Good afternoon, ladies and gentlemen, and welcome to AngloGold Ashanti's 2018 Annual Results Conference Call. All participants will be in listen only mode. There will be an opportunity to ask questions at the end of today's presentation. Please note that this conference is being recorded. I'd now like to hand the conference over to Mr.
Stuart Bailey. Please go ahead, sir.
Thank you, Judith, and welcome everyone to AngloGold Ashanti's full year and H2 2018 conference call. We have a busy schedule today, so we won't waste too much time getting into it. What I would direct you to read first is our disclaimer, our Safe Harbor statement. It's important you should study it. Without further ado, I'm going to hand over to Kelvin Dushnisky, our CEO.
Thank you, Stuart, and thank you to everyone joining the call. I've been in the role for about 6 months now, during which time, among other things, I've been immersed in our planning and budget cycles. This has given me a good look into the business and allowed me to make some changes, which will be highlighted during the presentation. As I mentioned back in November and on a few occasions since, the portfolio as it stands is a little heavy and could benefit from some streamlining. This is something that we'll take a systematic and measured approach to.
And importantly, no fire sales. Our balance sheet and liquidity are in great shape, so we're not pressed into anything. The divestments we're considering are for strategic reasons and to maximize efficiencies. In this context, today we've announced the beginning of a process for Cerro Vanguardia in Argentina to add to the process for Sadiola in Maui, which we announced late last year. The balance sheet is in good shape and continues to strengthen, and we believe the 1.5x target for net debt to EBITDA is still too high for a producer of a single cyclical commodity.
So we brought that target down to 1 times through the cycle. Our return threshold for projects and brownfield investments is a 15% after tax IRR at $1200 gold price. This adds another layer of capital discipline into the decision making process. Our dividend policy is the 3rd layer of discipline, ensuring that shareholders get the 1st slice of our cash surplus before we invest in growth. With our strict return metrics and leverage targets on one hand and dividend policy on the other, we're comfortable that we have the appropriate guardrails in place to ensure discipline.
This means that not every project will go forward. We're going to be stubborn in our decision making process, and the reality is that some options in our pipeline won't make the grade and will be monetized as we pursue the highest return investments. We're 100% committed to meeting guidance always, and we're taking steps to improve our planning so that we can provide longer term guidance for the business. License to operate has steadily climbed the rankings as among the most pressing long term challenges for the industry. Wrangler Bold Ashanti, it's been a top priority for some time.
This is reflected in our performance across a broad range of metrics, as shown on this slide. Safety is showing significant improvement, but we still need to do better. Environmental management is also critically important and an area in which we're performing well, But like safety, we always can do better and we must never be complacent and we won't. Speaking of safety, we should reflect for a minute on the recent tailings tragedy in Brazil. As a company with a large number of employees who live in the area, we've extended our deepest condolences to all of those who are affected.
And Ludwig is going to cover our own safety measures in this regard a little further in the presentation. So now turning to our results. The company performed very well in 2018. For the 6th consecutive year, AngloGold Ashanti has met or improved on every area of our guidance. All in sustaining cost for the full year has dropped below $1,000 per ounce to $9.76 an ounce, a 7.4% improvement on the prior year.
Our international business ended the second half of the year with all in sustaining costs below $900 an ounce. Our leverage has also continued to improve, now at 1.12x net debt to EBITDA, down almost 20% year on year and moving closer to our new target level. In Q4 alone, we generated $85,000,000 in free cash flow even with once off items, loan repayments and the slow remittances from the DRC due to the elections there. This shows that we're starting to deal with the cash conversion issues we faced, and we expect to see more of that unwind through the course of 2019 and into 2020. Productivity over the past 5 years is up by more than 50% and rising, while every element of our cost structure is falling despite recent inflationary pressure.
Our focus on margins is also paying off, with investment in previous years helping to achieve wider margins even in a stable to flat gold price environment. And while sustaining CapEx was lower year on year in 2018, we still continue to invest in operating improvements, which will deliver benefits in the years ahead. Now I'll hand over to Christine to walk us through the financials.
Good morning and good afternoon, everyone. As you've heard from Kelvin, our key metrics reflect a solid overall operating performance as well as focused cost and capital discipline, which underpinned our improved free cash flow generation. Production from retained operations after stripping out the South African region asset sales and closures increased by 2% compared to last year. All cost metrics continue trending towards the bottom half of the global cost curve. The inflationary pressures we're seeing were more than offset by weaker currencies, operational excellence savings and lower capital expenditure.
All in sustaining costs for the year came in at $9.68 an ounce, with H2 at an impressive $9.36 an ounce supporting the improvement. Our clear aim of improving margins by focusing on the controllable factors in our business through operational excellence helped us achieve a healthy all in sustaining cost margin of 23%, a strong improvement on the prior year margin of 16%. The marginally higher gold price and improved sales volumes on retained operations benefited both adjusted EBITDA of $1,480,000,000 and free cash flow. Free cash flow for the year of $67,000,000 which excludes the $309,000,000 proceeds from the South African asset sales improved significantly. This was despite delayed cash repatriation from Kibali of $55,000,000 Argentina export tax receivables of $14,000,000 $61,000,000 relating to the South African region restructuring costs and $10,000,000 relating to the refinancing of the $1,400,000,000 multi currency credit facility.
