JOHANNESBURG (miningweekly.com) – Johannesburg- and New York-listed AngloGold Ashanti generated free cash flow of $88-million in the third quarter of this year, following strong production and cost containment across its portfolio, and remains on track to meet its full-year guidance. 

The free cash flow for the quarter, compared with an outflow of $41-million in the second quarter, and an inflow of $131-million in the third quarter of last year.

The free cash flow for the quarter was affected by the lower gold price received, higher operating costs with some currency impact, indirect value-added tax receivables lock-up, mainly in Tanzania and the Democratic Republic of Congo, where this continues to be a challenge, and the planned increase in reinvestment capital expenditure levels, AngloGold CEO Srinivasan Venkatakrishnan noted during a conference call on Monday.

Third-quarter production was 997 000 oz, an increase of 11% year-on-year and 9% quarter-on-quarter.

All-in-sustaining costs remain unchanged at $1 071/oz, despite higher planned reinvestment expenditure, stronger currencies and inflation.

“It is a very good set of numbers . . . every metric has been pointing in the right direction,” Venkatakrishnan said.

RESTRUCTURING
The group, meanwhile, remains on track to deliver on its restructuring objectives in South Africa.

Following its decision to take steps to stem unsustainable losses at some of its operations, the company had announced the sale of some of the assets, with the proceeds earmarked for debt reduction.

AngloGold will also place lossmaking South African operations on care and maintenance.

The company last month announced the $300-million sale of its Moab Khotsong mine in the North West and related assets to Harmony Gold Mining and the sale of its Kopanang mine and West Gold plant to Heaven‐Sent SA Sunshine Investment, which controls the local Village Main Reef operation, for R100-million.

Once these sales, which remain subject to conditions precedent, are complete, and the lossmaking TauTona mine is placed on care and maintenance, an estimated 13% of the company’s total production will come from its remaining operations in South Africa. Venkatakrishnan noted that this production will be in a similar context to that of Brazil, Tanzania, Ghana or Australia.

AngloGold Ashanti’s balance sheet, meanwhile, remains robust with strong liquidity and long-dated maturities providing significant financial flexibility, according to the company.

Adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) were $399-million for the quarter ended September 30, up from $395-million in the third quarter of 2016. This was also 35% higher than the $296-million recorded in the second quarter of this year.

AngloGold ended the quarter with net debt at $2.06-billion, up from $1.97-billion at the end of the third quarter of 2016, but lower than the $2.15-billion posted at the end of the second quarter of this year. 

OPERATIONAL HIGHLIGHTS
Venkatakrishnan highlighted that the company’s operations had, at the end of the third quarter, produced 2.76-million ounces of gold, or about 75% of its yearly production guidance. 

The South African operations delivered a 10% quarter-on-quarter increase in production to 261 000 oz of gold at a cash cost of $1 088/oz in the third quarter, compared with 235 000 oz at a cash cost of $997/oz for the same quarter last year.

The higher cash cost was as a result of inflationary pressures, mainly from increases in consumables and power costs, lower grades, stronger currencies and unfavourable gold in-process movements.

This was partially offset by higher volumes and cost efficiencies, which included efficient power consumption and business improvement initiatives.

The international operations delivered another strong performance with an 11% year-on-year increase in production, driven by stronger contributions from the mines in Australia, Brazil and Continental Africa.

The Continental Africa region achieved a strong performance, producing 380 000 oz of gold at a cash cost of $696/oz for the third quarter, compared with 333 000 oz at a cash cost of $760/oz for the same quarter last year.

Production was driven by strong contributions from Geita, in Tanzania, and Siguiri, in Guinea, as well as a solid performance by Iduapriem, in Ghana.

The Americas region produced 213 000 oz at a cash cost of $673/oz for the third quarter, compared with 211 000 oz at a cash cost of $588/oz for the same quarter in 2016.

The production improvement in the region was attributed to higher tonnes mined and treated at AGA Mineração in Brazil. Total cash costs were, however, impacted by the end of the rebate programme on Argentina’s Patagonia ports and lower feed grades in Argentina and some mines in Brazil.

Meanwhile, ongoing efforts to increase ore reserve development at the Cuiabá complex should translate into further improvements, according to the company.

AngloGold’s Australian operations increased production by 18% year-on-year to 143 000 oz at a cash cost of $825/oz for the third quarter. The production increase was driven by higher mill throughput, as well as increased grades and metallurgical recoveries.

PROJECTS
The company’s high-return and low-capital brownfield projects in its international portfolio to extend mine lives and improve margins remain on track and within budget.

In terms of its Obuasi development, in Ghana, AngloGold remains in advanced and constructive talks with the Ghana government regarding the creation of the necessary regulatory and fiscal certainty that is required before a decision can be made on whether and how to proceed with the development of the high-grade Obuasi gold deposit into a modern, mechanised and highly productive gold-mining operation.

While Venkatakrishnan was confident that progress would be made in terms of the agreements and frameworks before the full-year results announcement next year, he emphasised the need for patience in terms of the development.

Meanwhile, at Siguiri, AngloGold is investing about $115-million to add a hard-rock plant to the current processing infrastructure, providing the ability to develop the significant sulphide ore potential that exists on the current concession.

The company is also building a new power plant at a cost of $43-million to provide electricity to the new facility.

As at September 30, $58.5-million had been spent on the project and $141.9-million committed. The project remains on schedule and the costs are currently expected to remain within budget. All major commitments have now been concluded.

The mill shells arrived on site in September, and off-site fabrication and sourcing of electrical and instrumentation equipment and cabling continued during the quarter.

Major contractors have mobilised on site and the transition to a new mining contractor is set to start in February 2018.

At Kibali, which is a joint venture with Randgold Resources, the ramp-up of the underground mine which will supplement and eventually replace openpit production is currently under way.

The underground operation and the integration and automation of the vertical shaft are proceeding to the final commissioning and automation stage. It is expected that the mine will achieve a significant increase in production once the final shaft commissioning has been completed. The anticipated completion of the underground mine is in the fourth quarter of this year.

The vertical shaft construction progressed well during the quarter, completing the underground materials handling system.

Paving of the haulage level and automation development also progressed, targeting the full commissioning and ramp-up of the shaft ore delivery system in the last quarter of the year.

Construction of the tailings return water detox facility was completed and commissioned during the third quarter.

The only major capital project following the underground development would be the Gorumbwa resettlement project, stripping activities mainly at the Pakaka and Kombokolo pits, and the third hydropower station, Azambi, which is on schedule to deliver its first power in the second quarter of 2018.

In South Africa, Anglogold is extending the life of its Mponeng mine, initially through the Phase 1 project to access deeper, higher-grade ore through the development of a decline below the current secondary shaft. Phase 1 is expected to be completed in the second quarter of 2018.

Phase 2, which is under evaluation, would deepen the secondary shaft to further extend the mine life.

SAFETY PERFORMANCE
AngloGold’s international operations recorded 375 days without a fatal accident, as at September 30.

While all South African operations passed one-million fatality free shifts during the quarter, the region experienced a fatality following an injury sustained earlier in the year.

As the company had four safety incidents at its South African operations in the past 20 days, Venkatakrishnan emphasised that AngloGold Ashanti would redouble its efforts to return to its safe production strategy and record.

OUTLOOK
The outlook for the full year remains unchanged, with production of between 3.6-million ounces and 3.75-million ounces at an AISC of between $1 050/oz and $1 100/oz and capital expenditure of between $950-million and $1.05-billion.  

“We expect a strong finish to the year at our key international operations and continued delivery to tight timelines and budgets on our portfolio improvement projects,” Venkatakrishnan said.