Good afternoon, ladies and gentlemen, and welcome to AngloGold Ashanti's Q3 market update. All participants will be listening in mode. There will be an opportunity to ask questions at the end of today's presentation. If you should need assistance during the conference, please signal an operator by pressing star and then zero. Please note that this conference is being recorded. I would now hand the conference over to Mr. Stewart Bailey. Please go ahead, sir.
Thank you very much, Judith, welcome everybody. Thank you for making the time to join us on today's call. We will be talking through the highlights of our third quarter market update. You're joined on the call here in Johannesburg by members of our executive team. The presenters will be Kelvin Dushnisky, our Chief Executive Officer, Christine Ramon, our Chief Financial Officer, Chris Sheppard, our Chief Operating Officer, South Africa, and Ludwig Eybers, our Chief Operating Officer of our international business. I would urge you please to look at the disclaimer, the safe harbor statement at the beginning of our presentation, which contains important information about forward-looking statements that may be made. It's important, and I would ask you to refer to it. Without any further ado, I'll hand over to Kelvin.
Thanks, Stewart, thank you to everyone for joining us today. It's been an interesting time for me, moving up the learning curve and coming to understand the company. I want to thank my new colleagues here at AngloGold Ashanti who've been incredibly open and supportive. I'm just over two months in the role, but I can tell you that I've been impressed with the depth of talent I've encountered. As I improve my familiarity both with the operations and the pipeline, I'm excited about the potential I see and the culture and discipline that exists across the business. Before I get into the numbers, I'd like to thank my predecessor, Venkat, for his important contribution toward establishing the strong foundation that we have to build from. You'll be familiar with our common sense approach, which starts with a focus on safety and all other aspects of sustainability.
We're active managers of the portfolio and will continue to tightly manage costs and capital to ensure our balance sheet stays fit for any market environment. This is particularly important to me. Ludwig will walk you through the fundamental improvements to our operations, as well as the strong optionality in our pipeline. These pillars support our main objective of improving cash flow and returns on a sustainable basis. I've been working closely with Ludwig and Chris in support of our operational excellence initiative, which will help us continue to progress down the cost curve. Christine will ensure we meet our investment needs while keeping a sharp focus on the balance sheet. I've had the opportunity to spend a week in Ghana, where there's excellent work being done on margin improvement at Iduapriem and steady progress by Graham Ehm . and his project team to unlock the outstanding potential at Obuasi.
While I was there, I had the occasion to meet with the mines minister and his colleagues on the Minerals Council. I could not have come away from those meetings feeling any more confident about their support. Ensuring the schedules are met to deliver Obuasi on time and on budget is a top priority for me, as is ensuring our South African business stays free cash flow positive. I'm familiarizing myself with the opportunities at each of our assets. I look forward to working closely with the management team to ensure that we realize on them. Safety remains our number 1 priority. Long-term improvements and new benchmarks in safety have again been recorded with our all-injury frequency rate for Q3 at an all-time low of just over four, as this slide indicates. That's an improvement to more than 40% over the previous year.
I'm encouraged to have discovered a strong reporting and learning culture here, especially with respect to high potential incidents. It's certainly pleasing to be able to present a strong set of numbers in my initial quarter as CEO of the company. The business has demonstrated improvements in every key area. Full-year operating guidance remains on track, with costs at the lower end and production trending to the upper end of the guidance range. all-in sustaining cost improved by 14% year-over-year. Production for most of our assets delivered either in-line or better than expected results. Having consistent, reliable performance from our operations while actively managing risks is key to being successful over the long term, and this is yet another quarter where these efforts are showing results. Notably, we continued to turn the corner on free cash flow, generating $34 million during the quarter.
All things being equal, we expect that to get even better in Q4. In a few minutes, Christine will touch on the solid work that's being done to keep the balance sheet in good shape and to maintain strong liquidity. Now I'll hand over to Chris for an update on the South African operations. Ludwig will take you through the international operating and projects portfolio.