Overall, free cash flow for the year, excluding the abnormal South African region retrenchment costs and the once off refinancing costs is $140,000,000 On a positive note, VAT receivables in Tanzania were largely steady as we offset $33,000,000 in historical VAT. The recent VAT agreement in the DRC is another positive development where the government has committed to a $60,000,000 cash refund to the Kibali JV in respect of historical amounts owing. The JV received a VAT refund of $6,000,000 towards the end of 2018, and the balance will be offset against all forms of future taxes owed. Any future buildup of VAT receivables will be curbed once the President signs the legal mechanism to exempt the JV from VAT for the purchase of local goods and services. The South African business was free cash flow positive in H2 despite funding retrenchment costs of $22,000,000 during that period.
The final tranche of restructuring costs in the South African region amounts to $1,000,000 and will be paid during Q1 of 2019. With the first phase of our South African region restructuring now complete, the focus has shifted to reducing legacy costs in order to right size the cost base to the smaller footprint and drive further operational efficiencies through improved productivity. Chris will elaborate on this a little later. Total capital expenditure of $721,000,000 was 24% lower than the prior year despite the increase in the Abuasi and Siguiri project capital. Sustaining capital expenditure of 571,000,000 dollars for the year was 31% lower year on year due to the peak of our inward investments last year, savings from operational excellence and the now closed and sold South African operations as well as favorable currency effects.
Moving on to Slide 10, on the cost performance. Looking at the cost performance in detail for H2 year on year, our cash costs continue to improve to $7.26 an ounce or 8% lower than the prior year. These benefited from the South African asset sales at closures, weaker currencies, operational excellence efficiencies and an overall improvement in volumes and grades. However, inflationary pressures continue to prevail across the emerging economies that we operate in. We also saw higher mining costs relating to Geita Underground, higher royalties at Geita, Brazil and Kibali and the additional 1% clearance fees at Geita.
All in sustaining costs in the second half were 10% or $102 an ounce lower year on year at $9.36 an ounce due mainly to lower cash costs and sustaining capital. All in sustaining costs for the international operations were 5% lower at $9.20 an ounce from $9.72 an ounce in 20.17 with H2 coming in at an impressive $8.95 an ounce. We expect to sustain a large portion of these cost savings and Ludwig will provide more color on the nature of the savings achieved. All in sustaining costs for South Africa in rand terms were 7% lower, reflecting the benefits of the portfolio restructuring. In U.
S. Dollar terms, all in sustaining costs for the South African operations for the year were 5% lower at $11.78 an ounce, with H2 reflecting an improved all in sustaining cost of $10.33 an ounce for the South African business. To protect the cash flows of the South African business, we've implemented a 0 cost collar revenue protection mechanism for 2019 at between R545,000 a kilo to R755,000 a kilo, covering 300,000 ounces of production. This will provide a degree of revenue certainty while we focus on the 2nd phase of the business restructuring. Moving on to Slide 11.
Our balance sheet strategy continues to enforce capital discipline with net debt of 1,650,000,000 dollars the lowest level since 2012 and 17% lower than last year. Our net debt to adjusted EBITDA ratio of 1.12 times reflects ample headroom to our 3.5 times covenant. Liquidity remains strong, providing good flexibility in a volatile climate. The refinancing of the U. S.
Dollar and Aussie dollar RCE facilities into a $1,400,000,000 single multi currency facility was concluded in Q4 2018. That means that the only near term maturity is the $700,000,000 April 2020 bond. With the U. S. Dollar facility completely undrawn and significant cash balances at year end, we have flexibility in deciding on refinancing options for the bond.
We have lowered our net debt to adjusted EBITDA target to 1x through the cycle, taking into consideration that we have been below the target of 1.5x since 2016. That reflects declining net debt levels in the group on the back of improved free cash flow generation and asset sales. A lower net debt to adjusted EBITDA target signals our intention to further deleverage the balance sheet on a self funded basis whilst keeping our capital allocation framework intact. That means making wise capital investments on both brownfields and greenfields projects and maintaining the dividend. We remain strongly levered both to the gold price and currency, and we expect cash flow generation across the business to continue to benefit from current market conditions as well as from efficiency improvements in our business.
A cash dividend of the equivalent of 0.07 dollars per share has been declared by the Board, which is in accordance with our dividend policy to pay 10% of free cash flow, free growth capital. In addition, the Board exercised its discretion by adding back the South African region restructuring costs of $61,000,000 to free cash flow in determining the dividend. Finally, our credit ratings remain intact with Moody's at an investment grade rating with a positive outlook and S and P at 1 notch below investment grade with a stable outlook. Moving on to guidance for 2019. We see production we're guiding production at 3.25 1,000 ounces to 3,450,000 ounces.
We've kept the top end of the production guidance range intact compared to last year, but lowered the bottom end of the range compared to 2018. This adjusts for the South African asset sales and closures, the anticipated sale of Saviola and lower expected production from CVSA. These factors are partly compensated for by increased expected production from Siguiri. In line with past trends, production is expected to be weighted to the second half of the year with strong performances expected from Gaeta, Siguiri and Brazil in the final 6 months of the year. We remind you of the usual caveats to our guidance relating to power, labor, regulatory and other disruptions.
