Anglogold Ashanti PLC (AU) 2017 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to AngloGold Ashanti's First Half 2017 Results Conference Call. (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, sir.

Thank you, Judith, and welcome, everybody, to our first half financial and operating results. We appreciate you making the time. I would ask you please to go to the front of your presentation, which you will find on our website. And there is the safe harbor disclaimer and it's right at the front. It obviously has very important information. We would urge you to read it carefully, you can get back to us if you have any questions as far as that goes. We have a full slate today with our executive team and talking about the various aspects of the business. I'm going to hand over to Venkat to make some introductory remarks.

Thank you, Stewart. Good morning, ladies and gentlemen. Before we move to the results for the first half of 2017, let's revisit our overarching strategy, which has since 2013, remained consistent.

We continue to be guided by our 5 key business objectives and how they can support our central strategic goal of delivering sustainable improvements to cash flow and returns.

This is especially relevant today as we provide a progress support on our plans to invest in delivering better quality production, improving margins, extending mine life and shaping our international portfolio for the long-term.

We're also taking steps to address losses of some of our older operations in South Africa in order to ensure the viability of our core asset shift. Chris Sheppard will speak more about that shortly.

This internal focus have been fundamental to our strategy over the past 4 years when we directed our efforts, yielding opportunities that lies within our pipeline, whilst optimizing our existing portfolio, improving our cost structures, whilst fortifying our balance sheet.

We continue to build our ability to withstand gold price shocks and to weather the challenges that tend to crop up as you manage a globally diverse portfolio of long-life gold assets such as ours, whilst executing on the self-funded quick payback options that exist within our portfolio.

Now turning on to Slide 5 on safety. This is the proudest element of our results for the half year. They can't -- being our exemplary safety record today. At the end of June, we are fast moving 283 days without a fatality in the group, and for the first time ever, we have logged 3 back-to-back calendar quarters with no fatal accidents at our operations.

The achievement is all the more noteworthy when you consider that at the end of the first half of the year, our ultra deep South African operations registered 339 days fatality-free with every unit (inaudible) 1 million fatality-free shifts. To this end, whilst we are proud of this accomplishment, we'll never be satisfied until we eliminate fatalities from all of our operations. Again, while this shows world-class standards in safety management that we have developed over several years, it also reinforces our commitment for hazard management and the analysis of high potential incidents as we look to improve even further.

Turning now to Slide 6. Before we move on to our 6 months' performance, I'd like to spend some time on the second quarter results. This is especially important, given the improving trend in South Africa from our core operations. After a weak start for the year in the first quarter coupled with steady improvements from our international portfolio. As you'll see through this presentation, we have continued to follow our strategy of improving the quality of our portfolio through our inward investment in a strong suite of brownfield product opportunities as well as by continuing to remove loss-making ounces from our production profile.

I already covered safety, but it's worth noting that we achieved that result while delivering a very strong second quarter with a 20% jump in our South African production from the levels seen in the first quarter and a 10% drop in the rand-denominated costs. In fact, we saw improvements right across the portfolio. In the 3 months through to June, production was up 11% quarter-on-quarter and 4% year-on-year. All 4 regions reported quarter-on-quarter increases. In production levels, that means cash cost reduced 4% from Q1 and the escalation year-on-year was contained at 10% despite mining inflation and markedly strong currencies.

Now moving onto the 6 months result through to June on Slide 7. We saw a production of 1.75 million ounces, which put some of our 48% of our production in the bank when you take the midpoint of guidance and very much at the level seen last year. That's despite the abnormally slow start to the year, we chose to extend the catch-up we've been able to do in the second quarter.

In line with prior years, we see a stronger second half with most of the pickup coming during the fourth quarter. Our all-in sustaining cost of $1,071 an ounce were up from the level seen in the first half of last year and they come on the back of stronger currencies in all of our key jurisdiction and also planned increase in our capital investment program, which we flagged at the beginning of the year. Christine will break all of that down in detail during the discussion of the financials.

We'll be working very hard to maintain an improving trajectory over the remainder of the year, but it's important to note that similar to last year, there'll be a continued element of seasonality in the third quarter, driven by our mine plants in Brazil, the DRC and Australia before the customary strong finish in the fourth quarter. With that said, we are keeping guidance intact on all key metrics.

I'd like to spend a moment to discuss the situation in Tanzania. Geita is an important asset for us and one that we are investing in for the long term. As you can see from Slide 8, it's worth remembering that Geita had, had a challenging cost and has required capital injections at various points over the last 17 years. Starting with the initial investment to develop the mine back in 1999, then you'll remember the collapse of the main pit wall in 2007, which took several years to dig ourselves out of and then with the major mill replacement in 2012.

