ANGLOGOLD Ashanti lost 11,000 ounces of gold production and has delayed the ramp-up of its Obuasi mine in Ghana owing to the COVID-19 pandemic, but the group benefited from strong gold price headwinds in the first quarter to post a 231% lift in free cash before investments of $94m – the basis on which dividend payments are based.
“Cash flow is strong, leverage is down, and all operations are running,” said AngloGold CEO, Kelvin Dushnisky in notes to the firm’ first quarter numbers published today.
The group has also made a final decision on the destiny of its Argentine mine, Cerro Vanguardia, which would not be sold after all. The firm is divesting of Sadiola in Mali as well as Mponeng and Mine Waste Solutions (MWS) in South Africa, but it concluded it could “… derive more value for shareholders by developing the remaining potential in the orebody” of Cerro Vanguardia.
First quarter adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) increased 54% to $473m. AngloGold benefited from the increase in the dollar gold price during the quarter, and even more significant depreciation of producer currencies, especially the South African rand.
Bullion prices averaged $1,506/oz and have continued to rise in the current quarter. By way of indication, the rand gold price at just over R1m per kilogram is 40% higher than at the beginning of the year.
AngloGold said it had taken a pragmatic approach to tackling the potential disruption caused by the COVID-19 pandemic, building spare parts and ore inventories at the sites around the world, whilst also drawing down on debt thus improving its liquidity.
It redeemed a 10-year $700m bond and the coupon in the quarter and secured $1bn in additional credit facilities in an early response to the onset of COVID-19. Adjusted net debt to adjusted EBITDA was 0.85x as of end-March below the 1x sustainable target. Adjusted net debt totalled $1.6bn at quarter-end – 10% lower than net debt of $1.78bn at the close of the first quarter in AngloGold’s 2019 financial year.
However, the pandemic has resulted in a delay to a ramp up target at Obuasi, the Ghana mine AngloGold has been re-engineering since about 2017. The mine would reach a mining rate of 4,000 tons a day – from the current 2,000 tons daily – during the first quarter of 2021 which represents a shift out from the 2020 year-end target identified previously.
“This is owing to slower shipments of certain equipment to Ghana and difficulties in ensuring key, skilled employees can travel to the site amidst COVID-19-related border closings,” the company said in its first quarter results.
Said Dushnisky during a press call: “There is some complexity with Obuasi. We are running at about 80% of planned capacity, but the project remains on budget which is good”.
Production came in at 716,000 oz (2019 Q1: 752,000 oz) at an all in sustaining cost of $1,047/oz which compares with AISC of $1,009/oz in the first quarter of last year. COVID-19 stoppages resulted in only 11,000 oz of production lost in the quarter, but as the interruptions straddled both quarters – Mponeng in South Africa is operating at 50% for the foreseeable future – more production losses are inevitable in the current quarter.
“There will be more COVID-19 related deferrals,” said Dushnisky of ‘lost’ production. “But we will see how the quarter goes. We are operating at all of our mines now. I don’t want to give specifics [on production] but we are working hard.” Any deferrals in production would be “small” compared to overall group production in quarter two, he added.
One major headache AngloGold has not been able to clear from its way is outstanding cash balances of $252m which is awaiting repatriation from the Democratic Republic of Congo (DRC) where the group operates the Kibali gold mine in joint venture with Barrick Gold.
“Barrick, which is the operator of Kibali, has made good progress,” said Dushnisky in the press call. “Our understanding is that a mechanism is in place to repatriate the money, but COVID-19 hasn’t helped get the money released. But it is on track.”
There was no specific timing on the repatriation but as the cash was held in a joint venture account in the DRC, it was available to Kibiali should it be required.