The cash cost and all in sustaining cost guidance ranges reflect improvement compared to 2018, capturing weaker currency and current commodity price assumptions. Other operating expenses are estimated at $85,000,000 and includes care and maintenance costs for Abuasi and the South African region. Our currency exposure across 2 thirds of our portfolio continues to provide a natural hedge to inflationary effects and to the volatility in the gold price. However, we remain sensitive to changes in currencies and commodity prices and the estimated impacts based on the assumptions provided on all in sustaining costs and cash flows are provided with a health warning. Total capital expenditure is guided at $19,000,000 to $990,000,000 dollars for 2019, which includes the peak funding requirement for the Abuasi growth project.
The total project capital of Abuasi is anticipated to be $495,000,000 to $545,000,000 which includes $45,000,000 for the mining fleet purchased and of which 10% of the total capital was spent in 2018, 60% will be spent in 2019 and 30% will be spent in 2020. The remaining growth capital relates to advancing the feasibility study for Quebradona, completion of the Siguiri Hard Rock project, which Ludwig will talk to and expected to be ramped up by mid year, Tropicana and Mponeng. Sustaining capital expenditure of $520,000,000 to $560,000,000 amounts to approximately 55 percent of the total capital budget in 2019 and is estimated at approximately $160 an ounce, which is at the low end of the industry range, noting that the brownfields inward investment program was completed in 2017. I will now hand over to Ludwig to talk about the international operations.
Thank you, Christine, and good day, everyone. We're on Slide 14. Last year, production from our retained operation was up just over 2% from 20 17. Continental Africa gave another strong performance with high underground tonnages and grades at Kibali and Gaeta, lifting the results. Idioprem increased production by 11% year on year, thanks to improved grades and throughput from the Teberevi pit.
The strong performance was partially offset by lower tonnages treated at Seguri, and that was caused by mining harder material. The Americas saw a drop in production over 2017, mainly at AGA and Minnesota. The Kiawah complex faced some development and infrastructure constraints through the year, but we started to see improvements during the Q4 on improved stope availability, drilling rates and recoveries. At CDS, we sold over grades in the sulfate operations, while heavy rain affected open pit production. Australia had a good year, with production up 21% at Sunrise Dam on rising volumes from both.
At the same time, we struggled a little to achieve the targeted recoveries from the REP project immediately after commissioning. At Tropicana, the 2nd ball mill was commissioned ahead of schedule in November and is delivering the planned increase throughput and recoveries. Chris Sheppard will cover the performance from South Africa later in this presentation. Turning to Slide 15. We saw another good cost improvement with all in sustaining cost down 7% to $9.76 per ounce, with benefits from lowering sustaining CapEx and improved efficiencies.
Operational excellence initiatives in Americas region and weaker local currencies helped lower costs. In Continental Africa, our costs benefited from the strong production and also the operational excellence interventions. During 2018, we completed a number of brownfields investments, including the new power plants at Geita and Seguri, the cutback at Ileoprim and the new plant at Siguiri. At Sunrise Dam, costs were higher due to the once off improvement projects, including the Recovery Enhancement Project, the REP, increased oil development at Vaux, new ventilation facilities and an expansion on our central tailings facility. The mine has set up well for the years to come.
International operations all in sustaining costs improved by 50 $2 an ounce to $9.20 an ounce in 2018, demonstrating the impact of operational excellence. Turning to Slide 16. Looking forward into 2019, we expect another solid operating year from Continental Africa. At Geita, we're seeing a stable production trend as we continue to embed in the underground development and exploration. Mold maintenance is underway this month, so we expect a slow production start with 60% of the 2019 output in the second half of the year.
As agreed, the focus for the year will be to stabilize the plant throughput and operating stability as a new plant is commissioned. Now that the underground production is ramped up at Kibali, the team will aim to replace reserves through brownfields exploration. Turning to Slide 17. At AGA Minasaro, we expect improved grades this year, resulting in higher production. Reserve conversion is our clear focus.
At Cerro Grande, the mining of the crown pillar will lead to higher grades towards the end of the year.
I would like to make
a quick comment about the company's management of its tailings facilities. We have a clear framework that sets principles, standards and guidelines for construction, management and oversight of our TSF. It is our obligation to ensure that our tailings facilities are stable, non polluting and contained. We are guided in this regard by the international best practice and conduct regular detailed inspections by internal specialists and independent third party experts as well as ongoing monitoring and ongoing preventive maintenance. Turning to Slide 18.
Moving on the year ahead in Australia. At Sunrise Dam, the focus will be on stabilizing the REP project, which we expect to boost recoveries by around 6%. At Tropicana, we expect the strong performance to continue, and we think there might be upside to that as the ball mill appears to be capable of delivering higher throughput and recovery than planned. So we are looking at the possibilities to improve output. I will now hand over to Chris Shepherd, who will take you through the performance in South Africa.
Thank you, David. Good day, ladies and gentlemen. And turning to Slide 20. 2018 saw the conclusion of the 3rd wave of restructuring within the South Africa region business at year end, following the sale of Moab Khotsong and Kopanang mines in quarter 1 twenty eighteen. During the second half of twenty eighteen, we sold the Westfall Hospital, the Pharmacy, Chemical Laboratories and the Vaal River rail transportation network, assisted with job loss avoidance measures.
