on this slide are of 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 one crushing, grinding, flotation, and tailing circuits were commissioned. Approximately 5,000 tons of ore at six grams per ton was milled to generate around 500 tons 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 four to five weeks. The rebuild and the dry commissioning of the remainder of phase one circuit, the BIOX leach train, the CCD, the CIL circuit and elution, and the gold room will continue over the next couple of months.
Milling is scheduled to commence in December, leading to first gold pour at the year-end. 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 in the rougher circuit. On slide 16, phase 2 is progressing very well. Engineering by DRA has been completed. The SAG ball mills have been stripped to their shells. Civils have made good progress in the SAG ball area, the regrind, in the CCD, in the cooling tower, in the new gold room, and in the emergency gen sets area. Civil fabrication is on schedule. Refurbishment of the remaining BIOX trains, 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 was also awarded. The current structural mechanical piping and the electrical instrumentation and control contractors will roll over into phase 2 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. The deepening of the Obuasi deep decline and access to the KRS shaft, which is needed in quarter three 2020, are on schedule. Access to the first stoping areas and stripping of the old narrow development at the Sansu area has been achieved.
All of the phase one production area, that is for all of 2020, has now been grade controlled. All of it is now in proven reserves. Production drilling of the first Sansu 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 drill tested the adjacent filled primary stopes, which are quite solid. Grades in these initial stopes are around 8 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 resupporting the ground. However, we're on track, and first stoping is clearly on schedule for phase one. 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 five diamond drills operating underground. The initial project capital for Obuasi remains in the range of $495 million-$545 million, and note that this includes the $45 million for the mining fleet purchase, which we noted earlier this year. 10% was spent in 2018. We are on track to spend about 50% of that capital in 2019 or around $270 million, and the remainder will be in 2020. In terms of our 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 Obuasi 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 Obuasi. We rolled out our social management plan, which was part of building a relationship with the community. Just last quarter, the university campus, which commenced operations in Obuasi with about 340 students. The school expansion program is on track, and we've just launched an apprenticeship program for which we've received many applications. You'd also be aware of the reclamation security agreement agreed with the government to deal with the old legacy areas around Obuasi.
Rehabilitation of the old treatment plants in the shaft area in the north has commenced and the design in the Obuasi area and the northern tailings 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 $1,464 an ounce, which together with better currency, significantly benefited EBITDA and cash flows from operations. Group production was down by 3% compared to last year due to planned volume and grade reductions at CVSA. Sorry. Lower open pit ounces at Kibali in accordance with the mine plan, lower grades at Mponeng, and challenges experienced with the integration of the comminution plant at Siguiri. As Kelvin mentioned, production in Q3 reflects an improving trend, being 3% higher compared to Q2 on the back of strong performances from Geita and [Kibali]. This bodes well for further production improvements in Q4.
We did expect costs to be higher in Q3 due to higher sustaining capex profiling. 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 million after self-funding increased Obuasi growth capital expenditure of $76 million for the quarter. Cash conversion remains a focus area for us, in particular, improving cash repatriation from the DRC, reducing working capital lockups, and reducing care and maintenance costs. Free cash flow would have been higher at $177 million for the year to date. That's approximately $230 million, had the cash generated from Kibali been received timely.
We have received $53 million 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 this 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 a positive working capital movement of $37 million 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 VAT against corporate taxes in Tanzania.
In addition, the transition to owner mining at Star & Comet at Geita from 1 July 2019 has already reduced the quantum of VAT lockup at Geita by approximately $800,000 a month. Care and maintenance cost for 2019 is expected to be $80 million and relate to Obuasi in South Africa. We expect these costs to lessen half next year with Obuasi coming online. This cost will reduce further with the South African asset sale. Looking at the year-on-year cost performance in slide 19, headwinds relating to the lasting impact of inflationary pressures, lower grades, higher royalties, and lower by-product sales from CVSA weighed on the 9% increase in cash costs to $786 an ounce, despite the currency volume and efficiency gains delivered during the quarter.
All-in sustaining costs increased by 12% to $1,031 an ounce on the back of higher cash costs. The expected increase in sustaining capital and increased non-cash impacts such as environmental provision resets and share-based payments included in corporate costs. All-in sustaining costs for our Africa operations at $950 an ounce was 8% above 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 $1,092 an ounce in 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 past trends. Moving on to the guidance. Our full-year guidance on all key operating costs and capital metrics remain on track.
We expect production to be in the lower half of the guidance range, whilst costs are expected at the upper end of the range. In line with past 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. Ludwig spoke about the impact of the change in the Brazilian savings regulations earlier. The estimated non-cash financial impact of approximately $20 million-$28 million or $69 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 Obuasi growth capital.
