Good afternoon, ladies and gentlemen. Welcome to AngloGold Ashanti's 2019 Half Year Results Analyst Presentation. 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.
Thank you, Danae, and welcome, everybody. Good morning to those of you in North America. Welcome to our first half twenty nineteen analyst call. Before we commence, I'd just direct you to the disclaimer, Safe Harbor statements at the beginning of the presentation. It has important information concerning forward looking statements that we may make.
And I urge you to look at it, please. And today, Kelvin is going to kick off with a few introductory remarks with respect to the highlights from our first half of the year. Christine will talk to the financials. Our Chief Operating Officers will talk to their respective portfolios. Graham M.
Will talk to our major projects. Tim Thompson to exploration. And then Kelvin will conclude. Without further ado, I'll hand over.
Thanks, Stuart, and thanks everyone for joining us. Many of you are familiar with our strategic approach. It guides us in mitigating risks, protecting our balance sheet, managing costs and capital and ensuring we have a pipeline of options to sustain the business into the future. Maintaining our license to operate is fundamental to the success the business. We do this through delivering on our ESG objectives, specifically working towards 0 harm, sound environmental management and community development.
The Q2 has been another encouraging period when it comes to safety. At the end of the quarter, we achieved 4 49 consecutive fatality free days, which is a new company record. All other safety measures are also trending in the right direction. While this is an important milestone, frequency rate for the period of 5.28, the lowest in its history benefiting from the new shift arrangement at Mekoneng. It's also important to note that there were no reportable environmental incidents during the quarter.
As we mentioned in May, 2019 production is back end weighted. This reflects normal seasonality as well as a slower start to the year at certain of the assets. We expect another small step up in Q3 before a further lift in production in Q4 with strong performance as expected from Brazil, Seguri and Geita. Production of 1,550,000 ounces for the first half of the year reflected solid contributions from Geita, Idioprim, Tropicana and Kibali. Idioprim benefited from improved grade control and higher grade ore from Terabare I apologize on this one, Teberebi cut 1 and cut 3.
Geita saw a strong recovery following the mill maintenance that took place in Q1. Tropicana delivered higher mill throughput, improved head grade and increased metallurgical recoveries. Our cash cost improved by 4% to $7.92 per ounce. All in sustaining cost in the first half improved to $1,002 per ounce compared to the same period last year. EBITDA margins remain healthy and growing despite lower volumes and a lower gold price when compared to the same period last year.
Production and cost guidance remain on track. As this slide indicates, we continue to focus on expanding margins, which are seeing the benefit of prior investment. And we continue to drive operating efficiencies, which will help ensure we capitalize on the current gold price environment. And with that, I'll hand over to Christine to provide an overview of the financial performance.
Thanks, Calvin. Good day, everyone. The operational performance in the first half continues to reflect a strong performance on operational efficiencies and capital discipline. Production from retained operations was down by 2%, mainly due to planned volume and grade reductions at CBSA, lower grades at Sunrise Dam, lower production and feed grades at Siguiri due to the combination plant being commissioned and lower production in the South African surface operations. Tropicana, Kibali, Geita and Idioprium delivered solid improvements in performance, which offset a large portion of the production decline.
Q2 reflected an improving production trend with a 7% increase compared to Q1. All in sustaining costs also improved by 2% year on year, ensuring a healthy all in sustaining cost margin of 23%. Despite a slightly lower average gold price received, free cash flow improved by $20,000,000 for H1 compared to the prior year. Free cash flow in Q2 was $78,000,000 and is expected to improve in H2 across the majority of our operations. Free cash flow was impacted, however, by slower cash repatriation from the DRC due to the introduction of the mining code last year and the change in administration.
While we received $31,000,000 from Kibali during H1, free cash flow would have been $121,000,000 higher had the remainder of the Kibali cash due been received time wisely. Based on discussions with our JV partner Barrick, we're expecting to receive the cash in the near future. We also saw higher levels of working capital relating to unsold gold and higher ore stock pile levels. Argentina export duties and fleet prepayments for CBSA, which except for the export duties will unwind in H2. However, prepayments on equipment and preproduction capital for Abu Wafi are expected to increase working capital in H2.