Thanks, Kelvin. In South Africa, we've managed to sign a three-year wage agreement with all our unions, which includes what is being taken as a fair wage increase by all parties involved, as well as a new shift arrangements agreement. The revision of shift arrangements is an important step towards improving productivity in the region. It is aimed at ensuring safe workplaces and safe work practices. It's expected to result in increased operational efficiency through sufficient phase time being available to complete the main elements of the production cycle in that time. To note, our production crews will be working an 11-hour shift for five days a week within a clear fatigue management framework. Looking at the restructuring work in South Africa, we managed to reach a balance between preserving local jobs while right-sizing our overhead structures for now much smaller production base.
Our focus is to responsibly create a South Africa region business that is profitable on a sustainable basis. We mitigated job losses from 2,000 jobs initially anticipated in the most recent Section 189 downsizing process to a much lower number. This was done through offering voluntary severance packages and selling non-core assets such as healthcare facilities and rail networks in the Vaal River region, under the ambit of a job loss avoidance agreement with the relevant unions. Turning to slide eight, production for the group at 853,000 ounces during quarter three remained steady when compared to the previous year. In South Africa, a strong performance by Mponeng mine at 25% improved production year-on-year, mainly due to higher than anticipated in-situ grades and improved mining practices.
Our Mine Waste Solutions faced challenges regarding volume and grade, of a temporary nature, while the commissioning of the Aachen Shear Reactor technology is expected to provide a gold recovery improvement going forward. I'll now hand over to Ludwig.
Thanks, Chris. Good day all. We're still on slide eight. In continental Africa, we saw strong performances from Kibali and Iduapriem, with production up 55% and 11% respectively. Those improvements came on the back of higher throughputs and grades. This more than offset lower grades and teething issues at Siguiri, where we completed the CIL commissioning. In Australia, upgrades are taking place at both Sunrise Dam and Tropicana to improve cost efficiencies and margins. Tropicana reported another solid quarter, with increased head grade and more throughput. Its second 6 megawatt ball mill is on track for commissioning by year-end. At Sunrise Dam, production was impacted by teething problems with the new flotation circuit, aggravated by extraordinary arsenic pyrite material mined during the quarter. This material is associated with lower recoveries and is temporary of nature as we mine through the ore body and blend plant feed.
We've seen better blend over the last couple of weeks, as well as the new flotation plant starting to stabilize to design performance. In Americas, Cerro Vanguardia production increased 13% year-on-year, while costs across the region improved significantly as part of the operations excellence program and with the help of weaker currencies. As reported previously, production is weighted towards the fourth quarter for the group. Year-to-date portfolio has produced nearly two and a half million ounces, and we've properly pieced together that we're expecting a significant increase in production during quarter four delivered at the top end of our guidance range. The increase will come from Australia, Brazil, and Geita. Moving along to our costs on slide nine. The mines produce an all-in sustaining cost of an average of $920 per ounce, with mines falling closer to the median of the global cost curve.
Importantly, about four-fifths of our production generates a margin of 20% or more. The mines with thinner margins are either being improved or are mature, but stable operations. At Sunrise Dam, for example, we expect to see more predictability as we complete the commissioning of the new circuit, as discussed earlier. Focus is now very much on increasing the reserve mine life, which is associated with higher capital. These activities at Sunrise Dam will soon fall away as we stabilize operation, giving us the margin benefit. As we go into 2019, we expect costs to improve at Iduapriem as we get into higher grade material, at Siguiri as the new project ramps up, at the South African operations as we digest the restructuring efforts of this year, and at Kibali as production from the underground yields higher quality material.
Moving along to a quick update on projects on slide 10. The Kibali project is now complete with underground mining fully operational. The Azambi hydropower plant was commissioned in September, and work on the next phase on the TSF is on schedule by year end. At Obuasi, redevelopment work has started in earnest, with major contracts awarded. Detailed planning for the plant refurbishment is well advanced, and we've started taking delivery of the mining fleet. We took the decision to purchase the fleet, adding around $40 million to the project capital. In return, we expect savings of around $25 per ounce on operating costs. Despite permitting earlier this year taking a little longer than we had planned, first production remains on track for the end of 2019. We now expect to spend about 50% of our capital this year, 55% in 2019, and 30% in 2020.
