Good afternoon, ladies and gentlemen, welcome to AngloGold Ashanti's Q1 2018 Market Update. All participants will be listening only mode. There'll 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'd like to hand the conference over to Mr. Stewart Bailey. Please go ahead, sir.
Thanks, Judith, welcome everybody to our Q1 market update call. The running of events will be as follows, Venkat will provide some introductory comments. Christine will touch on the financials, we'll go, after some concluding remarks from Venkat, into Q&A. What I would urge you all to do is look at the safe harbor statement, the disclaimer on the first slide of our presentation. It has important information regarding forward-looking statements. Please do read it. Without further ado, I'm going to hand over to Venkat.
Thank you, Stewart. Good morning or good afternoon, ladies and gentlemen. If we can kick off with the first slide, which is slide number three in your pack. I know we do this every quarter, I think it's important for us to reiterate that we are guided by our strategy, which has enabled us to make considered decisions in terms of how we allocate and manage capital to create value over the longer term. It is this focus and commitment that has, in large part, helped us again deliver both a consistent and strong set of results that we have reported today. To be clear, the strategy remains intact. We are committed to delivering a safe and actively managed portfolio with tightly managed costs and capital, which helps us to ensure that we have a balance sheet that is robust enough to handle any market environment.
As you will have seen, we are, and we will continue to invest in the longer term sustainability of our business. These pillars support our central objective of improving cash flow and returns on a sustainable basis. As we will highlight in this presentation, we are well underway in the disciplined work to achieve these outcomes in the business. Before I move on to the operating and financial review for the period, I'd like to start with our safety performance, which was unfortunately marred by a fatality in South Africa at our Moab Khotsong mine just before we completed the sale, and another contractor fatality in Brazil. As we continue on the journey to eliminate all injuries from our mines, we firmly believe that we must deliver reliable, safe production in order to ensure the ongoing sustainability of our business. We're making headway in this regard.
Our all-injury frequency rate saw an improvement of 28% when compared to the same quarter last year, continuing a long-term improving trajectory. In fact, at Sadiola and Geita, we passed a quarter without a single injury. This shows what is possible when there is strong oversight and compliance to world-class standards. The overall result is also an important reminder to all of us that there's simply no margin for error. It is difficult to articulate the disappointment that we have not replicated the record safety run achieved at this time last year. We know what the potential is and are absolutely focused on this critical area of our business. Turning to the slide on portfolio, which is slide number five. The portfolio is well-balanced geographically, given that we have the industry's most diverse suite of gold assets.
As you know, we completed the sale of our Moab Khotsong and Kopanang mines during the first quarter and continued to progress TauTona to orderly closure, which shifted our contributions from the retained assets in South Africa to around 13% from the 24% that was seen in the first quarter of last year. As developments across the international operations gather steam, we expect this proportion to reduce further. This diversification in the asset portfolio has helped us effectively to manage and offset risks in any single jurisdiction. What remains interesting for us is that there are good opportunities for improving cash flow generation and returns from each of our operating regions, many of which are on track to deliver improvements from these numbers that we have tabled during the course of 2018. Let's turn to the highlights of the quarter on slide six.
Production was strong at 824,000 ounces, and it's up 6% year-over-year when you look at our retained operations. Australia was a major contributor to this performance, with a 27% increase in production over the period. All-in Sustaining Costs improved year-over-year with the help of our planned reduction in sustaining capital, helping to offset creeping inflation and currency pressure on costs. Our retained operations, in a seasonally slow start to the year, have also dropped their All-in Sustaining Cost to around $1,000 an ounce. Looking at our international operations, All-in Sustaining Costs improved further to $950 an ounce from $963 an ounce in Q1 of last year, as Ludwig's efficiency work starts to gather momentum. South African costs have also improved. More about that later.