As the life of the open pit start to taper, we're now investing in the extension of mine life through underground development. We are progressing well with the construction of a new power plant, guaranteeing reliable power over the extended life, whilst we've also commenced developing the underground mining infrastructure that will extract the oil from beneath the current Nyankanga and [star in comic books]. Tanzania has historically always been one of our preferred investment destinations, given both its geological endowment and the predictability afforded by our Mine Development Agreement. Under the agreement, we have continued to operate and invest in the true Tier 1 gold asset for the benefit of all our stakeholders.

An analysis of the cash flows in and out of Geita since it was developed in 1999 shows that over this period, the miners delivered more than $1 billion to the Tanzanian government in the form of royalties, corporate taxes and employee income tax.

Turning to the important Slide 9. As you see from the slide, in nominal terms, we only repaid the development capital of Geita in 2011. It also shows that the government, through tax and royalty payments, has been a beneficiary since day 1 with its cumulative share of total benefit from Geita increasing as the mine life progressed. In terms of net cash distribution to stakeholders, after accounting for repaying capital and obviously funding the operation, the net share of cash flows for the government of Tanzania thus far has been about 55% and our share 45% in nominal terms. When one takes into account the time value of money, the government share was significantly higher. We hold as one of our core values the belief that communities, whether those directly adopting our operations or host countries at will be material beneficiaries of our activity if this enterprise is to remain sustainable. We have continue to strive to ensure that we strike that balance in Tanzania.

We are one of the largest taxpayers in Tanzania and the largest in the mining industry and have received recognition from the authorities to this effect. It is a distinction we are proud of. We believe that if Geita goes from strength-to-strength, it will be an important tool in enabling Tanzania realize its goal of reaching middle income status.

Turning now to Slide 10. In addition to making the requirement to lose 30% of our Tanzanian mining operations on the local stock exchange during late June, over the course of less than a week, the government of Tanzania tabled, debated and approved a number of laws that could alter the landscape for the country's extractors sector.

Whilst we are seeking a dialogue with the authorities to gain clarity on how these new rules may affect our operation, given the protection afforded by our Mine Development Agreements, we have continued to operate as normal as Geita. It is, however, necessary to pay on a without-prejudice basis the additional 2 percentage points on royalty ore revenue and the 1% clearing fee in order to ensure that the continued export of our gold ore bars can take place.

During this capital investment phase, we are currently operating Geita on a self-funded basis. Given the higher royalties combined with the continued lockup of VAT receivables on eligible inputs at the mine. However, as a precautionary measure, I said in our announcement on July 13, our subsidiaries have initiated arbitration to protect the status of our Mine Development Agreements. We have, as I mentioned earlier, continue to seek dialogue with the government on the issue of how the new law on the associated impact will have with regard in the context of our Mine Development Agreements, and we will continue on both of those tracks until we find resolution. This is a situation that requires patience, diplomacy and the need to take a long-term view. We must balance the optionality of this important asset on the goodwill of our Geita and Tanzania stockholders, whilst planning for different contingencies and remaining capital custodians of shareholders' capital.

With those introductory comments, I'll pass you over to Chris Sheppard.

Thank you, Venkat. Good day, ladies and gentlemen. If you can turn to Slide 12 in the deck.

The South Africa region has now accumulated more than 7 million fatal-free shifts, including Kopanang which reached a million fatality-free shifts last month and Moab Khotsong which forced 2 million fatality-free shifts during the reporting period. In fact, at the end of June, Moab registered 21 straight months without a workplace fatality. These are impressive stats, but we cannot declare victory yet in this important aspect of our business. We are focused as ever on pursuing the implementation of our Safe Production Strategy, which we launched at the end of 2015, following, if you recall, a particularly challenging period of safety.

As you demanded, effort has gone into entrenching integrated the workplace planning, workplace management routines and workplace service strategies. Leadership accountability remains critical for effective execution of the Safe Production Strategy and delivery of the required outcomes. So at this stage, we are certainly proud of the achievement, but definitely not satisfied.

Turning to Slide 13. Our core assets operated in line with plans during quarter 2, towing back quarter 1 underperformance and delivering strong results. We experienced continued challenges at TauTona and the hard rock surface sources units.

In the Vaal River, Moab Khotsong production was up 3% year-on-year due to improved throughputs and face time. And in the West Wits, Mponeng mined according to plan with localized lower grade areas, which resulted in lower year-on-year production and higher costs.

Production improvements and mine life solutions resulted from reclaiming higher grades, and this has partially offset the disappointingly low grade of some of our marginal ore dumps as well as (inaudible) plant availability constraints in the ore receiving section with limited mill availability due to plant shutdowns for repair.

Kopanang and TauTona both posted unsustainable losses with half 1 cash costs of $1,472 per ounce and $1,639 per ounce, respectively. Kopanang was affected mainly by declining grades as well as mining mix and dilution. That's the situation for negative margins.

The Savuka section of TauTona continued to operate at lower volumes resulting from reduced available mining ground. And finally, we halted the opening up project on 116 level following the seismic incident of April 2016.

