AngloGold Ashanti Limited (NYSE:AU) Q4 2023 Earnings Call Transcript
AngloGold Ashanti Limited (NYSE:AU) Q4 2023 Earnings Call Transcript February 23, 2024
AngloGold Ashanti Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, ladies and gentlemen, and welcome to the AngloGold Ashanti Full Year Market Call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions later during the call. [Operator Instructions]. Please note that this event is being recorded. I will now hand the conference over to Stewart Bailey. Please go ahead sir.
Stewart Bailey: Thanks very much Chris. Good afternoon, everyone, and to those of you joining us from the Americas, good morning, and welcome to our 2023 market call. You have Alberto and the full expert team here to help run you through our performance. But before we start, let me call your attention to the fact that we'll be making forward-looking statements and we will reference certain non-GAAP financial information during the course of the remarks. Slide two is our Safe Harbor Statement. It's important and I would ask you please to refer to it. I'd also just like to apologize for the delay in releasing the report today. We had a glitch on our side that was a little tricky to overcome. So thanks for your forbearance on this and we hope this call will be fulsome enough to talk you through the detail in a way that's helpful. Over to you, Alberto.
Alberto Calderon : Thank you, Stewart. Good day and welcome to our results call. Before we get into the details of what has been a very good year for us, I'd like to address an issue you may have picked up in our release today. During our year-end audit AGA, AngloGold Ashanti, found a potential error in the calculation of a deferred tax asset at Obuasi in 2022. This potential error that could impact our earnings by up to $146 million between 2022 and the first half of 2023. The error is non-cash and has no impact on production, cost, cash flow, value of the asset or anything related. Let me be clear, the facts and the numbers are very clear. For all practical purposes, this is an impairment of $146 million. However, there is still an on-going discussion with our previous auditor about whether and how much of this error should be accounted for in our eventually reinstated 2022 accounts.
Any potential restatement is a time-consuming complex process, made so more by the fact that we're working with two sets of auditors. All parties must agree on the nature and quantum of any adjustments before we are able to issue our 2022 results, which we will do as soon as possible. That's that. Now, let's move to what really matters. A strong set of results we are all very proud of. The [inaudible] is a joint AGA in late 2021 was simple. Close the value gap with our peers. To do it, we've worked to address several interlocking initiatives that together will substantially improve our business. We still got work to do, but we made good progress on our original priorities. Most important of all, we've closed the cost gap with our major peers.
We've done it safely. We're now among the safest mining companies anywhere in the world. We've improved predictability, again achieving guidance on production and cash costs. This increasingly sets us apart in the peer group. We've been decisive on loss making operations and projects that don't fit our portfolio. That allows us to narrow our focus on the things that drive value, but its recovery strategy is progressing to plan. We've declared a new 9.1Moz Inferred Mineral Resource at Merlin, which almost doubles our resource position in this new gold district. We're more than rebased reserve pre-depletion [ph] in the past five years. We're building on a strong climate track record with a series of new emission reduction projects. And finally, last but not least, our primary listing on the New York Stock Exchange gives us exposure to the world's deepest pool of capital.
We've recorded a strong H2 performance after a series of challenges in H1. Gold production was up to 15% with a standard performance from Iduapriem, Tropicana, Geita and Kibali. Cuiabá simplified the resilience we're building in the business. Even after losing much of Q1 in the pivot to concentrate production, it delivered ahead of budget which in turn drove our 9% improvement in cash costs. And Obuasi recovery from poor ground conditions in Q3 is proceeding to plan. Perhaps more importantly, the better production results have tried $314 million in free cash flow in H2, showing the much improved health of the underlying business.
.: On safety. We have a clear safety strategy that pairs risk awareness with robust controls to manage the most critical workplace hazards. Our industry frequency rates remain well below industry peers. I've been around for long enough to know that we can never afford to be complacent and that we're only ever as good as our last injury free shift. 2023, it is important to get the basics right. That starts with meeting our commitments. We delivered just under $2.6 million of production within guidance. Cash costs were also within our guidance range. All-in sustaining costs increase to 1038 an ounce, that reflects the higher cash cost and a plan increase in sustaining CapEx. Full potential is working exactly as intended. We will show a detailed graph of $215 million savings realized in 2023, played a key role in helping to offset inflation and also to increase impact of production disruptions.