The balance sheet has improved further with help of strong operating cash flows, also the application of Vaal River sales proceeds to reduce some of our more expensive borrowing. Christine will walk you through our balance sheet and cash flow metrics, you'll see that the operating cash flows and EBITDA are up significantly, net debt is down, and the covenant has improved further. Importantly, the good start to this year means we are on track to meet the annual guidance for the sixth consecutive year. At the international operations, we saw strong performance across the board. Production increased 5% year-on-year to 666,000 ounces at a cash cost of $768 an ounce.
In Australia, Sunrise Dam played a significant role in the outperformance of the international operations, recording a 54% increase in production as successful implementation of the new mining strategy helped to deliver higher grades from underground and higher throughput. Brazil delivered a strong performance with steady production but better cash margins. Our star performer there was Serra Grande, which delivered higher production at better margins on an improvement in grade and a strong performance from its crushing, milling, and leaching areas. Turning to Africa, Iduapriem in Ghana delivered a 16% increase in production, driven by improved grades and the benefit of conversion to CIL tanks to improve recovery. It is also worth highlighting that Kibali in the DRC delivered a 22% increase in production year-on-year.
This result was driven by the ongoing ramp-up of underground mining after successful commissioning of the shaft and the new ultra-fine grind mills, which resulted in 4% higher tons being treated and a 6% increase in overall plant recovery. You'll notice higher costs at Geita, which was in the plan and due to both an anticipated drop in grade from the open pits and higher initial costs from the underground mining as that continues to ramp up. We expect good performance over the remainder of the year in line with our plans from Geita. Turning to South Africa, we're starting the second quarter with a smaller, more focused footprint. The work to further reorganize this area of the portfolio continues as we optimize our cost base to fit the smaller operating footprint. We are encouraged by a stronger year-on-year performance from our retained assets.
Rest assured that there's more to do in this regard. Production at Mponeng increased 29% year-on-year to 62,000 ounces, as the mine adopted better quality mining practices and an improved mining mix. All-in Sustaining Costs on a ZAR per kilogram basis, in other words, local currency denominated costs, fell 14% to ZAR 500,000 a kilo. At Mine Waste Solutions, production grew 17%, which saw strong improvements in recoveries and also a reversion to more normal production conditions compared with the performance of the first quarter of last year that was affected by significant storms on the Highveld. All-in Sustaining Costs on a ZAR per kilogram basis fell 5% to just under ZAR 350,000 a kilo.
The All-in Sustaining Costs on a ZAR-denominated basis for the region as a whole dropped 12% when compared to the previous year on the back of better operating performance and phased removal of the loss-making and higher cost production. The sharp strengthening of the SA rand has unfortunately masked some of these unit cost reduction, which is reflected only as a 3% drop in All-in Sustaining Cost in US dollar terms to $1,292 per ounce for the quarter, or $1,222 an ounce from the retained operations. A quick update on our key projects, which are all progressing well. The ramp-up at Kibali Underground continues to deliver strong results. The underground materials handling system was commissioned, and ore hoisting via shaft has also commenced. The construction of the third hydropower station and the next phase TSF are also making good progress.
At Obuasi, the Parliamentary Select Committee on Mines, Energy, and Finance has met and reviewed the project and the agreements and will place it before the Parliament. We've had good engagement at the highest level of the government, and we now are waiting for our suite of agreements to go before Parliament, which we are assured will happen after recess, which ends on 15th of May. In the meantime, Graham and his team have commenced preparations for the project, including the recruitment and mobilization of the project team, detailed planning, and preparation for the early works contracts. We will be placing emphasis on Ghanaian participation in procurement and contracting to ensure that the benefits accrue for all of the stakeholders.
Siguiri is on track for completion at the end of 2018, at which point about 30% of the higher-grade material, hard material, is planned to be processed through the new comminution plant mill. In terms of timeline, the CIL conversion is scheduled for the third quarter, and the commissioning of the mill is planned during the fourth quarter of this year. With those comments, I'll hand you over to Christine to walk you through the financials.
