AngloGold Ashanti - Q3 2024 TU

Transcript

Operator (participant)

Welcome to AngloGold Ashanti's 2024 Q3 Results Market Update. All participants will be in listen-only mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please signal an operator by pressing star then zero. I would now like to turn the conference over to Stewart Bailey. Please go ahead, sir.

Stewart Bailey (Chief Sustainability and Corporate Affairs Officer)

Thanks, Danay. Thanks, everybody, for your patience and for joining us for our Q3 2024 Market Updates and Results. As usual, we have a safe harbor statement at the front of the presentation. It's lengthy, and I'm sure you used the 10 minutes well in reading through it. But if you haven't, perhaps after the call, there's important information on forward-looking statements, and I'd urge you to read it. Without any further ado, I'll hand over to Alberto.

Alberto Calderon (CEO)

Good morning. I start by apologizing for being late. I have learned today that Denver is not well set up for snowstorms, but anyway, that's a learning. So good afternoon too. Safety remains a priority. There is no higher injury rates, and our mines remain among the lowest in the industry. The light vehicle accident that claimed them in May remains a tragic reminder that this remains a journey without end. Our aim remains to ensure that our people end each day safe in the same conditions that they started. Our results show clearly what happens when you have a sharp focus on expanding margins in any gold price environment. The way we view our business is that in most cases, production interruptions are temporary, while cost issues are, for the most part, structural.

From a structural image, when you look at the cost performance from our managed portfolio, these are really a superb set of results. Those costs from our managed operations were up only 2% year-on-year. That's well below the 6% inflation we're seeing on aggregate in our portfolio. That's sort of the same type of cost performance that we have been able to deliver in the past three years. Full Asset Potential remains a cornerstone of that effort, not only countering inflation and providing around $91 million in incremental EBITDA benefits during the quarter, building on the number we published at the half-year, but also strengthening our ability to reliably meet guidance, which we maintain from a production point of view. From a production point of view, Australia had a strong quarter with Tropicana and Sunrise Dam both recovering well from first-quarter flooding.

In Brazil, Cuiabá continues on its improving trajectory with lower cost year-on-year and additional margin benefit to come now that the Queiroz plant has resumed operations. Obuasi, we also showed strong improvements year-on-year in both production and cost, but it is not where it needs to be. We have a plan to counter the challenging ground conditions that have remained the factor. It's a plan with lower risk and slightly flatter run-up curve, but one which prioritizes margin over value. In the meantime, though, this is an asset that continues to generate cash and earnings for the group and will be contributing ounces for decades to come. Even when we layer in a soft quarter from Kibali, which struggled with grade, you see the incredibly strong earnings potential of our broader business and its free cash flow generating capacity.

We generated $347 million in free cash in Q3 versus $20 million in Q3 of last year. That equates to $528 an ounce, which compares very well to our peers and is, as far as we can tell, the highest in our company's history. Our balance sheet has revenue stronger. We have no material near-term maturities. Leverage is half, less than half our target and continues to improve. Even at prices below current spot and considering our near-term CapEx profile, we will continue to generate healthy cash flows. To match that reality and the valid expectation that shareholders should see greater benefit from our improving business and higher gold prices, we are reviewing our capital allocation profile. We'll provide that update at year-end. Let's take a moment to look at the Centamin transaction.

We're grateful to Centamin shareholders for their support to this acquisition with 98% of shares voted in favor. This acquisition provides a compelling strategic fit for us. It matches our core competencies in exploration, operations of large open pit and underground gold mines in Africa and asset optimisation. It will bring Sukari, North Africa's preeminent gold mine with annual production around 500,000 ounces, into our portfolio. Sukari has attractive costs with all in sustaining costs of just under $1,200 an ounce, well below our current average. It also has good life extension potential with about 5.8 million ounces of mineral reserve and 4.5 million ounces of mineral resource. In addition to that, we will get prime position in the exciting Eastern Desert Exploration Blocks, a highly prospective under-explored mining district.

You'll also see by its most recent results that Centamin generates significant free cash flow, around $103 million in Q3, which is close to $780 an ounce. In sum, we expect this deal to provide an immediate step change in our production and cost profile. It's immediately accretive to both NAV per share and also for free cash flow per share from the first full year of production. We expect the scheme to take effect on November 22nd, and planning for integration, which is being handled by a specialist team, is going very well. We then focus our attention on realizing synergies in three key areas: on G&A by leveraging our own corporate infrastructure, on supply chain and procurement, where we bring the benefits of our global footprint and scale, and by applying our proven Full Asset Potential program.