Graham spoke about the Obuasi capital, which is on budget at $545 million, including the mining 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 million relates to Quebradona, Tropicana Boston Shaker, Siguiri, and Mponeng. Sustaining capital guidance is unchanged at $160-$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 billion year on year and reflects a 47% reduction from the peak debt level in 2014.
Our net debt to adjusted EBITDA ratio is 1.06 times, largely in line with our target through the cycle. This provides ample headroom to our 3.5 times covenant. Liquidity remains strong and continues to provide good flexibility. The local cost base in a number of the economies that we are exposed to continues to benefit from weaker currencies, which provides a natural hedge to inflationary pressures. Our strong leverage to the gold price is expected to further benefit cash flows in Q4. Our two investment-grade ratings with stable outlook with Moody's and Fitch positions the company well once we decide to proceed with the refinancing of the 2020 bond. S&P affirmed our rating at one notch below investment grade with a stable outlook. I will now hand over to Kelvin to conclude.
Thanks, Christine. To wrap up, the year is 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 to increase the investment in our orebody and the benefits we expect to see from doing so. Our strategy remains firmly on track. We're generating strong cash flow with the promise of more to come, given the higher gold price and better cash repatriation from the DRC. Our leverage is near our target level and will improve further. Our asset sale processes are progressing well. Our major growth project, Obuasi, which will nicely complement our portfolio, is on track to start 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 will hopefully be at the year-end with first gold poured. Lastly, we remain disciplined in managing costs and capital to ensure investors see the leverage that they expect. Our aim remains to build a solid, predictable business that delivers value through the cycle. In fact, let's open the line for questions. Thanks.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press star and then one on your touch-tone phone or the keypad on your screen. If you decide to withdraw the question, please press star and then two to remove yourself from the list. Ladies and gentlemen, if you would like to ask a question, please press star and then one. The first question we have is from James Bell from RBC Capital. Please go ahead, sir.
Yep. Good afternoon, thanks for taking my question. Just the first question is really around the asset sales process, firstly in South Africa and then more widely. In terms of South Africa, you talked about steady progress and due diligence that is being completed. Is there a chance we get an announcement around that before year-end? Do you think that the gold price being materially higher than when you announced this deal, that's changed your perception of value for these assets?
Well, first, thanks, James, for the question. Starting point, all processes are continuing. I'll come back to South Africa in a second. On the other two, in fact, since we moved from Q2 to Q3, there have been new entrants in the process. We are at various stages of diligence with the new prospective bidders. We'll let those play out. With regards to South Africa, that process really is going exactly according to plan and about as well as we could have expected. There has been very strong interest by a strong group of bidders. The site due diligence is now complete. We're expecting the next phase. We're expecting final bids in the coming weeks. At this point, all things are very positive.
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. From our perspective, we would expect to be paid full value for the asset, and at this point, we expect to see strong bids.
Okay, that makes sense. 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?
James, look, I'm glad you mentioned that because as you'll 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. What'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 one year, and then where I'd like to go is two and then to three years. 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.
We do need to make sure that worse than not guiding out further than a year is not being confident in our guidance. We want to make sure that we're in that position. At this point, that's the direction we really like to go.
Okay, that's very clear. Thank you.
You're welcome. Thank you.
Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one. The next question we have is from Andy Cape from BMO. Please go ahead, sir.
Hi, good morning. Kelvin or Christine, this is a question just regarding 2020 sustaining capital. You've indicated that we should expect it to rise. 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?
Yeah
visibility on that?
Yeah, Andy. Well, 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, $170, and $200 as kind of round numbers. As we move into 2020, one of the 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 face as well as predictability and helping with our mine planning. As we move into 2020, we expect to be at the upper end of that range. 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, any-
Yeah. No, 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.
Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one. Sir, at this stage, it seems we have no further questions.
Perfect. Thanks. I am going to hand over to Kelvin for some concluding remarks.
Well, thank you very much. As a closing comment, actually, I've been here close to a year now. I set out our long-term vision for the business, and we're making real progress on 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 ore reserve development needs more focus in order to provide for greater flexibility, less grade variability, confidence in certain short-term performance metrics, and support for the objective of providing operating guidance beyond a year, as we just touched on. We have the talent in place to achieve our goals. Now it's about staying focused and delivering.
I guess in conclusion, I'd like to take the opportunity to say thank you for the support that you've given AngloGold Ashanti throughout the year. I think it's quickly approaching. I know it feels early, but we'd like to wish everyone a safe and enjoyable holiday season, and we look forward to engaging with everyone in February 2020 with our year-end results. 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.