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Tanzania’s 55% share of mine revenue ‘pretty generous’ – AngloGold

AngloGold Ashanti team

AngloGold Ashanti CEO Srinivasan Venkatakrishnan outlines to Mining Weekly Online’s Martin Creamer the new Tanzanian legal challenges. Video and Video Editing: Darlene Creamer 21.8.2017

AngloGold Ashanti team

Photo by Creamer Media

21st August 2017

By: Martin Creamer

Creamer Media Editor

     

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JOHANNESBURG (miningweekly.com) – The share of revenues that the government of Tanzania has received from the Geita gold mine is “pretty generous” when compared with what shareholders have received, AngloGold Ashanti CEO Srinivasan Venkatakrishnan said on Monday when the company reported an adjusted headline loss of $93-million, which includes retrenchment provision of $47-million and a silicosis provision of $46-million.

Since 2000, the Tanzanian government has received 55% of the cash distributed compared with AngloGold’s 45%, with the Geita mine delivering more than $1-billion in royalties, corporate taxes and employees’ income tax since 1999. (Also watch attached Creamer Media video)

“It’s important that we actually get that information out to increase the awareness,” Venkatakrishnan said in response to media questions during a round table attended by Mining Weekly Online.

When the time value of money is included, the government’s share is significantly higher.

In nominal terms, payback of AngloGold’s initial Geita investment took a dozen years, compared with the Tanzanian government having been a beneficiary from day one and with its cumulative share of total benefit increasing as the mine life progresses.

Moreover, Geita has had a money-absorbing past, owing to the collapse of the main pit-wall in 2007 and a major mill replacement in 2012.

“That we’ve contributed significantly to the Tanzanian economy in the form of taxes should count in our favour,” Venkatakrishnan said of the company’s decision to seek a dialogue with the government on the East Africa country’s latest unilateral changes to the Mine Development Agreement (MDA) the Johannesburg- and New York-listed gold-mining company has with it.

In addition to taxes, AngloGold recently installed a second pipeline from Lake Victoria to the mine, which, with the first one, provides water to local communities.

“We hold as one of our core values and belief that communities, whether those directly abutting our operations or host countries at large, must be material beneficiaries of our activities,” Venkatakrishnan said.

AngloGold CFO Christine Ramon cited Geita as being the most significant contributor to value-added tax (VAT) lockup, amounting to $40-million.

Ramon said that VAT lockup remained an area of concern owing to its impact on free cash generation.

UNILATERAL CHANGES

In addition to making it a requirement to list 30% of the Tanzanian mining operations on the local stock exchange, in less than a week in late June, the Tanzanian government tabled, debated and approved several laws that alter the mining investment landscape.

While AngloGold has sought a dialogue on the impact of the new rules, it has continued to operate as normal at Geita given the protection the MDA affords it.

However, it has succumbed to paying an additional 2% royalty on revenue plus a 1% clearing fee to ensure the continued export of its gold doré bars.

Tanzania has historically been one of AngloGold Ashanti’s preferred investment destinations owing to its geological endowment and predictability, afforded by the MDA, under which the company has continued to invest for the benefit of all stakeholders.

It has received recognition in the past for being one of Tanzania’s largest taxpayers and its Geita is seen as an important tool in enabling the country to realise its goal of reaching middle-income status.

It is currently operating Geita on a self-funding basis given the higher royalties and VAT lockup.

In response to Deutsche Bank research analyst Patrick Mann, Venkatakrishnan said any negotiations with government would centre on the context of the new MDA as opposed to the newly promulgated laws.

As a precautionary measure, its subsidiaries had initiated arbitration to protect the status of its MDA.

“This is a situation that requires patience, diplomacy and the need to take a long-term view. We must balance the optionality of this important asset and the goodwill of our Geita Tanzanian shareholders while planning for different contingencies and remaining the custodian of our shareholders’ capital expenditure (capex),” Venkatakrishnan added.

AngloGold envisages spending capex of $180-million in Tanzania this year on underground development and the completion of the power plant, which the operation will self-fund.

Capex on underground development is scheduled to continue in 2018.

Questioned by Mining Weekly Online on the model to be followed to avoid instability going forward, Venkatakrishnan emphasised the need for a fair share of revenues between the States and mining companies.

Mining companies should also engage in sufficient community spend and, wherever possible, procure goods and services locally.

HALF-YEAR RESULTS

Production of 1.748-million ounces after strong second-quarter recovery has nudged 48% of the way towards meeting full-year production guidance. Full-year cost guidance is also intact.

All-in sustaining costs (AISC) of $1 071/oz for the 12 months to June 30, compared with $911/oz in the corresponding period of last year, reflected planned brownfield investment and stronger currencies, which were up 14% in both South Africa and Brazil.

Brownfield projects to improve mine life and the portfolio mix are all on budget and on schedule and action is being taken to stem losses in South Africa.

A third consecutive fatality-free quarter was achieved, with new safety records set across the portfolio.

The company reported net debt of $2.151-billion and a net debt to earnings ratio of 1.56 times.

Lower grades and the slow production start to the year from the South African operations were offset by another strong performance from the international operations, with a notable improvement from Siguiri in Guinea, where higher grades helped drive a 25% increase in production.

The stronger South African rand and Brazilian real continued to weigh on margins, while the planned increase in capex on the brownfield project portfolio also contributed to the higher AISC.

The rand and real were both 14% stronger versus the dollar in the first half of 2017 compared with the first half of last year, while the gold price was only 1% higher.

AISC increased by $160/oz, or 18%, from $911/oz in the six months of the corresponding period last year to $1 071/oz.

Cash inflow from operating activities decreased by $155-million, or 33%, from $476-million to $321-million, reflecting higher operating costs and negative working capital movements, partially offset by a 1% increase in the gold price and a 2% increase in gold sales.

An adjusted headline loss of 23c a share was recorded in the first half of 2017, reflecting the South Africa redundancy provisions related to potential outcome of the Section 189 process, and an estimated provision in respect of the silicosis class-action lawsuit.

Edited by Creamer Media Reporter

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