AngloGold Ashanti H1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 4, 2023

There are 10 speakers on the call.

Operator

Day, ladies and gentlemen, and welcome to AngloGold Ashanti's 2023 Half Year Results Market Update. All attendees will be in listen only mode. There will be an opportunity to ask questions when prompted. I will now hand the conference over to Mr. Stuart Bailey.

Operator

Please go ahead, sir.

Speaker 1

Thanks, Judith. Welcome, everybody. Good morning and good afternoon to those in this time zone. We've got a reasonably detailed presentation today. Alberto and Gillian will run through Operating performance strategy and the financial performance.

Speaker 1

Just before we start, I would just point you to the Safe Harbor statement on Slide 2 of this presentation that contains important information regarding forward looking statements And we would suggest you do refer to it when you have a minute. Without further ado, I'll hand over to Albert.

Speaker 2

Thank you, Stuart. Good day, all. Thanks for joining us. Let's start by recapping some of the milestones so far in our journey To turn our performance around and regain cost competitiveness. The priorities we laid out Last year, probably 18 months ago, we're all ultimately aimed at safely closing the cap cost cap with our peers, which had opened up to the widest ever.

Speaker 2

We continue to believe that to sustainably re rate our equity, we must look to the cumulative impact of several interlocking initiatives that together Will improve our overall business. Those form my core priorities when taking over to improve safety and set new climate targets to evaluate our culture and values, to renew our leadership and simplify our operating structure, To restart and ramp up Obuasi, to initiate our full potential and implement our full asset potential program To basically start and then consolidate our Nevada footprint to extend our mine lives, To take pragmatic commercial steps to our value and finally to assess our portfolio and to decide what belong And what did not belong in our portfolio? Like any turnaround, there has been some bumps around Along the road, I would probably say that the biggest one that has affected all of us is inflation, stronger and higher than we all anticipated. You would have seen in our H1, there's a 9% inflationary impact in our cash costs, Very significant. You look at how that reduces, for example, in our quarter Q2 all in sustaining cost, 9% increase versus last year.

Speaker 2

Then again, it's affecting all, as I said, our top competitors. If you take BAVRIG at the top 4, Their all in sustaining went up 15%, 1.5% versus our 9%. We've also faced our share of operating headwinds, Which have frustrated our progress. Earlier this year, we had the tank failure in our processing circuit at Seguity, which was repaired as I'll talk about it later. In Brazil, again, we have the issues in Cuyaba and the underperforming in CDS specifically.

Speaker 2

They continue to draw significant time and resources, But we are again taking strong steps and we'll talk about that later too. So we're on the right track with good progress made. We're among the safest mining companies in the world. We've set up a clear path to reducing greenhouse gases. We've attracted world class talent Some of the best companies in the sector, melding external perspective with the deep institutional knowledge inside the company, Obuasi restarted Safely and is ramping up as scheduled and will become one of the preeminent assets in our portfolio.

Speaker 2

Our full asset potential program is working to counter the unprecedented inflationary headwinds and to even decrease Cash costs, as we will see with Sunrise. Nevada, we basically, in a very short space of time, went from nothing To now, we expect by the end of the year to have around 14,000,000 ounces of resource declared. Right now, we are identifying a target of 6 to 8 in Merlin. We've more than replaced depletion in the past 2 years. We proposed a combination of our Idu Prem operation in Ghana with coal fields, creating the largest gold mine in Africa.

Speaker 2

And we're now working to close a transaction that will in a single clean step align our corporate footprint with our operating portfolio, Giving us a primary listing on the New York Stock Exchange, while maintaining important listings in South Africa and Ghana. Next slide. I will spend some time on this slide. And this is the reassessing, let's say, of the portfolio. And you will see we subdivided into Tier 1 assets, Tier 2 assets and other, starting with the Tier 1 That are self explanatory, but you can see 1,700,000 ounces of production a year At total cash cost of €9.40,000,000 annually sustaining of €1200,000,000 So that would situate you along the, let's say, 1st quartile of Big assets in the world in all metrics.

