AngloGold targets improvement in cash, cost and safety

AngloGold Ashanti has set new objectives towards efficiency and safety after posting impressive returns with increased dividends for investors.

“The Board of directors has identified areas for improvement, including in cash conversion, overall cost management and the crucial area of safety, after a period of almost two years without a fatal accident ended in early 2020.” Maria Ramos, AngloGold Ashanti’s Chairperson said,

The multinational gold firm added 6 million ounces of new Ore Reserve, on a gross basis, as it charted a return to growth.

The company declared a full-year dividend of approximately 48 US cents per share compared to a dividend of 9 US cents per share in 2019.

The firm in still in search for a new CEO, with a thorough process underway that is considering internal and external candidates.

This was revealed as the firm issued its suite of annual reports for 2020, highlighting its delivery on strategic objectives and its commitment to continued focus on its environmental, social and governance (ESG) performance.

Over the course of 2020 – a year in which the COVID-19 pandemic caused disruption across the world – the quality of AngloGold Ashanti’s portfolio improved, the Obuasi Redevelopment Project made steady progress to completion, net additions were made to both Ore Reserve and Mineral Resource, net debt fell to its lowest level in a decade and the dividend increased more than fivefold.

“I’m pleased to say our leadership and employees responded as we always hoped they would in a crisis; steady under pressure and faithfully adhering to our values in adapting to new challenges in a rapidly evolving operating environment,” Ramos said.

The Company delivered a “solid performance, but we’re mindful that there is much to do to narrow the value gap that persists versus many of our international gold-mining peers.”

“The fundamental performance of the business was strong in 2020, which was a pivotal year for us,” said Christine Ramon, Interim CEO. “The trimmed down portfolio allows us to focus our capital on high return, longer life opportunities.”

AngloGold Ashanti has outlined a plan to grow production to between 3.2Moz and 3.6Moz by 2025, mainly from brownfields projects in its existing suite of assets.

Additional production in the latter years is expected from two Colombian projects that will be presented to the Board for approval later this year.

“Across all of this is our commitment to ESG. We’ve seen in countless ways how this mutually=reinforcing cycle creates value for a wide range of stakeholders.

It makes our communities stronger, makes our jobs more fulfilling, and is good for shareholders, too,” said Ramon. “The product of this equation is clear – more efficient operations, with lower risk profiles, more supportive communities, and increased access to growth opportunities.”

“The Board of directors and management team are committed to achieving net zero emissions, in line with the Paris Agreement, and will chart a pathway to achieving that goal once the new climate strategy is finalised,” Ramon said.

The Company added 6.1Moz of new gold Ore Reserve during 2020, more than replacing depletion caused by mining, and extending the reserve life of the portfolio to 11 years.

Ghana’s revamped Obuasi mine is expected to contribute significantly to the assets of AngloGold in the next two years.

The project is expected to contribute up to 200, 000 ounces of gold production capacity and is anticipated to begin in 2021.

The firm said it would include the addition of new production from Colombia assuming plans for investment are approved by the Board.

Reserve additions

AngloGold Ashanti embarked on a multi-year initiative at the beginning of 2020, to increase investment in ore reserve development and brownfields exploration.

In its first year, the programme yielded 6 million ounces of gold – more than replacing depletion from mining and extending the overall reserve life of the Company’s portfolio.

These additions included 1.4 million new ounces of Ore Reserve at the Geita Gold Mine in Tanzania, and 1.8 million ounces at Obuasi, in Ghana, the company noted.

The aim of this investment was to increase the rate of Ore Reserve conversion, extend the reserve lives of its assets, enhance mining flexibility and further improve the knowledge of the ore bodies.

AngloGold Ashanti has, since 2013, used surplus cash generated by its mines and the proceeds from the sale of assets in the US, South Africa and Mali, to reduce net debt by more than 80%, to the lowest levels in a decade.

Financial and operating performance

Basic earnings for the period ended 31 December 2020 were $953m, or 227 US cents per share, compared with a $12m loss, or 3 US cents loss per share in 2019.