Let's look at how Sukari slots into our portfolio of world-class assets and projects. Looking at 2023 pro forma numbers, it will increase the proportion of gold production from Tier One assets to 67%. It increases our combined mineral reserve to 32.3 million ounces. That pushes our annual gold production to over 3 million on a pro forma basis for the 12-month ending 31st of December 2023. Full Asset Potential remains a cornerstone of our ability to operate predictably, to drive better cash flows, and to improve the long-term value of our business. And with almost $100 million in incremental EBITDA benefits for the quarter alone, you can understand why we see so much growth from our operating teams. We monitor improvements to the fundamental value drivers at each site, whether that be mining volume, recovery, development, or any other lever.

Trust that once we strengthen the right direction, the cash flows will look after themselves. For example, at Tropicana, we've been focused on pushing underground volumes as one of our main value drivers. Despite the flooding issues we faced earlier this year, you can see that the underground tons are not only more consistent, but they're also up by more than a fifth since 2022 when we started this program. Ditto for Geita, where we're driving volumes in the higher-grade Nyankanga underground front, where tonnages are up by almost a third since 2022. At Sunrise Dam and Siguiri, where we focus on the plant, recoveries are up significantly over the same period. Merlin remains the epicenter of our long-term ambitions in Nevada. The smaller North Bullfrog deposit remains in permitting phase.

We anticipate an update from the BLM on timing to issue a record of decision later this year or early next year and will provide that information when we have it. In the meantime, we're working hard to advance the Merlin feasibility study, which we're aiming to complete in the second half of next year, around the second or third quarter of next year. That work will determine the optimal way to develop this large deposit. This section, which you're familiar with, shows the extent and size of the deposit along with some very exciting intercepts, which validate 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 again highlight some of the extraordinary high-grade intercepts over significant widths.

Two that we have included for these results: 190 meters at 5.12 grams per tonne gold, and another 161 meters at 5.85 grams per tonne. And probably the most striking one, 144.5 meters at 10.53 grams per tonne of gold. That in particular just highlights that we will develop something quite extraordinary. This again reinforces our confidence in the enormous value that this deposit will add to our business and to stakeholders in southern Nevada. Let's take a moment to look at Obuasi. Yes, we've struggled to meaningfully grow volumes from sub-level open stoping since last year. We've talked about difficult ground conditions in high-grade areas, and they have indeed persisted in these high-grade areas, compounded by poor flexibility in Block A, which is essentially a checkerboard of previously mined areas.

We've been driving on two fronts to address the ground control issues, which resulted in overbreak, dilution, and significant rework in our stopes. First is to study the contribution from sub-level stoping, as we call it. As things now stand, we believe we have achieved a reliable baseline production of around 200,000 ounces a year from this conventional gold mining approach. Second, we talked about last year that we would start the underhand drift and fill trials, and we've made enormous progress since the start of this year, and this is essential to provide a reliable ramp-up profile from our high-grade areas. I'll talk a little bit more about both, but before I do, it's important to reflect on some of our successes at Obuasi. Development rates are up, and that's critical for underhand drift and fill ramp-up.

In fact, they're 70% higher in Q3 than they were in Q1. We've also seen a good year-on-year improvement in cost, with cost and AISC down 20% and 17%, respectively. The bottom line is healthy. Obuasi is generating free cash flow even after funding its capital, just as a number in Q3 generated free cash flow of around $320 an ounce after paying everything else. Let's take a minute to look at the ground conditions we've spoken about. The overbreak and rework of our sub-level open stopes has remained a challenge. Ore extraction has been as low as 87% and dilution as high as 57%. Together, that's caused poor plant performance with recoveries as low as 78%. Sharpening up our mining practices is yielding some improvements. We've deployed dedicated stoping and charging crews with specialist oversight. We're using wider reamers and new Easer L drill rigs to improve blasting performance.

You can see from the image on the right that we have been able to establish and extract stopes without the old hang-ups that persisted for part of this year. We're working to ensure that we can continue to replicate this. Nevertheless, even with the challenges we've encountered this year, we will produce 200,000 annually from stopes with additional higher-grade material coming up from underhand drift and fill. As we mentioned a year ago, we have pivoted to underhand drift and fill to deal with tricky ground conditions. I'm pleased to say that the UHDF trial has been successful and is now being scaled up. As you can see from the photograph on the right, we're able to cleanly remove the ore body with good support.

We've reduced downtimes for paste fill and have a new plant built commissioned and now reliably delivering high-quality paste to our working areas. As I mentioned, development rates have shown dramatic improvement, which will enable the ramp-up of production from our high-grade areas. We have produced 8,000 ounces from underhand drift and fill during Q3 while working in subscale conditions with only two active fronts. Annualized, that's at 32,000 ounces, which will ramp up to more than 60,000 ounces next year with four mining fronts open. That will continue to grow in subsequent years as we get deeper into high-grade in Block 10 and beyond. We have identified more than 1 million ounces of high-grade ounces available to mine Block 8L and Block 10 in the coming years. You can see in, I think this graph on the picture on the right is very important.