Thanks, Srinivasan, good day, everyone. I'm now on slide 10. Our consistent focus on margin improvement is bearing fruit, with the All-in Sustaining Cost margin expanding to the highest level since 2016. The All-in Sustaining Cost margin from retained operations is healthy at 25% for the quarter, and we expect to realize further benefits across the portfolio with the operational excellence work that is currently underway. All-in Sustaining Costs in 2017 was impacted by planned higher sustaining capital investments with a focus on medium to long-term improvements. It is very encouraging to already see the payback of this investment in operations through consistent, strong results delivering improved cash inflow from operations. Moving on to the cost performance on slide 11. Overall, both cash costs and All-in Sustaining Costs for retained operations are declining and reflect the benefit of a rationalized South African portfolio.
The focus remains on moving down the cost curve through operational and efficiency improvements and completing the restructure of the South African business with reduced costs appropriate for the smaller size of the regional production base. Total cash costs were 3% higher at $834 an ounce on the back of currency and inflationary pressures, although they were largely offset by the improved production performance and the closure or sale of loss-making operations. All-in Sustaining Costs improved by 3% to $1,029 an ounce on the back of planned lower sustaining capital expenditure, enhancing the All-in Sustaining Cost margin. All-in Sustaining Costs from the international operations dropped to $950 an ounce on the back of a stellar operational performance, which Venkat discussed earlier, driving efficiency gains.
It is noteworthy that the All-in Sustaining Costs in the South African business reduced by 12% on a Rand-denominated basis, reflecting the benefits of restructuring, with more savings expected during the year. All-in costs for the period improved similarly by 3% to $1,105 an ounce, with the benefit of the lower All-in Sustaining Costs flowing through. Moving on to the balance sheet on slide 12. Our balance sheet metrics are the strongest that it has been since 2012, reflecting 14% reduced net debt levels from last year of $1.77 billion and a net debt to EBITDA ratio of 1.14 times. The free cash outflow in Q1 is significantly lower year on year, reflecting the benefits of higher gold prices and improved operating performance and lower capital expenditure.
This was despite the abnormal South African region retrenchment cost of $36 million and an additional debt lockup amounting to $19 million between Tanzania and the DRC. Free cash flow would break even excluding these abnormal retrenchment costs and working capital lockup, which also included a receivable of $15 million from Harmony, which cleared a few days after quarter end. For the sake of clarity, free cash flow excludes the asset sale proceeds of Moab and Kopanang mines, and that proceeds was used to reduce debt in South Africa. Our strong balance sheet, ample facilities, and prudent capital allocation continue to position the company well to withstand market volatility and to self-fund our capital projects. We remain committed to our dividend policy and improving shareholder returns on the back of sustainable free cash flow generation. Finally, on the guidance slide on page 13.
With roughly a quarter of the full year's guided production in the bag during a seasonally weaker quarter, the group remains on track to meet its annual production guidance. This was achieved despite the sale of the Vaal River assets concluding a month earlier than planned. Guidance on all other cost and capital expenditure metrics remain unchanged. As I mentioned earlier, cash costs in Q1 reflects the impact of stronger currency, inflationary pressures, and lower grades planned at some of our operations. However, we expect production to further improve in the remainder of the year. Also, in line with past trends, sustaining and project capital expenditure is expected to increase with the Obuasi project capital spend expected to ramp up in the second half of the year in line with the awaited parliamentary ratification.
Both the costs and capital guidance remain sensitive to the forecast average exchange rates and commodity prices, and the sensitivities provided on the slide above are issued with a health warning. Finally, we remain strongly levered to the higher gold price despite the stronger exchange rate and higher oil price, which together with the strong focus on operational excellence, we expect to continue to benefit our cash flows for the year. I will now hand over to Venkat to conclude.
Thank you, Christine. In closing, we see a business in very good shape that has got a strong balance sheet, good high-return brownfields options that we are executing on, and some exciting work on efficiency improvement that is starting to gain traction here. We are totally committed to making further gains with respect to safety, and Ludwig and his team are doing the hard work to realize a step change in the efficiency of our operations. Whilst we await the ratification from Ghanaian Parliament, we will continue to progress the early stage of the Obuasi redevelopment project. That project will gain momentum once the ratification is complete. We will continue our engagement with our hosts in Tanzania to find the requested clarity around the legislative and regulatory environment.