The Siguiri combination project, which aims to treat hard, higher grade ore, will extend life, lift production, and increase margins. The CIL circuit was commissioned in August, allowing the plant to process transitional material. The milling circuit, crushing plant, and new power plant are on track for completion by year end. At Mponeng, the life extension project has unfortunately experienced slight delays due to a fatal accident earlier in the year, but the ore handling infrastructure is now complete, and we're producing from 123 level. As we get the plant open up on 126 level, we're finding that the geological complexity of the ore body requires more, or some additional secondary support. That means slightly slower advance rates as we take the necessary precaution to ensure safe production. Moving to slide 11. Our $130 million per year investment in exploration is critical to ensure our long-term success.
We currently allocate about 20% of that to our greenfields efforts in Australia around Sunrise Dam and in North Queensland. In the U.S., we're drilling at Minnesota and Nevada as well as Argentina, Brazil, and West Africa. We have always seen exploration as the best way to maintain optionality in our portfolio. We have a strong track record that sets us apart in an industry that often has to resort to value-dilutive M&A to follow the production pipeline. Strategically, we also use a portfolio of equity investments and earn-in deals to supplement our in-house exploration capacity. We tend to focus on targets with strong potential, like the farming agreement at Saracen at Butcher's Well, where we have the potential for a new ore source to supplement the ore feed at Sunrise Dam.
In the U.S., we see very good potential in our suite of activities in Nevada, which looks better every month. Year to date, we have drilled nearly 580,000 meters, with more than 10% directed at drilling generative targets. It is important we stay focused and efficient in our approach, so we also apply operational excellence principles to our exploration to ensure we stretch every dollar. In that respect, drilling meters are up 63% over the past five years, while unit cost per meter drilled are down 28%. We have also replaced or increased reserves at two-thirds of our sites over the past five years, putting us near the top of our peer group. I will now hand over to Christine to walk you through the financials.
Thanks, Ludwig. Moving on to slide 12, which talks the comparison of the key metrics. As you have heard from Kelvin, we have delivered an overall solid operating performance in Q3, reflecting good cost control and capital discipline. Production from retained operations after stripping out the SA asset sales remained steady compared to last year. Cash costs, all-in sustaining costs, and all-in costs continued trending lower in the right direction despite inflationary pressures, which was more than offset by weaker currencies, operational excellence savings, and lower capital expenditure. Our consistent focus on improving margins and focusing on the controllable factors in our business has resulted in sustaining a healthy all-in sustaining cost margin at 23%, which is significantly higher than the prior year.
Sustaining capital expenditure of $140 million in Q3 reduced by 36% compared to last year due to the peak of our inward investment program last year and capital reductions on the back of operational excellence, in addition to favorable currency effects and the impacts of the now closed and sold SA region operations. The 5% lower gold price and lower sales volumes had a direct impact on the 11% lower adjusted EBITDA of $355 million against the prior year quarter. Free cash flow improved from $19 million in Q2 to $34 million in Q3, despite a lower received gold price and was favorably impacted by higher gold sales and lower costs.
Free cash flow for Q3 was adversely impacted by working capital changes, mainly comprising of the timing of gold sales, Obuasi fleet prepayments, and dividends received, all of which are timing issues and are expected to positively impact free cash flow in Q4. Overall, free cash flow for Q3, excluding the SA region retrenchment costs of $9 million, is $43 million. It is encouraging to see that the SA region was already $7 million free cash flow positive in Q3, despite funding retrenchment costs of $9 million. The final tranche of the SA retrenchment costs will amount to $15 million, and that will be paid in the fourth quarter. Cash generated from operating activities after capital expenditure was $64 million. This excludes Kibali, which is treated as an associate in accordance with IFRS. Therefore, the dividends received from Kibali are only recognized when received.