Speaker 2

It accounts for 80% of the EBITDA of AngloGold and 75 So, long life, and very competitive assets. Let me go over each one quickly. So Geita is performing well. We did have an issue in the Q1 just to schedule maintenance, but we expect to make it up. So if you look at H2 production, we expect to be roughly repeating what we did last year.

Speaker 2

Last year in H2, we did around 300. We'll do probably a little bit less than that, but it will skew hence in Geita to a forty-sixty production. We've done it before. We will do it again. That will have important impact in lowering our cash cost and keeping our cash cost guidance as I'll talk about it later.

Speaker 2

Obuasi, Obuasi, we started with that will also have like a forty-sixty split probably a bit even more skewed. We did about 120,000 And we are saying and we're planning to do 180,000 in the second half. Last year, we did 160,000, But last year, we were at that time being able to hoist about 4,000 tonnes per day from the mine up, Let's say, up from the underground. Right now, we're up to 6,000 tonnes per day with much more flexibility. So the team on the ground and We all, the corporate team are confident that we'll be there or thereabouts in Obuasi.

Speaker 2

What does that do to cash costs again? If you take the first half and compare it to the half, second half just by the sheer size of production and the fact that about half of the Costs are fixed, half of the costs are variable. That would decrease cash flows in Obuasi by a significant amount in nominal terms and real terms by about $160 If you take then Kibali, Kibali seeks to repeat what it did last year of 180,000 ounces. So again, better production H2 to H1. Edo Primm, we also expect about 14,000 higher and Tropicana similarly.

Speaker 2

So that completes the Tier 1 Assets that are the cornerstone of the company in the very near future. Then you have the Tier 2 assets. Those are the ones where probably they'll be run more for cash. They will come in second in the rank in terms of new capital. The Tier 1s probably will I have priority, but we will still obviously nurture them with sustaining the necessary sustaining CapEx.

Speaker 2

You start with Sunrise and that's an interesting one. It was the first asset that we started the full asset potential and I've always Been sort of reluctant to put a number to those programs because you hear a lot of companies saying we did $500,000,000 we did $1,000,000,000 but then the profits Ever change. In the end what matters is the bottom line and that's what we are talking about you today. The cash we expect The cash cost of Sunrise to go down by $100 more than $100 an ounce this year and you all see already see that in the Q2 results. So we're quite happy that it's not the only reason, but clearly a significant impact of the full asset potential and Sunrise.

Speaker 2

Siguiri, it was an issue. We lost about 25,000 ounces because of the tank collapse. The team on the ground did a magnificent job in putting it Sooner than we all expected and we're now right back to normal operations. The metallurgical recovery is a bit Lower than usual, but as we bring in 2 new plants that are finalizing, repairing, it should go completely normal. But production It's normal, so expect to see again a better second half versus first half on Segueli.

Speaker 2

Cerro Vanguardia will be probably similar and Cuyaba. So Cuyaba, we're quite happy. We will exceed the outlook on production. It is Covering not only its operational costs, but it's also covering all in sustaining CapEx in the second half. So We basically now stabilized into a let's say 120,000 trade is moving quite well.

Speaker 2

And so it is not it lost money in the first Quarter because we couldn't export any concentrate, but as we now normalize it, we are also expecting A much better second half. And then we have the other ones. The other ones we've said before by scale, They don't belong in a portfolio like AngloGold, but we are still responsible stewards. We want to obviously Make sure that they are in the best handled in the best possible way. They are very high in the cash cost And they are causing a significant drain and loss of competitiveness.

Speaker 2

So that's why they are in other. In CDS, what we've said is it's a complex mine and at some point this year we'll take a decision, we'll Try to sell it as we did before. And if we can't, we will take other decisions like putting it in care and maintenance. No decision has been taken, But you shouldn't expect it that it's part of the Anglo Gold Portfolio in 2024. Sierra Grande is different.