As we said in February, we will be looking for a pathway that ensures the long-term viability of an asset that is important not only to us but to Tanzania as a whole. In the DRC, we are working with our joint venture partner and peers in the industry to lobby for sensible application of new legislation, not only to protect our own interests, but also to ensure a climate that stimulates investment and reinvestment over time. We will, as always, continue to look for ways to unlock latent value from within our portfolio while advancing our high return, quick payback projects to completion, both on budget and on schedule. We remain, as ever, focused on cost and disciplined allocation of capital. We believe that this consistent strong set of results demonstrates our absolute commitment in this regard. With that, I will hand you over to Stewart.
Thanks, Venkat. Judith, we can take questions.
Thank you very much, sir. Ladies and gentlemen, at this time, if you would like to ask a question, you are welcome to press star and one when you touch down permanently placed in the question queue. If you are able to decide to store the question, you are welcome to press star then two when you touch down then to remove yourself from the question queue. Just a reminder, should you wish to ask a question, you are welcome to press star and then one. The first question comes from Adrian Hammond of SBG Securities.
Hi, Venkat. Yeah, I'd like to just focus briefly on strategy. You have alluded to it, but I'd hope for something a bit more tangible. It goes without saying, the business has done well over the last few years in terms of costs and bringing down the debt. Also, I think it's fair to say that that was addressing mistakes of the past. However, you are now leaving the company, and we have yet to know of a replacement. Are you able to assure shareholders that these mistakes won't be repeated? Have you applied any principles or safeguards and targets within the company strategy?
Yeah. Adrian, thanks for the question. If I can respond to that. Our chairman, when he actually gave his interviews and the calls during the announcement, which happened earlier, actually did allude to the fact that the strategy is pretty much a strategy determined by the board, and that strategy remains. In addition to that, he said when they're looking for a CEO replacement, whether it's internal or an external candidate, they look through two value lenses. One is values, which the company subscribes to, and also enhancing value in terms of shareholders. Very clear that we want to have a firm handle on the steering wheel, particularly capital allocation. It's a discipline that has been built now into the company, where we often have the operators coming and talking implications in terms of returns, in terms of balance sheet, in terms of cash flows.
We don't even need to have to have that debate with our operating colleagues. It's now within the DNA of the company. As you know, our CFO sits on the investment committee. She's the only executive director or executive member who sits on the investment committee with full veto rights to say, "No, our project can't proceed because the capital allocation is not correct." That discipline is enshrined in the company. We believe that we have actually put very good foundation here. Unfortunately, from a share price point of view, there are macro headwinds coming at us in terms of jurisdictions. Once that passes, I'm sure that you'll start to see the value come back into the business.
Thanks. I think obviously it's a good platform to work off going forward for whoever comes in. In your mind, where would you see AngloGold in, say, five years from now in terms of production and costs? Does that plan perhaps, is there a focus towards acquisitive growth, or does the current organic growth plan remain the plan going forward?
I think the answer. You asked me my personal view as to where I see AngloGold Ashanti. I see it absolutely in very good shape going forward, perhaps actually crossing new heights, long after I've gone. That is one of the reasons I will retain the shares in the company. It'll be a company which is focused on returns. It will certainly focus on opportunities where they exist within the portfolio, of which there are many. Certainly, Obuasi is one of them. Longer term, Colombia is there. It'll be a company which is a custodian of shareholders' capital. It has demonstrated that it can actually deliver returns out of assets that are probably a decade old by managing better and improving cash flows that will stay there. I believe the macro headwinds will also pass.
Africa has got huge potential, you'll start to see that come through in terms of returns.
Thanks very much.
The next question comes from Johann Steyn of Citigroup.