Turning to Slide 14. The South Africa region produced 235,000 ounces for the first half compared with 486,000 ounces in the same period last year. The second quarter registered a recovery from a poor first quarter, whereby the [full] year is to mining schedules experienced in the first 2 months of the year, and this resulted in poor face-length availability and limited access to high-grade areas. These are being largely remedied.

All-in sustaining costs for the South African operations was $1,259 per ounce compared to $958 per ounce in the same period of 2016. Total cash costs were unfavorably impacted by lower outputs, the markedly stronger local currency against the dollar, inflationary pressures mainly related to labor, consumables and power and an unfavorable by-product contribution.

Turning to Slide 15. Given the challenging operating conditions, a tough decision had to be taken to restructure the South African assets after review of our assets in quarter 1 in order to ensure that our long-term assets are positioned for a sustainable future.

While we made our initial disclosure on this at the end of June, I must affirm our clear view that job loss is always a last resort, particularly within the context of elevated unemployment within South Africa. We have considered integrating TauTona into our long life including mine, similarly as was done with the previous integration of Savuka mine into TauTona mine from (inaudible) which led to an extension of profitable life. And forcibly, it does appear at this stage that the simply limited potential to replicate that model on a sustainable basis.

Our initial number [growth] impacted (inaudible) for this eventuality, but there's no change in that regard. We estimate 2 separate processes of engagements, firstly with the Minerals Board Subcommittee convened under the auspices of our MPRDA Section 52. We have provided plans, forecasts, options and assumptions to unions and the DMR for scrutiny and expert review as committed.

Secondly, as from the end of June, a mandatory consultation is progressing in terms of Section 189 of the Labor Relations Act to mitigate job losses. We anticipate reaching a conclusion during the second half of the year. Meanwhile, in parallel with these consultations, a voluntary severance package or program has been opened up to all employees. And depending on the timing and the outcome of the process, we will make the necessary amendments to our outlook and an update on our future cost and production profile.

On that note, I'll hand over to Ludwig.

Thank you, Chris. Good day, ladies and gentlemen. Turning to Slide 17. I'm pleased to report that our international portfolio again delivered strong performances with increased production from all our operations in the second quarter relative to the first. Last year [was encouraging] and the one that we are working on extending into the second half of the year which, as Venkat has pointed out, we'll see a very strong fourth quarter at key operations. Looking at full year is the fact that year-on-year, despite stronger currencies and ever-present mining inflation as well as the higher cash costs at Kibali, we've managed to contain our overall increase in cash costs to less than 5%.

The increase in all-in sustaining costs was driven mainly by higher sustaining CapEx. We saw exceptionally strong operating performances over this period from Siguiri, Iduapriem and of course Tropicana, which I'll talk to you in a little more detail in a minute.

Siguiri, in particular, was a (inaudible) performance during the first half. On the back of commencement of mining at the Mineração, which came with the anticipated increase in grade. We also saw better grade performances from Geita as well as with (inaudible). Kibali has moved on from last year's [planned] commissioning challenges and is now moving towards the ramp-up of the underground, which will allow it to fully show its increase of potential. Graham has more on that in a moment, too.

The Americas also showed improved performances from Mineração, where underground tonnage has improved, and (inaudible) where the gains were driven by better (inaudible) performance.

Moving to Slide 18. As I mentioned earlier, we have continued to maintain margins over the extended period of time, which speaks to our focus on operational advantages through our Operational Excellence Programme.

The powerful quarter 1 in June showed that we've managed [to hold out] a good all-sustaining gross margin even though as we increase sustaining CapEx into our brownfields projects, which will drive some (inaudible) operating presence in the medium to long term.

Turning to Slide 19. A quick look at our progress in some of our value-adding projects so that all aspects within our control are progressing exactly to plan. At Geita, the power plant is 80% complete, underground development is on track and brownfield exploration is looking very promising.

At Sunrise Dam, the project is 5% to 6% improvement in recovery. It's tracking as planned. The (inaudible) at Vogue are meeting our [oil] expectations, and Graham will talk to the excellent regional potential with -- we've been [summering] at the nearby surface drilling program at (inaudible).

At ASG in Brazil, we're on schedule to develop the higher-grade Palmeiras and Inga ore bodies, and are ensuring the pipeline remains [mine stop] through our brownfields and regional drilling program. [Operation] of intervention aimed at increasing mine life at -- and margins at Mineração are on track and yielding quick early results.

Finally, (inaudible) cost of [computation] of Sadiola, the ball is firmly in the (inaudible) government's (inaudible) with respect to negotiations around the agreements we need to pursue. Meanwhile, we'll mine upside into early next year and continue processing into 2019. Our mine plans are being reviewed and (inaudible) depending on the progress of our negotiations.

Turning to Slide 20. After a great good news story that is developing at Tropicana, which continued to exceed our initial planning assumptions. We've now accelerated mining rates to 90 million tonnes per annum (inaudible) introduction of (inaudible) price (inaudible). This combined with increased throughput following the processing plant optimization and expansion project has enabled us to resume (inaudible) and bring forward 200,000 ounces of production into the 2017 to 2019 time frame.