Dividends received from Kibali for Q3 was lower than expected due to timing of the dividend declaration at quarter end and the administrative processes relating to the repatriation of funds. Kibali dividends received for Q3 and for the year to date were $25 million and $72 million, respectively. We expect significantly increased dividends for the remainder of the year. On a positive note, the VAT receivables relating to Tanzania and the DRC has been largely steady as we've been successful in offsetting some of the historical VAT. The recent signature of the VAT agreement with the DRC government is a positive development, where the government has committed to a $40 million cash refund to the Kibali JV in respect of historical amounts owing.
The balance of the VAT owing will be offset against future taxes owed, and any future buildup of VAT receivables has been curbed as the purchase of local goods and services have been exempted from VAT. Some cash refunds have already started to trickle in. Moving on to slide 13. Looking at the cost performance in detail year on year, our cash costs continue to improve at $722 an ounce or 11% lower than the prior year. Cash costs significantly benefited from the South African asset sales, weaker currencies in key operating jurisdictions, and operations excellence efficiencies. 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 both Geita and Kibali, and the additional 1% clearance fees at Geita.
All-in sustaining costs were 14% or $151 an ounce lower than the prior year Q3 at $920 an ounce. That was primarily due to lower cash costs and lower sustaining capital. All-in sustaining costs for the international operations were 12% lower at $879 an ounce from $996 an ounce in the prior year. All-in sustaining costs for the South African operations in rand terms were 12% lower, reflecting the benefits of the portfolio restructuring and asset sales and closures. In U.S. dollar terms, all-in sustaining costs for the South African operations were 17% lower at $1,026 an ounce, reflecting the benefits of the weaker exchange rate. Moving on to slide 14. Our balance sheet remains strong with our net debt at the lowest level since 2012 and 15% lower than last year at $1.75 billion.
Our net debt to EBITDA ratio of 1.13 times is healthy and reflects ample headroom to our 3.5 times covenant, providing the flexibility required in the volatile climate. We continue to maintain strong liquidity with no significant near-term maturities. We expect to benefit from improved cash flows in Q4 on the back of an uptick in production, particularly across the international region. Our capital expenditure, which is constantly under review, will peak in Q4 and will impact cash flows in addition to the final tranche of the SA region's retrenchment costs amounting to $15 million. We expect to continue to benefit from efficiency improvements as well as from our leverage both to the gold price and currencies. We are pleased to advise that we have successfully refinanced our billion-dollar and AUD 500 million facilities into one multi-currency facility of $1.4 billion at the end of October with a five-year tenor.
The facility caters for the flexibility to draw a maximum of AUD 500 million. The terms of the facility are similar to the prior RCF facility in terms of covenant levels and reflects a more optimal margin. Finally, our credit ratings continue to remain intact. Moving on to slide 15. In conclusion, our full year guidance on all production and cost metrics remain on track. In addition, we have lowered the total capital expenditure guidance range to $770 million-$860 million due to the Obuasi capital rescheduling. We remind you of the usual caveat to our guidance relating to any power, labor or other disruptions. Production is expected at the top end of the guidance range, considering the expected uptick in production in Q4 at Geita, Australia and Brazil.
Costs are trending towards the lower end of the guidance range, benefiting from weaker currencies and the operational excellence initiative, which focuses both on efficiencies and capital reduction. Our currency exposure across two-thirds of our portfolio continues to provide a natural hedge to inflationary effects and to the volatility in the gold price. We remain sensitive to changes in the commodity price and currencies, and the estimated impacts based on the assumptions provided on all-in sustaining costs and cash flows are provided with a health warning. Capital expenditure is expected to increase in Q4 in line with past trends, although some capital savings have already been banked in the year to date. Sustaining capital expenditure comprises approximately three-quarters of total capital expenditure. The expected increase in Q4 will be spent across our portfolio in the Americas, Australia, continental Africa and at Mponeng in South Africa.