Headline earnings for the period ended 31 December 2020 were $1,000m, or 238 US cents per share, compared with $379m, or 91 US cents per share in 2019.

Earnings benefitted from the higher gold price net of increased profit-related taxes.

Free cash flow before growth capital – the metric on which dividends are calculated – increased by 124% to $1,003m in 2020 versus $448m in the prior year.

Production was 3.047Moz at a total cash cost of $819/oz in the twelve months to 31 December 2020, from 3.281Moz at a total cash cost of $776/oz in 2019.

The 7% reduction in production was due mainly to the sale of our remaining South African producing assets, the cessation of mining activities at Sadiola and Morila in Mali, and the impact of the COVID-19 pandemic.

The Company’s all-in sustaining costs (AISC) came in at $1,059/oz in 2020, compared with $998/oz in 2019. The COVID-19 impact on production in 2020 was estimated at 140koz or 5% and its impact on AISC was estimated at $55/oz or 5%.

The performance for the year was underpinned by a strong year at Geita, whilst steady performances at Kibali, Iduapriem, Siguiri, Sunrise Dam, and AGA Mineração helped offset declines in production at Tropicana, Cerro Vanguardia (CVSA) and Serra Grande. The Obuasi Redevelopment Project continued its ramp-up, delivering a 127,000oz in production despite delays in receiving equipment and in the arrival of skilled personnel, critical to the project as a result of COVID-19 related lockdowns in various jurisdictions during the year.

Balance sheet

The balance sheet of the company continued to improve as stronger cash flows helped with the continued reduction in adjusted net debt. Adjusted net debt for continuing operations declined by 62% to $597m at 31 December 2020, from $1.581bn at 31 December 2019. Adjusted EBITDA for continuing operations increased by 56% year-on-year to $2,470m in 2020, from $1,580m in 2019.

The ratio of adjusted net debt to Adjusted EBITDA for continuing operations at the end of December 2020 was 0.24 times compared with 1.00 times at the end of December 2019, well below the targeted level of 1.0 times through the cycle. This reflects disciplined reduction in debt and robust cash generation from the business.

Safety

Regrettably, AngloGold Ashanti recorded six fatalities last year, four at Mponeng in South Africa and two at Obuasi.

“Last week, on 16 February, we tragically lost another of our colleagues at our Serra Grande Mine in Brazil. We continue to invest considerable resources in understanding the root causes of all accidents – including high potential incidents, or ‘near misses’ – in order to prevent reoccurrences.

“This year, we expect to implement an updated safety strategy across our business, with particular focus on the critical controls needed to eliminate what we call ‘high consequence, low frequency’ events,” the firm noted.

COVID-19 response

The Company’s response to COVID-19 remains on safely ensuring business continuity as we navigate through the pandemic. We continue to work hand-in-glove with authorities and local communities in each of our operating jurisdictions – providing not only healthcare support where needed, but also assistance in other areas that are experiencing considerable strain from the pandemic.

Outlook

Production guidance for the 2021 year is estimated to be between 2.7Moz and 2.9Moz. Total cash costs are estimated to be between $790/oz and $850/oz and AISC between $1,130/oz and $1,230/oz at average exchange rates against the US Dollar of 5.00 (Brazilian Real), 0.72 (Australian Dollar), 98.00 (Argentinian Peso), and 16.95 (South African Rand), with Brent oil at $50/bbl average for the year. Sustaining capital expenditure is anticipated to be between $720m and $820m, including investments in Ore Reserve Development and Exploration ($330m to $380m) and Brazil tailings compliance capital for 2021 ($70m to $80m).

AngloGold Ashanti expects to see an average 2.0% compound annual growth rate (CAGR) in gold production over the next two years relative to 2020 production from continuing operations.

The primary driver of production growth is related to Obuasi operating at steady-state, Tropicana reverting to normalised production levels following the reinvestment in its life extension, and AGA Mineração, Siguiri and Sunrise Dam expected to increase production to higher levels.

On a five-year indicative outlook, the Company expects to see an average of 5.0% CAGR in gold production between 2021 and 2025.