Speaker 2

Sierra Grande, We expect it to be cash positive in the second half. It was slightly negative in the first half, but it's small in nature. If at some point in the future we can have find a good home for it, we will do, but there's no urgency on Sierra Grande because it's As I said, we don't expect any losses in the second half. It's back to, let's say, To covering for its own costs and sustaining CapEx. So that's Our portfolio, I think let me probably say one last thing.

Speaker 2

In Brazil, We're devoting a lot of resources like we should to what has been a significant issue in the company. Our acting CEO, Marcelo, is over we have a new Head SVP, Marcelo Pereira. He comes from a lot of gold experience on Vale. He will be The SVP, let's say, the Head of all of the Americas, eventually including Nevada, so he will be a good steward on Brazil To do this in the best, safest and best way, we have been a long time in Brazil and we will do things like we always do in the right way. And we also have new finance team and so we are giving them all of the support and a lot of resources in this transitional period.

Speaker 2

Okay. If we move now to safety. Safety continues to trend in the right direction. It's clear down to a clear safety strategy where we emphasize on the few things That can cause serious harm. That's the major hazards program and it is so far working well.

Speaker 2

Our total recordable injuries are 0.9 per 1000000 hours. Let's go to the next slide. And I will again divide between Q2 and Q1, And then I'll give you some ideas of what we expect between H2 and H1. The second quarter was a much better performance From every point of view that the Q1, I'll have to say we're anyway, I won't talk about market reaction, but Clearly, we would expect that there's significant good news in the second quarter and I'll try to tell you why. Production It was 12% better in Q2 than Q1.

Speaker 2

All in sustaining costs were 4% lower in Q2 versus Q1. Net operation cash flow net no, net cash flow from operations was significantly better in Q2. So in Q1, We had net operating cash flow from operations at about $90,000,000 You can see that in the report. That moved to almost 300 in the second quarter. So a very big jump for both because of the greater production and because we had basically Controlled and isolated the bulk of the negative impact in Brazil.

Speaker 2

So in Q2, we have a we're feeling much less The negative impact on Brazil than in Q2. So that really probably the other Consequence of this, if you look at free cash outflow, it went from negative 160 to negative 45 And that's even with losing about 25,000 ounces of Segueli and we missed the latest declared dividend in Tibali. So we would have been roughly breakeven. So as we look into H2, I've already talked about production. So we expect significantly greater production in Stu, and that has a definite impact in cash cost.

Speaker 2

We expect lower all in sustaining cost, Probably that trend of reduction of 4% on quarter on quarter, we expect it to continue. And hence, that will we also expect to be Positive in the second half in free cash flow. So all in all, a much Better H2 and more in line with what we are gearing the company to deliver. You will see more the impacts of full asset potential And the other operations, other things that we are doing. Let me I'll talk later about Nevada.

Speaker 2

So let me just I'll pass on to Gillian and I'll come back later. Oh, yes. No, not yet. There you go. I'm sorry.

Speaker 2

We have too many meetings. H1 production performance. Look, I think inadvertently I covered this already. So I think I will skip this slide and I will go to the next slide, which is full asset potential, which I like quite a bit. So this is Sunrise Dam, and this illustrates very well what we are talking about.

Speaker 2

Very briefly, you see underground mine tons roughly at about 200,000 ounces, 200,000 tons of underground ore tons in the previous period and then the full asset And you can see that we have already reached around 240. So what does that mean? If you look at 200,000 tonnes, the cost per tonne are about $100 When you move to $240,000 the cost goes down to $80 a tonne. So a very significant drop. These are the we have 5 or 6 of these That in the end translate into the $100 ton reduction $100 cash cost per ounce reduction that we Expect to see and that we are already seeing in Sunrise in 2023.

Speaker 2

Let's move to the other one. These are the gate tonnage, But something similar. One of the key initiatives was to improve underground output to 1,400,000 tonnes per annum, Bringing forward high grade ore and increasing mild feed grades from Nyakanga Underground. The immediate focus is to increase cemented backfill rates to allow earlier mining of We've also redeployed fleet from Star and Comet to Nyakanga to increase stop tonnes. You will remember me flagging the processing opportunities the team identified last quarter, all of which have implementation lead times as we do studies and order equipment.

