Anglogold Ashanti PLC (AU) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the AngloGold Ashanti half-year results. (Operator Instructions) Please also note that this call is being recorded.

I would now like to turn the conference over to Stewart Bailey. Please go ahead, sir.

Thanks very much, Chris. Everyone, thank you for joining us for our H1 results. We will follow the normal agenda for today, just noting that Graham Ehm has a family issue to attend to in Australia and unfortunately won't be joining us today. Ron Largent will be covering the exploration piece.

Just before we get going, as is customary, the Safe Harbor statement. Certain statements contained in this document other than statements of historical fact, including, without limitation, those concerning the economic outlook for the gold-mining industry, expectations regarding gold prices, production, total cash costs, all-in sustaining cost, all-in costs, cost savings and other operating results, productivity improvements, growth prospects and outlook for our operations individually or in the aggregate, including achievements of project milestones, commencement and completion of commercial operations of certain of our exploration and production projects, and the completion of acquisitions, dispositions or joint-venture transactions, our liquidity and capital resources and capital expenditures, and the outcome and consequence of any potential or pending litigation or regulatory proceedings or environmental health and safety issues are forward-looking statements regarding our operations, economic performance and financial conditions. These forward-looking statements and 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 contained 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 (inaudible) effective changes in the economic, social and political and market conditions, success of business and operating initiatives, changes in the regulatory environment, and other government actions including environmental approvals, fluctuations in gold prices and exchange rates, the outcome of pending or future litigation proceedings, and business and operational risk management. For a discussion of these factors, refer to our annual report on Form 20-F for the year ended December 2015, which was filed with the SEC.

These factors are not necessarily all 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 also have material adverse effects on future results. Consequently, you are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to update publicly or release revisions to these forward-looking statements to reflect events or circumstances after this date or to reflect the occurrence of unanticipated events, except to the extent required by applicable law. All subsequent written or oral forward-looking statements attributable to the Company or any person acting on its behalf are qualified by these cautionary statements.

The communication may contain certain non-GAAP financial measures which we use in managing our business. Non-GAAP financial measures should be viewed in addition to, not as an alternative for, reported operating results of 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 use. We post this information and other important info on our website at AngloGoldAshanti.com. We update it regularly. You should consult it.

I'll hand over to Venkat.

Thank you, Stewart. Good morning/good afternoon, everyone. I'm pleased to another good operating and financial performance for the six months of this year, save for one or two setbacks during the period.

Starting with our overarching strategy that drives our business performance, our strategy has remained consistent since 2013, with our five key business objectives supporting our central strategic goal of delivering sustainable improvement to cash flow and returns.

We have certainly achieved that in these results for the first half of 2016, with a strong improvement in free cash flow over the six-month period with the expectation of more to come in the second half [as these] prevailing [coal] market conditions.

My colleagues and I will dig into selected elements of the progress against the strategy through the presentation, notably our brownfield and advanced greenfield opportunities that we are actively working through to deliver quality production that will add to margins, extend mine life and also shape the portfolio in the longer-term process.

Turning to the slide on safety, which remains our top priority and also our biggest challenge in terms of our deep underground South African operations, which continue to represent the vast majority of injury and fatality, our international operations continue to show world-class safety trends, with several operations consistently exceeding previous high-water marks across continental Africa, Americas and Australia.

In South Africa, despite three of our deep labor-intensive mines, namely Mponeng in the West Wits, Moab and Kopoanang in Vaal River, they achieved 1 million fatality-free shifts the period. But despite this and Kopoanang going fatality-free for over a year, we are still battling to make a sustained breakthrough in the region as a whole. Increased seismicity at our West Wits operations posts a significant challenge during the period, as does the failure in some key situations of our experienced personnel to adhere to our well-established and tested safety protocols and procedures. We are working very hard across a number of fronts, which Chris will touch upon, to rid our SA operations of fatalities on a sustained basis.

We are one of the gold industry's most geographically diversified companies, with a quarter of our production coming from South Africa and about 3 times that amount coming from our international operations.

In terms of the highlights for the period, free cash flow more than tripled from the first half of last year and would have been at least $28 million higher for the period, had it not been for the timing of proceeds from a gold and silver shipment from Argentina that fell in the first day of the second half. We anticipate this growth in cash flow to continue into our traditionally stronger second half of the year, particularly given current gold spot prices.

Production came in at 1.745 million ounces for the second quarter, exceeding the first-quarter production by some 3%. This helped us to bank 47% of the midpoint of our annual production guidance in the first six months of the year. All cost metrics improved year on year. We continue to see strong cash flows, helped by excellent cost performances, to name a few, from Mponeng, Sunrise Dam and Cerro Vanguardia.

It is well-known now that Kibali struggled in the first half. Marc Bristol detailed that in the recent Randgold earnings call, and Ron Largent will provide some additional details today. But suffice to say that steps have been initiated to turn the performance around by effecting enhancements to the plant, treating additional oxide materials from satellite pits and increasing production from the underground, where the development is proceeding well and in accordance with the plan. We will be monitoring this very closely from our standpoint as a nonoperating partner in the joint venture and lending our assistance where necessary, as we have done today.

Christine will talk to the balance sheet restructuring undertaken after the end of the first half. But suffice to say that our debt metrics continue to improve. Debt is almost $1 billion lower than it was a year ago, and our overall financial flexibility is much improved.

Costs are also better than what they were in the first half of 2015, but we would be the first one to admit that they could have been significantly better, were it not been for the challenging first half at Kibali and difficulties we have experienced in the South African operating environment. These are two areas we continue to work on for the much-needed progress over the balance of the year.

