Safety, capital discipline, improved productivity levels and cost containment have served JSE- and New York-listed gold mining major AngloGold Ashanti well during 2014.

For the first time in the company’s history, AngloGold achieved two consecutive fatality-free quarters (quarters two and three) at all its mining operations. This included the longest fatality-free period in the company’s history of 224 days, noted CEO Srinivasan Venkatakrishnan (Venkat) in the company’s third-quarter report.

The company’s Great Noligwa and Moab Khotsong underground mines, in the Vaal river region, had to deal with a 5.3-magnitude earthquake in August 2014. There were no fatalities and all 3 300 employees working underground at the time were safely lifted to surface, with only 30 minor injuries reported.

During the third quarter, AngloGold’s all- injury-frequency rate (AIFR) was 7.39 for every million hours worked; however, the company’s report points out that if the consequences of the earthquake incident are removed from normal operating conditions, the AIFR would have been 7.11, which is lower than the 2013 third-quarter AIFR of 7.33.

Moreover, the report highlights that 20% fewer injuries and 8% fewer lost-work days were recorded during the third quarter, compared with 2013. The injuries recorded in the third quarter were the second fewest injuries of any quarter – including injuries as result of the earthquake – that the company has ever recorded.

“Nine of our operating entities ended the third quarter with zero lost-time injuries (LTIs) and recorded no injuries during the quarter. Six of our operations recorded no LTIs during 2014,” enthuses Venkat.

He adds that AngloGold has placed significant emphasis on mitigating major hazards and continues to implement critical control-monitoring regimens.

Fiscal Frugalness

Venkat points out that AngloGold’s costs and production for the third quarter were better than expected, thereby helping the company to generate free cash flow and reduce debt as fundamental operating improvements continued to gain traction across the business.

“We narrowed the production outlook for the year to the top end of the initial guidance range and reduced our capital expenditure (capex) forecast,” he states.

AngloGold’s operations produced 1.1-million ounces at a total cash cost of $820/oz for the three months to September 30, 2014, compared with one-million ounces at a total cash cost of $809/oz in the corresponding period in 2013.

Venkat says guidance for the quarter was between 1.06-million ounces and 1.09-million ounces at $850/oz to $890/oz.

“All-in sustaining costs, which include sustaining capital, as well as corporate and exploration costs, improved 10% year-on-year to $1 036/oz. These cost improvements were made despite yearly wage and winter power-tariff increases,” he states.

Moreover, Venkat explains that AngloGold prioritised the generation of sustainable free cash flow from its business as its key strategic objective.

“The company has made significant improvements to direct and indirect operating costs, while returning to production growth for the first time in almost a decade, all while posting the best safety performance in our history. These initiatives have helped us to reduce debt marginally in each of the past three quarters, despite a lower gold price,” he enthuses.

Additionally, Venkat asserts that the company’s operations are “firing on all cylinders”, as AngloGold has prioritised and started working on a range of self-help measures to generate cash from within the current operating base to further deleverage the balance sheet over the medium term.

“We will also consider the sale of or a partnership regarding an operating asset, if required,” he adds.

Further, Venkat highlights that the company’s cash inflow from operating activities of $320- million for the three months to September 30, 2014, was similar to the $319-million in the third quarter of 2013, despite the lower gold price received.

“Free cash flow of $30-million after all expenditures in the third quarter of 2014, compared with the total outflow of $222-million in the third quarter of 2013, highlighted significant operating and cost improvements across a broad front,” he states.

AngloGold’s debt facilities are long dated, with revolving credit facilities – most currently undrawn – maturing only in 2019, with the first bond maturing only in 2020.

Net debt to adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) of about 1.6 times is within covenant limits of 3.5 times.

“Our liquidity is good with available cash, active commercial paper programmes and significant amounts remaining undrawn in the company’s banking facilities – $1-billion from the resource capital fund (RCF) and about A$151-million undrawn in the A$500-million RCF.”

Earnings

Adjusted headline earnings (AHE) were $2-million in the three months to September 30, 2014, compared with $576-million in the corresponding period of 2013, when AHE reflected a $567-million realised fair value gain on a three-year convertible bond.

“By removing several one-off items, normalised AHE for the period was $66-million, or $0.16 cents a share, compared with $110-million, or $0.28 cents, in the corresponding quarter of 2013. This was as a result of a lower gold price, yearly inflationary increases, higher amortisation and taxation charges,” states Venkat.

He notes that AngloGold’s adjusted Ebitda increased to $400-million, from $327-million in the third quarter of 2013, reflecting an improvement in the adjusted Ebitda margin from 24% to the 31% recorded by the end of 2014.

Outlook

Venkat says the company’s strong performance between January and September 2014 helped it to tighten the production outlook for the year to between 4.35-million ounces and 4.45- million ounces, at the top end of initial guidance of between 4.2-million ounces and 4.5-million ounces.

He emphasises that this improvement came despite the $110-million sale of the Navachab gold mine, in Namibia, in May 2014 to London-based private mining company QKR Corporation; losses caused by the earthquake, in South Africa, in August 2014; and placing the Obuasi gold mine, in Ghana, under limited operating state in December 2014.

Venkat adds that the forecast capex, initially set at between $1.35-billion and $1.45-billion, has been lowered to between $1.25-billion and $1.35-billion, owing mainly to savings at the loss-making Obuasi mine.

“The forecast for all-in sustaining costs has been kept at between $1 025/oz and $1 075/oz,” he points out.

Further, Venkat says a study ahead of the reopening of the Obuasi mine – with an 8.14- million-ounce proved and probable reserve, as well as a 27.4-million ounces reserve, inclusive of all mineral resources – as a fully mechanised operation, is scheduled for completion early this year.

The company will use cash flows and facilities to fund the remaining retrenchment costs at the mine during the fourth quarter.

Mining Indaba

AngloGold spokesperson Chris Nthite tells Mining Weekly that the company has attended the indaba consecutively for the past five years and Venkat will once again give a presentation on behalf of the gold major. He says the company regards the indaba as an important forum to engage key local and international stakeholders.

The 2015 Investing in African Mining Indaba will take place at the Cape Town International Convention Centre from February 9 to 12.