Pre-cash flow was $109 million for the year. That's a big turnaround after 205 outflows in H1. We took the decision to pay a dividend of one more payer policy, declaring a dividend of $0.19 per share, following the strong H performance, the strong balance sheet and our confidence in the future. The payer demonstrates confidence in the robustness of the business and our commitment to return to shareholders. We showed you a different view for the portfolio at the interim results. The steering lens shows more clearly the geological realities of each side, their flexibility and performance and potential for growth in both production and margins. This in turn determines their place in our capital allocation hierarchy. T1 assets have scaled life or at least the potential to increase life.
They are at the lower end of the internal cost curve or have the potential to get there. Tier 2 has our steady performance. Ore bodies are well understood and operations are reasonably well optimized or on their way to be there. Some may be on the higher end of the cost curve, but they are all well run, predictable and steady cash contributors. The Tier 1 assets produce 1.6 million ounces of gold this year at a cash cost of $990 an ounce. Geita had a strong finish coming back strongly from the Q1 shutdown. In fact, Q4 ounces were 45% higher than Q1. Obuasi recovered very well. As you see, Q4 production was a third higher than Q3. I'll talk more about that shortly. Kibali made a solid contribution of 343,000 ounces and higher grades drove an increase at Tropicana.
Turning to Tier 2, Cuiabá as I mentioned had a stellar recovery from a standing stock generating $78 million free cash in H2, even at a discounted coal price being this a concentrated operation of $1,790 an ounce. The mine is fully converted to a concentrated operation. Sunrise was the poster child for both full potential, with a cash cost of all-in sustaining well below the year end. Siguiri has a steady second half as it recover from the Q2 tax collapse – quarter two tax collapse. By year end throughput rates have normalized and the team is now working to calibrate the plan to lift recoveries. CFSA production was lower year-on-year in line with its mine time. Full asset potential. The full asset potential program has started to gain traction across the asset base.
At Sunrise, we're seeing a step chain in underground ore tons, which are now consistently above 220,000 tons a month. The better haulage performance was underpinned by improvements in stop availability and a fleet utilization. We look to sustain these levels in 2022. Tropicana's underground ore tons were up around 25% in H2. That initiative has been successful. So successful that now we're working on solid ventilation constraints before we can achieve further improvements later this year. There's better availability and utilization of stopes progress and quicker re-entry for crews which has increased effective work time. In the plant we made improvements to the high pressure grinding roll circuit to support a throughput increase of 9.5 million tons.
Iduapriem had an excellent year. We've driven improvements in drill and blasts, as well as processes to get better fragmentation. We've optimized the load and haul processes to get better ore delivery to the plant and we've sharpened our maintenance practices to achieve better overall equipment availability. At data, underground tons from Nyankanga were 29% ahead of our full-acid potential target. We've delivered backfill directly to stopes via drill holes from surface rather than using trucks. This in turn has the bottleneck, their underground materials handling capacity and improved overall stope availability. We've also redirected from Star and Comet to Nyankanga bringing forward production into Q4. The full asset potential what you see in the graph is $250 million of an incremental EBITDA that was driven by improvements across four sites.
Cost savings are adjusted for uncontrollable economic factors including inflation, exchange rates and royalties, as well as oil and other commodity movements. Benefits include both productivity improvements measured at increment gold production and cost reductions compared to the flex or expected costs. Incremental gold production includes increasing plant throughput, metallurgical recovery and mine tons. The dollars of benefit of $215 million is very significant as you are well aware of, but this program has been this year absolutely vital in offsetting the massive, both inflationary pressures using the road margins right across the center, and also providing additional resilience to the business to counter the production interruptions we had at Siguiri and Cuiabá.
In sum, the reason why we have delivered cost guidance is we have similar sort of issues than our peers or we have a program that helps counter those costs. Brazil update. Our Brazil operations have been a drag to earnings and cash flow. Last year we took a decisive step forward to address this and the results are clear in our numbers. The most important step was to restructure our leadership team. We reduced senior management roles by 25% and introduced new experienced talent. At the same time we've carefully to properly locate accountability and drive performance.
-: The cumulative benefit of these initiatives have greatly stemmed the cash lead and were looking to a significantly better performance this year. We're prioritizing full asset potential, which will further improve production stability and increase efficiency. Let's take a step back to look at Obuasi. This remains one of the world's greatest gold ore bodies. It has grade well in excess of eight grams per tonne over its life. It has size over 17 million ounces of resource and 7 million ounces of reserve and it has life. This is a flagship mine sample data and it enjoys small devices to work. We're also regaining momentum in the range of [inaudible] or more than 400,000 ounces a year by 2026. You see in the slide we are forecasting a range between 275 and 320 for ’24 and between 325 and 375 for ‘25 and then plus 400 in 2026.
