Anglogold Ashanti PLC (AU) 2016 Q1 法說會逐字稿

Good afternoonand welcome to the AngloGold Ashanti analyst conference. (Operator Instructions). Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Stewart Bailey. Please go ahead.

Thanks, Terri, and welcome, everybody, to our Q1 operational update. As you will know we've moved away from quarterly financial reporting, so please note that these results that you'll see have not been reviewed by our auditors.

I'm going to run through the Safe Harbor Statement quickly. The call will be briefer than usual. There will be short remarks made by Venkat and Christine Ramon, our CFO and then we'll go into Q&A immediately after that.

Certain statements contained in this document, other than statements of historical fact including, without limitation, those concerning economic outlook for the gold mining industry, expectations regarding gold prices, production, total cash costs, all-in sustaining costs, all-in costs, cost savings and other operating results, productivity improvements, growth prospects and outlook of our operations, individually or in the aggregate, including achievement of project milestones, commencement and completion of commercial operations of certain of our exploration and production projects and the completions of acquisitions, dispositions or joint venture transactions, our liquidity and capital resources and capital expenditure and the outcome and consequence of any potential or pending litigations or regulatory proceedings or environmental, health and safety issues are forward-looking statements regarding our operations, economic performance and financial condition.

These forward-looking statements or forecasts involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied in these forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements and forecasts are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of amongst other factors change in the economic, social and political and market conditions, success of business and operating initiatives, change in the regulatory environments and other government actions, including environmental approvals, fluctuations in gold prices and exchange rates, outcome of pending or future litigation proceedings, and business or operational risk management.

For a discussion of such factors refer to our AngloGold Ashanti's Annual Report on Form 20-F filed with the SEC. These factors are not necessarily all of the important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements. Other unknown or unpredictable factors could have material adverse effects on future results, consequently you are cautioned not to place undue reliance on forward-looking statements.

We undertake no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after this date or to reflect occurrence of unanticipated events, except to the extent required by applicable law. All subsequent written or oral forward-looking statements attributable to AngloGold Ashanti or any person acting on its behalf are qualified by the cautionary statements herein.

This communication may contain certain non-GAAP financial measures. We use these measures and ratios in managing our business. These measures should be viewed in addition to and not an alternative for reported operating results or cash flow from operations or any other measures of performance prepared in accordance with IFRS. In addition, the presentation of these measures may not be comparable to similarly titled measures other companies may use. We post important information for investors on our website under the investors tab, you should review that information.

Venkat?

Thank you, Stewart. Good morning, afternoon, ladies and gentlemen. If I may start the presentation with safety, we saw continued improvement year on year from Continental Africa, Americas and Australia on the all-injury frequency rate with Continental Africa in particular finishing the first quarter without a single lost time injury.

Whilst we deeply regret to report a fall-of-ground-related fatality at TauTona at the start of the year, our South African region recorded a relatively better first quarter when measured by the number of fatal accidents. Mponeng in West Wits and the Vaal River mines achieved 1m fatality free shifts during the quarter.

Clearly safety is an area which is receiving continued focus when it comes to preventative measures, training, systems and behavioral improvements as we strive toward achieving zero harm.

Now turning to the highlights of the first quarter, firstly, an important focus over the past three years has been on widening our margins on a sustainable basis. The first quarter 2016 saw the highest margin on all-in sustaining costs for more than three years in this business.

Secondly, we generated strong free cash flow of $70m as compared to a significant outflow of a year ago, representing a favorable swing of around $110m. Net debt continued to fall and now stands at $1b below its peak level seen in 2015. Stable production of 861,000 ounces in a seasonally weak quarter with all-in sustaining costs dropping 7% year on year to $860 an ounce, and the full-year guidance range remaining unchanged.

We saw the benefits of a geographically diversified portfolio that offers good leverage to gold prices, currencies and oil come through very well during the quarter. And Christine will elaborate on this further during our presentation.

The table which you see on slide 5 compares the year-on-year performance for the first quarters and further demonstrates our continued focus on margin growth on the back of better quality production. Despite the year-on-year fall in both gold prices and production, our total cash costs fell by 4%, our all-in sustaining costs and all-in costs fell by 7% and 8% respectively. These contributed to a significant positive cash generation which was applied further to reduce net debt.