Overall, VAT receivables between Tanzania and the DRC remained largely steady as we continue to offset against corporate taxes. Capital expenditure is 5% lower than the first half in the prior year, largely due to the South African asset sales, the completion of the Siguri combination plant and lower capital at Sunrise Dam, Ideopreum and Kibali. Capital expenditure is weighted towards H2 in line with past trends and taking
the
$7.92 an ounce. This reflected the advantage provided by weaker currencies, improved grades, favorable stockpile movements and the South African asset disposals. These benefits were partly offset by inflationary pressures, lower silver byproduct sales at CBSA and lower volumes and efficiencies. We are expecting further operational efficiency improvements in H2 to benefit both cash and all in sustaining costs, supported by improved production across our operations and the operational excellence program. The $18 an ounce net improvement in all in sustaining costs year on year was supported by lower cash costs and sustaining capital.
Environmental rehabilitation resets, which are noncash in nature, and IFRS 16 finance lease effects both had a negative impact on all in sustaining costs. However, the impact of the new IFRS 16 accounting standard Africa operations at CAD 9.82 an ounce was 5% below the prior year, helped by the 11% lower all in sustaining costs for the South African business. The focus in South Africa remains on reducing the off mine legacy costs and improving safety and productivity at the existing operations. Good progress is being made in this regard. All in sustaining cost for the international operations was 2% higher for the half year at CAD 9.74 an ounce, reflecting lower planned production in Argentina and inflationary pressures in the Americas region, in particular in Argentina.
Our balance sheet strategy continues to enforce our capital discipline through our decision making and capital prioritization. Net debt at a 44% reduction from the peak level in 2014. Our adjusted net debt to EBITDA ratio of 1.2x reflects ample headroom to the 3.5x covenant. Leverage would have been 1.1 times had the Kibali cash due been received by the end of June. Liquidity remains strong and continues to provide good flexibility in the current volatile climate.
Weaker currencies continue to benefit our costs and provides a natural hedge to inflationary pressures across our portfolio. We remain strongly leveraged to the higher gold price, and we expect this together with improved with below investment grade with a stable outlook. S and P's credit rating was also recently affirmed at 1 notch below investment grade with a stable outlook. Finally, as Calvin mentioned, our guidance on all key operating capital is back weighted to the second half, in particular, Q4. We expect to see improved production from Geita, Brazil, Siguiri, Mponeng and Sunrise Dam.
In addition, cash costs and all in sustaining costs are expected to improve on the back improved production based on the weaker currency and current commodity price assumptions. This benefit will largely be realized in Q4. Growth capital has been revised down to $330,000,000 to $360,000,000 due to the timing of the Eborwasi project capital, which will be skewed to Q4 with the refocusing on the completion of Phase 1. Graeme will elaborate on Abuasi a little later. Phasing of the Abuasi project capital of 545 dollars 1,000,000 in total is now roughly 10% spent last year, 50% to be spent in the current year and the remaining 40% to be incurred in 2020.
The balance of this year's growth $45,000,000 relates to advancing the Quebradona feasibility study, Tropicana Boston Shaker and the completion of Mponeng Phase 1. Sustaining capital guidance remains unchanged at approximately $160 to $170 an ounce, totaling $520 $60,000,000 I'll now hand over to Sikelo, who will talk about the Africa portfolio.
Thanks, Christine. The Africa region delivered a strong performance in the first half of the year. Production at Geita was up 6% against the same period last year despite the planned maintenance undertaken on the ball mill in the Q1. Geita continues to transition to a higher proportion from underground operations as planned, with a 20% increase in grades recovered from underground. Cash costs were down 5% on the back of the stronger production.
At Kibali, production was up 12% as underground mining operations reached steady state performance with the completion of the material handling system ramp up. Total cash costs were 23% lower at $5.41 per ounce. On the back of higher production, 21% increase in recovered grade and improved cost management. At Sigiri, the ramp up on the new combination plant is underway. We saw a 12% improvement on gold produced versus quarter 1, and production is expected to continue to ramp up through the second half as the plant continues to be integrated, stabilized and optimized.
This is a key area of focus for us. Itauapim delivered another strong performance. Production was up 8%, mainly due to a 10% increase in recovered grade from the Teberebe Cut 1 and Cut 2. Cash costs were down 6% on grade improvement. Given the seasonality in the first half of the year, we are expecting to see a stronger second half production driven by improved performances from Geita, Idua Prim and Siguri.