Further optimization of the plant will [lift] throughput to 7.7 million tonnes per annum by the end of the year from a feasibility design of 5.5 million tonnes per annum. In addition, we have identified an opportunity to increase production at this mine by introducing a second ball mill. This will lift the throughput rates to 8.2 million tonnes and more importantly at the finer grind size, thereby increasing recovery at the same time. We tolerated mining rates as both a (inaudible) productivity improvement and lower mining unit costs by 37% over the past 2 years. Importantly, the successful transition to a higher mining rate has set us on a pathway to implement the proposed Long Island mine plant, which will see mining rates of between 100 million to 110 million tonnes per year.

Turning to Slide 21. We have also made excellent progress on the Long Island strategy. This project has been driven by finding a more cost-efficient way to mine (inaudible). It involves using strip mining approach that minimize waste tonnages' distances by using [input-based cost]. The Long Island life of mine (inaudible) optionality. Long Island comprises 8 stages, and there are 3 major decision points, which is great because it gives us the flexibility to (inaudible) our approach that is [efficient] (inaudible) depending on the market conditions. The minerals rights there in Tropicana remain open-ended and there is potential to carry out the underground mining in conjunction with the Long Island mine plans. The expense of (inaudible) the underground potential and our verified position in high grade underground zones at (inaudible) acres. We have an underground resource of almost 2 million ounces at Tropicana with the potential to grow this further. We'll be carrying out underground studies over the next year and underground providing higher grade additional (inaudible) in parallel with the Long Island mine plans in 2020, 2021 onwards.

That completes the international operations. I'll hand you over to Graham.

Thanks, Ludwig, and good morning, everyone. I'll start on Slide 23. Today, I'll make comments on the progress of Kibali, the progress of the Siguiri hard-rock project. I'll provide an update on our thinking around Obuasi and share some exploration results that are proximal to Sunrise Dam.

At Kibali, the focus is on the completion of the shaft materials handling system and commissioning of the automated lighting system, enabling ore hoisting in quarter 4 this year. Once completed, underground production will increase to 3.5 million tonnes per annum. Grade control, stoke design and the buildup of new and broken stocks is on track to enable this ramp-up.

Apart from the construction of the third hydropower station at Azambi, this will complete the construction of the Kibali project that's been in progress for the last few years.

Then from 2018, Kibali will be producing at a rate of 750,000 ounces per annum. You'll recall the low recovery issues in 2016, the 4 additional concentrate fine grinding mills and the expansion of the pump cell circuit that's being commissioned. Plant recoveries have improved substantially, and they're now at or above design. The process plant is operating very well with good run time and above [name plate] capacities.

The second hydropower station at Ambarau was commissioned earlier in the year, lifting hydro capacity to 32 megawatts. The third and final hydropower station, Azambi, will be commissioned late next year, and it will increase hydro capacity to 42 megawatts.

On the next slide, and still on Kibali, underground exploration is delivering very good results. As shown on the left-hand side of the slide, drilling at the up plunge extension and central sections of the 3000 Lode has added approximately 360,000 ounces of full grains.

Drilling at the down plunge has commenced and could add a [service] of 650,000 ounces.

On the right-hand side of the slide, drilling at the upside extension of the 9000 Lode has added 700,000 ounces. And drilling further up tonnes towards the Sessenge Pit has a scope to add a further million ounces.

On the next slide, in regards to the Siguiri combination plant, the project adds hard rock milling capacity and expands the power station capacity to around -- by around 20 megawatts to 40 megawatts. The whole project has a capital cost of $158 million. The project extends the mine life to more than 5 years, adding 1.6 million ounces. All the long lead items have been ordered, and major commitments have been made. As you can see from the photographs, the mill shells have been fabricated and are on their way, and their base -- and their construction camp is being assembled. The project is on budget and scheduled for commissioning in quarter 4 next year.

Now in regard to Obuasi, the site remains clear of illegal miners and care and maintenance activities around Ghana. Ghana, as a country, has definitely done an 180-degree turnaround in the past -- in the first half of this year, following the election of the new government under President Nana Akufo-Addo.

The government has made its support for Obuasi's redevelopment very clear in its election manifesto. We're engaging with the government of Ghana to obtain all the requisite consents and approvals. I'm very pleased to say that this engagement is progressing well, and we anticipate having everything in place before the end of the year.

On the environmental front, we've agreed and executed a new Reclamation Security Agreement, which appoints the approach in the cost rates for reclamation of this 120-year-old mine site.

Following public consultation and approval of the spoken reports by the EPA, we have submitted the final EIS based on which the EPA will issue the payments. Assuming that all the government consents and other approvals are received, we would approach Obuasi's redevelopment in a phased manner, which enables a reasonably quick staff to gold production and reduces the capital cost.