Now looking at the regional overview starting with the South African operations, our implementations at Mponeng last year are starting to bear good results with production up 34% year on year. We saw the South African region's all-in sustaining costs get closer to $900 an ounce during the quarter benefiting from the rand weakness.

On the production side, to remind everyone, the first quarter is always a weak quarter following the Christmas break, production was therefore relatively flat year on year at 236,000 ounces. The quarter took the brunt of high safety-related stoppages that cost the region some 21,000 ounces of immediate production and [16,000] ounces of future production from oil reserve development. We continue to work with the regulator to help minimize the disruptive impact of such stoppages without compromising the safety of our people and our operations.

The region is likely to have a seasonally slow second quarter, also further impacted by the recent seismic event at Savuka. We expect the production to improve in the second half of the year in line with prior years.

Turning to our international operations they produced 625,000 ounces at an all-in sustaining cost of $822 an ounce. All-in sustaining costs improved by 2% despite a year on year drop in planned production.

When you look at the year-on-year drop in production from continuing operations they include Obuasi not being in production, 16,000 ounces; declining production profile at Morila, 14,000 ounces; the impact of Tropicana moving into lower grade areas in accordance with this life of mine plan some 10,000 to 16,000 ounces of which we hope to make up 8,000 ounces later on during the year.

The unplanned fall in year-on-year production really came from Kibali around 15,000 ounces as a result of drop in recoveries from feeding solely sulfide ore and a bearing failure at a mill, the later costing over a week's production at the quarter end. Potential circuit and [redesign] changes are being effected currently to get the plant back on track during this quarter.

The improvement in Americas] all-in sustaining costs was marked at 12% year on year, assisted by strong cost management, efficiencies and currency weakness.

I'll now hand you over to Christine to walk you through some of the financial numbers.

Thank you, Venkat. Moving onto slide 8, our focus on margins has enabled consistent delivery on key metrics. The efforts (inaudible) to factors under our control are underpinned by cost management, operational excellence and portfolio improvements has helped mitigate the effects of the fall in gold price since the fourth quarter of 2012.

We have been able to steadily reduce both our all-in sustaining costs and all-in costs per ounce through this period, with all-in sustaining costs reducing by approximately $700 per ounce from the quarterly peak and all-in costs have been cut by more than $1,200 per ounce over the same period. All-in sustaining costs at, $860 per ounce for Q1 2016 remains steady with Q4 of 2015 and is the lowest since the fourth quarter of 2012.

We remain sensitive to currencies and the oil price. In addition to efficiency improvements, we have also seen currency benefit over this period given our geographic exposure across two-thirds of our portfolio as well as the benefits of the lower oil price, which have assisted with improving our margin through the cycle. Our all-in sustaining margin of 27%, was a 3% improvement year on year despite a 3% drop in the gold price.

Moving onto slide 9, looking at the cost performance in detail year on year we note that continued efficiencies were key to delivering the improvements in cash costs for the quarter compared to last year which together with the favorable currency effects helped mitigate inflation as well as lower volumes and grades.

All-in sustaining costs per ounce were $60 per ounce lower in Q1 2016 compared to Q1 last year on the back of lower cash costs amounting to $32 per ounce, lower sustaining capital of $13 per ounce as well as lower corporate and exploration costs.

In particular, sustaining CapEx was lower due to favorable currency effects and that particularly related to both South Africa and CVA in Argentina, lower spend at Geita and Iduapriem as well as lower oil reserve development in the South African region due to the safety stoppages.

We are expecting sustaining CapEx to increase over the remaining quarters of the year in line with past trends. Hence, we are maintaining our total capital guidance of $790m to $850m for the full year.

Moving onto slide 10 our debt reduced further since year-end due to free cash flow generation. Free cash improved significantly year on year despite negative working capital movements, which should unwind during the course of the year.

Lower all-in sustaining costs and lower all-in costs, lower financing costs of about $35m due to the partial settlement of the high-yield bonds, as well as improved cash management within the Group as well as the lower cash requirements arising from the disposal of CC&V improved free cash flow generation year on year.