At Mboneng, notwithstanding the fact that production was 4% lower than the first half of twenty eighteen, the all in sustaining cost improved by 9%. The notable improvement in cost is the result of a range of factors: the successful restructuring of both on- and off mine structures as well as the implementation of a new shift arrangement. In less than 8 months since implementation, it is now considered to be the normal way of working at Monning with employees responding positively. We have seen significant benefits across most mining matrices year on year, which include a 58% improvement in safety performance, 9% uplift in productivity, 6% increase in phase advance, 5% rise in O reserve development despite fewer shifts in the current calendar. I'll remind you that production from the surface sources operations in Q1 was impacted by inclement weather and sporadic power availability.
However, we saw a turnaround in Q2, particularly at Mine Waste Solutions due to higher grades and some metallurgical wins. The regional team is working on a number of additional improvements, which we hope to see bear fruit over the balance of the year. Lastly, an update on the Siguri brownfields expansion. The combination plan has now been completed. Our current focus is on achieving a higher proportion of hard material.
As the crusher stabilize as the crusher is stabilized to design throughput through feed blending and scalping of fines, which will assist material flow. Improving the overall performance here is a key priority for us. Now I'll hand over to Ludwig to cover the Australia and Americas region.
Thank you, Cielo. Tropicana had an impressive performance with production up 18% year on year, driven by higher mill throughput, higher head grade and increased metallurgical recoveries. This is on the back of the 6 megawatt ball mill, which I'm pleased to report is outperforming initial expectations. We expect a similar production performance in the second half of the year. At Sunrise Dam, lower mill feed grades resulted in production of 136,000 ounces.
We're expecting an 136,000 ounces. We're expecting an improvement in production in the second half. Recovery and throughput improvements at Sunrise Dam are key focus. We're doing the work to create mine flexibility in Evoke orebody, which will give us the ability to increase our feed grade. Looking ahead, Tropicana has committed testing autonomous drilling, which has potential to lift the productivities by about 15% and reduce the number of drills.
This technology, which has been successfully applied to roughly 100 drill rigs globally, will allow us to operate with an exclusion zone during blasting, which brings a range of benefits. At Minasara, we saw flat production year on year. Higher costs resulted from the investment in dry stacking equipment for our mines. This extra cost was slightly offset by operational excellence initiatives and exchange rate movements. We see production increasing in the second half with an especially strong 4th quarter expected.
At Cerro Grande, production was 7% lower due to a planned reduction in tonnages. At Cerro Vanguardia, production was down in line with the mine plan, which is mainly grade driven. Cost increased in line with the lower production, though this was partially offset by efficiency gains and the favorable exchange rate. In Cuba, upping development rate is critical area of focus. Our aim is to increase ore body flexibility and confidence by opening up the main high grade mining areas.
This will also add a cost benefit as we will fill the spare capacity in the shaft and in the plant. Development meters at Cuba reached a site record of over 14 100 meters per month during quarter 2. This beats the previous high watermark by more than 30%. This step change was made possible by our operational excellence projects to increase jumbo utilization and reliability, plus improving infrastructure and mobilizing a new underground development contractor. The Boston Shake underground project was approved in April this year.
It is extremely pleasing to note that the first blast took place in early May. And since then, the team achieved about 3 22 meters of development during the quarter, achieving up to 3 blast per day. The project remains on track to deliver 1st gold in the second half of next year. Looking ahead, we will continue to drive operational excellence program and will place a particular emphasis on increasing ore development and resource drilling. We're looking for this initiative to increase production flexibility and grow reserves of our underground mines.
This will include sustaining the step change in development performance as seen at Kyogo, identifying the additional near surface ore sources at CDS and fast tracking our exploration at Balmuro Sol at Serra Grande. At Sunrise Dam, we continue to focus on creating underground mining flexibility, increasing reserves and driving down costs. On projects, we expect to progress the feasibility study at Corbadona, continue drilling at Gramalote and maintaining the strong momentum at Boston Shaker. With that, I'll hand over to Graeme, who will talk to Obuasi and Corbadona.