Hi, Venkat. You guys had almost a perfect quarter this quarter. Everything seemed to have gone well. The gold price was okay. It's traditionally a low capital quarter and all of these kind of things. Despite that, you didn't manage to generate cash, even if you strip out now the one-offs of retrenchment and restructuring costs, et cetera. If you look forward for the rest of the year, you've got a rising capital profile. Who knows where the gold price is going to go? At the end of the day, I think the key disappointment with AngloGold remains the inability to generate cash. How do you get this business cash generative, gold price and currency is equal?
Yeah. Johann, if I can answer that. Firstly, you say that we've had a perfect quarter. We could have actually done better in terms of some of the operations. We'll be the first one to admit that. Secondly, what you saw in this particular quarter has been the strengthening of the currencies, which has pulled back some of the gold price upside. Bear in mind that Q1 and Q2, because of a variety of factors, including working capital movements, tend to be anemic from cash generation. Our stronger cash generations tend to come through in latter period. In terms of not generating free cash, one has to bear in mind, since 2013, we have actually self-funded everything, and that includes close to around a billion, $1.2 worth of interest on our debt without going with a begging bowl to our shareholders. We have self-funded that.
We have paid the money back in terms of our debt. We have reduced the debt as well. Certainly, we have actually done a number of things within our control. Our key objective now is to shift the portfolio into the lower cost profile, which is where our efforts are directed. Every strategic move we have made has been towards that, including the recent restructuring of South Africa, getting Obuasi back onto production, the improvements in Sunrise Dam. I remember the number of questions people used to ask us as to why you still hang on to Sunrise Dam. We said we see potential there and costs coming down. We have demonstrated that. That's where the focus is going to be. You will certainly see far greater focus on cash generation and improvement in margins as the portfolio shifts.
If I can just have a follow-up on that. Thanks, Venkat.
Sure.
Towards the rest of the year, obviously, I don't know when exactly you're going to start spending on Obuasi, et cetera. If all things remain equal, who knows where the price is gonna go? What would your expectations be for the full year free cash flow delivery from AngloGold?
Firstly on that, let me pick up the first element of it and then pass across to Christine. In terms of our production profile and cost profile, it improves naturally in the second half of the year. That happens every year as you would have seen, and even the working capital movements unwind. We are hopeful that we can get a resolution even in terms of some of the back lock-ups going forward. We have seen the currency weaken in the second quarter as compared to where we saw the exchange rates in the first quarter, both in terms of AUD and in terms of the ZAR. The Obuasi capital expenditure, by and large, is going to be swings and roundabouts for the rest of the year, so our guidance is going to be intact. Our budgets was breakeven at about $1,240 gold price.
Certainly, we see upside in terms of the cash flows as the gold price is sitting at current levels and potentially higher. We don't normally give out estimates in terms of cash flows, but I can tell you that that was the breakeven budget at $1,240, so it should be better. Hope that helps, Johann.
Yep. Thanks, Venkat. Thank you.
Thank you.
Ladies and gentlemen, just a reminder, should you wish to ask a question, you are welcome to press star and then one. The next question comes from David Haughton of CIBC.
Good morning, Venkat and team. Thank you for the update. With Obuasi, you are still awaiting government ratification of the criteria to move forward. At what point would delays in signing off all of the required regulations, et cetera, at what point would those delays impact the start-up or potential start-up of Obuasi beyond the second half of 2019?
Okay. Firstly, we will be on track to pour gold at the end of 2019. That doesn't change. The early work has already commenced so that we don't lose time. What one has to bear in mind, David, is the Parliament approval process is in 2 stages. One is the Select Committee, which goes through the detail and hears the presentations and raises a bunch of questions which we have to respond. In terms of time, it's around roughly 75%-80% of the timeline. That has already happened. Now they go and table the recommendation to the Parliament. We have actually met with the highest authority in Ghana, that includes the president, as late as 2 weeks ago. In fact, David and I were there to meet with the president. They are very keen to get the Obuasi project kick-started.