Turning to slide number 8, this is the clearest exposition of the progress we continue to make across the business. The year-on-year drop in production from continuing operations can be explained largely due to loss of production from Obuasi, a poor first half from Kibali and a great drop in [accordan] with the mine plans at both Geita and Tropicana. Despite the above, the improvement across all cost, margin, free cash flow and debt metrics have been impressive, particularly since 2013.

We do need to note the headwinds that we are facing in South Africa, where we and the mining industry in general has had a difficult first half of the year when it comes to fatal accidents. The response from the regulator has, as you can well imagine, been a strong one, which we fully respect. We also don't dispute the need for thorough investigation and remedial action to follow any serious accident. And we welcome the input from the mine safety inspectorate in this regard.

There is, however, we believe, room for improvement in the application of these section 54, as they are referred to, mine work stoppages to ensure that they are evenly applied and to also ensure that the interests of personnel safety could be better served by more targeted intervention, where only the offending areas are suspended pending the necessary remedial action, rather than shutting down entire operations for protracted periods.

Once we continue to engage constructively with the DMR in this regard, it is certainly worth pointing out that the scale, the sharp increase in the number and frequency of these stoppages, along with the trend of mass audits and routine inspection across our sites each quarter has made it increasingly difficult to accurately forecast production levels from our South African business.

The very recent strengthening of our local currencies, in particular the SA rand and the Brazilian real, notwithstanding the mitigation from higher gold prices, does not afford us the luxury to sit back and rest. And this therefore reaffirms our commitment to dig deeper by challenging status quo and effecting operational improvements, efficiencies and cost reductions across our portfolio.

I will now hand you over to Chris Sheppard to walk you through our South African performance.

Thanks, Venkat. In my previous presentation at year-end I stated that the key issues that needed attention were, firstly, an unsatisfactory safety performance as to unprecedented safety stoppages and results in loss of life and production. And, secondly, our strained immediately (inaudible) facelift that resulted in a lack of mining flexibility.

Six months later, today, this focus continues. And it's pleasing to note that progress has been made in a number of areas despite the challenges facing our industry currently. In particular, Mponeng Mine has responded well and has delivered the expected results thus far.

Regarding [space lent and venji], these have been steady despite the impact of safety stoppages, which always has a drag on ore reserve creation.

Turning to safety, for the past two quarters the South Africa region has suffered two fatal incidents involving three of our employees which occurred at our TauTona [dabook] operation. These and subsequent incidents have highlighted the need to ensure that changed management of safety improvement measures is more fully and rigorously exercised to ensure a sustainable outcome. Furthermore, the need to hold all levels in the Organization accountable for safe outcomes has never been more compelling, especially in the face of continued elevated levels of safety stoppages.

Our focus continues through our safe reduction strategy to improve the skills, safe behavior, work planning, and protecting and removing workers from risks and thereby improving levels of compliance. Whilst we are supporters of the intent of Section 54 regulatory stoppages and mass audits, the manner in which they are exercised continues to have a significant impact on work routine and production.

Turning to the operational performance for our South African operations, production decreased by 3% compared to the same period last year, keeping in mind the average historical decline of some 8% per annum. The all-in sustaining unit costs improved by some 13% in dollars per ounce terms, assisted by the weaker exchange rates. TauTona suffered a major seismic event at the [dabooka] shop sections right on one of the main audit systems, which has effectively removed a portion of the life of mine from that section and resulted in a revised outlook for the rest of the year.

Mponeng improved is production levels by some 25%, and this resulted in a pleasing 28% reduction in all-in sustaining cost to $893 per ounce.

Regarding the Below 120 project, the 123-level section continues its production ramp-up to expectation, and the completion of the 126-level infrastructure and support work continues to plan. Activities relating to operational readiness for the Phase 2 access to the lower carbon leader reserves below 120 level continued according to program. Recent progress is being made with the previously reported prefeasibility study to evaluate the value uplift by increasing the footprint of the project on the lowest carbon leader as well as co-extraction of the [BTR], (inaudible) contact reef from the same sharp deepening infrastructure platform. This study is still on track to be concluded by the end of 2016.

The technology projects within AngloGold Ashanti have shown steady progress through 2016, with our latest-generation reef boring machine at the TauTona low carbon leader sharp filler and the deployment of reef boring technology at the Savuka carbon leader sharp filler, which commenced during the last quarter.

Regarding our Vaal River operations, Moab Khotsong continued to focus on efforts to establish [space link] in the middle of Moab Khotsong while being heavily impacted upon by safety stoppages in a fatal-free half-one. The [size plos] project continues to be on hold while a prefeasibility study is anticipated for completion by the end of 2016. Kopoanang, despite staying fatal-free for 12 months at half-year, has also suffered significantly from safety stoppages. Productivity gains are now imperative to increase volumes and reduce unit costs in order to counter forecast lower grade.

I am pleased to report that the previously reported decision to reconfigure the treatment plant at Mine Waste Solutions, to float off the uranium first, and then perform the carbon and leach gold extraction, which thereby improves the overall recovery of uranium and gold, has resulted in the successful recommissioning of the uranium [circuits] recently as planned. It's also pleasing to note that Mine Waste Solutions has delivered its best results to date and is delivering healthy margins.

Turning to rand-based costs, the all-in sustaining unit costs rose some 12% against the backdrop of a corresponding 3% reduction in production volume. The gold price received during the period in rand terms increased by some 31%, resulting in a significantly improved margin and free cash flow. Efforts are underway to reduce off-mine costs along with on-mine productivity improvements, as well as reducing surface infrastructure footprint in order to manage the future unit costs with the anticipated production profile.