Of the 2,000 jobs that we contemplated in our May 2018 restructuring announcement, we finally applied compulsory retrenchment to some 70 employees. As a consequence of these actions, it's pleasing to note that the South Africa region portfolio returned to free cash flow generation in the second half of last year. From a production perspective, production from the retained operations was up some 2% year on year and Mponeng performed well assisted by higher than planned grades and improved workplace compliance. Looking into 2019, production from the retained operations is expected to see a slight improvement year on year with all in sustaining cost expected to drop below $1100 per ounce. Mponeng is expected to see grades reduce year on year in accordance with the predicted grade model along with higher output as planned productivity improvements kick in.
Unit costs are expected to benefit from improved mining practices and the new shift arrangement. Our Mine Waste Solutions operation is expected to see a slight improvement in both grades and throughput and recovery, ultimately leading to an improvement in margin. Turning to Slide 21. I alluded to the restructuring of the SA asset base on the previous slide. To be clear, without the constructive approach and engagement of all our stakeholders, we would not have been able to conclude the significant reduction in labor and associated costs.
The restructuring costs incurred in 2018 totaled some $61,000,000 and facilitated the return to free cash flow generation in the second half of twenty eighteen. Efforts will continue in 2019 to realize further cost reductions within the off mine cost structure focusing on systems and work process streamlining. Mponeng implemented a new shift arrangement in quarter 4, which should be fully embedded by the end of quarter 1 2019. To recap, the 5 day work week, 11 hour per shift arrangement for production teams and supervisors allows for substantial increase in face time, allowing for planned work cycle activities to actually be realized, resulting in improved safe production levels. It's early days yet, but encouraging signs are evident with buy in from all stakeholders concerned.
I'll now hand over to Graeme. Thank you.
Thank you, Chris. Today, I'll provide an update on progress on the Obuasi redevelopment project and a summary of the Colombian Quebradona project, which the Board approved the pre feasibility study and the progress to feasibility. Slide 23. You'll recall that the Obuasi project is being tackled in 2 phases. First phase is to recommence mining and refurbish the plant to achieve a production rate of 2,000 tons per day.
This is on track for 1st gold at the end of this year and production in 2020 at 2,000 tons per day. The second phase is about ramping up mine production and the construction of new facilities to achieve 4,000 ton a day. This is on track for completion at the end of 2020 and production at 4,000 ton a day from 2021. The operations and the construction teams are now fully established on-site. And the design of the operating systems for geology, mine technical services and mining has been completed.
At the end of 2018, the operational readiness program was 25.4%. At the end of January, design of the new elements is 51.7% complete and procurement is 53.2% complete, with work prioritized to the critical packages and the long lead items. The Phase 1 critical items have been ordered including the BIOX cooling tower, the jaw crusher and the grizzly feeder. Now on Slide 24 with a few photographs, the mining fleet has now been delivered to site. The mining contract is established on-site and underground development has commenced.
First development blast was achieved on the 1st February. This is quite a milestone for the team on-site. Everyone on-site as you could imagine were quite excited about the first blast, the mine having been rather dormant for the last few years. Demolition of all sections of the plant is advancing safely and a little bit ahead of schedule and is now 45% complete. Construction of the mining contractors camp is well advanced and refurbishment of housing for the Obuasi workforce is progressing quite well.
On Slide 25, on the 22nd January, the President of Ghana and the Asantehene or the Ashanti King launched the redevelopment project in front of a very large gathering of elected and traditional leadership, the community, our employees and contractors. Both the King and the President were quite effusive about their comments on the project and were complementary about AngloGold having stayed the long course and having worked constructively with government and with the community to bring about the redevelopment. Consistent with our commitments to the government and the community, we are very focused in the project. Recruitment is focused on Ghanaian employees, focusing on local communities. We're also looking within Ghana and even offshore as many Ghanaians work globally.
Where we have imported specialist operational, managerial and technical skills, these have been matched with Ghanaian successes, who will be developed during the course of the project. The 5 year mining contract was awarded to the underground mining alliance, a joint venture between AUMF and Ghana's Rockshore. The contract will employ and train about 500 Ghanaians. Now on Slide 26, turning to Quebradona. The pre feasibility study has recently been approved by the Board.
And as I mentioned, we're now progressing to feasibility. Quebradona is an underground copper gold project situated in the municipality of Jericho, approximately 100 kilometers Southwest of the city of Medellin. The ore body is a subsurface copper gold porphyry and it lies within an escarpment. Mining would be by sublevel caving and access and material transport is via tunnels from the valley. The process plant and infrastructure are positioned in the valley close to the bottom of the Eschar plant.
And on a few highlights of the pre feasibility study on Slide 27, the planned mining rate is 6,200,000 tons per annum over 23 years at an average grade of 1.2% copper and 0.66 grams per ton of gold. Comminution will incorporate high pressure grinding rolls and a single stage ball milling, very similar in scale and design to the Tropicana circuit, which is operated very well. A copper gold concentrate will be produced through conventional flotation. The concentrate is very clean and from our market research is expected to be well received by smelters. With an all in sustaining cost of $0.88 a pound of copper, with capital costs of $990,000,000 approximately, the all in cost is $1.24 a pound providing a healthy margin for the forecast long term and current spot copper price.
