JOHANNESBURG (miningweekly.com) – The generation of free cash by gold mining company AngloGold Ashanti is soaring.
Free cash flow of $161-million in the third quarter is 54% higher than the free cash flow generated in the six months to June 30.
In the first nine months, the Johannesburg- and New York-listed company’s free cash has hit the $269-million mark after all outgoings, bar the $30-million once-off cost incurred for the early repayment of the company’s high-yield bond - its most expensive debt.
“We generated strong free cash flow in the third quarter, taking this year’s cumulative free cash flow to nearly a quarter of a billion dollars, further reducing debt,” CEO Srinivasan Venkatakrishnan (Venkat) said on Monday.
While operations in continental Africa and Australia exceeded high safety benchmarks, three fatalities in South Africa brought the affected mines to a halt, lowering August production.
Loss to safety-related stoppages totalled 38 600 oz in the three months to September 30 and nearly 83 000 oz in the first nine months of the year.
“Given the unpredictable nature of safety stoppages, we’ll take a more prudent or punitive stance internally on go-forward projections of South African production, starting from next year,” Venkat told a conference in which Creamer Media’s Mining Weekly Online took part.
Underground grades fell 8.4% in South Africa as access to crucial higher grade ore was prevented by safety stoppages.
Third-quarter cash costs an ounce increased by 8% to $797/oz on lower grades, lower units of production and inflation, and all-in sustaining costs (AISC) rose 14% to $1 071/oz on higher total cash costs, exploration, corporate and marketing costs and a planned increase in capital expenditure (capex).
However, on a year-to-date basis, cost rises have been muted, with cash costs rising by 1% and AISC 4% higher at $965/oz, with third-quarter unit costs hit by yearly wage and electricity increases, as well as the higher winter power tariff.
To improve production volumes, accessing higher grades is part of short-term plans and investing in low-capital, high-return brownfield projects is part of medium-term plans.
Third-quarter production fell by 74 000 oz to 900 000 oz, despite improved performances at Moab Khotsong, which had a 14% production recovery and fewer year-on-year safety stoppages, and Mponeng, both in South Africa.
TauTona mine was most affected by safety stoppages. The Level 116 haulage, which provides the access way to two new raise lines at the Savuka section of TauTona, remains closed following the seismic event and will be inaccessible until the second quarter of next year.
At the surface operations, South Africa's Vaal River surface sources production declined in yield owing to lower grade areas being reclaimed. A project has been launched to screen and truck the Moab Khotsong marginal ore to plant to improve grades.
Tonnages also fell slightly owing to repairs to the West Wits gold plant. A blending strategy was initiated to mitigate the lower grades fed into the Savuka Gold plant.
Production from West Wits surface sources increased owing to the addition of the tailings storage facility.
Mine Waste Solutions recommissioned the uranium plant, with limited production during the quarter.
Overall third-quarter South African output dipped 7% year-on-year to 235 000 oz, on lower underground grades, and third-quarter international output fell by 37 000 oz to 665 000 oz from 702 000 oz, on planned lower ore grades at Tropicana, in Australia, and Geita, in Tanzania, as well as delays in accessing high-grade ore in Brazil.
Adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) rose 36% to $395-million in the third quarter, from $291-million in the corresponding period of last year.
Net debt to adjusted Ebitda ended the quarter at 1.26 times, lower than the 1.54 times recorded in the corresponding period last year.
Debt levels remain well below the covenant of net debt to adjusted Ebitda of 3.5 times under the company’s revolving credit facilities.
The past three years have been characterised by a range of measures to cut debt, using internally generated funds.
Whilst it was indicated previously that costs would be higher in the second half of the year, the increase was worsened by a poor South African performance, a delay in accessing higher grades in Brazil, capex and strengthening currencies.
Falls-of-ground and tramming incidents caused three deaths in South Africa and a heavy mobile equipment accident one death at Cuiabá, in Brazil.
The Vaal River gold mines attained two-million fatality-free shifts, Moab Khotsong a calendar year without a fatality and Kopanang one-million-fatality-free shifts.
The top end of production guidance of 3.8-million ounces has been trimmed back to 3.65-million ounces and the cash cost guidance lifted to between $730/oz and $750/oz compared with $680/oz to $720/oz previously.
AISC guidance has been increased to between $980/oz and $1 010/oz from $900/oz to $960/oz previously and capex will not be higher than $820-million, down from a maximum of $850-million previously.
The company's mines in continental Africa produced 333 000 oz at a total cash cost of $760/oz, compared with 349 000 oz at $687/oz in the same quarter in 2015. Total cash costs were impacted mostly by lower production year-on-year at Kibali, in the Democratic Republic of Congo, and Geita, in Tanzania.
The Americas region produced 211 000 oz at a total cash cost of $588/oz for the third quarter of 2016 compared with 219 000 oz at a total cash cost of $570/oz for the same quarter in 2015.
The Australia region produced 121 000 oz at a total cash cost of $864/oz for the third quarter of 2016 compared with 134 000 oz at a total cash cost of $718/oz for the same quarter in 2015.
The troubled Obuasi, in Ghana, continues in care-and-maintenance phase while evaluating future options for recommencing operations through optimisation of the feasibility study.
This follows the incursion of hundreds of illegal miners inside its fenced area, which led to the declaration of a force majeure and the withdrawal all employees performing nonessential functions.
The Ghana government has appointed a committee to direct and oversee the relocation of illegal miners to other areas off the lease, including a large area returned to the government.
The arbitration against the Ghana government filed with the International Centre for Settlement of Investment Disputes in April continues to allow the company to protect its legal and equitable rights and to mitigate the damage that the incursion of illegal miners has already caused.
AngloGold, along with mining companies Anglo American, African Rainbow Minerals, Gold Fields, Harmony Gold, DRDGold, Village Main Reef, Randgold and Exploration and Sibanye Gold have been served with a consolidated silicosis and a tuberculosis class action by former underground mineworkers who worked in South African mines from 1965.
An application to the High Court for leave to appeal to the Supreme Court of Appeal has been granted and suspends the operation of the High Court's order. The appeal is likely to be heard mid-2017.