Gold mining company AngloGold Ashanti delivered above its cost and performance guidance for the third quarter ended September 30, 2015.
The company also achieved a marked reduction in debt levels, and strong cash flows despite a 12% decrease in the gold price year-on-year.
The overall levels of borrowing have also been reduced by a quarter, in line with the company’s strategy. At 30 September, net debt was $2.319 billion compared to $3.076 billion at 30 June.
This was due to the successful repurchase of $779 million of the 8.5% high yield bonds, which mature in 2020 and originally had a principal amount outstanding of $1.25 billion.
This tender for the company’s highest-cost debt, using cash from the sale of Cripple Creek & Victor (CC&V), will lower the overall interest burden by about $66 million a year.
Adjusted earnings before interest, tax, depreciation and amortisation (adjusted EBITDA) was $291 million, compared with $383 million in the third quarter of 2014, mainly due to the 12% decline in the realised gold price.
Net debt to adjusted EBITDA was 1.56 times at the end of the quarter, well below the banking covenant limit of 3.5 times, and close to the company’s targeted level of 1.5 times through the cycle.
“These results show relentless cost discipline and continued delivery on our strategic commitments,” says AngloGold Ashanti CEO Srinivasan Venkatakrishnan.
“We’ve used self- help steps to significantly lower debt and interest, which will improve our cash-flow generation capacity.”
Meanwhile, AngloGold Ashanti has responded decisively to a sharp drop in gold prices in recent years, slashing overhead expenditure by two thirds, introducing two new, low-cost mines, cutting debt significantly to help withstand market volatility and, most recently, by selling its CC&V mine and deploying the proceeds to reduce its interest bill by more than a quarter.
The company has also reached conditional agreement to partner with Randgold Resources to redevelop the Obuasi gold mine in Ghana as a mechanised, productive long-life operation.
Production was 974 000 oz at a total cash cost of $735/oz in the three months till 30 September 2015, compared with 1.128 Moz at $820/oz in the third quarter of last year. The result compared with guidance of 900 000 oz to 950 000 oz at a total cash cost of $770-$820/oz.
The company believes that the operating performance was assisted by especially strong showings from the company’s mines in South America, the Geita operation in Tanzania, and Tropicana in Australia.
The cost improvement was due to the P500 cost-saving initiative, which continues to show particular benefit across AngloGold Ashanti’s international mines, and also lower oil prices and weaker currencies in South Africa, South America and Australia.
Improved Cost Guidance
Improved efficiencies reported in previous quarters have allowed AngloGold Ashanti to improve its cost guidance for the year, with the forecast for all-in sustaining costs lowered to $950/oz to $980/oz, from $1 000/oz to $1 050/oz previously.
Capital expenditure for the year is now expected to be about $900 million, from a range of $900 million to $1 billion previously forecast. The anticipated production range has been tightened, and is now 3.8Moz to 4.0Moz, from 3.8Moz to 4.1Moz previously.
AngloGold Ashanti’s international operations continued to deliver cost reductions during the quarter, with all-in sustaining costs 14% lower year-on-year at $826/oz. This performance helped offset lower output and higher costs from South Africa, which continued to face safety-related stoppages, and lower production from the Obuasi mine, which moved to limited operations mode at the end of last year.
The company reported an adjusted headline loss of $52 million, or US$0.13 per share, in the three months under review, compared with adjusted headline earnings (AHE) of $2 million in the third quarter of last year. AHE was $18 million, or 4 cents per share, after normalising for deferred taxation translation, indirect tax and environmental rehabilitation and other provisions, and inventory movements and write-offs.
Anglogold Ashanti recorded five operating fatalities during the quarter in the South Africa region. Falls-of-ground remain the cause of most of these incidents, with seismicity an ongoing challenge.
The company says that it continues to focus on improving compliance to procedures in order to prevent these incidents, and also to employ technical measures, such as netting and bolting in stopes and development areas to reduce falls of ground.
Despite these safety challenges, which are receiving the highest priority, the All Injury Frequency Rate – the broadest measure of progress – was 6.48 per million hours worked for the quarter, a 17% improvement from the same quarter last year.
Gold production for the fourth quarter of 2015 is estimated to be between 900 ooo oz to 950 000 oz, which will result in annual production of between 3.8Moz to 4.0Moz.
Total cash costs for the fourth quarter are estimated at $720/oz to $770/oz.
Given improved cost performance to date and updated capital expenditure profiles, Anglogold Ashanti is updating its annual guidance as follows:
- Total cash costs: $720/oz to $770/oz (previously $770/oz to $820/oz)
- All-in-sustaining costs: $950/oz to $980/oz (previously $1 000/oz to $1 050/oz)
- Capital expenditure: approximately $900 million (previously $900 million to $1 000 million)