The project return including the cost of the feasibility study is estimated at 16.8 percent at a copper price of $2.90 per pound $12.40 an ounce for gold. At the current spot copper and gold prices, the return is 16.4%. And at $3 a pound, the long term view of many copper producers, the return increases to 17.5%. As we move into the feasibility study and the permitting phase, we will be significantly increasing our engagement with the local community and other stakeholders to whom modern mining will be quite new. Finally, we're pleased to announce the maiden ore reserve for Quebradona has £2,800,000,000 of copper and 2,200,000 ounces of gold.
For more details, I refer you to a separate press release on the ore reserve. And with that, I'll hand over to Tim. Thank
you. Thank you, Graham. Hello, everyone. On Slide 29, we'll speak to the year that we had in terms of resource and reserve addition. 2018 was a great year for the project team at Cape Verdona, as Graham already mentioned, and also for our generative and our mine site exploration teams across the portfolio.
We completed 2018 with a net increase in ore reserves after depletion on a portfolio wide basis. We continue to unlock value from our investments in Colombia as well as make significant gains at our mine sites from exploration and cost reduction initiatives. As Graham mentioned, we declared our first copper ore reserve of £2,800,000,000 at Quebradona and our mineral resource portfolio remains stable as a source of optionality as we continue to push conversion of mineral resources to ore reserves throughout the company. On Slide 30, our generative and mine site exploration programs were active across portfolio, delivering ounce additions at a favorable $34 per ounce unit cost from our international group since AngloGold was formed in 2,003. We have active exploration hubs in Australia and North America with drilling programs in progress in both areas and a target generation focus in South America and West Africa.
In Australia, we were quite pleased that an internal stage gate review following the H1 drilling program at the Butcher Well joint venture with Saracen near the Sunrise Dam Mine supported AngloGold completing earn into 51%. We will continue to advance project work over the next 12 to 18 months to establish a first mineral resource and prioritize any necessary permitting to access pit oxide targets while we establish access for underground exploration and development. We also completed a successful field season in Queensland and all the areas we secured following target generation based on analysis of new data sets available. We expect your targets to be defined following a review of our own sampling results and geophysical survey anomalies identified. In North America, our year ended with winter drilling programs in progress at both our Minnesota and Nevada project areas.
In Minnesota, we have a rotasonic drilling program in progress where we're collecting samples to prospect below the Till material, covering a broad area identified as perspective for gold deposits by our target generation process. In Nevada, I hardly need to explain why we are excited to have exploration progress in the prolific Walker Lane trend. At the Silicon project, we have approximately 17,000 meters of core and reverse circulation drilling in progress, testing targets generated in the past 18 months by our North America based exploration team with support from our global specialist team. We expect to complete stage gate reviews of these projects following the logging, sampling and receipt of assays to determine whether we advance these programs with additional drilling after the stage gate review. Target generation activities are ongoing in South America and West Africa, as I mentioned earlier, and they provide new projects for and the intention is to provide new projects for our portfolio.
We are also active across the portfolio with our mine site exploration programs and the next slide provides highlights for some of these results on Slide 31. Our positive exploration results in 2018 continued to support stable mine plans across the portfolio, along with steady transition from mine sites where underground operations have commenced or planned in the near term. The highlighted results provided here speak to the health of our assets and the pipeline of mineral resources undergoing conversion beyond our current ore reserves. Moving to Slide 32. In this slide, we see the continued development of our exploration project pipeline of generative and mine site programs in every jurisdiction where we explore with additional early stage projects coming out of the work of target generation teams in each region.
This supports and complements the ongoing mine site exploration and development programs underpinning the stability of our portfolio. Moving to Slide 33. We have a focus on Gaeta Gold Mine and it's in the process of transitioning from open pit mining to most ore being sourced from underground mines over the next few years. As you can see in this slide, the resource extensions of the ore bodies at both Nyankanga and Geita Hill deposits continue from the drilling completed at surface below the current open pits. And at Nyankanga, that is being further defined by underground drilling from underground platforms.
The results observed show that similar gold mineralization continues down plunge from the ore mine in the open pits. Moving to Slide 34, we see similar ore body extensions in the Star and Comet area where underground mining is in progress in both the Cut II and Cut III areas. We also have additional underground targets in the Ridge 8 and Roberts areas where we expect to progress with additional drilling in upcoming years. Last, the Gata team has advanced exploration a few kilometers northwest from Star and Comets where they have a target emerging at Salu that may provide a surface mining opportunity with additional potential to develop down plunge extensions as we've seen in the other ore bodies as another potential underground mining prospect. We will continue to advance all of these projects through the stage gate process.
Moving to Slide 35, we're excited about the new and continuing exploration opportunities resulting from the work of our generative and mine site teams in 2018. 2019 will be another active year across our exploration portfolio and a few of the highlighted programs for the year out of our project pipeline are shown here on this slide. We expect roughly $30,000,000 to be allocated towards generative programs, while the remaining bulk of our exploration budget for the year is planned for resource conversion and new resource addition projects at our mine sites. And now back to Kelvin.