We remain within our target net debt to adjusted EBITDA ratio of 1.5 times through the cycle with ample headroom to our covenant level of 3.5 times. And we do continue to focus on optimizing free cash flow.

We continue to see the balance of the high-yield bond as an opportunity from the end of July 2016 onwards. Our strong liquidity, sufficient undrawn facilities and long-dated maturity continue to provide the financial flexibility required in the current still volatile environment. Both Moody's and S&P have recently reaffirmed our credit ratings and revised the outlook to stable from negative on the back of improved credit metrics.

With that I will now hand back to Venkat to conclude.

Thank you, Christine. To conclude, we have seen another quarter of fairly consistent performance and a quarter wherein our margins widened further. We have kept our annual guidance unchanged. With the reduced debt levels and improved cash flow, our balance sheet remains robust.

Our focus areas for the rest of the year remain the same. To recap, prioritizing free cash flow improvements and margin growth on a sustainable basis, continuing with the recovery seen at our South African operations, restoring law and order at the Obuasi mine, working with the Randgold team to effect the improvements needed at Kibali, and importantly advancing our near to medium-term high-return brownfield projects.

With those comments I'll hand you back to Stewart.

Thanks. Operator, we are ready to take questions please.

(Operator Instructions). Johann Steyn, Citibank.

Hi, Venkat and Christine, everyone. We spoke earlier today about it, but maybe if you can just provide a little bit more color on Obuasi the situation at the operations and also the potential financial risk on a worst-case scenario for shareholders. And also how the recent developments have influenced your outlook on this mine and whether you still feel that this is something that holds long-term potential or whether you think you've moved closer towards potentially just closing the tap on this mine.

Johann, as I said this morning we've kept all options open. To put it very simply this was a big setback for us in terms of what happened on illegal mining at Obuasi. We have actually worked and tried to work very hard with all levels of the government to return law and order to the mine, particularly given that we have surrendered around close to two-thirds of the area of the mine back to the government to enable them to hand it over potentially to artisanal small-scale mining which is regulated.

What is not permitted obviously is illegal mining, so when our diplomatic efforts didn't yield the required results and we don't take decisions to take it to arbitration lightly, we resorted to recourse of the International Center for Settlement of Investment Dispute. And that matter is ongoing and we've got to wait and see what the outcome would be.

But certainly we continue to engage with the government to return law and order so that we can go back in and have a look at what the damage created to the infrastructure and potentially to some of the areas which were there included in our plan to mine would have been. And we can only make a call then.

Thanks, Venkat. And then maybe just in terms of capital allocation, your balance sheet is now at the point where you previously said your targeted net debt to EBITDA level is below 1.5 times. How does this now influence your view on dividends? Do you prioritize dividends at this level over debt reduction or is there or are there any capital projects at this stage that you might say you want to progress at this stage?

I think as we've said repeatedly, dividend is certainly a key component of our investment case and certainly every quarter of positive cash flow gets us closer to that. But let me get Christine to come in on the capital allocation piece. There are certainly one project which we have announced, and she'll touch on that.

Yes. I think just to supplement that is that first that I think we are still focusing on further improving free cash flow generation. And hence I mentioned targeting -- we see the high yield bond as an opportunity from the end of July onwards. But we are still keeping all options open in that regard.

But I think we had to keep all the balance of the high yield bond that will free up -- will improve free cash flow generation by approximately $40m. So I think certainly going forward we would have dividend on the agenda and we would see it as part of the capital allocation. But I think we'll have more line of sight on sustainable free cash flow generation later in the year.

And I think Venkat alluded to a particular project that we spoke to last year which in essence is the (background noise) project, an incremental growth project. And we certainly have factored of that into the cash flow for the year as well, because that is a project that we will be spending on over the next two years. So we certainly see ourselves self-funding that project.

Okay, thank you very much.

Thanks, Johann.

Patrick Mann, Deutsche Bank.

Patrick, go ahead.

Hi. Can you guys hear me?

Yes.

Okay. Afternoon. Thanks very much for the call. Just looking at you guys reiterating the full-year guidance, to get to the upper end you're going to get -- you'd have to get close to 1m ounces per quarter. I'm just trying after a relatively slow first quarter start I'm just trying to see what has to happen for you get near the top end of your guidance. Is this -- and the reason I ask the question is because there's a couple of projects Geita underground, Star & Cornet, is there projects coming on line, is it a turnaround at Kibali just give us a better sense of that please? Thanks.