The long section in this slide illustrates the main mining areas. Mining and staff in the Sansu and Block 8 areas progressing to [Block 10] and then to the very high-grade Block 11 area. The first year would involve establishment of the project and operating teams, the recommencement of mining and the refurbishment of the plant and infrastructure to enable the commencement of operations in the second year at 2,000 tonnes per day. Production would ramp up to 4,000 tonnes per day in the third year and will be at that level for subsequent years.

Gold production would start at 200,000 ounces a year from the second year, increase to 300,000 ounces for the next 10 and then increase further to 400,000 ounces a year when the high-grade area or (inaudible) level is reached.

Mine life will be over 20 years, reducing over 8 million ounces. Compared to a larger project, this approach provides a very good capital efficiency and returns that are comfortably above our benchmarks. We'll provide further update in the next quarter.

Turning to the next slide in regard to exploration near Sunrise Dam, we have been progressing work on the area. It was part of the signing of the Saracen Mineral

Holding's announced late last year. This has provided a consolidated tenement package along the western side of Lake Carey. Despite its location, this area is under-explored due to a long history of fragmented tenement holdings and, of course, the drilling carried after that has only been to the base of observation or about 40 meters. The first round of diamond drilling beneath the Butcher's Well pits over a 3-kilometer strike line has returned high-grade [indices] from beneath the Hronsky-Enigmatic pits and identified a new mineralized zone. The results indicate that the steeply west-dipping Enigmatic zone extends down-dip to a vertical dip of more than 400 meters. The drilling also had picked up the normally offset extension of the Enigmatic zone and a dip of about 300 meters. Follow-up diamond drilling is in progress, while air-core drilling is testing the strike extent to the north. A resource potential apparently estimated at around 500,000 ounces to 1 million ounces.

Thanks very much. I'll hand over to Christine.

Thank you, Graham. Good day, everyone.

We've delivered a solid operational performance reflecting good recovery in Q2. Our cost performance reflects our planned capital reinvestment plan as well as the impact of stronger currencies. Finally, our balance sheet remains strong and positions the company well to fund the brownfield's reinvestment strategy and weather the current (inaudible) synergy.

Moving to Slide 30. Our focus remains on improving margins despite currency headwinds and lower grades anticipated for this year. The all-in sustaining cost margin has significantly narrowed in H1 to 13% due to the planned higher capital spend signaled earlier this year, which was exacerbated by stronger currencies. We will continue to focus on improving margins through our operational excellence program, which is what Ludwig referred to, which looks to innovative ways to improve efficiency and enhance recovery and as well as by targeted investments to improve the portfolio mix.

Slide 31. Despite the marginal increase in the gold price and improvement in the overall production for the 6 months, our cash costs and all-in sustaining costs reflect the impact of stronger currency, inflations and our significant capital reinvestment program.

Adjusted EBITDA was impacted by the once-off silicosis provision of $63 million, contributing to a lower adjusted EBITDA margin of 30%.

Finance costs are $16 million lower than last year, benefiting from group cash optimization and the settlement of the high-yield bond last year.

Our EBIT free cash flow has declined due to the planned higher CapEx, stronger currencies and the working capital lock up in Continental Africa, which I will elaborate on later in the presentation.

Free cash outflow in Q2 are ever improved to $42 million compared to the outflow of $119 million in Q1, largely on the back of improved production.

Slide 32. The half-year adjusted headline earnings had been impacted by noncash once-off provisions. The adjusted headline loss of $93 million reflects the [soft] redundancy provisions of $47 million relating to the potential outcome of the Section 189 proceeds and an estimated provision in respect of the silicosis class action lawsuit of $46 million. Both these amounts are stated post-tax.

On a normalized basis, excluding the impact of these once-off noncash provisions, which are also referred to as special items, adjusted headline earnings would be neutral for the first half. In addition, as a consequence of the restructuring of certain South African business units, an impairment of $36 million post-tax was recorded in earnings for the period, which impacted basic earnings, but was excluded from the headline loss and adjusted headline loss.

Looking at the cost performance in detail year-on-year, we note that cash costs have increased by 6%, excluding the impact of stronger currency due to the adverse impact of inflation. Our even lower grade was offset by positive movement in inventory and by-product. Cash cost in Q2 was down by 4% compared to Q1 at $781 an ounce.

In addition, all-in sustaining costs increased from 18% on the back of higher cash costs and significantly higher planned sustaining CapEx, which increased by $67 an ounce in H1 compared to the prior comparable period.

Sustaining CapEx increased by 46% to $400 million compared to $274 million in H1 2016.

In Q2, all-in sustaining costs at $1,082 an ounce increased by 2% from Q1, primarily due to a $22 an ounce quarter-on-quarter increase in sustaining CapEx. The higher capital spend reflects the group's strategic investment on life extension and margin improvement, principally across its international operations.