Thanks, Tim. As I mentioned before, we placed a high premium on focus. With a smaller South Africa footprint and also the processes underway in Argentina and Mali, we've decided to make some organizational shifts to support that emphasis. It's an opportune time to do this, given the planned retirement of 3 valued members of our executive team, Charles Carter, David Nocco and Chris Shepherd. We offer them our deepest thanks for their distinguished service and our wishes for all the best in whatever the next chapter will be for each of them.
We've now reorganized 2 operating units into or 2 operating units, sorry, into international and Africa divisions with the Africa unit incorporating South Africa. Ludwig Ebers will maintain responsibility for the international portfolio and exploration. This includes Australia, the Americas and the Colombia projects. The Brazilian and Australian operations in particular has significant potential to improve and will benefit from Ludwig's deep experience, his focus, his broad understanding of the business and those assets in particular. The Africa unit will be led by Sotelo Natuli, a top member of our operations team who's worked at the underground operations at Mponeng and has also had an extended period at Udiaprin during which time the mine recorded strong operating and safety results.
For the past two and a half years, Sikela has held direct line responsibility for an improving Continental Africa portfolio. He's been an exceptional performer in the company for almost 2 decades and will be a strong addition to our executive team. Moses Madondo, who distinguished himself as head of our Val River assets before their sale last year, will assume responsibility for our South Africa business. Moses, a seasoned mechanical engineer, is another of our exceptional homegrown leaders who has established an excellent track record during almost 20 years with the company. We have a high degree of confidence in him.
Stuart Bailey, who many of you know as our Senior Vice President of Investor Relations and Communications, will assume the role of Executive Vice President, Corporate Affairs, where he will head the team of experienced specialists in the broad area of stakeholder relations and sustainability, which will continue to include Investor Relations and Communication. His knowledge of our assets and operating geographies and close cooperation with sustainability teams over the years provide a strong foundation for the role. And finally, I'm pleased to announce the addition of Pierre Chenard as Executive Vice President of Strategy and Business Development. Pierre is a seasoned executive from the Rio Tinto Organization, where he was Head of Business Development and also General Counsel for its aluminum unit. Pierre brings decades of commercial and business development experience in the metals and mining industry and an in-depth knowledge of the gold sector from a number of senior roles he's held in this space during his distinguished career.
Pierre will work alongside an excellent corporate development team here in Johannesburg and round out a highly talented and motivated leadership group as we work to unlock the value in the business. We place a premium on clear and uncompromising capital allocation as well. This means that certain investments may not be made if the returns they offer rank below other opportunities in the portfolio. As we look across the portfolio, Cerro Vanguardia in Argentina is the next asset we'll explore selling. As with Sadiola in Mali, Argentina has been an excellent jurisdiction for the company for almost 2 decades.
But with competing demands for capital, another owner may be better placed to invest in extending the life of these assets. As we divested these operations, we'll replenish the portfolio with lower cost, higher margin ounces from Obuasi as it ramps up through the course of next year. In order to sustain value creation over the longer term without resorting to expensive and complex M and A to replenish the portfolio, it's important to ensure consistent investment in exploration. Tim gave a good overview of how we intend to do so. We'll continue to invest in exploration to be sure the pipeline remains well stocked.
And we'll work hard to optimize projects to achieve our 15% return rate at $1200 an ounce gold price, and most that don't, we'll monetize. For those that go ahead, we'll look at a range of financing options to ensure that cash generation and direct return to shareholders aren't always pushed into the future. So let me finish with some points on how we intend to run the business. We'll continue to place a clear emphasis on getting the basics right. That means meeting our guidance always and strengthening our license to operate.
We'll keep a sharp focus on costs and managing capital. We'll build on recent efficiency improvements using operational excellence across the business to continue to move down the cost curve. We'll continue to work hard to eliminate leakage that impacts cash conversion, especially in care and maintenance costs and working capital lockups. A near term example of this will be the roughly $60,000,000 in annual care and maintenance costs that we've been spending on Abwasi. That figure will be lower this year than in 2018 and will end altogether in 2020.
We'll continue to streamline and focus the portfolio. We'll invest wisely to progress our exploration pipeline and projects. And as we do that, we'll ensure we move our 2 key Columbia projects up the value curve. We'll ensure Obuasi comes in on time and on budget, as Graham explained. In fact, Obuasi's redevelopment is a top priority this year.
We'll do it prudently, mindful this is a long life mine. In fact, we're hosting a tour to Obuasi the week of May 27, which some of you may like to attend. Our vision is clear, a solid, predictable business that will deliver through the cycle. With that, we'll open it up for questions. And just before we do, I'd like to apologize for the length of the presentation.
It will be a little less comprehensive in the future. Thank you very much. And now we'll turn to questions.
Thank you very
much, sir.
The first question comes from Tanya of Scotiabank.
Good afternoon, everybody. Hi. Hello.
Hi, Tanya. We can hear you.
Okay, good. Perfect. Thank you, Kelvin. I have a few questions. So I'm going to start from the technical side.
Maybe someone can give us a better idea on how some of the operations are going to perform in 2019 over 2018. We had a little bit of guidance on the South African mines that they're going to do a little bit better versus 2018 at lower all in sustaining cost. But maybe some of the other divisions? That's my first question.
