JOHANNESBURG (miningweekly.com) - Gold major AngloGold Ashanti is to remove $500-million of operating costs, seek to dispose of Navachab mine before year-end and dress up another mine for a possible further asset sale this year.
New AngloGold Ashanti CEO Srinivasan Venkatakrishnan (Venkat), who is confident of weathering the gold storm, told journalists at the company’s presentation of six-times-better quarter-on-quarter earnings that the cost-cutting would amount to $100/oz savings in 18 months (see also attached video).
“We appreciate that the gold industry is going through tough times right now. But let me tell you one thing, when the going gets tough, the tough will get going,” Venkat, who took over the reins of the company this month, promised.
The company is also tightening up its exploration and corporate expenditure, and is targeting more capital expenditure (capex) savings across the regions, in addition to last year’s $500-million capex budget reduction to $2.1-billion.
The Mongbwalu project area in the Democratic Republic of Congo (DRC) has been suspended, expenditure at Sadiola in Mali has been slowed and the Mine Waste Solutions uranium project in South Africa has been reconfigured.
Options on taking on a partner in Colombia – regarded as one of two game-changers along with South Africa’s deep-mine technology – would be considered in order to prevent excessive 2014 cash generation from flowing to the South American investment destination.
“We will be decisive and delivery will be critical,” Venkat said.
On the one hand, the gold major’s former CFO is “focused on every single cent going out of the company” and on the other, he going all out to bring in another 500 000 oz/y of profitable gold into the mix soon from the Tropicana project in Australia, Kibali in the DRC and Cripple Creek & Victor in the US.
Quarter-on-quarter corporate costs have come down 21% to $64-million, exploration is down 36% to $79-million, cash costs are down 8% to $894/oz and capex has been reduced 39% to $512-million, half of which is expansion capex.
Cost-reduction initiatives across the group include nickel-and-dime skimping, for example, photocopying and paper-clipping quarterly publications rather than sending them out to be printed: “It does the job and it’s much cheaper,” Venkat told Mining Weekly Online.
The company expects to produce between 900 000 oz and 950 000 oz of gold in the three months to June 30, up on the 899 000 oz in the latest March quarter and 859 000 oz in the previous December quarter.
Cash costs projected for the upcoming June quarter are $900/oz to $950/oz.
“The operating environment is indeed tough. We’re going into a round of wage negotiations, still working through the production issues at Obuasi in Ghana and facing higher South African winter power tariffs,” Venkat said.
On the plus side for the second half of this year are an expected 115 000 oz from Tropicana, a ramp-up at Geita in Tanzania and the accessing of the crown pillar at Sunrise Dam in Australia.
Executive director Tony O'Neill reported that the decline being put in place at Obuasi bypassed most of the old legacy infrastructure, accessed new orebodies and put the generation of gold and revenue from underground firmly on the agenda.
“Even at $1 300/oz gold, this remains a very, very valuable project. With the decline, we think this is the final key to unlock the value for the project,” O’Neill added.
AngloGold’s mines in the Americas performed best in the quarter, with Argentina the stand-out.
The new deep-mine technology in South Africa was a potential game-changer for all the mines with similar orebodies, including platinum mines.
Good drilling and backfilling progress had been made in the last six months and the challenge was to unite all the independent activities of the technology into a consolidated system “aggressively”, so that it could be included in production forecasts.
It had begun to work at Tau Tona and it would be extended to the other mines at a relatively low $30-million investment for the reward received.
The balance sheet remains robust with $3.4-billion of liquidity available to draw on and the dividend has been maintained at 50c a share.
Venkat reported that the debt maturity due to arise in May 2014 had been backstopped with a term facility from banks and there would be no issuance of equity-linked instruments to refinance the convertible loan.
“So those shorts in our stock better get the hell out of there soon,” he added.
There would be no imminent maturity of any major facility that could not be funded by cash resources.
Net debt to earnings before interest, taxation, depreciation and amortisation remained at 1.06 times, which was well within the three-times limit.
The strategy was to maximise sustainable free cash flow from a quality portfolio and to allocate capex in a manner that ensured continued free cash.
Turnaround mines would be funded with an extremely tight leash and mines that were deemed unsuitable would be harvested for cash, fixed or sold.
The company’s own cheque book would be used to extract value out of the portfolio.
“It’s quite important that we don’t do what the accounts tend to do and that is ‘toe-cutting’. You’ve got to ensure that you preserve the long-term viability of the business,” said Venkat.
On South African assets being hived off into a separate company, he said South Africa remained a “huge cash-generative engine”.
“The storm we're in, in South Africa, will pass and I’m pretty certain that, at the right time, the investors will come back again,” he added.