The magenta are the high-grade areas, and they have been identified that we will use the UHDF, so these are grades above 8.4 and beyond up to 15, and as we will see, the most efficient way and the one that ensures the highest margin is using UHDF. At the same time, all the rest of blue is under 8, and we know that we can reliably use the SLOS method, and that's what you will see in the forecast that we're talking about maintaining for the future around the 200,000 using the SLOS and then growing in the underhand drift and fill. This slide is important. It effectively shows in yellow the gross margin we will realize using SLOS in areas with suitable ground conditions to provide the 200,000 a year baseline production just mentioned that we have been delivering in the past years.

The gray color is the tough lessons we've learned this past eight months. It shows the suboptimal results we would get from continuing to push SLOS in high-grade areas where we struggle with overbreak, dilution, and poor recoveries. The main takeaway here is that as hard as you might push to get ounces using gold mining in those areas, you simply won't make much money doing it. That's why we have pivoted to a hybrid mining method, which is SLOS areas with relatively lower grade and underhand drift and fill in higher grade areas. The orange bars show the relative margin benefit from underhand cut and fill.

That approach provides a baseline production from SLOS of around 200,000 a year, plus the safer, more predictable, and at the end of the day, more profitable ounces from using UHDF, where the contributions grow each year until we reach the 400,000 ounces a year. With this focus on safe and not only safe, because we have had issues in these very difficult ground conditions, with profitable ounces, we've adjusted the ramp-up schedule to the numbers you see below, building up steadily to around 400,000 ounces in 2028, when we'll deliver roughly half and half from UHDF and SLOS. I'll now hand over to Gillian to talk to the financials.

Gillian Doran (CFO and Executive Director)

Thank you, Alberto, and hello, everyone.

The price of gold touched a new high, $2,685 an ounce during September, and closed at $2,638 per ounce at the end of Q3, bringing its quarterly gain to 13% and its year-to-date gain to 28%. Gold continued to outpace most asset classes, supported by lower rate expectations and the desire for safe haven investments. As you know, we took zero-cost collar positions at the start of the year to cover downside price risk given the high costs and uncertainty associated with our Brazil operations. Given the average spot price in Q3 of $2,475 an ounce, we had a realized loss of $25 million in the quarter. Contracts for 75,000 ounces are still in place for the fourth quarter of this year, and we expect to be fully unhedged by year-end. Inflation remains elevated in the U.S. and across several of our operating jurisdictions.

Our realized inflation rate was about 6% for the first nine months of the year, and this impact was partly offset by the currency exchange weakness against the U.S. dollar, most notably for us in Brazil and Argentina. As Alberto highlighted, we saw strong leverage to our cash flows and earnings, which were significantly ahead of the higher gold price. Adjusted EBITDA of $746 million was up 339% year-on-year. Adjusted EBITDA margin was up to 52% compared to 15% in the prior year. Solid cost control and management of working capital helped ensure we captured the full benefit of higher revenues in stronger earnings and cash flows. Headline earnings of $236 million or $0.56 per share were well up compared with a loss of $194 million or $0.46 per share in the third quarter of last year.

The main elements of the increase year-on-year relate to last year's corporate restructuring cost, which obviously did not recur this year. Our earnings were impacted by $35 million in care, maintenance, and rehab costs at CDS and our tailings facilities in Brazil, and $9 million in project and organizational restructuring costs. Net cash inflow from operating activities for the third quarter rose by 121% to $606 million from $274 million in the third quarter of 2023. After accounting for CapEx and loan repayments from Kibali, we posted free cash flow of $347 million for the third quarter of 2024 versus only $20 million in Q3 of last year. Our non-managed JV had a difficult quarter in terms of production and cash costs, and while they are focused on a strong recovery for Q4, I think it's worth just highlighting the primary metrics from our managed operations.

Production was up 2%, driven by Obuasi, Siguiri, Cuiabá, Tropicana, and Sunrise Dam. Australia demonstrating the recovery from the rain event earlier this year and delivering higher grades, particularly at Sunrise Dam. Siguiri recovered from the tank fail of last year, and Cuiabá had higher grades and higher recovery from the leach pad. This was partially offset by MSG, Iduapriem, and Geita. Iduapriem was affected by a delay in cut 2B and flooding in the cut 1 pit, while Geita dealt with lower grades and reliability challenges in the pressure circuit. All of our operations are now focused on a strong finish to the year. Total cash cost for managed operations increasing by only 3% despite macro factor changes of 6%. That translates to a real reduction in total cash costs per ounce at our managed operations of around 5% year-on-year.