Speaker 2

Since implementation, we've seen improving run time with new crushing screens and additional cyclones and that we should then See tonnages lift from 5,600,000 tonnes per annum to 5,800,000 tonnes per annum. And we've seen a very strong lift in metallurgical recoveries 88% to 92%. There is still more to do, but we're starting to see the early wins at Geita. Then let me talk about our commitment on renewables. We enter into an agreement with Pacific Energy to and operate 62 megawatts of wind and solar generation capacity at the site.

Speaker 2

Pacific Energy will construct a renewables project And continue to operate the combined renewables gas power station under a 10 year purchase power agreement. Once complete, the project is expected to deliver a 50% reduction in overall natural gas consumption. The capital cost of constructing the renewable infrastructure will be incorporated into the ongoing power cost charged to the Tropicana JV Partners. The project is designed to maximize the emission reduction while maintaining power costs at current levels. The project is due for completion in early 2025 With on-site construction expected to commence in the second half of this year.

Speaker 2

I will hand now indeed to Gillian.

Speaker 3

Thank you, Alberto, and hello, everyone. Let's first take a look at the macro environment and its impact on our business. Gold price closed in Q2 at around $19.20 an ounce, up about 8% year to date, With price received in the first half, up 2% year on year. We have 135,000 ounces Just under 5% of our production hedged with a 0 cost collar option with a

Speaker 2

floor of

Speaker 3

$19.50 an ounce And a ceiling of $20.29 an ounce. And this is essentially in place to protect the downside of price risk at our Brazilian assets. On inflation, we do see some easing, albeit significantly higher than the same period last year, specifically in some of our key jurisdictions. So you can see there Ghana, Guinea, Argentina And even though Australia has come down slightly, still very high and particularly in Western Australia where we operate. You may recall, we anticipated 6% inflation for the full year of 2023.

Speaker 3

We're currently trending at around 9 And this has impacted our cash costs by $98 an ounce on the half. In currency, we do see continued weakness in the Aussie dollar, the Argentinian peso, the Ghanaian CD And this improves our cash cost by $48 an ounce. Oil prices, all of you will know, has continued to come down across the year. We have a hedge in place for about 40% of our consumption at $89.20 a barrel and a realized loss of $5,000,000 year to date. If we look at the key financial highlights, We ended the first half of twenty twenty three with revenues of $2,200,000,000 up 3% from the first half of twenty twenty two.

Speaker 3

Adjusted EBITDA was €678,000,000 in the first half versus €864,000,000 for the first half of last year. This is mainly due to increases in inflation, as I mentioned, higher operating costs, higher investment in exploration and evaluation as we've planned and then environmental provisions related to new legislation in Brazil as well as legal and project fees Related to our corporate restructuring, this is partially offset by higher gold sold and the higher gold price. H1 headline earnings were $139,000,000 or $0.33 per share compared with €300,000,000 or 0.71 dollars per share in the first half of last year. Net cash inflow from operating Tivities was €293,000,000 versus €992,000,000 year on year, remembering that half one of last year Benefited from the release of the €460,000,000 cash lockup in Kibali. After accounting for growth CapEx and corporate related We recorded a free cash outflow of €205,000,000 for the half.

Speaker 3

Adjusted net debt of €1,200,000,000 €454,000,000 higher year on year and reflects €217,000,000 of dividends paid And £150,000,000 for the acquisition of Nevada assets. Adjusted net debt to adjusted EBITDA was 0.74 times at the end of the half below our through the cycle target. We've declared a dividend of US0.04 dollars per share on the back of our improving costs and production profile through the remainder of this year and our commitment to generate positive cash flow performance. We take a look specifically at our cash costs for the half. We ended the half with cash costs of $11.89 per ounce, 11% higher than the same period last year.