So let's look how we get there. The V30 reamer is doing exactly what we said. To recap, we're establishing our conventional stones with a much wider reamer head, which is showing itself more capable in soft higher grade rates. We've already getting better results after the blast. For the past four months you can see our mining bed rates have stabilized and are now around a 28% higher than for the first nine months of the year. And by the way February is going very well also. We expect another increase to around 110,000 to 120,000 tons from during this year. The Underhand Drift and Fill trial will show how to safely mine the high grade areas with poor ground conditions that we saw towards the end of last year. It's going very well. We've shown that we can develop through pace backfill in an old stope which demonstrates pace competency.
We've developed the top drive from 3,300 level and installed ground support. We've established the pace reticulation line close up the levels with bulkheads and completed the pace backfill. We are focused now on developing a parallel drive alongside the pace fill drive. This will allow us to expose and test the pace strength. After that we'll develop our first drift on pace. But it's very important we continue to use the data from the trial to inform our cost models. And at this stage we see a $50 per ounce improvement at steady state from Underhand versus Sub-Level open-stope with higher mining costs more than offset by significantly better extraction efficiency. Page thee is the refurbishment and return to service of the KMS shaft and associated infrastructure.
This will provide direct access to the very high grade block 11 and other areas. It will double our current underground materials handling capacity to around 12,000 tons per day. If you look at the red block on this slide it shows the significant advantage we'll have when we can move waste ore and other materials down the shaft with no congestion rather than transporting it via a 12 kilometers decline. The added flexibility will be a significant one. We estimate completion by an end of this year. The next key problems, [inaudible] that will be soon, rail system and new pump stations as well as ore passes between the upper mine and rail transport level. What progress is being made to clear mud between 5,000 levels and shaft wall? Let's move to Nevada.
A picture is worth a thousand words. This is a picture of a gravity concentrate from a high grade intercept at Merlin in Nevada. As we continue to progress with our drilling and metallurgical programs, we are finding strong indications of visible gold in multiple areas of the project. We have moved quickly to build a world class new gold district in Southern Nevada. We'll dig into the details of our new 9.1 million ounce discovery at Merlin in just a second. But as you all put the pieces together, we have a number of new deposits emerging that now together contain more than 16 million ounces. Our focus for now is mainly on near surface oxides with simple metallurgy first of this modern North Bullfrog project in the northeast of our property and then at the new Merlin discovery, which is a truly spectacular piece of geology in the heart of the world's best gold district.
We believe costs will be extremely competitive and a number of potential development scenarios that will test match the project to our own capital return and needs. In short, the continued exploration success we're enjoying suggests the potential at this stage for this research to support peak production of around 500,000 ounces over a multi-year period and this is a multi-decade gold district. North Bullfrog is our starter project. It is the most advanced in our current Nevada pipeline, already in the permitting process and we declared a first time mineral reserve of 1 million ounces today. The feasibility study is complete and detailed engineering is underway. Aside from the new low cost ounces, it will contribute to the group. North Bullfrog will provide us practical understanding of the permitting process, the opportunity to build the best-in-class project team and current experience of building and operating a project in Nevada, all of which will be invaluable as we roll forward to the much bigger Merlin development.
This project has a very attractive return profile. Our updated estimate of first production is around mid-2026 assuming all goes to plan. This is based on correspondence from Stantec, the BLM agency which estimates the timeline of the record of decision to be around April 2025. We're engaging closely with the regulators to ensure we're best able to support the process and their timeline in the best way possible. Our study which has been approved by our board pending receipt before the necessary permits assumes total goal of around 800,000 pounds average of leverage rate of 1.4 and initial life of 13 years. We expect Tear 1 all-in sustaining cost of around $854 an ounce. When you amortize the project capital of around $370 million, you will get an all-in cost of about $1,300 an ounce.
We assume a conservative goal price of $1,600 an ounce for the study, which would give us an IRR of 13% and a payback of just over seven years. However, at the spot, the return drops to 30% and the payback shrinks to just four years. The expanded silicon project covers the silicon deposit roughly in the center of our land holding and Merlin immediately south. Today we report a new 9.1 million ounce of inferred mineral resource at Merlin. As far as we can tell, this is the largest Greenfield discovery, gold discovery in the U.S. in well over a decade. It's the fruit of a 2023 exploration program that beat all expectations. We drilled 144 holes totalling more than 100 kilometers of drilling. There is still significant upside particularly to the west.