All-in sustaining costs at $1,259 an ounce for the South African operations was 31% higher due to the lowered-than-anticipated ramp-up in production in Q1 after the festive break despite the claw back in production in core assets in Q2, as explained by Venkat and Chris.

We also saw a 14% stronger [rent] on the exchange rate. All-in sustaining costs for the international operations at $988 an ounce was underpinned by a solid performance across the operations and reflect the impact of the capital reinvestment program, inflationary pressures as well as a 14% stronger Brazilian real.

Moving on to Slide 34. The free cash flow lockups relating to the increase in (inaudible) VAT receivables across Continental Africa and the Argentinian Patagonian ports rebate has negatively impact on the group's free cash flow generation and earnings. These receivables have increased by $61 million year-on-year after currency devaluation. Geita in Tanzania is the most significant contributor to the VAT lockup over the period, amounting to $40 million. We have received $5 million in the current period from the Argentinian authorities in the state of the Patagonia rebates, which is positive.

In addition, our attributable share of VAT and few levies receivable from Kibali, which is treated as an associate, and therefore, not included in the group's working capital movements, but does impact on free cash flow generation from associates, amounts to $64 million as at 30th of June 2017 after the impact of $15 million due to currency devaluation and also had a negative impact on free cash flow generation.

We continue to expend significant EBIT in engaging with the authorities to recover VAT and fuel levies across Continental Africa. However, this remains an area of concern and continues to impede free cash flow generation across our business, whilst also exposing the group's -- the adverse, the impact of the devaluation of local currency in these jurisdictions.

Slide 35. Net debt was 3% higher at $2.15 billion compared to $2.1 billion in the first half of last year due to the free cash outflow of $161 million.

Negative free cash flow was impacted by higher CapEx of $136 million, which includes Kibali, adverse working capital movement of $62 million and increased operating costs. We expect production improvements to benefit our cash flow over the remainder of the year, similar to what we saw in 2016.

Our capital investment plan, which we constantly review, will impact cash flow as will possible retrenchment costs in South Africa. Hence, we are seeking to put additional ball facilities in place to fund the possible retrenchment costs.

We remain strongly leveraged to the gold [pot] from which we expect to continue to deliver as well as from efficiency improvements, which will exceed currency headwinds. Net debt to adjusted EBITDA ratio of 1.56x reflects ample headroom to our covenant goal of 3.5x.

That shows the balance sheet that remains robust. We have strong liquidity, ample undrawn facilities and long-dated maturities, providing us the flexibility required in the current volatile environment. We remain focused on self-funding our brownfield capital program and repaying our facilities as the opportunity arises.

Our credit ratings remain intact despite the downgrade in the (inaudible) ratings.

Finally, on guidance for the year, Slide 36. Our cash costs and all-in sustaining costs guidance remains intact for the full year on the back of the improved second-half production despite stronger key exchange rates and including our assumption of $10 per barrel lower Brent crude oil prices. Guidance for corporate and exploration costs have been reduced.

Our costs and cash flows remain highly sensitive to changes in commodity prices, operating currencies and production. We provide indicative pretax sensitivity for all-in sustaining costs and cash flows with a housewarming of our [full cost] average commodity prices and exchange rates.

Total CapEx for the year remains within the original guidance at $950 million to $1,050 million.

About 85% of that figure is sustaining capital relating directly to ORD and infrastructure AGA Mineração, Geita's underground development and power plant, the [cut beds] at Iduapriem, recovery improvement at Sunrise Dam and the mine optimization at Tropicana. We expect to incur about 56% of our capital expenditure in the second half, in line with past trends. We continue to see sustaining capital reducing to levels between those we saw in 2016 and to 2017 in 2018.

We reaffirm this year's growth capital at between $100 million and $150 million, which relates primarily to the Siguiri hard-rock project and power plants, Kibali underground and (inaudible).

Finally, I'll hand back to Venkat.

Thank you, Christine. So after that detailed presentation, please allow me to recap. We are executing on our strategy of realizing the options that exist within our portfolio.

In Brazil, for example, our exploration work is looking very promising indeed and we are confident of extending mine life back, whilst our investments have increased. Ore Reserve developments will yield future benefit to the productivity of those operations.

Continental Africa is a height of activity. Our investment will see production ramp-ups coming through from Siguiri, Kibali and Geita with significant latent potentials to come from Obuasi and Sadiola once we have reached agreement with our host governments there. Iduapriem continues to pick along very well.

In South Africa, we are investing in the significant restructured of our South African capacity, stripping out loss-making production and focusing on a core set of cash generative assets that, that we have proved, can be operated safely.

In Australia, leading edge optimization work has turned Tropicana from a sharp [life], low-margin operation into a true Tier 1 asset with world-class margins and more upside to be realized through the Long Island project.

Sunrise Dam remains an excellent regional option, but looks more attractive with each hole drilled on site and on the neighboring tenements.

