JOHANNESBURG (miningweekly.com) – Following a year in which African Barrick Gold (ABG) introduced a sweeping operational review to buffer against a subdued gold price, the company has beaten its full-year production guidance by 7% and increased year-on-year output to 641 931 oz for the 12 months ended December 31.

Under the leadership of CFO Andrew Wray, ABG, Tanzania’s largest gold producer, identified over $185-million of cost savings across the business, ranging from reductions in capital spend, exploration, corporate overheads and organisational structures.

ABG CEO Brad Gordon, who had occupied the company’s top position since August last year, added that the review had removed $129-million of cost from the business by the end of the year, enabling the miner to deliver a year-on-year reduction in all-in sustaining costs of 14% to $1 362/oz.

Moreover, the company’s traditional measure of cash costs reduced by 12% to $827/oz for the full year, while its exit rate was 19% lower than the previous year at $774/oz.

"[Last year] was a year of significant change within ABG as we undertook a major operational review to ensure the business was set up to deliver increasing value in a lower gold price environment.

“As a result of mine planning changes and lower gold price assumptions, we have incurred noncash impairment charges at a number of our assets, but we expect positive cash flow generation at each of our sites in future," Gordon commented.

OPERATIONAL BOOST

Excluding the company’s Tulawaka mine, which stopped operating earlier in 2013 before being transferred to Tanzanian State mining company Stamico, ABG’s three core mines increased overall production by 7% year-on-year.

This was driven by strong performances at North Mara and Buzwagi, both in Tanzania, with the North Mara mine lifting output by 33% to 256 732 oz as a result of improved grade.

Following increased throughput at Buzwagi, in north-west Tanzania, the operation increased production for the year by 10% to 181 984 oz.

“This more than offset the weaker first-half performance from Bulyanhulu, which narrowed full-year output as a result of both labour shortages and equipment availabilities,” Gordon noted.    

Total ore mined amounted to 54.1-million tonnes, an increase of 12% from 48.3-million tonnes in 2012, while ore processed amounted to 7.9-million tonnes, an improvement of 4% from 2012 driven by increased throughput at Buzwagi owing to process plant improvements.

LOST IN TRANSLATION

Meanwhile, Gordon held that the “dramatic” drop in the gold price over the year meant that the stronger year-on-year production and cost performance did not fully translate into improved financial performance for the gold miner.

The average realised gold price of $1 379/oz was 17% lower than the 2012 average of $1 668/oz.

Gold sales amounted to 649 742 oz, some 1% ahead of production owing to the sales of ounces held over from the prior year.

As a result of the lower gold price, revenues from ongoing operations dropped 8% to $929-million with earnings before interest, taxes, depreciation and amortisation of $240-million.

“Earnings were further impacted by total noncash impairment charges of $1-billion as a result of the impact of a lower gold price assumption and significant changes to mine plans, which led to a loss of 190.4c a share,” outlined Gordon.

The company closed out the year with a cash position of $282-million, announcing a final dividend of $0.02c a share, which would be paid to shareholders on May 23.

SINGLE FOCUS

Looking ahead, Gordon said the group would enter 2014 with a single focus –operational delivery.

“We have a portfolio of high-quality assets and our plan is to deliver a continued and sustainable reduction in costs together with production growth. Our balance sheet remains strong and we will continue to take the steps required to ensure we are able to deliver free cash flow from the operations, which can then be appropriately applied between exploration, capital projects and returns to shareholders,” he noted.

The company expected to see increased production of between 650 000 oz and 690 000 oz of gold in 2014 while, at the mine level, Bulyanhulu was expected to lift quarter-on-quarter output owing to increased throughput and grade, together with the additional ounces from the carbon-in-leach expansion in the second half of the year.

At Buzwagi, production would also increase, owing to improved grades and mine planning changes, ABG pointed out.

“North Mara will also see higher throughput, although, with the planned head grade returning to a level close to the reserve grade at the mine, we expect to see a corresponding reduction in production,” explained Gordon.

Moreover, as a result of the operational review and further ongoing improvements to the business, ABG would target further reductions to its unit costs, estimating the cash cost for the year, including royalties, to be between $740/oz sold and $790/oz sold.

The company stated that a reduction in capital expenditure, together with reduced corporate overheads, meant that it estimated all-in sustaining costs for the year to be between $1 100/oz and $1 170/oz – a reduction of up to 19% compared with 2013. 

Commenting on ABG’s results, fund management firm Liberum described the miner’s performance as “a mixed bag” which demonstrated that ABG was “a much stronger business”.

“The dividend of $0.02c/share is disappointing, but prudent, considering the net cash position and the fact that there are no plans for growth expenditure or a step-up in exploration expenditure,” the firm noted.

While adding that it expected positive free cash generation in 2014, with a yield of between 2% and 3%, Liberum cautioned that, as ABG’s sole focus of 2014 was on operational delivery, all the “good news” had already been priced-in, resulting in an expensive share.