At first pass in our concept study the economics look very strong. This year we're focused on the PFS, which is already underway. This includes infield drilling to test the significance of high grade mineralization within the inferred mineral resource study. This slide shows clearly why this is a potential game changer for us. In this section, you see the extent and size of the deposit, along with some very exciting intercepts, which validates the extent and quality of the ore body. You will obviously look through this cross section in your own time, but I'd like to just highlight there's 103 meters of 7.3 grams a ton. There's 185 meters of around 4 grams a ton and there's just over 236 meters of 3.4 grams a ton. Mineralization remains open primarily to the west of the inferred mineral resource.
This makes down our – we're moving to exploration performance last year. Exclusive mineral resource addition totalled 10.3 million ounces from exploration and modelling and of course the introduction of Merlin. There were offsets which resulted in a net gain – one gain to gain of a year of 5 million ounces. Mineral reserve addition is total 2.5 million ounces. Two came from exploration including the addition of the million ounces at North Bullfrog. After the completion, another changes, we saw net reduction year-on-year of 0.7 million ounces. This slide shows exactly why we're excited about the potential within our portfolio. We're in the midst of a program to increase investment in mineral resource development and Brownfield exploration.
This will aid reserve conversion, extend mine lives, improve operating flexibility and supplement knowledge of our ore bodies. We're making strong progress. Over the past four years we've added 14.4 million ounces of mineral reserve, which have come into our inventory at only $62 an ounce. When you compare that to multiples being paid even for resource ounces, you can see the enormous value that we've been able to generate organics. I’ll now put Gillian on the financial listing.
Gillian Doran : Thank you, Alberto, and hello everyone. Let's first take a look at the macro environment and the impact on our business. The average gold price received last year was up around 8% compared to 2022 at around $1930 an ounce. We hedged just under 5% of production with a zero cost color between $1950 an ounce and $2029 an ounce which had a positive realized gain of $2 million. For this year we've used the same structure to hedge 347,000 ounces with a floor of $1,993 an ounce and a ceiling of $2,132 an ounce. This provides upside – provides downside protection for our assets in Brazil. You may recall, we anticipated inflation of 6% in 2023. As we look back, that was a little optimistic as we ended the year at an average CPI of 8%.
We're seeing inflation easing somewhat, although it does remain sticky in Ghana, Guinea and Argentina, and we also believe the labor increases are structural and this impacts 40% of our cash costs. We see continued weakness in the Aussie dollar, the Argentinean peso and the Ghana CD. Currency weakness will not help inflation going forward and this is something we'll continue to watch. Oil continued to drift lower and our year-end position on the hedge was a realized loss of $7 million. We have no oil hedges in place for 2024. As Alberto mentioned, we saw strong sequential quarterly performances from a number of our key assets in 2023. As you can see in aggregate 15% production growth, half-on-half with all regions delivering stellar performance in the last quarter, particularly bolstered by Iduapriem, Geita, Tropicana and Cuiabá.
The stronger half two production performance had a commensurate impact on our cost base. Total cash costs were 9% better half-on-half at $1,060 an ounce. Our cash costs for the full year were $1,108 an ounce, up 11% year-on-year, with lower production, higher operating costs, fuelled by the sustained inflationary pressures, planned higher waste stripping at Tropicana and one-off costs related to Brazil and the tank failure at Siguiri. When we flex for macro factors which we don't control the increase almost halved to 6% and that includes the big disruptions we saw at Cuiabá and Siguiri. We would say we're really quite pleased with this performance and it really demonstrates the value delivered from our full asset potential program. On ASIC, we did see an increase year-on-year as a consequence of investments made in three key areas.
OID and waste stripping as we accessed new areas in Geita, Iduapriem and Tropicana. Mineral resource development in our underground mines, supporting greater mine flexibility and stability, and of course, infrastructure development and tailings facilities particularly at our Brazil operations. We also increased investment in exploration and evaluation to comfortably replenish mineral reserves as well as additional investment required in an environmental rehab. Moving to cash flow or free cash flow, the strong cash flow performance despite the higher CapEx in the second half, by a specific focus on optimizing working capital, higher sales volumes, improved cash costs and higher dividends from Kibali. There is a greater focus on working capital management and cash conversion which we highlighted as a strategic priority last year.