Okay. Keep going, Danielle. I'll note the questions. We'll deal with them 1 by 1.
Okay. The second one would be for Christine to just review with us some of the big capital items on the development front. I mean, the sustaining, sustaining, but just some of the big ones. I mean, Obuasi clearly would be a big one and you've given us guidance there, but just any of the other key items, key mines. And then the third would be on okay, I'll continue on my third one.
My third one would be just on sort of your philosophy to do with La Colassa and Quebradona, whether that actually fits your portfolio. I mean, especially because Quebordonia is really a copper mine, copper project and how do you see that fitting in? And where does Gramalote fit in here? We didn't really hear about that one. So I'll start with those 3.
Okay. Well, Tanya, thank you. Maybe we'll start with the first one regarding the operations moving into 2019 from 2018. And I turn to Ludwig, if you could respond to that.
Hi, Tania. I'll start with the Americas side, the Brazil side. We'll see a bit of an uptick in the Brazil operations from last year, and that's basically on the back of better grades at Cuba. Argentina will be a little bit lower than previous year, and that's also in the back of grades. Going to Africa, we're basically flat with a little bit of uptick in Continental Africa, especially now that we've got the combination plant in Zuguri that's operational.
So we'll see a bit of uptick in that. And data will still be performing and even a little bit better than the previous year. If you look at Australia, it would be fairly flat, except for Tropicana, where we expect a little bit of an uptick on the production. In terms of costs, we're looking at very much the same kind of cost with a little bit of a cost saving from the previous year, and that's on the back of operational excellence and depending on what the exchange rates do in the different reasons. But we still we keep on driving the cost down as we've done the previous year.
And maybe Ludwig, just on the cost, if I could. Just I think we've heard several times inflationary pressures. I think Christine mentioned those. Can you just talk about what you're seeing as inflationary pressures in your cost structure around the world?
I think the biggest one that's actually now showing itself is basically fuel. That's the one that we're actually very cautious about. But obviously, with the operational excellence, we try to offset that as far as possible. But I think we've seen the commodities turn. So there is a bit of a pressure on most of the commodities, but especially fuel.
That's the biggest impact.
And nothing on labor?
Labor, mostly close to the inflation. And over the longer term, it actually it's balanced by the exchange rate I think in most of the areas.
We've also entered into labor agreements last year, places like South Africa, Sudbury, elsewhere. So that's positive.
I think more of Australia, Calvin. Okay.
In Australia, the labor is basically every year goes around 2%. It's basically just on the inflation. There's no real pressure on that. Great.
Christine, do you want to Okay. Thank you. On capital?
Yes. If I can just add to fuel, what we have done for the 2019 year ahead is we have entered into the 0 cost collar hedge to protect us against the increase in fuel prices within a range. So it's within a so we've hedged about a third of the fuel consumption, particularly relating to Continental Africa, but it amounts to a third of the fuel consumption in the group. And it's done within a range of a floor of $56 a barrel and an option a call option at $82 a barrel. So we've tried to protect ourselves against increases in that.
To move on to the capital question, I think clearly, we've I've said the overall capital guidance is $19,000,000 to $9,90,000,000 Of that, growth capital is $390,000,000 to $430,000,000 That's the total range for growth capital. And I've given you the figures as relates to Wafi'i. I said 60% of the $490,000,000 to $545,000,000 $5,000,000 spend will be spent in 2019. Of the remaining growth capital being in the ranges that I've given you, the spend will really be relating to Tropicana. And I can give you a range of possibly R20 1,000,000 to R25 1,000,000.
And then we've got the completion of Siguiri, but there's also Block 2 within Siguiri. So there's a smaller sort of overflow from 2018 relating to the completion in the current year. And I think that would be around $10,000,000 And then we've got Quebradona. So like we said, it's moved into feasibility and the spend envisaged there for this year is about $15,000,000 relating to that. On the sustaining capital buckets, I've spoken to the range.
I think importantly, it's $520,000,000 to 5.60,000,000 dollars and estimated at $160 an ounce and your bigger buckets relating to the sustaining capital spend really pertains to Brazil. I think there is a range of about $140,000,000 to $160,000,000 in terms of sustaining capital spend. The other bigger bucket is GATA. And then once again, we've got Australia. So GATA, it's a bit of an uptick, probably 15% higher than what the spend was last year.
And then we've got Australia lower than last year's levels. And sorry, I have to guide you because I can't give you the exact numbers. These are still bad.
Yes, no worries.
Yes. So it's lower than last year's level of spend, but they are the bigger buckets of sustaining capital spend. And then of course, we've also got sustaining capital spend in South Africa.
Okay, perfect. Thank you, Christine.
Tanya, I'll go to the third question and the philosophy around the Colombian projects. Let me start with La Colosa, which is easiest. Look, that's a project that is in essence on hold. It's in force majeure where it's not a priority. We're not spending much money.
We're holding the asset, spending about $1,000,000 to do that next year. So but it is it's not a priority asset for us at this point. Quebradona and Gramalote are and maybe I'll start with Gramalote. We did increase resource drilling in 2018, which we've received encouraging results from, and we're now completing the resource model. So stay tuned.