And then as far as priorities are concerned, the first and most pressing of our key priorities for the rest of the year is to put an end to fatalities by improving workplace conditions and behaviors along with improved compliance. The Mponeng Below 120 Phase 1 project production ramp-up on 123 level remains critical, as well as the rock handling and logistics infrastructure for 126 level, as well as the work I mentioned previously on Phase 2 which underpins the longer-term optionality for Mponeng. The outcomes of our Project 500 cost optimization initiatives will also be crucial in this regard, with particular regard to off-mine costs.

Moab Khotsong remains a key asset, and a safe increase in volume is a key requirement for half 2. As mentioned earlier, Kopoanang needs to deliver an uplift in productivity through volume increase and reduced stoppages. Our significant commitment to our technology program will remain driven by a focused project management team fully focused on delivering a viable mining production system capable of mining all of the gold, only the gold, all the time. We are currently progressing to authorization of continuous operations with the regulators to enhance the business case of this capital-intensive technology. Surface operations will be focusing on volume increases, which brings more consistent ounces, given the current challenges within the South African mining sector.

In closing, we see some pleasing momentum starting to develop from Kopoanang. I will now hand over to my colleague, Ron Largent.

Thank you, Chris. And good morning. I will provide some detail regarding our first-half 2016 operating results for continental Africa, Australia and the Americas region, and then discuss priority work around the operating portfolio, focusing in on the Tropicana, Siguiri and Colombia projects.

Slide 14 -- this slide represents the quarterly all-in sustaining cost for the international operations for the past three-plus years. I stated at the year-end 2015 results in February that our costs would be impacted by exchange rates and some levels of inflation. We actually saw this impact in our quarter-two numbers, with both the Australian and Brazilian currencies strengthening against the US dollar. In addition to the foreign exchange and inflationary impact, we are lifting our investment in our brownfields pipeline, with aggressive drilling underway at a number of our operations and also execution of life-of-mine extensions that we had planned for this year and beyond. My takeaway from this graph is we have established a sustainable operating margin for our international portfolio.

The next slide, slide 15 -- regarding production, first-half 2016 saw us deliver 1.26 million ounces, which is 9% lower than the first half of 2015. The difference is related to the completion or stop of the tailings treatment at Obuasi, a planned reduction in the ounce production at Geita and Tropicana mines, primarily due to the reduction in grade, which we flagged earlier this year, and the challenges in the Kibali sulfide processing circuits. As you would expect, these lower volumes also impacted our all-in sustaining cost. So, this was somewhat offset by strong cost performances at Siguiri, Sunrise Dam and Cerro Vanguardia.

The America region improved their all-sustaining costs by 4% to $816 per ounce. We are expecting a strong second-half performance from the Cuiaba mine in Brazil and the Tropicana operation in Australia.

Slide 16 -- as we continue to develop the optionality of the international portfolio, it is important to recognize the ongoing work that we are undertaking to enhance our life-of-mine plan and asset values. In short, we have a slate of brownfields projects with attractive capital and high returns that will continue to enhance the overall quality of our production base.

In Brazil, the development of the higher-grade ore bodies, Inga and Palmeiras, at the Serra Grande mine continues, with ore deliveries to the middle scheduled in quarter four of this year. Additionally, the satellite ore bodies at the Cuiaba mine are being defined. Ultimately, these ore bodies will offer mining sequence optionality and drop-down rate improvement.

In getting at the Siguiri mine, we have approved the capital for construction of the [combination plan], which will allow for the continuation of the current production profile by processing hard rock after the depletion of the pre-dig oxide material in 2018. I have slides later where I will discuss this in more detail.

In Mali, the Sadiola Sulfide Project is in the final stages of optimization, with scheduled decision points before year-end. As we've stated before, this project is an attractive one, a view shared by our partners. But it must go through our normal evaluation processes, and it must receive the proper undertakings from the Mali government around power supply and fiscal framework before we make our final investment commitment.

In Tanzania at our Geita line, underground mining has commenced ore production at the Star and Comet ore bodies that will be seen in quarter-four production. This transition to underground has been extremely successful in quarter two. Further exploration work and underground designs are being completed in the main Nyankanga and Geita Hill ore bodies.

In Australia, the Sunrise Dam operation has transitioned completely to underground mining methods. In 2016, ore production from the underground is scheduled to meet the 3 million-tons-per-year rate. The ongoing ramp-up of the underground ore production will eventually equal mill capacity of 3.6 million tons per annum. As we progress the development to the higher-grade Vogue deposit, ore handling infrastructure will be installed to support this level of production.

At Tropicana, continued success with the brownfields drilling program, down-dip in the long strike of the current body, has allowed us to define a larger resource. And we plan to convert this to reserves later in 2016.

That was an overview of some of the ongoing value-adding work that has been actively completed in the international assets to drive longer life and improved asset value. I'd like to now take us a little deeper into Tropicana, slide 17.

As an example to illustrate the type of work that we are doing, I'd like to highlight our effort currently underway. There is a set of parallel work that is defining targets to grow the reserve, lower costs and extend life. I think it's important to state that the Tropicana mine has been built and operated in line with our investment case. The project was constructed on schedule and within the capital budget, and, most importantly, the payback schedule has been met despite the downward pressure on the gold price since commissioning more than three years ago. The ongoing work has included plant optimization and circuit upgrades that are targeting a 30% increase to the nameplate design. This improvement has been combined with the material growth to the ore body resource that we are increasingly confident of achieving, down-dip in a long strike to Havana South and Boston Shaker system. The plant throughput improvements, combined with the resource growth, has allowed us to reevaluate the mining sequence to ultimately reduce mining costs. We have secured a 600-ton face shovel is scheduled for delivery in quarter-four 2016. This will drive a reduction in mining unit cost and improve productivity. All this work is aimed at making material movements at Tropicana life of mine from next year and beyond.