The revised project capital estimate of $170 million-$190 million takes cognizance of the revised scheduling of Obuasi, which comprises approximately $81 million in 2018, largely to be spent in Q4. In concluding the JV underground mining contract for Obuasi, AGA has decided to fund $45 million relating to the mining fleet. Equipment orders and related deposits have been paid to keep the project schedule on track. This amount is in addition to the $450 million-$500 million three-year real terms project capital estimate previously provided to the market. As Ludwig said, there will be a reduction of $25 an ounce in operating costs for the next five years, which offsets the cost of funding the mining fleet. Just to recap, the revised timing profile of the total Obuasi capital spend for the next three years is 15% in 2018, 55% in 2019, and 30% in 2020.
The Siguiri combination project is in at $82 million for 2018, and that project, as Ludwig mentioned, is on track to be completed by the end of the year. The balance is made up of $10 million at Kibali and the completion of Nkoni phase 1 at $7 million. I will now hand over to Kelvin to conclude.
Thanks, Christine. In closing, we have a sound strategy to drive value from a compelling set of assets. This strategy is being executed. The quality of our portfolio is improving. The value is being unlocked while preserving our balance sheet. At the end of the day, the clearest measure of our success will be our ability to generate free cash flow and better returns through the cycle. It's still early days for me, but as my learning process unfolds, my confidence in our potential to surface value continues to grow. I'm very enthusiastic about our prospects. With that, we're happy to open up for questions.
Thank you very much, sir. Ladies and gentlemen, at this time, if you'd like to ask a question, you're welcome to press-
Judith.
Yes, John, here.
Judith.
Hello, can you hear me?
Operator.
Can you hear me?
Ready to take questions.
Are you hearing me? Hello?
Sorry, everyone. If you'd just bear with us, it looks like we're having a small technical issue at the moment.
One, two, three. Click on it. Ladies and gentlemen, please remain online. I think the technical error is from the speaker's line. Please remain online. Thank you.
Just turn it on again. Hello.
Hello, Stewart?
Yes.
Can you hear me?
I can hear you.
Now he can hear me. Thank you very much. Sorry, sir. Ladies and gentlemen, at this time, if you'd like to ask a question, you're welcome to press star and one on your touchtone phone. That'll place you in the question queue. If at any time you decide to withdraw the question, you're welcome to press star and two on your touchtone phone to remove yourself from the question queue. Just a reminder, should you wish to ask a question, you're welcome to press star and then one. The first question comes from Chris Nicholson of RMB Morgan Stanley.
Hi, good afternoon, everyone. Thank you for the call. Kelvin, I know you've made some initial comments around the portfolio of assets of 14, potentially looking a little bit too heavy and maybe trying to build greater critical mass around some regions. Can you maybe talk
Judith, we're losing this Judith?
Hello, can you hear me?
We can hear you now. We keep breaking out.
All right, sir. I'm going to suggest that you drop the line and call back in. Chris Nicholson, can you please remain online. They will be responding to you shortly. Thank you.
I'll ask everyone on the call just to bear with us. We'll be back in a moment.
Thank you very much, sir. Ladies and gentlemen, please remain online. We will be retrieving the main speaker shortly. Thank you. Ladies and gentlemen, apologies for the delay. Please remain online. Thank you. Ladies and gentlemen, thank you for your patience. We've been rejoined by the main speakers. Thank you.
Would you go ahead with your question again, please?
Hi, Stewart. It's Chris here. Can you guys hear me this time?
Crystal clear, thanks.
Perfect. Okay. Just to talk through, Kelvin, I know you've made some initial comments around potentially the portfolio of 14 assets maybe being a little bit heavy and looking to refocus sort of around some regions where you have greater critical mass. I see also in this release you've talked to potentially looking for some buyers for Sadiola. Could I just ask, with net debt to EBITDA now well below your kind of long-term gearing target, should shareholders be expecting to see maybe some of the benefits of this portfolio optimization through increased dividends over and above your stated policy, or do you see attractive reserve life replacement options as having first call on cash? Thanks.
