AngloGold’s free cash soars 290%, dividend payout ratio doubled

Gold mining company AngloGold Ashanti on Monday delivered a near fivefold increase in free cash flow in the third quarter of 2020, which has resulted in the company’s adjusted net debt falling to its lowest level in almost a decade and supporting the decision to double its dividend payout ratio.

The Johannesburg- and New York-listed company will pay shareholders 20% of its free cash flow before accounting for capital expenditure in growth projects, up from 10% previously.

It will also double the frequency of payouts from the current annual dividend declaration, to semi-annual payments.

“We’ll continue to enforce capital and cost discipline to deliver strong cash flows in this elevated gold price environment,” AngloGold interim CEO Christine Ramon stated in a media release to Mining Weekly.

“Doubling our dividend payout ratio demonstrates confidence in our ability to both improve direct returns to shareholders and to self-fund our growth projects and sustaining capital requirements,”  Ramon added.

CEO APPOINTMENT AND NEW LISTING

In response to Mining Weekly, Ramon said an update on the CEO succession process would be provided by the board at the appropriate time. “I think, importantly, the board is not putting any firm timeline on the new appointment,” Ramon said, adding that the company was focused on operational performance, which she described as currently being “quite stellar”, and on creating value for shareholders.

Regarding a possible new domicile for the company’s primary listing, Ramon said that was not a priority for the company now but remained an option at the appropriate time. “It’s an option that remains open,”  she said.

OBUASI EXPANSION

The Obuasi Redevelopment Project, financed from internal cash flows, continued its ramp-up during the third quarter of 2020, delivering a 52% quarter-on-quarter increase in output, taking total pre-production output to about 100 000 oz.

Having completed phase one of the Obuasi expansion project in Ghana, Ramon said the company was now in the middle of implementing phase two to attain an output of 4000 t/d.

Construction was scheduled for completion in 2021, Ramon added.

ENVIRONMENTAL SOCIAL GOVERNANCE

Ramon said that environmental social and governance (ESG) was a very strong focus of AngloGold, which had originally targeted a 30% reduction in greenhouse gas emissions by 2022 and had already achieved a 43% reduction four years sooner, in 2018.

The company was now now drafting a new climate change strategy in parallel with the drive to reduce carbon emissions. ESG, Ramon said in response to Mining Weekly, was being driven throughout the business is, and the approach was very much top down and bottom up.

FREE CASH FLOW

Free cash flow rose to $339-million for the quarter ended September 30, a 290% increase from the $87-million generated in the comparable quarter of last year, helped by lower costs from continuing operations, lower capital expenditure and a 30% higher gold price received.

The $339-million excludes the $200-million of proceeds received from Harmony Gold for the sale of its South African operating assets on September 30.

Cash inflow from operating activities was up 56% to $551-million from $354-million in the same period last year.

By completing the sale of its South African operating assets and progressing asset sales processes in Mali, AngloGold has streamlined its portfolio and placed itself in a position to increase reserves, extend mine lives and improve operating flexibility.

Adjusted net debt almost halved year-on-year to $875-million as at September 30, while adjusted earnings before interest, taxes and depreciation and amortisation (Ebitda) rose 72% over the same period to $803-million, from $468-million in the third quarter of 2019.

The ratio of Adjusted net debt to adjusted Ebitda fell to 0.36 times, its lowest level since 2011. Commitment remains to maintaining a flexible balance sheet with an Adjusted net debt to adjusted Ebitda target ratio of 1.0 times through the cycle.

OPERATING PERFORMANCE

Production in the three months ended September 30 was 837 000 oz at a total cash cost of $801/oz, compared with 825 000 oz at a total cash cost of $786/oz in the same period in 2019.

The solid production result was underpinned by strong performances at most sites, with standout performances at Sunrise Dam in Australia and AGA Mineração in Brazil.

All-in sustaining costs (AISC) were $1 044/oz in the third quarter of 2020, compared with $1 031/oz in the third quarter of 2019, largely reflected higher cash costs. Covid-19-related impacts resulted in AISC being $51/oz higher in the third quarter of 2020 owing to $22-million worth of Covid-related costs incurred of $33/oz and 18 000 oz lost production at the South African operations at $18/oz.

Free cash flow before growth capital, the metric on which dividends are calculated, more than doubled to $361-million during the third quarter, compared with $177-million in the third quarter of 2019.

This free cash flow figure does not reflect a portion of the cash flows from Kibali, which remains in the joint venture bank account in the Democratic Republic of the Congo (DRC). The company’s attributable share of the outstanding cash balance that has not yet been repatriated from the DRC grew by $66-million in the third quarter to $359-million. Barrick Gold Corporation, the operator of the Kibali joint venture, continues to engage with the DRC government regarding remittance of this cash balance.

Harmony Gold made a cash payment of $200-million taking full ownership of the South African assets and associated liabilities of AngloGold from October 1.

Closing the sale of Morila gold mine in Mali to Mali Lithium is anticipated to take place soon and all parties reportedly remain committed to the conditions precedent in the sale of Sadiola, notwithstanding political instability in Mali.

BALANCE SHEET

AngloGold reported a continually improving balance sheet on stronger cash flows and continued debt reduction. The ratio of adjusted net debt to adjusted Ebitda at end September was 0.36 times compared with 1.06 times as at September 30, 2019 –  the lowest point for this ratio since 2011.

ONE FATALITY

Regrettably, AngloGold Ashanti had one fatality in the quarter, during which the company stated that emphasis had been placed on intensifying employee focus on safety practices in all workplaces in an effort to continue AngloGold Ashanti’s sustainable safety improvement.

All operations remain on high alert with respect to the impacts of the Covid pandemic and it is actively dealing with both the operational challenges and psychological effects associated with the virus as well as implementing related protective measures, including lockdown arrangements.

GUIDANCE REINSTATED

On September 21, AngloGold reinstated its yearly guidance owing to improved operating certainty amid Covid.

In 2020, the group is expected to produce between 3.030-million ounces and 3.100-million ounces, including nine months of production from the South African producing assets, of between 2.800-million ounces and 2.860-million ounces on a continuing operations basis.

AISC is expected to be between $1 060/oz and $1 120/oz, including contributions from the South African assets to September 30, or between $1 050/oz and $1 100/oz on a continuing operations basis. Total capital expenditure is expected to be between $890-million and $950-million, including the South African assets to September 30, or between $850-million and $905-million on a continuing operations basis.