We'll look forward to updating on Gramalote soon. I can tell you that ourselves and our partner B2Gold, who's a great partner for that project, I think we're both equally enthusiastic about what we're seeing, but we don't want to get ahead of ourselves. So we'll look forward to updating on that. And Quebradona, I mean, you're right. It's a large it's got a £2,800,000,000 of copper, £2,200,000 ounces of gold at this point.
We think that will grow. But we think that it's a project where we can unlock value by taking it through feasibility study. And at that point, you shouldn't be surprised if we decide to look at bringing in a partner to develop La Colos sorry, Quebradona. And that's a project where we think there'll be a lot of interest. One of the features of Quebradona that we've seen through the pre feas is that it would produce a very clean copper concentrate, which will have high marketability.
So, well, it's early days, but we are enthusiastic about what we see in the pre feas. We hope to continue that trend with the feasibility study. But on a going forward basis, again, shouldn't be surprised to think of us partnering on that one.
Yes. It's just as almost $1,000,000,000 I mean, I just kind of wonder whether $1,000,000,000 is better allocated to other parts of your portfolio. And maybe just on the social issues there, Kelvin, how are those going? Well, like a lot of
places, Ken, it's early days. And so there's lots of work head off both on the fees and locally with communities to ensure that we have gained community support. Look, it's not uncommon for a lot of projects in Latin America early on in particular to see local opposition to projects. In the case of Quebradona, it's actually been a very kind of peaceful and calm process that we've been going through. And our objective over the course of the next year is to spend time on the ground working with communities.
I've met our team and I'm confident in their ability to ensure that we're characterizing the project properly. In other words, this project can be built responsibly with environment, social matters in mind. And so we'll work through a process. At the end of the day, we have to ensure that we have local support. And if we do finance a project, we'll proceed.
And if we don't, then we won't. And it really is that simple, but we're confident that we'll get there.
Okay. Okay. We're looking forward to hearing more about it.
And by the way, Tanya, on the capital, the number you've quoted, that's one of the reasons we would consider bringing in a partner.
Yes. A lot of money.
Well, it's a good project at this point. So we'll see.
Okay. Thank you.
You're welcome.
The next question comes from Patrick Mann of Bank of America Merrill Lynch.
Hi, good afternoon guys. I might sit the cat amongst the pigeons here a little bit. But if you look at the gold industry overall, there's obviously been 2, I suppose, mega mergers and a lot of companies looking to offload what they're saying is non core assets. Kelvin, you've obviously been around the industry a lot and have a lot of experience at different operators or at a different operator in particular. I know that you've got a lot on your plate organically and from a brownfields perspective, but it definitely feels like a buyer's market with everybody looking to offload assets.
Is there any realm of possibility at which you'd look at acquiring something outside of your portfolio if it were kind of in line with your longer term vision for the portfolio? Or is that just completely off the table because of what's on your plate internally? Thanks.
Patrick, no, we really do. We've got enough to chew on with our own portfolio and which we highlighted today. So, no,
we're not in
the market in terms of acquiring anything else. And at this point, the divestments we're doing, by the way, these are assets that are good assets. And what my experience has been that when you've got good assets with prospectivity, there's there can always be a buyer. And I liken it to real estate, a good house in a good neighborhood, markets go up, markets go down, but you tend to surface buyers for it. And we're already seeing as we've initiated only the process on CBSA, some pretty strong interest right out of the gate.
So we'll see. But as far as us looking to acquire other assets at this point, no.
Thanks. Sorry, maybe if I could follow-up on that. Just in terms of how you evaluate a bid in terms of value for, let's say, CVSA, would you do kind of on a reserve ounce, resource ounce basis? Would you look at it compared to what the NPV what you think the NPV is of the mine? I mean, how do you evaluate whether a bid is a decent offer or not?
Well, that's really kind of broad spectrum of metrics. There isn't a single one single criteria, but we also look strategically. And so for example, an asset like CBSA, great assets, but a significant cash flow generator for the company and it's got life ahead of it. On the other hand, for us, our focus is going to be on areas where we're going to be building critical mass in the future and that particular jurisdiction isn't doesn't fit into that mix. Great Place operated successfully for a long time.
CVSA has good potential in front of it. And by the way, when you're looking to divest, you can't squeeze every last drop of juice out of an asset then expect to find reasonable buyers. So now is the time to be looking at a process around CBSA. And so it's a combination of things, but including long term strategically where we want to be deploying our resources and attention and that just isn't one of the jurisdictions we intend to do that.
Great. Thank you very much.
You're welcome. Thanks, Doctor. I guess we have time for I apologize we've gone over and I know everybody's got a busy day ahead of them. So, we'll have to end the call there. And if there are additional questions, then by all means, please, we can follow-up with the IR team.
Next call, we're going to keep tighter to allow more times for questions. We apologize for that. But I'd like to end by thanking everyone who joined the call. Again, 2018 was a great year. We're looking forward to 2019 and to updating everyone on our progress with our Q1 call.
So thank you very much.
Thank you very much, sir. Ladies and gentlemen, on behalf of Angogold, Ashanti, that concludes this afternoon's conference. Thank you for joining us. You may now disconnect your line.