Thank you, Chris, and apologies again for the complication on the call. I think the starting point is, while I indicated that first observations are the 14 mines feels a little heavy. Really what I'm looking to do in that context is, I think there's opportunity just to tighten up the portfolio to some extent. You're correct, you'll see that our partner, IAMGOLD and ourselves, have elected to consider options in regards to Sadiola. Sadiola has been a, as you know, has been a very productive mine for the company, and our view is that it could very likely continue to be a very productive mine in someone else's portfolio. Our thinking around that is that if we are to divest, we would take proceeds from it, reinvest back into the business.
The net debt to EBITDA ratio coming down to the 1.1 level, it is very positive. As you know, our target is to be 1.5 or less, so we're nicely below that. In terms of proceeds from divestments, again, starting point there is that we don't have to do anything. There'll be no fire sales if we don't see full value. We're also perfectly happy to keep the portfolio as it is and keep working to drive down costs. You see the benefits of that through the operational excellence work that's underway. As far as deciding between dividends, reinvesting back into the business and so forth, the dividend policy is something the board will review and does on a quarterly basis.
Certainly, on a going-forward basis, I'd like to see us be in a position where we can continue to progressively increase dividends over time. First things first. There is the potential to reinvest back in the business. We see great optionality around the existing assets, and that would probably be the near-term priority. Hopefully that addresses your question.
It does indeed. If I can maybe just ask a quick follow-up question. The regions in which you talk around which might be attractive to build some greater critical mass, are you in a position yet to maybe comment on where those might be?
Chris, if you allow us, it's early days and as we're working our thought process through, and I'm doing that together with the team, we'd be better positioned to do that with our Q1 and year-end results if you'll be patient with us in that respect.
Sure. Good. Thanks for your time today. Thanks a lot.
Thanks for the question.
Thank you. The next question comes from David Haughton of CIBC.
Good morning, Kelvin and team. Thank you very much for providing an update. Listening to your previous comments, Kelvin, I know that you've spent quite a bit of time on the road visiting most of the assets, and I wonder if you could just give us your snapshot beyond your introductory marks as to what surprises you've encountered on the road.
David, thanks. First of all, thanks for dialing in. When I joined the company, my impressions were positive coming in, and I have to say they've only been reaffirmed and probably increased in terms of what I see throughout the company. Talent, deep throughout the organization from an operation perspective, really across the board. I was able to spend time at Obuasi not long ago, and I left there very impressed, and as I indicated at the start of my call, both with the team on the ground, the relationships that I've seen in terms of stakeholder engagement. That's something I've seen consistently across the company as well, which was, I don't want to say it was a positive surprise. I didn't expect anything less, but it was very nice for me to have that reaffirmed.
One thing I wasn't aware of before I joined the company was the exploration potential. I had a sense of it, but for example, what Ludwig described earlier in his comments in relation to Nevada, the potential we're seeing at the new prospects in Minnesota, those were all new to me. I just think that when I look at the pipeline and the exploration potential around the existing assets and generative work that's been underway, I came away from those discussions very enthusiastic. You should expect to see more detail around that as we go from quarter to quarter. Those are some initial observations, all very, very positive.
Okay. Just going a little bit deeper. Just looking at the new CapEx numbers. I know that you've revised them down, it does seem as though what we've seen year to date, that you've still got quite a bit of room on your CapEx. I am wondering whether there is potential for further CapEx savings given some of the commentary that we've seen on FX and whether there is any potential for deferral into next year. In particular, the sustaining CapEx year to date looks relatively light in comparison to year-end guidance.
Maybe I will ask Christine to respond to that, David.
Yes. Thank you.
Hi, David. I think specifically in respect of the capital guidance, we've given you the total capital guidance range, which we've only revised down for the Obuasi rescheduling. I think typically in Q4, it is a peak capital quarter.