Unfortunately, Parliament is in recess, he's assured us that this will make the roster when Parliament reopens. There are a couple of other pressing issues, once that is done, certainly before the end of the month, we are planning to put this into Parliament for approval. We don't see this impacting on the time delay, if it delays too much into the third quarter, we probably need to look at the timeline. At this stage, we don't see that risk as being anywhere close to realistic.
How much expenditure can you undertake before all of the legal documents are ratified? Can you still make some progress towards your goal of this restart?
We can. In fact, I'll hand you over to Graham. Certainly, on the early start work, we've already started to get some commitments through. Graham?
Subject to getting full Parliamentary ratification and other things in place, we have approval to spend up to $30 million, that basically gets us going. We can mobilize in terms of the main teams, both the operating teams and the project teams. We can establish the early equipment orders. We can put in place the major contracts and get them moving. That sort of gives us sufficient room to get the project underway without losing time while we're dealing with these final approvals.
All right. Thank you for that. Maybe a question for Christine, if you don't mind. The sale price received, I didn't see an actual final number. I presume that there are some adjustments for working capital and various other items. What was the actual number received in the quarter?
The proceeds was $300 million. The working capital amount of $15 million that we referred to in the announcement is excluded. It's over and above the $300 million. That purely is related to some transition services that we had to render before the handover. So that is a separate amount, and that was received shortly after the quarter end.
Okay. Thank you for that clarification. The last question I've got is, sales healthily are better than production. Just wondering if you could just identify a couple of the key operations at which you had higher sales than production.
David, would you mind if we flick you a mail with that after this? We can do a recon for you on that.
Thank you, Stewart. That'd be great.
No.
Okay, that's it for me. Thank you.
Ladies and gentlemen, this is a final reminder. Should you wish to ask a question, you're welcome to press star and then one. The last question comes from Tanya from Scotiabank .
Hi, I think it's Tanya from Scotiabank, but thank you. Good morning, everybody. Just wanted to ask a question on Geita. Sort of had the quarter being poor on production than I was expecting. Can you just give us some guidance on how this mine ramps up during the year?
Yep. We can. In fact, if I can just give you the couple of introductory comments and then over to Ludwig. Basically, what you saw in Q1 was anticipated lower grade as we were doing the pushback and also higher establishment cost in Nyankanga. What was included in the costs also was the extra 2% and the 1% in terms of royalty and the export levies. What you will start to see is the pickup come through in the latter half of the year. Ludwig, do you want to elaborate?
That's right. Hi, Tanya. It's Ludwig. This was all planned and especially where we are with the mine at this moment in the cutback in Cut 8 in Nyankanga as Ludwig Eybers referred to. Going through here, going forward, we basically back where we were in the open pit and we're also ramping up the underground. We can expect this production to ramp up as we go through the year.
Are we looking at Q2 being similar to Q1 and then better in the second half?
We'll look better. We'll ramp up all the time. Every quarter will be an increase to the previous one.
Yeah, Tanya, what basically happens is Q2, you see a good ramp-up come through. In Q3, a marginal ramp-up on top of Q2, and then a big one again in Q4. The two big jumps are Q2 and Q4.
Okay. While I have you there, what about, because the other one that I had much lower than I expected was Tropicana. What exactly is happening there for the year?
In terms of production?
Yeah, in terms of production.
Mm-hmm. Yeah.
It's also just where we are with the mine at this moment. It's grade driven and we also in cutback and that's also expected to turn up the grade. We also had a bit of seasonal issues with a lot of rain. I think it was record rain in the open pit.
Yes.
That's also affected it and we had to draw from the stockpile. As we go through the year, that will also ramp up.
Yeah, there, Tanya, the ramp-up is really a similar repeat in terms of Q2, Q3 and Q4 are much higher.
Okay. That's helpful. Thank you very much.
Thank you.
Gentlemen, there are no further questions on the lines. Do you have any closing comments?
No. Thank you, operator, and thank you everyone for attending this call and really appreciate it and look forward to having another call in the month of August. Thank you.
Thank you. On behalf of AngloGold Ashanti, that concludes this afternoon's conference. Thank you for joining us. You may now disconnect your lines.