Thank you, Ludwig. Firstly, to Obuasi. The overall project remains on budget and schedule to achieve a production rate of 4,000 tonnes per day at the end of 2020. Many of you who will have joined us on today's call visited Ghana and Obuasi at the end of May and met with senior government officials and traditional leaders. Hopefully, this gave you a good sense of the project and how it is being managed as well as a good feel for the positive working relationship with our host government and our key stakeholders.
As communicated previously, the schedule to achieve our interim milestone, the first goal at the end of this year, remains very tight. The schedule requires extremely close management and there's no room for slippage. Build up of the bacteria for the biops circuit is on the critical path and this is a slow process. We are arranging to purchase suitable sulfide concentrate to enable the bacteria growth to occur in parallel with plant refurbishment and construction. The electrical contractor has just commenced and will work day shift and night shift to expedite the schedule.
This will help us achieve first goal on schedule and then ramp up to the 2020 planned production rate of 2,000 tonnes per day. As we have progressed with Phase 1 refurbishment, we've had a few surprises, which have increased the refurbishment scope and the scope of procurement. Some steel work required more extensive rebuilds. The thickener gearboxes, MCCs and variable speed drives were found to be obsolete and no longer have OEM support. And consequently, new equipment is being purchased.
We're managing these changes within the project contingency and the capital cost ranges previously provided. In terms of progress with the plant required for Phase 1, structural steel work is almost complete on the crushing, milling, flotation, BIOX Module 1 and CIL circuits. Minor refurbishment works continue to be completed on the BIOX CCD circuit. We are focused on expediting equipment to site and installing the electrical and the control systems. The new jaw crusher and grizzly feeder were delivered to site.
The new motor control switchboards are in transit. The cooling tower has been shipped and is expected to arrive at the end of this month. In regard to Phase 2, this is progressing well. Engineering is close to completion and will be wrapped up in quarter 3. Procurement is also close to completion.
Demolition is complete. The SAG and ball mills have been stripped to their shells. Civil works has commenced and the current SMP and electrical instrumentation contractors will roll into the Phase 2 works. Major packages for supply of the structural steel and plate work have been awarded to a local contractor and the piping package tender is currently in the market. Haystel plant contract has recently been awarded.
The underground shafts, materials handling and pump station tenders have closed and will be awarded shortly. In regard to operational readiness, the work is on track and cumulative progress now is approaching 50%. Underground mine development is on track with 3,080 meters completed so far. Development to achieving first stoping, the vent shaft and KRS shaft access is on schedule. For the new GCVS vent shaft, the raised boring contract has just been awarded.
Underground geological drilling has recommenced with 4 drill rigs currently operating. Recruitment is progressing quite well and is in the 2nd phase for operator roles in processing, engineering and mining. You'd recall that a key agreement for Agua'a Sees redevelopment is a reclamation security agreement. In accordance with that agreement, we have formed the Mine Closure and Rehabilitation Community Consultative Committee. The committee comprises representatives from the community and the regulators.
Our commitments, rehabilitation of the old treatment plant and the shafts area to the north has commenced. Ghanaian participation has also been a key commitment and we have made very good progress in this area through contracting, procurement and employment. Even so, expectations for local employment are very high and exceed the requirements of the project. To facilitate transparency and manage expectations, we've established a local employment procedure and are engaging with the various community groups. And a comprehensive social management plan, which is aligned with the Ghanaian development goals, has been rolled out and socialized with the community.
Now a few comments on Quebradona. The selected firms Hatch, the plant and infrastructure and Golda for tailings and water have commenced the feasibility study in the nearing. And both are based in St. Yagreb. Detailed design of the sublevel cave is progressing well.
And the trade off study on tunnel boring versus conventional development has narrowed the cost and time differences, and conventional development has been selected for the current project. New technologies in automation and mobile miners are being analyzed. The licensing process will begin in the second half of twenty nineteen. The team is very focused on the social and political enablement program. Engagement with the community, regulatory groups and leadership is active.
The polling results are showing the social support for the project is advancing. Thank you. And with that, I'll hand over to Tim to cover exploration.
Thanks, Graham. Our greenfields generative exploration hubs in Australia and the United States continue to identify and advance projects through the portfolio pipeline with fieldwork followed by stage gated drilling programs. Our drilling programs are front end loaded during the year to provide the best opportunity to have the results available for our budgeting and reserve declaration processes. About 40,500 meters were drilled during the first half in our generative exploration programs and that's up 19% year on year. Our mine site exploration programs drilled about 417,000 meters in the first half, which is 23% more than the same period last year and nearly double the levels we were achieving 4 to 5 years ago.