I think we are expecting to spend that across our portfolio. Like you said, it is subject to the currency assumptions that we've given you. If we see further currency weakness, it could actually impact those numbers. Like we say, CapEx is also constantly subject to review when Ludwig has got his operational excellence initiative, which has already given us savings in the year-to-date numbers. If that comes through, I think that would be a positive as well.
Okay. I've just got another operational question, if that's okay. Hearing metallurgical kind of issues for Sunrise Dam. I'm wondering if there's a resolution that you can see for that.
Yeah. Thanks, David. It's Ludwig. Look, with most of these projects, you normally go through a bit of teething problems. I think it wasn't so much the metallurgical issues, it's more of the arsenic pyrite that we actually saw, quite extraordinary arsenic pyrite that came through this quarter. It's actually a bit of an anomaly. You will find it every now and then as you mine through this ore body, you'll find this high levels of arsenic pyrite. Typically, if you compare it to quarter one of this mine, where the mine had a really good quarter, we actually saw very little of that. It was just the learning curve we had to go up. At this moment, it seems quite stable. We've actually got a lot of, basically all hands on deck, and we've got even outside help to monitor this.
Going into the future, I think it will stabilize, and we'll see the five to six and even higher upgrade on the CIL plant or the flotation. I think we've gone through that pain now, going forward, it will stabilize.
Okay. I'll leave it there for now. Thank you.
Thanks, David.
The next question comes from James Bell, RBC Capital Markets.
Hey, good afternoon, and thanks for making time for the call. The first one is just on costs. Obviously, the big step down in cash costs was from the closure and sale of operations. There was also a small move downwards from the efficiencies of around $11. Do you think that's the sort of run rate that the operational efficiency program can continue to achieve looking into next year? Do you think a lot of the low-hanging fruit has been achieved on that front?
James, it's Ludwig again. Look, part of our Operational Excellence program is to look at systemic cost savings. Most of the savings we're getting at this moment, we've actually already started to build into our numbers next year, and we track that on a regular basis. Like I said, most of our savings came from the operational efficiencies and obviously with the exchange rate. I can see these costs and like I said, I can see it's systemic, and actually we will see a lot of this cost saving going into next year and the year after that.
Okay, good. Just one on Obuasi. You've got a relatively short timeline to production in Q4 next year. What are the big-ticket items or risks we should be looking out for in, say, Q1, Q2 next year that need to be checked off for you to hit your timeline to production?
Thanks, James. Graham, if you're on the call, if you could respond to that one.
Okay. Thanks, James. I think the first ticket or first thing to watch was the mining contract. That contract was awarded at the end of October. Equipment deliveries, we took the initiative to kick those off in June. From a mining ramp-up point of view, we're in good shape. The next critical thing would be mobilizing the operating team. We have got an operating team in place. A few key positions are still to be put in place, but we're handling that with existing people and support from the rest of the organization. That would be the next thing to watch. Probably more critical is the refurbishment of the process plant to enable the 2,000 tonne per day.
We'll be using the existing milling circuit, the SAG2 circuit, which has got capacity for 2,000 tonne. We do need to refurbish other elements of the plant to get us to that capability. Refurbishment is really the critical path. The planning for all of that is all on track. It's going quite well. It's going to be a challenging schedule, but from the rework of the schedule over the last few months, I think we've got it under control. That's the area we'll be mostly focused on.
Okay, great. Thanks for that.
Thanks, James.
The next question comes from Dominic O'Kane of JPMorgan.
Hello, Kelvin. I apologize I missed the start of the call. I just wanted to maybe get a bit of an update on Tanzania. Just wondered if you could maybe give a little bit of an update on what you're seeing in terms of timing of cash flows, specifically VAT. Leading on from that, as you come into the organization from a previous organization that had exposure to Tanzania, I just wonder if you could comment on some of the risks you see associated with Geita or alternatively, some of the risks that you think are less directly comparable between Geita and your previous organization.