Together, these 2 operations remain one of Australia's most attractive gold packages. We have advanced all of this work in a self-funded, self-executed package of projects that are on budget and on schedule and are underpinned by a solid balance sheet and appropriate overhead structures given our operational base. We will continue to look for latent value in the business and take steps to realize it, whilst keeping our eyes firmly on the fact that we are capital custodian of our shareholders' capital.

In conclusion, we are pleased with the first half operating performance despite a slow start to the year and are confident in our ability to meet full year guidance. We have a clear-eyed view of the fact that as I've said many times before, mining is indeed a long-term gain and as managers of the world's largest emerging market gold producer, we need to take a long view in managing some of the current volatility, while keeping a tight rein on capital. For the remainder of the year, we'll be focusing our efforts on: first, continuing our strong safety performance; second, completing the restructure of our SA assets to ensure a vibrant cash generative business for the longer term; third, continuing to execute on advancing our high-return brownfield projects, engaging with our host governments and jurisdictions where we see significant long-term potential; and finally, further enhancing the portfolio, which would result in improving free cash flow trend across the business.

With that, I'm happy to take questions.

(Operator Instructions) We have a question from David Haughton of CIBC World Markets.

I think I'll add on to Tanzania. You'd mentioned in your introductory comments that you are seeking a dialogue with the government. Does that mean that you've not engaged with discussions with them as yet? And are you relying more on the arbitration process to be able to get a resolution?

David, thanks for that question. We have actually engaged with the government. In fact, multiple people within the government in terms of the regulators, that includes the Mines Department, that includes the Tanzanian Revenue Authority. We've also engaged up to the level of the vice president. We are seeking an audience with the president and his nominated advisers in Tanzania. We are waiting for a response in that regard. And to answer your question, no, we are not just relying or waiting for the arbitration. Obviously, it's important to protect the rights given under our Mine Development Agreement, but we are also seeking an audience with the team appointed by the president to basically understand how these new laws impact on our Mine Development Agreements and it's really in that context where we are seeking that audience.

And have you had a sense that there's any position of middle ground here? Or are they taking a brief in line?

Based on the interactions we have had so far, we can't see any definitive view in terms of whether they're taking a hard line or not, and we've got to wait for the dialogue to happen with the government. But the assets and the mine is operating normally. Our employees are also not subject to any sort of harassment of sorts, so in that regard, the asset is operating normally.

Okay. And over to another jurisdiction, that seems to have some good news heading your way over to Ghana with Obuasi. What requirements are there from your point-of-view to proceed with the restart plan? What are you waiting for and what do you need?

Okay. What we are really seeking from the government is broadly a range of agreements. The first one is the Reclamation Security Agreement, and as Graham outlined, that has actually been assigned. He has put that -- he has covered that in his presentation, but basically provides a lock-in in terms of the historical environmental liabilities within the numbers provided for in our books. So that has actually being taken. The actual approval process in terms of permits, and so on, is going through it's normal course. The second area where we are seeking is in respect to the investment development agreements and the investment development agreements has to actually cover the fiscal and the financial framework for the project. And certainly, that covers areas like unutilized capital elements has been brought forward and used; what terms of fiscal taxes and royalties, et cetera, are applicable, and so on. And those discussions are at an advanced stage. And the last area is confirmation on security, physical security for the mine so that the illegal mining that happened doesn't actually happen again. Now we are getting good traction from all sources within the ministries here, and whether it's the Finance Ministry, the Ministry of Mines, the Ministry of Environment, et cetera. What we are waiting for is for these agreements to be agreed by the ministers and by the cabinet and then it has to go to parliament for approval and then at that point, the project that then becomes one, which we can actually take to the Board because it's got all of the consents and all of the approvals in place, and we then need to get the permitting that is needed to basically get the project restarted. Obviously, how we fund the project and the total CapEx (inaudible) is going to be a critical component of that. And there you are correct. There you are correct, David. It's -- certainly, this jurisdiction has had quite a lot of positive tailwinds coming our way, and it's sort of general within the economy we are seeing here. And with regard to Obuasi, we are keeping all of the options open in that regard.

Just a follow-up on that investment agreement, does that include a standstill of the fiscal arrangement so that there's no shifting ground going forward?

That's broadly correct, but there would be certain variations in terms of specific terms where we need to accommodate the request of the government. So it won't be a blanket stability agreement. We have justified what we want and why we want it and for what period so it will be tailor-made in that regard.

The next question comes from Patrick Mann of Deutsche Bank.

I just wanted to follow up on the working capital outflow of $165 million. So I know you flagged that year-on-year, the VAT receivables were, I think, $61 million outflow. I'm just -- but if I look kind of from the end of December till end of June, it doesn't look like that's a big outflow. It's about flat. So just what is the $165 million in the first half? What's driving that?