As expected, most of our assets saw stronger operating improvements in the second half with tailwinds from the higher phase. Importantly as Alberto mentioned, decisive action taken in Brazil played a key role in managing cash outflows. With this strong free cash flow performance in the second half, today we announced an interim dividend of $0.19 per share incremental to the first half of $0.04 per share, bringing our 2023 dividend to $0.23 per share. Our focus on maintaining a strong balance sheet and decreasing debt levels remains intact. Long-term balance sheet improvements achieved through disciplined capital allocation and the self-funding of our redomicile quasi expansion program, Corpus and Coeur Sterling acquisitions and our major U.S. exploration program.
Moving on to guidance for 2024, gold production for the portfolio is expected to be between 2.59 million ounces to 2.79 million ounces. At the midpoint, we expect production growth of about 4% relative to 2023. This is driven mainly by a step up at Obuasi and Siguiri where we expect year-on-year recovery from the CIL tank failure. Total cash costs for the group are expected to range from $1,075 an ounce to $1,175 an ounce, which at the midpoint is a reduction in real terms given where current inflation sits. We are able to do that given the traction we are seeing in our full-ass in our inside of our business and specifically our full-ass of potential program. Sustaining CapEx is expected to grow slightly, mainly because of increased investment in mineral reserve development.
Year-on-year ASIC is also little changed despite the inflationary pressure. The increase in growth CapEx is due to additional investment in Nevada. For 2025 guidance, gold production is anticipated to grow 2% year-on-year, driven primarily by the expected continued ramp up at Obuasi and modest gains across multiple mines. Total cash costs are expected to decrease as continued full-asset potential, maturity and production efficiencies are anticipated to drive unit costs lower. The expected increase in non-sustaining capital expenditure reflects the anticipated incremental investment in the construction of North Bullfrog. It does not however include capital for the construction of the project. I will now hand back over to Alberto to comment.
Alberto Calderon : Thank you, Gillian. This is another year for delivery. Safety is our priority. We have two large climate projects to complete this year, which will significantly reduce our emissions. We're focused on driving operating improvements and delivering more consistent predictable results. The full-asset potential program is working as intended. Our Q1 assets are performing well with improvements in the pipeline. We're focused on further optimizing our Tier 2 mines and determining the best path forward for our remaining assets. There's a good pathway for Obuasi’s ramp up with clear milestones against which we can judge our success. Our technical team is progressing on a lot of opportunity to surface the enormous value we have discovered.
Our world-class exploration team continues to add value to the drill bit across our properties. So why Anglo Gold? We're a U.S. company and one of two primarily listed senior gold producers in the New York Stock Exchange. We have one of the industry's largest resource space supported by high reserve grades. Our safety performance is among the best in the industry, in the mining industry, and we have a strong climate record. We have two partnerships in our host communities where we deliver tangible benefits. We have a highly motivated leadership team with world-class technical expertise and experience across development and developing jurisdictions. We have a diverse portfolio and are rapidly closing the margin gap with peers, with lower cost balances in the pipeline.
Our track record on competitive and replenishing our mineral inventory is among the best in the industry. Our balance sheet is robust with capacity to fund our capital needs, share all the returns and growth. We've disciplined and allocating capital with a clear dividend policy and leverage targets. I'll finish where I started closing the value gap. An important part of the strategy to achieve that aim is to regain cost competitiveness. When we started this journey in 2021, our cost inflation was right at the top end of the peer group. As our various interventions have been tractioned, we moved first to the midpoint and then to the lower end of the range. You can see our guidance for 2024 and ‘25. The cost will be within $100 of the all-in-sustaining cost of the guidance of the main sort of competitors.
I just want to highlight that that would be about a third of the gap that existed three years ago. But we are far from finished. I know we've not been perfect, and I know there's more work needed to ultimately to better our own costs going forward. We face challenges and overcome many of them. We've learned lessons that we will apply. We're stronger, more competitive and better placed than we were this time last year. We are proud of our team. We are proud of our people. And what we have accomplished this year, we eagerly look forward to what is yet to come. Thank you.
Stewart Bailey: Thanks Alberto. Chris.
Operator: Thank you very much sir. [Operator Instructions]. Our first question is from Raj Ray of BMO Capital Markets. Please go ahead.
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