AngloGold Ashanti is taking a ruthless approach to growing its business while reducing its costs. While it has achieved a bumper production year for 2014, its gold output is expected to fall slightly from its African operations portfolio having sold Navachab mine in Namibia and reduced operations as Obuasi in Ghana last year.
This morning the company did however reveal its second consecutive growth in annual production by 8.8% to 4.4 Moz, alongside a 13% improvement in all-in sustaining costs of $1 026/oz in the 12 months through 31 December 2014, from 4.10 Moz at $1 174/oz the previous year.
Its achievements are the result of actions taken over the past 24 months to cut overhead expenditure by two-thirds while improving the quality of its portfolio by bringing into production two new, low-cost mines, selling some assets, closing others and removing loss-making ounces from ongoing operations.
Last year the company sold its Navachab mine in Namibia and completed the transition of its loss-making Obuasi mine in Ghana to limited operations. Underground production has ceased and the focus is now on the feasibility study into the redevelopment of the high-grade ore body as a fully mechanised operation. The study is nearing completion, following which it will be optimised while discussions with the government and potential funding and operating partners will be held.
Production from its Mali-based operations has also been reduced.
Production guidance for the 2015 year has subsequently reduced slightly – attributable almost entirely to its African operations. A range of between 4 Moz and 4.3 Moz reflects the sale of the Navachab mine, reduction in production from Mali, cessation of underground production at Obuasi. This is only partially offset by the ramp-up in production from the United States-based Cripple Creek and Victor starting after the first quarter.
“[Our] second year of growth is gratifying but the real focus for us is on improving margins,” CEO Srinivasan Venkatakrishnan says. “Regardless of the gold price, we won't relax the pressure on costs or hesitate to take out marginal production if needed.” All-in sustaining costs for 2014 are 18% lower than they were in 2012, while production is up 12% over the same period as Kibali in Central Africa's DRC and Tropicana have ramped up output.
Despite a 10% drop in the average gold price, the company's adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) remained steady at $1.67 billion, while free cash flow (excluding once-off retrenchment costs in Ghana and the Rand Refinery loan) improved to $142 million compared with an outflow of $1.06 billion the previous year.
Impressively, AngloGold Ashanti is achieving good safety statistics - with the fewest number of workplace fatalities in the company's history and the successful evacuation of its Vaal River mines, with only minor injuries reported, after a magnitude 5.3 earthquake in August. The Continental Africa business finished the 12 months without a fatality, for the first time ever.
Looking ahead, AngloGold Ashanti is pursuing a range of measures to generate cash from internal sources to reduce debt by about $1 billion over the medium term. These steps include pursuing additional savings from current operations, realising synergies from combining neighbouring mines and infrastructure in South Africa and potentially introducing partners in key areas, most notably projects in Colombia and in one of its operating assets.
“The shop is closed to bargain hunters,” Venkat says.
Production guidance for the first quarter is estimated to be between 900 000 oz and 940 000 oz at total cash costs of $830/oz to $860/oz. This guidance takes into account the slow seasonal ramp-up in production following the Christmas break, ongoing power disruptions and also interruptions to normal operations related to safety-related stoppages, all in South Africa.
Total cash costs are now anticipated to be $770/oz to $820oz.