Slide 18 -- as I just stated, the 600-ton face shovel has been procured for the operation. This will allow us to alter mining schedule to manage waste stripping volume. As illustrated on this slide, our current plans, which have evolved in the past year, have us utilizing the mined-out Tropicana pit for waste disposal, materially reducing the mining cost. In general, we have potentially reduced the vertical height and distance that waste material will need to be hauled for deposition. This non-typical hard rock mining method is an example of the innovative thinking that has been taking place to drive value.

Slide 19 -- to back up my comment regarding the plant throughput optimization at Tropicana, this slide shows the nameplate volume, 5.8 million tons per year, were met in 2014 and exceeded over the past four quarters. A series of low-cost upgrades combined with a series of optimizations will increase the plant capacity to 30% above nameplate by the end of this year. These include an upgrade to the ore stockpiles to decouple the plant operations, additional capacity in the CIO circuit, conveyor upgrades and consuming the installed capacity of the high-pressure guiding circuits. Resetting the annual capacity of the plant drives optionality with the newly defined ore body resource.

Slide 20 -- I've mentioned the newly defined resource, so this slide is indicative of the excellent drill result our exploration team continues to deliver. The intercepts are exciting and have effectively confirmed the potential of the two ore bodies that will take Tropicana to the next level. That's Boston Shaker and Havana South. They are intersections of 10 to 20 meters in thickness and variable grades from to 2 to 10 gram.

The next slide is on Siguiri. Siguiri has been a strong contributor to the AGA portfolio since 2004, delivering 33% internal return on investment. The free dig material quantities are limited. We have a reserve that will take the life of mine to at least 2023 if the plant is altered to allow for processing of hard rock material. There's good regional geology beyond that, and this project allows us ample time to explore that capability.

The design is complete. The project has been approved by our Board. And the convention (inaudible) with the government has been signed and is on schedule to be formally ratified by the end of the year. The project, estimated cost of $115 million, will extend the mine life at the current production rates, approximately 300,000 ounces per year, through 2023 at competitive costs. This is a robust project in a jurisdiction we understand and has limited execution risk.

Next slide, on Kibali -- Kibali had a tough first six months in 2016 while it had to deal with multiple ore types and plant challenges. Looking at the medium-term, when Kibali is at full production, it will draw 80% of its ore from underground. And as you can see from this slide, both mining and development of the underground operations are making solid progress.

At the metallurgical plant, modeling has confirmed that the capacity of the ultrafine grind and associated pump cells should be increased and pre-oxidation tankage is installed to guarantee best performance on a 100% sulfide feed. The foundation for this work in the plant are already installed as part of the original plant construction.

There's also a plan to install a hybrid crusher as a second stage of crushing for direct feed into the number-two mill oxide circuit to ensure maximum flexibility to treat different ore types at the same time.

In the short term, in addition to some of the plant improvements referred to earlier, the availability of 3 million ore from the (inaudible) plant will ease the situation and should support a significant step up in grade and production at the end of quarter three and through quarter four. This pit is only 1 kilometer from the Kibali plant and is a relatively high-grade deposit with much better metallurgical properties, which means that that [bit] ore can be processed through the oxide circuit rather than through the sulfide flotation circuit.

In addition, the operator, Randgold, has tasked the exploration team with delivering 50,000 additional ounces of plus-3 gram by the end of the year. With the current pit already being fast-tracked, two smaller satellite pits are currently being evaluated as part of that exercise. Randgold has therefore maintained Kibali's production guidance for this year on a 100% basis at 600,000 ounces per year.

Slide 23, Colombia -- Colombia is our medium- and long-term optionality in our portfolio. We've committed to complete the prefeasibilities at Gramalote and Colosa projects by the end of the year 2017 and Quebradona in 2018. This will allow for decisions in late 2017 and early 2018 as which direction AngloGold wants to take. It's important to note that in 2016 Gramalote was permitted through the Colombian government and is the first major mine to be permitted in approximately 30 years. We are managing the country resource of 37 million to 38 million ounces and will -- and plan on making ultimate decisions as far as path forward in late 2017/early 2018.

Thank you, and I will now hand over to Christine.

Thank you, Ron. And good morning and good afternoon, everyone. As you have heard from Venkat and my other colleagues, we continue to deliver on target, reflecting improved cost management metrics and lower debt levels. The tripling of free cash flow generation compared to the first half last year reflects the improved efficiencies, our strong leverage to gold price currencies and the oil price, as well as the interest savings on the back of meaningful debt reduction. I will now talk through our first-half performance and conclude on the outlook for 2016.

Moving to slide 25, our currency exposure across various geographies in which we operate continues to provide a natural hedge to replace the [refit] and to the volatility in the gold price, as reflected in the graphs, in the AGA production weighed increase in the gold price. This diversification differentiates AngloGold Ashanti from the majority of our peer groups, providing continued resilience in a volatile market as we realize currency benefits in about two-thirds of our portfolio.

The lower Brent crude oil price benefits our input costs, in particular in Continental Africa and in Tropicana in Australia. We remain sensitive to changes in currencies and the oil price, and we issued the following sensitivity with a health warning. For every $10-a-barrel change in the average Brent crude oil price, it will impact our cash costs by approximately $8 an ounce. And for every 1% change in our currency basket, it will impact our cash cost by approximately $6 an ounce.