Okay. So thanks, Patrick. It's Christine here. So in the first half, that $165 million movement is broken down between trades receivables, which includes an increase in VAT receivables. That amounts to about $95 million, inventory movements of about $22 million, and then trade payables of about $48 million. I think certainly when you look at the first half movement, because in my slides, I spoke to year-on-year movement, but you look at your first-half movement as it relates to the trades of the receivables. We did see increases in that. I think specifically, these data, which amounts to about $24 million, and Siguiri (inaudible) from VAT increases because of the power plant expenditure so this VAT relating to that. And then the Patagonian rebates, we actually receive movement in the recap classification of the import duty rebates between the current and non-current so that was about $30 million. I think the movements that we saw in trade payables in itself relates more to the power plant at Geita. Clearly, 80% of that expenditure has been completed, but there's been some trade creditors' movement's related to that. And otherwise, there's been normal payments in Brazil relating to -- I'm sorry, normal trade creditor movements in Brazil which relates to that. So I think if you actually look by-and-large, your first-half increase with exception of the VAT relating to Geita, and I bet you it was about $24 million. The balance, you do expect to see the normal reversal sort of coming through in the second half. I mean, the only caution is we've seen positive movements on the Argentinian import duties, but I'll contradict the timing of when we're going to be recovering the risk, but we've seen $5 million coming through in the first period.

(Operator Instructions) We have a follow-up question from David of CIBC World Markets.

Okay. Going over to Tropicana. I'm very interested to see the potential, not only for Long Island, but also expansion. Just wondering, as far as that expansion is concerned, what kind of costs and timing would you anticipate for the second ball mill? And where could that take you to as far as throughput goes?

David, it's Ludwig speaking. So the second ball mill, we're looking at the 5-megawatt ball mill, which is around about $12 million. So it's quite a small investment and it's a very short pay-back period. And we're looking at roundabout fourth quarter next year for full implementation.

And where could that take your throughput to, sorry?

(inaudible) 8.2 million tonnes, but more importantly, it's coming at the finer grain. It gets to a higher recovery. So around 2% is probably...

Oh, okay. So that would get you up around the 92% maybe kind of mark?

Yes, very close there.

Okay. That sounds quite promising. And then over to Siguiri. I know there are quite a bit of these expansions really to handle the harder material. But I could say I'm surprised by the level of throughput that you had in the quarter. It looked particularly strong. And wondering, with the efforts that you've done there, as you transition more into hard rock, where do you anticipate the throughput to go?

The throughput, we've done a lot of continuity programs over the years, and the plant is running really well. The materials coming from Siguiri which is very (inaudible) soft materials. And as we're going through and transitioning materials, obviously we've -- (inaudible). So the (inaudible) actually works out very well for this mine (inaudible) since the expansion projects.

And could you see yourself sustaining more than 10 million tonnes per annum, plus expansion?

Yes, that's (inaudible).

The next question comes from Tanya Jakusconek of Scotiabank.

Just wanted to ask about the -- Venkat, you mentioned that we're going to have a stronger second half with a particularly strong Q4. What mines are -- with the exception of Kibali, which we know has had a strong Q4, what other mines are expected to have a strong Q4? The South African mine? And Kibali? Is that a general sense?

Yes, in fact, it would be a cross-continental African operations. That includes Tanzania in terms of south-central Africa that's another thing that picks up quite markedly in Q4. Australia again delivered stronger Q4 as compared to Q3 and the same goes in respect of our South American operations as well. So it's a cross of those regions where you see the bulk of the pickup come through.

Okay. So South Africa is not -- we are expecting even distribution for South Africa in Q3 and Q4?

South Africa in terms of Q4, when we have to wait to see what the impact of the Section 189 process is going to be because that could have an impact in terms of production from those 2 mines. So in terms of South Africa, a very strong Q3, less so in terms of Q4 depending on the outcome of the 189 process, but we have factored that in. In terms of staying within the guided range, but the bulk from the pickup comes from continental African operations, American operations and the Australian operations.

Okay. And did I understand that sustaining capital also is going to be the highest in Q3?

Well, as you may -- as in the past, Tanya, we've always seen a catch-up in the sustaining capital spend in Q3 and more in Q4. And (inaudible) 56% of the total capital income in the second half of the year.

Okay. And even the low part...

Yes. That also (inaudible) in the all-in sustaining costs guidance of keeping that in check.

Okay. And then maybe just last to Tanzania, if I could, Venkat. And I'm sorry I missed this because it faded in and out, but I think they've asked about the -- your negotiations with the government on the new legislation that's been put in place. Have they actually started and I didn't hear it because it actually faded in and out?

No. They have not started. In fact, they have to make the approach in terms of the discussions so they have not started in our case at all.

Okay. So all right. Are you surprised by that because it's been going on for a while?

No, we're not. At the end of the day, from our perspective we are the largest taxpayer in the mining industry so from that point of view, and we have got a mine development agreement, which is also pretty clear in terms of the provisions. So we are not surprised in that regard at all.

Gentlemen, there are no further questions. Do you have any closing comments?

Judith, other than to say thanks everyone for making the time. We'll (inaudible) again.

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