Total AISC for managed operations increased by 5%, largely due to a planned increase in capital investments. We are mindful that despite the healthy gold price environment, we must remain focused on proactive cost management. This is a non-negotiable for us as we continue to offset inflation and regain our cost competitiveness. Total cash cost per ounce for the group, including non-managed operations, rose by 8% year-on-year to $1,172 per ounce versus $1,089 per ounce in the third quarter of last year. You will have seen this variance analysis from us in previous quarters, but I think it's worth just highlighting how we assess our cost base and manage performance within our operations. The split is between non-controllable macro factors and the elements that we can control. You can see on the left, we strip out inflation, fuel oil price, foreign currency exchange movements, and royalties.

These are not things that we can necessarily control, and they will be experienced by our peers and across our industry. These calculations themselves are not based on our internal interpretation. They are based on external indices. So for inflation, it's basic CPI in the jurisdictions we operate. For foreign exchange, it's Bloomberg rate, and for fuel oil, it's the price of Brent crude. Royalties are based on increased gold price. We then normalized for one-off events. So in Q3, it's the non-recurrence of the CIL, Plant Fail, and Siguiri. What's left over is our controllable spend based primarily on volume, grade, and absolute cost performance. This consistent and deliberate focus on the things that we can control has allowed us to optimize the opportunities and minimize the cost growth.

The increase in group cash costs of $20 an ounce was mainly due to our lower production at Kibali, driven by lower grades, partly offset by the continued performance turnaround in Cuiabá. Cuiabá reported steady gold production and a 16% reduction year-on-year in total cash cost per ounce as the Queiroz Plant resumed processing and refining of gold concentrate in September. Costs also benefited from continued delivery of Full Asset Potential initiatives, particularly across our LATAM, Australia, and at Iduapriem. Group AISC rose 10% to $1,616 an ounce versus $1,469 per ounce in Q3 last year due to planned capital.

This strong cost performance isn't just a feature in Q3, and actually, when we look at the full nine months compared to September year-to-date 2023, we deliver an even stronger reduction in the things that we control, primarily driven by higher grades, increased mill throughput, and higher recoveries at Sunrise Dam. Improved grades and byproduct revenues at CVSA, excuse me, as well as lower overheads. At Cuiabá, we saw increased grades, improved dilution, and mine and plant recoveries. At MSG, better grades, lower variable costs on lower mine volumes, and a reduction in development costs due to insourcing of some activities. These are all key examples of the continued delivery of our Full Asset Potential program. This chart shows our obsession with ensuring that increases in the gold price flow through to our bottom line. The higher gold price drove a $341 million increase in cash received.

Higher production and improved inventory management accounted for another $13 million in revenue. Proactive cost management held operating costs constant, offsetting inflationary increases. We continue to focus specifically on the cash management cycle, with year-on-year movements in working capital contained at $7 million. We received a cash distribution of $8 million in addition to a loan repayment of $49 million from Kibali, compared to $49 million received in the third quarter of last year. Tax payments reflect a year-on-year reduction of $7 million in Q3 due to a timing difference in payments. The $12 million increase in capital is due mainly to higher planned stay-in-business capital to maintain safe, stable operations. Our investing activities include the increases in investment in G2 Goldfields, as announced in the prior quarter.

Looking at the picture of the nine months, you can see the same trend, with the higher gold price flowing all the way to the bottom line. The only key difference here is in the higher tax payments reflecting our higher profits. The balance sheet remains strong, with $2.6 billion in liquidity, comprising mainly of the undrawn RCF, around $1.3 billion, and around $1 billion in cash. Adjusted Net Debt has decreased by almost a third this year to $906 million at the quarter end. Adjusted Net Debt to Adjusted EBITDA is currently at 0.37 times. We remain committed to maintaining a flexible balance sheet with leverage of less than one time through the cycle. With these healthy cash balances, strong free cash flow, and long-dated maturities, we're reviewing our capital allocation policy and will provide an update on the outcomes of this review with our Q4 update.

Finally, on guidance, we are maintaining guidance on all metrics. I'll hand back to Alberto. Thank you.

Alberto Calderon (CEO)

Thanks, Gillian. Let's look forward and before that, take a step back and see where the business is. Safety first. We have among the lowest injury rates in the global gold sector and are working to reduce the risk further, focusing on major assets. We're attracting guidance with our managed operations, doing the heavy lifting in a year that's been, that's seen some significant, albeit mostly temporary, production setbacks. Still, Brazil has been a highlight and hardly recognizable from the business unit that drained hundreds of millions of cash flow in the prior two years. Australia has persevered and will claw back most of the ounces it lost to what can only be described as biblical flooding.