AngloGold posts colossal free cash surge as it weathers Covid disruption

Mining firm AngloGold Ashanti on Friday posted a colossal surge in half-year free cash flow generation, most of it coming in the three months to June 30.

Free cash flow before growth capital, the metric on which dividends are calculated, rose 376% – or nearly fivefold – to $324-million in the first half of 2020, compared with $68-million for the same period last year.

Compared with an outflow of $31-million in the same period last year, the Johannesburg- and New York-listed company totally weathered the Covid-disruption with $173-million worth of second-quarter free cash generation.

“The business is in excellent shape and cash flows are extremely robust, demonstrating the significant operating leverage we have to this strong gold price,” outgoing AngloGold CEO Kelvin Dushnisky stated in a release to Mining Weekly.

With Dushnisky stepping down as CEO and executive director as of September 1, and the board announcing the appointment of current CFO Christine Ramon as interim CEO, Dushnisky, the company said, would remain in Toronto, and be available until February 28 next year to assist with a smooth handover. At the same time, the board would embark on a recruitment process to find a new permanent CEO, while senior VP group finance Ian Kramer assumed the role of interim CFO.

Ramon, the company said, would continue to focus on the inward investment programme, with rigorous capital allocation guidelines including leverage and return targets. AngloGold is investing in the redevelopment of its Obuasi gold mine, as well as explortion and ore reserve development to increase its operating flexibility and increase reserves.

OPERATING PERFORMANCE

Production in the six months ended June 30 was 1.469-million ounces at a total cash cost per ounce of $810/oz, compared to 1.554-million ounces at $792/oz for the first six months of last year. Geita delivered an outstanding performance, Serra Grande posted a strong recovery from the first quarter while Kibali, Iduapriem, Tropicana and AGA Mineração delivered steady production.

All-in sustaining costs (AISC) were $1 031/oz for the first six months of 2020, compared with an AISC of $1 002/oz for the corresponding period last year.

The adverse impacts of Covid-19 on production in the first half of the year was limited to an estimated 85 000 oz, of which 63 000 oz related to the South African operations . AISC were impacted by $53/oz.

Second-quarter production increased 5% over the first quarter of 2020, rising to 753 000 oz from 716 000 oz. Quarter-on-quarter production improvements were recorded at Sunrise Dam, Serra Grande, Iduapriem, Obuasi, Geita, Siguiri and Cerro Vanguardia (CVSA).

Adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) for the first six months of the year increased by 59% to $1.096-billion compared with $689-million during the first half of last year, helped by a 26% year-on-year increase in the gold price received and weaker local currency impacts. 

The Obuasi redevelopment project continued to ramp up, delivering 50 000 oz in the first half of 2020, despite delays in receiving equipment and the arrival of certain critical skills to the site as a result of lockdowns in various jurisdictions, with the Phase 2 ramp-up expected by the end of the first quarter of 2021.

Cash flows were impacted by value added tax that continues to be locked up at Geita in Tanzania, totalling $131-million, and Kibali in the Democratic Republic of the Congo (DRC), totalling $71-million. The company’s attributable share of the outstanding cash balances awaiting repatriation from the DRC amounted to $293-million at June 30. Barrick Gold , the operator of the Kibali joint venture, continues to engage with the DRC government regarding the 2018 Mining Code and the cash repatriation.

The company reported that the sale processes related to South Africa and Mali continued to progress, with final conditions precedent to be fulfilled, and the decision was taken to retain CVSA.

The first production stope in Tropicana’s Boston Shaker underground mine in Australia was fired in June and the project remained on track to achieve commercial production in the second half of this year. The work on the feasibility study at the Quebradona project was expected to be completed in the first half of 2021. At the Gramalote project , AngloGold’s joint venture partner, B2Gold Corp, expected to complete the feasibility study in the first quarter of 2021.

BALANCE SHEET

AngloGold said that its balance sheet continued to improve as stronger cash flows helped with the continued reduction in debt. The ratio of adjusted net debt to adjusted Ebitda at June 30 was 0.67 times, well below the targeted level of 1.0 times through the cycle.

Adjusted net debt decreased by 18% to $1.428-billion from $1.739-billion last year. To safeguard the balance sheet during Covid, AngloGold took steps to bolster liquidity, with $2.47-billion available as at June 30, including cash and cash equivalents of $1.29-billion.

TRAGIC FATAL ACCIDENTS

There was one fatality in the second quarter, involving a long-haul dump operator, who was fatally injured in a heavy mobile equipment incident at Obuasi. Subsequent to the end of the second quarter, a security guard was fatally injured at the Obuasi mine when he was struck by a private vehicle that veered off the road . In addition, there were four first-quarter fatalities in two separate safety incidents in March, at the Mponeng mine, being acquired by Harmony Gold .

“The tragic occurrence of these fatal incidents remains a stark reminder that we must continue to redouble our efforts to make sure our employees return home safely each day,” AngloGold stated. 

Credit Miningweekly

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