Slide 26 -- H1 2016 reflects continued strong cost discipline despite (inaudible) lower production. Year-on-year production for continuing operations declined due to weaker production from Kibali, Obuasi's move into limited operations, planned decline in grades at Tropicana and Geita, and South Africa's disruption linked to safety stoppages, which were partly offset by improved production at Kopoanang. The lower cash cost and all-in sustaining cost for H1 2016 of $706 an ounce and $911 an ounce reflect the benefits of our cost savings initiatives, weaker currencies and lower oil prices.

We saw good improvement in all-in sustaining cost across the region in South Africa, in particular in Mponeng; in CPSA, both South Africa and Argentina benefiting from weaker currencies, and the latter benefiting from higher silver are product sales. We saw further cost reductions at Sunrise Dam, Siguiri and Iduapriem.

All-in costs for H1 were 3% lower than the prior-year period at $982 an ounce on the back of lower all-in sustaining costs and lower project capital. We expect all-in sustaining costs to trend higher in the second half due to higher sustaining CapEx as well as higher exploration and corporate costs, in line with historic trends.

Despite a 2% lower adjusted EBITDA at $781 million for H1, the EBITDA margin improved to approximately 40% from 39% last year. Free cash flow for the first half at $108 million more than tripled year on year on the back of lower costs, interest savings and the higher gold price despite negative working capital movement.

The negative swing in working capital of $131 million from last year primarily related to a delay in an Argentinian shipment of $28 million and increase in [back] receivables, particularly as it relates to Tanzania and South Africa. The Argentinian shipment proceeds were received in July are either timing of recovery of back receivables or unpredictable in nature, especially in Continental Africa. We expect working capital to improve in the second half, in line with past trends.

Slide 27 -- the half-year ended with adjusted (inaudible) line earnings of $159 million compared to $61 million last year, reflecting an improvement of 161%. We adjusted line earnings for unrealized losses on non-hedged derivatives, fair-value adjustments and impairments for comparability purposes. Adjusted (inaudible) line earnings benefited from weaker currencies, higher gold prices, lower finance and operating costs, as well as the positive impact of translation differences on deferred tax in South America. This was offset in part by the decline in (inaudible), inflationary effects and lower income from the Kibali and Morila joint ventures.

Our consistent focus on margin has resulted in the steady reduction both our all-in sustaining costs and all-in costs per ounce. This is now slide 28. Although lower oil prices and weaker currencies have helped with the cost reduction, our focus has been on the controllable factors such as cost management, portfolio improvement and operational excellence, particularly maintenance strategy.

All-in sustaining costs have been reduced by approximately $413 an ounce, or one-third, from H1 2013, and all-in costs have been cut by more than 40% over the same period. Our margins have improved through the cycle, reflecting a 2% improvement in our all-in sustaining cost margin compared to last year at 25%.

Moving to slide 29, looking at the cost performance in detail year on year, we note that both weaker currencies and volumes were key to delivering the improvement in cash costs for the first half, although this was offset by inflation and a planned reduction in grade at Geita and Tropicana. All-in sustaining costs per ounce were $13 per ounce lower in H1 compared to last year on the back of lower cash costs and lower corporate costs.

Slide 30 -- the net debt level in the group fell by 32% from last year, mainly due to the $819 million net proceeds received on the disposal of CCNB in August 2015 as well as strong cost management. Going forward, we expect our positive cash flow momentum to continue benefiting from the efficiency improvement as well as the leverage to gold price, currencies and the oil price.

We have saved $34 million on the interest bill compared to the first half last year by repurchasing approximately 62% of the high-yield bonds. On 1 August, we fully redeemed the remaining balance of the high-yield bonds from cash on hand and a draw on our US dollar RCA facilities to the extent of $330 million. The repayment of the balance of the 8.5% bonds will further reduce the group interest bill by $40 million on an annualized basis.

The premium on the redemption was [$30 million] and is a one-off cost that will come through in the second half, which will be excluded from adjusted (inaudible) line earnings for the full year.

Our net debt to adjusted EBITDA ratio of 1.44 times reflects ample headroom to our capital level of 3.5 times net debt to adjusted EBITDA. Our balance sheet remains robust with strong liquidity, sufficient undrawn facilities and long-dated maturities, providing the financial flexibility required in the current volatile environment while positioning the Company for value-adding growth.

Lastly, slide 31 -- finally, we maintain both our overall production and cost guidance for 2016, with stronger production and higher costs expected in the second half. Our annual production guidance remains at 3.6 million to 3.8 million ounces, taking into account the disposal of CCNB, Obuasi and limited operations phase with no production, planned production in Geita and Tropicana according to the mine plan, and declining production in the Mali mine.

South Africa's production has been significantly impacted by the safety stoppages. Going forward, South Africa's plant recovery will be impacted by the safety stoppages, although we should bear in mind that the first half in South Africa was slower post the festive season and Easter break. No production disruption, power shortages or changes to the asset portfolio have been factored into the outlook.

Cash costs of $600 to $720 an ounce and all-in sustaining costs of $900 to $960 an ounce takes into account the revised average exchange rate and oil price as stated, as well as the production guidance and grade variances. Capital expenditure of $790 million to $850 million improved project capital of $120 million to $140 million relating to Siguiri, Kibali and Geita underground and Mponeng, with 85% of CapEx in 2016 relating to sustaining capital.

The expected increase in capital spend relates primarily to South Africa, which was impeded by safety stoppages and an expansion at Mine Waste Solutions. It also includes increased spend in subcontinental Africa, with particular reference to Geita and Siguiri, which will now gain momentum now that agreement has been reached regarding the fiscal and other projects terms with the governmental authority.