Speaker 3

We then flex for macro factors that I mentioned earlier. We've seen an increase of 6% And that includes the impact of the one off tank failure in Siguiri and also the impact of concentrate sales at Cuiaba. In underlying performance or the things we control, we had a number of moving parts, 3 key areas in volumes and grade. So Kibali lower recovered grade of 14% due to changes in mine sequencing partially offset by higher tonnes milled. Gaeta, lower tonnes treated of 8% during the half, compared to the same period last year, And that was in line with our plan and the shutdown that was scheduled in February this year.

Speaker 3

And then Tropicana Lower recovered grade of 2%. We did have offsetting cash sorry, I forgot about the Strong improvement actually in volume and grade at Obuasi and Sunrise Dam. So Alberto spoke about Sunrise Dam higher recovered grade of 9% really demonstrating the embedding of full asset potential and Databuasi higher gold production Due to the continued ramp up, higher underground throughputs resulting in 39% higher underground tonnes mined and also The recovered grade increased by 11% year on year. On cash costs, we did have a few prior period impacts Related to insurance and legal fees on a tax audit and then we also had lower cash costs coming through actually from Lower strip ratios in some of our assets and also some cost relief in the regions. As Alberto mentioned, in Q2, we saw a robust improvement in cash costs and we're showing that in the bottom slide which or sorry, bottom chart, which shows despite the tank fail at Siguiri Q1 and Q2 improvement in underlying cost performance of 8%.

Speaker 3

On free cash flow then, So our position was affected again by the one off events, Siguiri as well as working capital needs during the transition to concentrate sales at Cuiaba. Comparing the outflow of €205,000,000 versus an inflow of £471,000,000 for the same period last year. The Kibali one off payment of £460,000,000 is obviously the biggest factor. On top of this were the higher operating costs that I just spoke to as well as a €50,000,000 change in working capital against the prior year. The primary drivers of working capital movement in the period With the movement being €186,000,000 relates to predominantly to the concentrate sales At Cuiaba, inventory on hand and debtors balances, just remembering that we actually didn't we shipped our first vessel in April of this year.

Speaker 3

We expect most of our assets to improve operationally in half 2 and to benefit from Some tailwinds on input costs. We're also working really hard to turn the tide in Brazil, as Alberto already mentioned, and to really improve that Okay. I think that's it on free cash flow. Okay. So balance sheet and liquidity.

Speaker 3

The balance sheet continues to be solid. We have long dated debt maturities, low leverage and $2,300,000,000 in liquidity, including cash of over £700,000,000 Adjusted net debt, as I already mentioned, £1,200,000,000 6% higher than Q1. Leverage of 0.7 times remaining below our target. The group's corporate restructure With the change in domicile and primary listing location is expected to close in September and is anticipated to result In a one off transaction cost just below 5% of market Capital on the day, obviously depending on share price and exchange rate at that point. Finally then, we go to guidance.

Speaker 3

As Alberto mentioned, we're reconfirming our 2023 guidance. Based on our first half performance, we do remain on track to achieve this. Reduction is planned to be second half weighted, Roughly 40.60 consistent with prior years. We also expect unit cost to decline in the second half of twenty twenty three As we see fuel and input prices continuing to come down and the temporary production stoppage in security not recurring, We have a clear plan to improve our cash conversion and overall cash generation in the second half and these with the efforts and the focus on Brazil, We anticipate managing within our current guidance. And with that, I'll hand back to Alberto to conclude.

Speaker 2

Thank you, Julian. So moving to Nevada. Your position in the BT district has the potential to produce north of 300,000 of gold, multi decades At let's say high 900s all in sustaining costs. As a reminder, we've declared 8.4 minuteeral ounces of mineral resource Across the tenement, what you see today is the enormous potential for growth that is outstripping our earlier expectations. Our improving understanding of the geology, the structures and alteration in the area is helping us to identify new targets Increasing our confidence of what this property will deliver.