Sure, Dominic. Well, thank you for the question. Maybe I'll start, and I'll go in reverse order, if you don't mind, then I'll transfer over to Christine to talk a little bit more about that. I guess the starting point is what I've observed coming into AngloGold Ashanti in respect of Geita is a few things. First of all, the relationships on the ground, starting at ground level up, very positive. Community engagement, I think, has been active and I think very well managed. Likewise with local officials and moving on up. Dialogue with the government has, I think, been open and constructive, and that's positive. From those perspectives, I think that Geita is a little unique. The other thing with Geita is, over the course of its 20 years operating, it's been a large taxpayer in the country. In fact, it's the largest taxpayer in the sector.
I think round numbers, the economics split has been about 60/40, government, AngloGold Ashanti. Those things are really unique in the Geita context. I think that's positive. We'll just continue to operate the project as efficiently as we have been. In terms of the VAT, we've slowly started to see some offsets take effect, and maybe that I'll turn over to Christine, and she can comment a little more.
Yeah. Hi, Dominic. Just on the VAT, we've seen a very marginal increase in the VAT in Geita. I think what's quite positive, and it's continued to trend from what we reported in Q2, is that we've been able to offset some of the historical VAT against taxes payable and keeping the fine balance between taxes payable and what we are offsetting, and we expect to continue that going forward. The VAT outstanding is about $88 million at the end of Q3.
Okay. Kelvin, if I could just maybe, just push a little bit on Tanzania. Are you happy with the medium and long-term CapEx planning for Geita?
Yeah, I am. I think that the level of capital investment this year and intended for next year is right. I think it's inconsistent with our need to maintain that as one of our key operations.
Okay, thanks. Thanks all. Bye.
Thank you.
Ladies and gentlemen, just a reminder, should you wish to ask a question, you're welcome to press star and then 1. The next question comes from Johann Steyn of Citigroup.
Hi there. Thank you very much. I got dropped a couple of times, apologies if I ask a question that has been asked before. Kelvin, a question for you. Having had a chance to look at the life of mine profiles for each of your mines and the current level of capital expenditure, how comfortable are you that you're spending the appropriate or sufficient amount of capital at your mines to at least sustain production over a five-year period?
Johann, thank you for the question, first of all. In fact, it's timely. We're just going through the budgeting process now, we're going to be presenting our budget to the board next week, we spent a lot of time on this specific question, I'm quite comfortable, actually, that the CapEx plan for next year is the right amount to ensure that we sustain that production going forward.
You say, what's that, about $800 million a year will see you sustain the 3.3 million ounces over a five-year period?
Less. It's more in the six range.
That's interesting. That's very interesting. Okay. Thank you.
Yeah, I think the rule of thumb that Ludwig and others have shared with me is something in the $170-$200 an ounce range.
Just to understand you right. You would say that in five years' time, you would be at company level, obviously, ignoring our divestment or anything like that, 3.3 million ounces, spending roughly, let's call it $650 million a year of capital in total.
We have to be careful. We don't guide five years out, in terms of production or CapEx.
It's important for people to effectively model, to make up an assessment of the cash-generating potential of this company, not just over the next 12 months, but over a five-year period.
I would say in that context, Johann, that number is a number that we'd be reasonably comfortable with, that $600 million-$650 million. Don't hold me, we don't guide out that length of time. I understand your question, and that's a number that we'd be generally comfortable with.
Okay. Thank you.
You're welcome.
Ladies and gentlemen, just a final reminder, should you wish to ask a question, you're welcome to press star and then one.
Judith, we can end it there.
Thank you. We have no further questions in the queue. Do you have any closing comments?
Kelvin, I'd like to thank everybody for dialing in. We're really pleased with the quarter. We'll look forward to reporting back with our next quarter results and our year-end for 2018. Thank you very much.
Thank you. Ladies and gentlemen, once again, thank you for your patience during the technical issues we had earlier. On behalf of AngloGold Ashanti, that concludes this afternoon's conference. Thank you for joining us. You may now disconnect your lines.