I will now hand over to Venkat to conclude.

Thank you, Christine. To conclude, we have seen another half-year of fairly consistent performance and one where our margins have widened further. We have kept our annual guidance unchanged with reduced debt levels and improved free cash flows. Our balance sheet remains robust.

Our focus areas remain the following: continuing to work to improve safety at our South African operations, continuing our various engagements in Ghana for the authorities to resolve the law and order at the Obuasi mine, providing support to the Randgold team in their efforts to reach annual targets and effect sustainable improvements at Kibali, advancing our exciting slate of near- to medium-term high-return brownfield projects that Ron touched upon, and advancing our Gramalote and La Colosa projects through to the end of their prefeasibility study and related result declaration from those projects at the end of next year.

I will now hand you back to Stewart.

All right. Thanks, Venkat. We'll take questions now, Chris.

(Operator Instructions) Richard Hatch, RBC Capital Markets.

(technical difficulty)

Eily Ong, Bloomberg Intelligence.

Three questions, if I may, probably four if I'm counting Christine. The first question -- well, the first two questions on your balance sheet. In your view, what is the optimal AngloGold Ashanti balance sheet structure?

Following the second question: given your ongoing efforts to lower debt, do you think it's prudent to protect the balance sheet in any event of gold price decline, which the market consensus is expecting in the next few years, especially in context of what Christine say of potential higher all-in sustaining cost in the second half?

And my third question is on CapEx. Given it's already August, I was just wondering if you could give us a little bit of color on what to expect the CapEx to progress next year. Is there a range that we could be looking at? Thank you very much.

Actually, let me pick up the overarching theme coming through on your questions and then pass it across to Christine -- it's Venkat here -- to cover the detail.

Firstly, from the optimum point on the balance sheet, we did say that over a year and a bit ago we said that our balance sheet has got higher debt. We are targeting a covenant ratio of about 1.5 times through the cycle. We are going to keep that with the sale of one of the assets, CCNB mines, and further application of cash to reduce debt. And at the same time, the target we set ourselves was to reduce and optimize interest. And that has been done by taking the high-yield bonds out of the equation.

In terms of, actually, ability to withstand gold prices, and without getting into the debate on consensus, the balance sheet is quite robust. We have withstood gold price falls before, which have been steeper, with a higher amount of debt. And one has to bear in mind, given the portfolio diversification, we have got a natural hedge from currency in the event gold price falls on the back of US dollar strength.

That's the sort of overarching comments. I'll hand you over to Christine to comment on those and your response to your CapEx question.

Yes; I think the only other comment I'd like to make is that by redeeming the high-yield bonds we have actually reduced the [ARPU] debt. We have actually reduced the -- redeemed the balance of the high-yield bonds through cash on hand as well as draw on the RCA facility, but that is flexible debt. And as cash becomes available, we will actually repay the RCA facility.

I think, as relates to CapEx, which was the second question, I think importantly is we did it by [withholding] the guidance. I just want you to clarify. Did you want to speak about the CapEx in the second half or next year? Next year? Next year. Yes, we are not actually guiding on next year at this point in time. I think we will certainly guide on next year's CapEx later in the year. We normally do that at financial hearings. And then we will guide on CapEx for the coming year.

I think, in particular, as relates to the second half, I think I have covered (inaudible) as to which (inaudible) it will comprise of increased CapEx both across the project capital and the sustaining CapEx categories. There has been a lag, but this is in line with historic trends. And I think, particularly as it relates to projects and particularly projects (inaudible) and then, obviously, the Kibali and Geita underground, and then there are some Mponeng projects as well that's included in project tacticals.

Thank you very much.

David Haughton, CIBC.

Good morning, Venkat and team. Thank you for the update. I know that you've gone through this with the South African audience. I thank for the North American run of it, too.

Just following on from Christine's response, just having a look at that CapEx guidance, I'm not so much worried about the spend rate on the development CapEx, which is $120 million to $140 million. Is the catch-up on the sustaining -- is there any particular project or mine, rather, that has got a catch-up? Or is it just across the board as far as getting back on track to your guidance?

Thanks for the question. I think they are sort of -- I think it's across the board. But in particular we see the catch-up in South Africa. And as we see, South Africa was impeded by safety stoppages. So we see a catch-up there. And in particular, in South Africa as it relates to Mponeng, as well as the Mine Waste Solutions, Vaal River surface operations by our planning and expansion. And so that's where we're actually seeing a catch-up. And then, of course, at Kibali in Continental Africa as well as Geita underground, we are seeing increases in CapEx coming through in the second half. And of course, I've mentioned Siguiri as well. And for the balance of it is really across the operations, really actually seeing the catch-up in sustaining CapEx coming through.

And I think, just to point out, this is very much in line with what (inaudible) that we've actually seen previously. Specifically, the CapEx spend in the third quarter increases, but you really see a big catch-up coming through in the fourth quarter as well.

Okay. And having a look at the production, you are just a touch below run rate for the lower end of your guidance. I would expect, then, that South Africa would also be the catch-up there. You don't have the holidays and as much impact, hopefully, of those safety stoppages. Kibali should be coming back on track and Tropicana likely moving into better grade. Is that the main points for where you would expect to catch up in the second half of production?

Absolutely. David, that's absolutely right. The uptick comes in, in terms of South Africa, not so much in the third quarter but in the fourth quarter, which tends to be the better quarter, and hopefully normality returns on Section 54. Then Kibali is certainly another area where the production picks up. In addition to that, you referred to Tropicana and Sunrise Dam as well in terms of the fourth quarter. And one shouldn't forget Brazil getting back into higher grade in the third and fourth quarters. Those are the broad areas of catch-up. And that's one of the reasons we have actually said we are quite confident in terms of the production guidance aspect.