Patrick, if I can take that question up, basically we look at what happened year on year in terms of our production profile. Generally the first quarter is never 25% of our annual guidance when you take the mid-point, it's always been below that, varies from around 22%, 23%. This year is no different to it.

In terms of the big moves going out, into the later part of the year obviously it's South Africa, certainly the improvements coming from Mponeng and Moab and TauTona now being an integral part of it, less so from surface.

Secondly, moving across the other operations, it's Brazil where we couldn't get into one of the high grade stopes, which was on level 17, for geo-tech issues which are being addressed and that will actually come through in the latter part of the year.

Same in relation to some uptick on Tropicana, Sunrise Dam is going as planned. And in addition to that the other uptick comes from Geita in the second half of the year as underground picks up. And notably is the Kibali turnaround it does have an important component in terms of our uptick in the production profile. And there, for those who listened to the Randgold call, Randgold did reiterate their guidance at 610,000 ounces 100% for the year. Anything to add, Ron?

Great, thanks very much.

David Haughton, CIBC.

Yes, hi, Venkat and Christine. Thank you for the call. Venkat, in your concluding remarks you mentioned your high return brownfield projects. Would you be able to remind us what those are and what your pecking order is?

Okay. The first one certainly where we are putting a lot of effort into is the expansion at Siguiri where we are going from oxide material to hard rock and there it's putting a combination plant. At Siguiri you're not talking bit sums of capital it's around $110m to $115m including contingency.

We are working through the discussions with the government in that regard in terms of getting a stability agreement going out into the future. And that basically improves the production profile at Siguiri and also extends the mine life at Siguiri which is quite a prospect of ore body.

The second area is the improvements at the Sunrise Dam which Ron talked about in the last quarter. And, Ron, you're welcome to add details to it. And obviously the Geita underground which sees the production profile going out into the future being maintained.

The next area which we are looking at in conjunction with IAMGold and there it's less of an urgency because we've got the oxide material extended until certainly end of next year to early following year is the sulfide project. There we are determining and working with IAMGold on what the correct scope of the size of the plant and the infrastructure has to be and the related capital. Here are some examples here, and incremental expansion around Brazil. In South Africa it hinges on Mponeng below 120 level.

Ron, anything you want to add on Sunrise?

Sunrise (technical difficulty).

Okay, just coming back to Siguiri to have the hard rock capability is the idea there to maintain the throughput in the order of over 10m 11m per annum once you transition from the softer material into the harder material?

Yes, in general. You come down in the material -- or material throughput because you have more work to do. So basically you put a crushing and screening facility on the front-end and you add certain tankage that gets you back to 8m kind of tonnes per year. So it is the same plant but you have a little bit less throughput due to the work involved.

Okay. So the target would be more like 8m tonnes when it's 100% hard rock?

Yes.

Okay. Then going over to Geita, whereabouts are you with regards to the underground? When would you anticipate the start-up of the underground and what kind of scale would you think about?

Well we've already commenced it. We hit 400 meters of development last month. And we have some development ore actually going through the plant this week. Our anticipated stope, first stope ore to the mill will be in early third quarter. And this is a small ore body, pays for itself as we go along. It's in the high wall.

And there'll be a decision later in this year about the magnitude of the underground that we go forward. But it's not a big project it's really developing and replacing surface ore through the 5.2m-tonne-a-year plan so it's going well. We are actually into it right now.

And what sort of grade would you be targeting?

It's 5 to 7 grams.

And that's simply displacing about half that grade from the open pit through the mill?

Yes, but right now we have a bunch of 1.4 gram low grade stockpiles that really is what you're replacing because we feed a certain amount of that in throughout each year depending on the strip and the access to the Nyankanga ore bodies. So it does replace average open pit grade and low grade stockpiles that we have a cluster of at that mine side.

Okay, all right. Thank you for that, Venkat and Ron.

Thanks, Dave.

Tanya Jakusconek, Deutsche Bank.

Good morning, everybody.

Morning, Tanya.

