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. 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.
Thank you, Danae, and welcome everybody. Good morning to those of you in North America. Welcome to our first half 2019 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. I urge you to look at it, please. 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 Ehm will talk to our major projects, Tim Thompson to exploration, and then Kelvin will conclude. Without further ado, I'll hand over.
Thanks, Stewart, 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 of the business. We do this through delivering on our ESG objectives, specifically working towards zero harm, sound environmental management, and community development. The second quarter has been another encouraging period when it comes to safety. At the end of the quarter, we achieved 449 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, there'll be no complacency, and our focus remains on ensuring our goal of zero harm.
The South Africa region achieved an all-injury frequency rate for the period of 5.28, the lowest in its history, benefiting from the new shift arrangement at Mponeng. 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 performances expected from Brazil, Siguiri, and Geita. Production of 1.55 million ounces for the first half of the year reflected solid contributions from Geita, Iduapriem, Tropicana, and Kibali. Iduapriem benefited from improved grade control and higher grade ore from, I apologize on this one, Teberebie 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 $792 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. We continue to drive operating efficiencies, which will help ensure we capitalize on the current gold price environment. With that, I'll hand over to Christine to provide an overview of the financial performance.
Thanks, Kelvin. 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 CVSA, lower grades at Sunrise Dam, lower production and feed grades at Siguiri due to the comminution plant being commissioned, and lower production in the South African surface operations. Tropicana, Kibali, Geita, and Iduapriem 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 million for H1 compared to the prior year.
Free cash flow in Q2 was $78 million 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 million from Kibali during H1, free cash flow would have been $121 million higher had the remainder of the Kibali cash due been received timeously. 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 stockpile levels, Argentina export duties, and fleet prepayments for CVSA, which except for the export duties, will unwind in H2.
However, prepayments on equipment and pre-production capital for Obuasi 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 Siguiri comminution plant, and lower capital at Sunrise Dam, Iduapriem, and Kibali. Capital expenditure is weighted towards H2, in line with past trends and taking the Obuasi growth capital into consideration. Looking at the cost performance year on year, cash costs improved by 4% to $792 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 by-product sales at CVSA, 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 non-cash 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 was neutral when taking the positive impact on cash costs into account. All-in sustaining costs for our Africa operations at $982 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 costs for the international operations was 2% higher for the half year at $974 an ounce, reflecting lower plant production in Argentina and inflationary pressures in the Americas region, in particular in Argentina. Our balance sheet strategy continues to enforce capital discipline through earned decision-making and capital prioritization. Net debt at $1.74 billion reflects a 44% reduction from the peak levels in 2014. Our adjusted net debt to EBITDA ratio of 1.2 times reflects ample headroom to the 3.5 times 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 production and efficiencies in H2, to benefit cash generation. Finally, we now have two investment-grade credit ratings with Moody's and Fitch, both with a stable outlook. S&P's credit rating was also recently affirmed at 1 notch below investment grade with a stable outlook. Finally, as Kelvin mentioned, our guidance on all key operating and cost metrics remains intact. In line with past trends, both production and 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 of 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 million to $360 million due to the timing of the Obuasi project capital, which will be skewed to Q4 with the refocusing on the completion of phase one. Graham will elaborate on Obuasi a little later. Phasing of the Obuasi project capital of $545 million 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 capital of about $45 million relates to advancing the Quebradona feasibility study, Tropicana, Boston Shaker, and the completion of Mponeng phase one. Sustaining capital guidance remains unchanged at approximately $160- $170 an ounce, totaling $520million- $560 million. I'll now hand over to Sicelo, 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 first quarter. 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 $541 per ounce. On the back of higher production, 21% increase in recovered grade, and improved cost management. At Siguiri, the ramp-up on the new comminution plant is underway.