And when you talk about the run rate at the lower end of the guidance, we made it 47% of the midpoint of 3.6 million to 3.8 million ounces. And if you look back in history, generally the first half of year at some instances has been even as low as 43% or 44% at times.

Yes, you have a lot of trouble with downtime for Christmas and Easter, and you don't tend to get that in the second half.

Correct.

Okay. Just -- Ron had been talking about Tropicana potential for a 30% increase in throughput, nameplate currently 5.8 million tons. I presume it would be going to something like 7.5 million tons. What sort of CapEx would be required and timing would be required to get to that level?

Well, actually we are almost there. If you look at the chart, last quarter I think we were at a 6.8-million-ton run rate. So there hasn't been -- there isn't a lot of capital. If you went back, we did put a little stockpile in, improved some conveyor systems. And it was all about getting the high-pressure grinding circuit to 95% of its capacity. So we're basically there. What we did add and we've already spent was about $20 million on two tanks to add retention time to the CIL plant, and those actually started up last week. So, in my opinion, all we have to do is get from 6.8 million tons to 7.2 million tons, and we are confident we will be there before the end of the year.

Okay. And is there any change in the hardness of the ore as you are moving through? Should we be concerned as the pit goes deeper that that throughput rate might need some additional upfront crushing or grinding to be able to sustain that plus-7 million tons per annum?

No. We've done considerable met testing on material, and it doesn't seem to be any different at all. And I think what some people are maybe missing is the real key to this is you increased -- you can go back to full-grade ore. The whole plant at Tropicana was around grade streaming to get to payback. And by extending and deepening these mines, we are able to go back and feed 100% of full-grade ore versus nominal 80% and 20% from the stockpile. That's the real key is to extend the mine life at nominal production.

Okay. Over to Obuasi, you have initiated arbitration with the government. What is the next step?

I think there are two tracks in progress at the moment, David. Obviously, the diplomatic engagement continues with the government in terms of getting them to fast-track the removal of illegal miners from the site. I've got to be honest; it has been quite frustratingly slow in this regard. The government has shown their ability to act when they want to. We have seen that with regard to when the illegal miners were entering the area, where we were using to basically pump water and for ventilation purposes. And we said, if this continues we've got to withdraw our people on grounds of safety. And the Army, which was actually stationed at the mine, was quite helpful in removing the people -- the illegal miners from those areas.

We have actually given two-thirds of the concession that we don't need back to the government for them to redistribute as they think fit. They have established a movement committee which is working currently with a view to trying to see how they can promote artisanal mining. Understandably, illegal mining doesn't fall under artisanal mining; it needs to be regulated. So that process is ongoing.

Needless to say, there's an election period coming up in Ghana, which is obviously going to distract our people in terms of moving as fast as they can. But at the same time, our process in terms of the arbitration is proceeding. Each parties have nominated their arbitrator, and the two arbitrators together should choose an independent arbitrator and then the hearing will actually commence in that regard.

So it is a slow process, but nevertheless one where we keep engaging with the various levels within the government and also the local traditional structures and the local community. And that's why you see a number of people speaking up in the media in favor of Obuasi and against what is happening in terms of illegal mining there.

Now, of the thousands of illegals or, I guess, people coming on site each day, is that both on the surface and underground?

David, it's Stewart here. It's predominantly underground.

Okay. And how are they gaining access, then, if you have got control of that? Or has everyone just sort of disappeared, the Army's not there, and they can walk in and out of the decline as they wish?

No, no, no. They are not going in the decline. These are just informal edits that have been created at various points in some of the nearer parts of the underground workings and some of the further extremities. And they are, just to be clear, on the areas that are not being properly policed.

Yes. In fact, the reality is what has happened is the military was originally sent in after close to about two and half months to help make the area safe. And they were making it safe when their instructions were withdrawn by the government at that stage, and they were asked to guard the shop entrances and the entrance to the decline. So it is like guarding the front portion of the house when something is coming through the roof. In fact, that's the dilemma we have, which is the frustration we face.

We are appealing to the government to basically go in and have a look at it. They have had a number of inspections to the site at various levels and various ministers all pledging action. But we have not seen the action emerge. A lot of words, but we haven't seen the action come through.

Okay. Just moving over to balance sheet, free cash flow generation obviously raises the question that I've seen mentioned in the press already this morning about dividends. What is your view on dividends now?

Thanks, David. I'll answer the question. I think, certainly, it is on our agenda. And we are -- what we've said previously is we really want you to get comfort around the sustainable levels of free cash flow generation. And we certainly are there. And I think it's something that will be considered by our Board at the end of the financial year. I think, from a management perspective, we certainly see dividends being a component on our capital allocation and, I think, certainly a component based upon free cash flow generation.

Okay. So, the Board consideration for year-end -- presumably, if a dividend is going to be announced, it would be tied with the year-end results? Would there also be some statement of a policy, do you expect, so that instead of it being a one-off there's some sort of formula that we can consider?

Yes. I think absolutely it will be a part of a policy. And we see that policy being linked to a component of free cash flow generation, I think, like we see it at the end of the financial year.

Tanya Jakusconek, Scotia Capital.

I just wanted to thank you again for the North American (inaudible) call that you are hosting. I have a couple of questions. I think I heard you mention that you did not sell everything that you produced in Q2. You had a shipment of gold and silver that was sold after Q2. Is that correct? And if so, how much was sold?