I have a couple of questions. Can I start off if we could have just how much the corporate cost, exploration and sustaining capital were in the quarter? I'm sorry I just can't read the x-axis to get the actual numbers.

Tanya, why don't you go ahead and ask the second number, we are just going to dig out the precise figure for you.

Okay, perfect.

It's in the annual guidance, Tanya, the annual guidance on both was $790m to $850m for capital expenditure million dollars and (multiple speakers).

No, that's fine. I know what they -- sorry I know what the annual guidance is. I'm just interested in what the actual Q1 were.

Oh, the actual Q1 numbers.

Yes. And secondly, maybe you could share with us you mentioned the currency benefits and the oil price benefits in Q1. Can you tell us what they were versus what you had budgeted for Q1?

We actually don't talk about the internal budget. What we can talk to you is actually the savings compared to last year. So the favorable currency effect is pretty much on this chart. You can see it's $55 per ounce. Can you see that coming through? And included in the $43 (technical difficulty) savings on the -- relating to the lower oil price that has actually come through.

Well, I see a $43 and I think you said (multiple speakers).

So included in that is the lower fuel and power cost that has come through. It is a component of that because there were other efficiencies that came through that related to lower labor costs and lower consumable-related costs that actually came through as well in the efficiency number. The favorable currency effect is the $55 per ounce.

Maybe you can just remind me what your budget numbers are for 2016 for your rand and your fuel cost. Thank you.

Yes, so what we did at the beginning of the year in the results announcement is that we budgeted at $1,100 gold. And we spoke to pretty much the ZAR15 dollar/rand at the time as well as about BRL4 to the dollar. And so that's pretty much what we budgeted at. Does that help you? (technical difficult) just market update.

Yes. No, no fair enough. And the fuel price what do you have in your budget? Has that changed?

Yes, it would have, it was $35 at the time. However, we are still holding our annual guidance. So even though fuel on all sides has actually moved from the $35 per barrel, we actually have reassessed the annual guidance and we are quite comfortable to stay within the range that we've actually put out.

Okay. So thank you for that. And do you have those numbers on corporate exploration and sustaining?

Yes. So corporate exploration, corporate and exploration costs to Geita amounts to $37m for the quarter.

And your sustaining CapEx in Q1?

We didn't catch up on the sustaining, but I've got it here. So sustaining is actually $104m.

Okay, thank you for that. And then maybe, Venkat, can you give us an update on the Draft Mining Charter and having been able to look at it what's happening and the impact to Anglo?

Yes. On the Mining Charter as we said previously the Minister of Mines published a Draft Review Mining Charter. It wasn't in consultation with the industry. It was published and all of the mining companies put out their respective commentary which stated that the Mining Charter went out without consultation with the industry. And the Chamber put out a similar release as well.

The Minister of Mines when he visited our mine site at that stage when he spoke to the press did confirm that the Mining Charter was only a draft proposal where he expects consultations to take place. And he said although the time he's provided is 30 days he's more than happy to extend the 30 days as required until we can get a landing in terms of the Mining Charter.

So the discussions have already commenced, bilateral discussions and discussions through the Chamber have commenced with the Department of Mineral Resources. And those discussions are in progress. What both sides have agreed to is that there would be absolute radio silence until those negotiations are concluded and a consensus or landing has been reached before we can actually say what is the end product we have, and then the respective sides can comment on that.

And what's the timeframe for that so that we can look forward to hearing more?

It could be anything from the 30-day period based on how long the Minister is prepared to extend. And bear in mind the industry is just one constituent where the consultation has to take place, there are constituents as well. And I can just remind you that the amendment to the act is still outstanding although it was promulgated about a year ago. So it can take time, although the Minister has said that he wants to move forward quickly so as to eliminate any regulatory uncertainty.

And is that the 30 days from April 15?

That's correct from the date of publication of the charter, of the draft Ccharter.

Yes, so maybe by May 15 or thereafter we may hear something new.

It's likely to be much later than that not on May 15.

Okay, thank you.

Thank you very much. And thank you all for joining us on the call. We will have our normal slightly longer format after the half year and that will be in August. Thank you very much.

Thank you. On behalf of AngloGold Ashanti that concludes this afternoon's conference. Thank you for joining us. You may now disconnect your lines.