We saw a 12% improvement on gold produced versus quarter one. 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. Iduapriem delivered another strong performance. Production was up 8%, mainly due to a 10% increase in recovered grade from the Teberebie Cut One and Cut Two. 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, Iduapriem, and Siguiri. At Mponeng, notwithstanding the fact that production was 4% lower than the first half of 2018, the all-in sustaining cost improved by 9%. The notable improvement in costs 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 eight months since implementation, it is now considered to be the normal way of working at Mponeng with employees responding positively. We have seen significant benefits across most mining matrices year-over-year, which include a 58% improvement in safety performance, 9% uplift in productivity, 6% increase in face advance, 5% rise in ore 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. 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 Siguiri brownfield expansion. The comminution plant has now been completed. Our current focus is on achieving a higher proportion of hard materials. 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. I'll hand over to Ludwig to cover the Australia and Americas region.
Thank you, Sicelo. 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 MW 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 are expecting an improvement in production in the second half. Recovery and throughput improvements at Sunrise Dam are a key focus. We're doing the work to create mine flexibility in the Vogue ore body, which will give us the ability to increase our feed grade. Looking ahead, Tropicana has committed to testing autonomous drilling, which has potential to lift 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 Serra Grande, we saw flat production year-on-year. Higher costs resulted from the investment in drive 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 fourth quarter expected. At Serra 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 a favorable exchange rate. In Cuiabá, upping development rate is a 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 have a cost benefit as we will fill the spare capacity in the shaft and in the plant. Development meters at Cuiabá reached a site record of over 1,400 meters per month during quarter 2. This beats the previous high-water mark by more than 30%. This step change was made possible by our operational excellence project to increase jumbo utilization and reliability, plus improving infrastructure and mobilizing a new underground development contractor. The Boston Shaker 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 322 meters of development during the quarter, achieving up to three blasts per day.
The project remains on track to deliver first gold in the second half of next year. Looking ahead, we will continue to drive operational excellence programs 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 KRS shaft, identifying the additional near-surface ore sources at CVSA, and fast-tracking our exploration at.
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. Paste fill plant contract has recently been awarded. The underground shaft 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 raise boring contract has just been awarded. Underground geological drilling has recommenced, with four drill rigs currently operating. Recruitment is progressing quite well and is in the phase 2 for operator roles in processing, engineering, and mining.
You'd recall that a key agreement for Obuasi's redevelopment is the 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. In line with our commitments, rehabilitation of the old treatment plant and the shaft 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. 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, for plant and infrastructure, and Golder, for tailings and water, have commenced the feasibility study engineering. Both are based in Santiago. Detailed design of the sublevel cave is progressing well, and the trade-off study on tunnel boring versus conventional development has narrowed the costs 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 2019. 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 that social support for the project is advancing. Thank you. With that, I'll hand over to Tim to cover exploration.
Thanks, Graham. Our greenfields generative exploration hubs in Australia and the U.S. 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. 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 four to five years ago. We're taking advantage of the opportunity to unlock ore reserve additions linked to better ore reserve development, advance 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 million 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 and Cuiabá or those such as Geita that are transitioning to underground operations. 2019 has seen an active start to the year across our greenfields generative exploration portfolio.
As 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 million 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 developments 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 this 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.
Thanks, Tim. To wrap up, as I mentioned at the start of the call, we're pleased with our sustainability performance for the quarter. That said, we know that we can do better, and we won't become complacent in any respect. We know that 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 Graham, we have more flexibility in the schedule for the ramp-up from 2,000 tons a day to 4,000 tons 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. With that, let's open it up for questions. Thanks.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star and then one on your touch-tone phone. If you decide to withdraw the question, please press star and then two to remove yourself from the list. The first question we have is from Patrick Mann from Bank of America.
Hi. Good day, guys. Thank you very much for the call. 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 USD 730 to USD 780, but Christine showed a slide earlier where, the waterfall slide, where the exchange rate has contributed quite a lot to bringing down your current cash costs. 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? If it's USD 730 to USD 780, but using worse exchange rates for you than what you have at the moment, could we knock $50 off that?
Is the exchange rate benefit coming through in inflation, and we should still look at a $730-$780 range?
Hi, Patrick. I think, look, at this point in time, we'd like to just stick to the guidance range, and I may give you more breakdown in terms of what you should be factoring in. What we did say is that certainly a stronger production profile in H2, but you'll see 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.
Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one on your phone.
Well, I think that might be a record. Are there any further questions? 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, then we'll thank 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.