We're taking advantage of the opportunity to unlock ore reserve addition linked to better ore reserve development, advanced rates in our underground operations to produce stable year on year replacement and growth. This will support our planning process and allow better operational flexibility for the mine site portfolio. A few of the highlighted programs are shown here from our mine site exploration. $114,000,000 is budgeted and allocated towards our Brownfields mine site drilling programs. The Brownfields exploration budget for the year is planned to provide the stable delivery of production, ore reserve addition and new mineral resource development projects across the portfolio.
We have a specific focus on maintaining and increasing the reserve base as ore reserve development unlocks drilling platforms at our larger mines either at already established underground sites such as Sunrise Dam in Cuyahoga Bal or those such as Gaeta that are transitioning to underground operations. 2019 has seen an active start to the year across our greenfields generative exploration portfolio. I mentioned earlier, our meters drilled in 2019 have increased significantly compared year on year. A few of the highlighted programs are shown here with $30,000,000 budgeted and allocated towards generative exploration. Our focus remains firmly committed to advancing projects in our Australia and North American exploration hubs and identifying new projects in our West Africa and Brazil target generation focus areas where we can leverage synergies with our existing operations.
In this slide, we see the continuing development of our exploration project pipeline of generative and mine site exploration programs. Additional early stage projects are coming from the work of our target generation teams to continue progression. These support and complement ongoing mine site exploration and development programs that are the foundation of the stable mineral resources and ore reserve replacement in our portfolio. With that, thanks and back to you Kelvin.
Well, thanks Tim. To wrap up, as I mentioned at the start of the call, we're pleased with our sustainability performance for the quarter. But that said, we know that we can do better and we won't become complacent in any respect. And we know that's an area where we can continue to improve. As Tim discussed, our exploration and operating teams are working to increase reserve conversion.
This will support long term planning. Beginning next year, we'll see a drop in our care and maintenance costs, particularly when Obuasi comes back into production. The process to streamline our portfolio is progressing and we expect to provide an update on this before the end of the year. For the more recently announced South African assets, there's very strong interest. Parties are in the data room and management presentations are underway with a view to receiving indicative proposals as the next step.
Obuasi is another important deliverable. While the project remains on schedule, albeit tight for year end Gold pour, we'll be careful in getting there prudently, no shortcuts. And as you've heard from Graeme, we have more flexibility in the schedule for the ramp up from 2,000 tonnes a day to 4,000 tonnes a day in 2020. Last but not least, we'll continue to keep a tight rein on costs and capital. Keeping a close eye on margins will ensure that investors see the leverage that they invest in us for.
Our vision is clear to be a solid predictable business that delivers value through the cycle. And with that, let's open it up for questions. Thanks.
Thank
I just wanted to ask a question around the cash costs. If I look at your guidance for the year, you're still looking at 7.30 to 7.80, but Christine showed a slide earlier where the waterfall slide where the exchange rate has contributed quite a lot to bringing down that your current all in or your current cash costs. It's still I know the second half is higher production, but it's still sitting above your range for the year. Would it be fair to say you could bank that $50 plus versus the range of guidance by the end of the year? So if it's $7.30 to $7.80 but using worse exchange rates for you than what you have at the moment, could we knock $50 off that or is the exchange rate benefit coming through in inflation and we should still look at a EUR 7.30 to EUR 7.80 range?
Hi, Patrick. I think, look, at this point in time, we'd like to just stick to the guidance range and I really give you more breakdown in terms of what you should be factoring in. What we did say is Q So certainly a stronger production profile in H2, but you'll see more it's more skewed to Q4. And hence, you're going to see the cash costs coming down in Q4. But I think for now, let's stick to the range.
We have no control over currency and inflation and I think we've just got to bear that in mind.
Okay. Thank you.
I think that might be a record. Are there any further questions? And if not, then pardon me?
At this moment, sir, it doesn't seem like we have any further questions.
Well, that was a very thorough presentation. If there are no more than Patrick for his participation on the call. And we'll sign off and look forward to updating Patrick and anybody else with our Q3 results. Thank you very much.
Thank you, sir. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.