Yes. Hi, Tanya. We did see it at the end of June. It was just the cash proceeds that came in post the end of the half-year. So it came through --

Okay.

-- That was the $28 million (multiple speakers). And that actually came through in the first couple of days of July.

Okay, all right. Okay, sorry about that. I thought it was actual gold sale.

Then my second question comes back to Sadiola sulfides. And we were on the IAMGOLD conference call and heard their portion of what's being done at Sadiola sulfides, and the economics do look promising. But perhaps you can remind us what exactly you are doing with the government in terms of getting the power on this fiscal schedule in place to move forward with it. What exactly needs to be done? What do we need?

I think there are two parts to this, Tanya. Firstly, a feasibility study which IAMGOLD actually had -- we are actually working with the IAMGOLD team to refresh it, getting it more up to date and also doing some more additional work, which Ron will touch upon, in terms of actually optimizing the study further to improve the returns.

It is a good project; don't get us wrong. But there are three things which need to happen from a government point of view. And here again, we are working very closely with IAMGOLD and with the governmental authorities around getting the reliability and affordability of power, aspect one.

Secondly, the fiscal stability and concession over that period where the project is actually going into development mode and production mode. And finally, the various permits -- we concur with IAMGOLD that as far as the government is concerned, they are not -- they wouldn't want to see Sadiola closed. So it's in their interests to basically provide the consent that we are both seeking from the government in this regard. So, what we want to do is to get the approvals from, certainly, both boards, then go to the government as part of this approval exercise to say, where are you in terms of your thinking in terms of these three areas of approval.

Ron can perhaps cover the areas on the feasibility study that is being worked upon.

Tanya, there's two areas that are changed from the past feasibility study. One is tailings deposition, which is the big cost savings in capital. And the other one is around, really, the mine plan. If you got into the capital, it had a huge deferred capital spend up front. And the work that has been done in the past 2.5, 3 years of identifying some other materials in the satellite pit really changes it. So, it's some work on the mine planning. And both -- actually, IAMGOLD's team is here this week to come to conclusion on these.

So, it's moving forward, and they know where we sit. We don't always have to agree in timing. But we are working through it, and I think we are both as excited about the potential of Sadiola.

Okay. So, I understand the reliability of the power, I guess the taxation and so forth that has to go in, and the government's contribution, et cetera, to that. But maybe just on the permitting side, what exact permits are required?

Actually, we got a refresh. But the big one is around the change in the tailings deposition, which is -- if we are moving it and actually doing -- we are asking to go back in and use an old set as the inert tailings dam, and that has to be approved through their environmental ministers. And we are getting the information and we are working through that. That's the major one, the other typical ones, but they were approved and now have to be updated.

And the advantage here, Tanya, is the government of Mali is a shareholder in the mine. So the information which we provide at the Board meeting is shared to them real-time, and they clock in directly to the minister of mines.

Yes.

Okay. Well, that's good. And then maybe just one last one, if I can, just on Tropicana, just to make sure I understood that you are looking at a new mining method underground. Is that what I understood?

Basically, it's to go into -- instead of large cutbacks that consume considerable upfront deferred capital, you take this more into a large-volume -- well, large production in low-volume areas so you can get to the ore fast. But the key is you have got to be backfilling pits to reduce the mining cost. And it's non-typical in the gold sector.

And so what sort of cost savings are we expected to see with this? Are we expecting costs to decline by 20%? Just as an idea?

From our current mining cost, yes, we would expect maybe even more than 20%. 20% would be a pretty conservative number. But we are working through that right now because this all has to do with length of haul and height of haul, and that's exactly what we are working through now.

Okay, look forward to hearing more about it. Thank you.

(inaudible).

My question is regarding your cost guidance. On your cost guidance you are assuming the rand would be something like 14.97, and you have (inaudible) the Brazilian [peso] at [16], I think, or something, and so on. My question was, what would you do keep your guidance if the rand was relayed at [13] or went down to [12] and if the other currencies also firmed.

Yes. I think that's why we compute the assumption, and those are average assumptions for the year. So obviously, you are going to get current spots, and then you have got to look at what is your average assumption for the full year. And I think when you take those assumptions into the (inaudible) performance of cost guidance that we've given. And I think we've also given you the same (inaudible) costs. So I think, if the view were to change we would have to escape it. Right now, this is the view. And I think you have got to plug in your model as to what your assumptions are and leave it at that.

Okay. Thank you.

John Tumazos, John Tumazos Independent Research.

I just wanted to ask if you believe you have completed the debt reduction phase and you are moving into the asset accumulation phase again, and which of your operating countries you think are most prospective to add assets.

If I can pick the answer to your question here, one thing which will not change in our approach is capital discipline. So, when you use the word asset accumulation, it's certainly not hopping around the checkbook. We will certainly be very focused in terms of returns, and that's why we are looking at projects that are incremental, and effectively expansion in terms of our existing mine sites and our existing operations, which I've got modest capital, high returns and relatively good payback.

In terms of prospectivity, they are pretty much outlined in the presentation that Ron gave. We see Australia has been quite prospective, South America as being prospective, areas of continental Africa being quite prospective as well. And in terms of South Africa, we see Mponeng having the potential to be a flagship mine going out into the future.

So, that's the area of focus in this regard. I hope that answers the question.

Sure. So, you are hunting everywhere?

No, we're not hunting everywhere. It's in our own backyard.

Thank you.

Everybody, thank you very much for making the time this afternoon. We know it's a detailed presentation. Sabrina and I are available to take any further questions after this call, and we will chat to you again in November with our trading update.

Thank you very much, sir. Ladies and gentlemen, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.