Speaker 2

We've now successfully consolidated the Silicon Merlin complex After integrating the ground acquired from KIRB, to date we have drilled more than 200 kilometers Across both properties, which we now refer as the expanded Silicom project. Next slide. Completion of the feasibility study for the North Bullfrog project is anticipated by year end. The feasibility study is proposing an open pit mining alternative using both gravity milling and heap leaching or ore processing. Results from recent mineral resource conversion drilling are being incorporated into an update of the minerals resource model.

Speaker 2

This model will be the basis for the final optimization of the feasibility study. Permitting processes are underway for the North Wolf Rock project Environmental baseline studies are being reviewed by the agencies for completeness. Federal and state permitting processes are expected to formally commence During the Q1 of 2024. Now this is the expanded silicon project That covers the northern and southern deposits of silicon and merlin respectively. As I said before, we folded core Sterling project into our land package And has allowed us to optimize the inferred mineral resource drilling program, targeting in particular the Merlin resource.

Speaker 2

We're incredibly excited about the results from this drilling so far this year, but the mineralization at Merlin open in several directions. You can see the drill holes and more than again 50 kilometers in that tenement. The section shows a representation of the extent and size of the deposit along with some very exciting intercepts. You will obviously take your time to look through this cross section in detail, but I'd like to point out that you will see 2.85 meters at 3.3 grams per tonne, 250 meters at 2.5 and just over 100 meters at 2.4. We are now using this latest information to update our geological understanding Input to a conceptual study and initial mineral resource declaration anticipated at year end.

Speaker 2

We disclosed an exploration target In Merlin alone of 6,000,000 ounces to 8,000,000 ounces and we expect to Formally declare that resource by the end of 2023. Given the considerable and growing potential at Merlin, we are integrating the silicon project into the expanded silicon project. This will capture the synergies from increased economies of scale and integrated infrastructure with potential for large scale mining. Moving to the JV in Ghana, we continue to progress with the proposed joint venture between our Iduprem mine And Gulf East Taqwa mine in Ghana. This complex will have an estimated annual production of more than 300,000 ounces over the 1st 3 years It will have a margin with an estimated all in sustaining cost of about 9.50 ounces over that period.

Speaker 2

We expect after that when we formally Have the JV to optimize the mine and to probably have numbers that are very preliminary right now. So, but we have a reasonable confidence of how big and how good it will be in the 1st 3 years. It will have failed. It will become the largest gold mine in Africa. We expect reserves of the proposed joint venture will exceed the Some of the reserves for the standalone operations given the extent of the anticipated operational synergies.

Speaker 2

The structure is straightforward, Assuming the necessary approvals are received, an incorporated joint venture will be established with Goldfields in Ghana. At the end, it is proposed that the government of We have a 10% stake in that entity with AGA holding 30% and Goldfields 60%. We have begun discussions with the Government of Ghana to ensure they have an understanding of the combination and its benefits for all stakeholders. We will continue this engagement and look forward to concluding it in due course. Focus areas.

Speaker 2

As I've said before, 2023 remains a transitional year for us. We remain focused on making more improvements and on delivering more Our full potential program is working as intended. Our Tier 1 assets are performing well With improvements in the pipeline, we're focused on further optimizing our important Tier 2 mines and determining With our stakeholders the best forward for our remaining assets, Obuasi's ramp up continues to progress. We have the right people and the right organizational structure in place. We're focused on improving operational and capital efficiencies.

Speaker 2

Our world class exploration team continues to add value to the drill bit across our properties. Our technical team continues to progress on Nevada opportunity And we're working to optimize our corporate structure. We expect, as I said before, A second half that is cash positive, more than 200,000 ounces increase in production versus H1, lower cash cost that would put us within guidance And lower all in sustaining costs that will be within or very close to the guidance that we have put out in previous day. Next slide. This is a new and interesting slide.

Speaker 2

Since the beginning, I alluded to the priority of closing the gap Between, let's say, the top 3, 4 Mining, gold mining companies in the world and ourselves. If we go back to late 2021, when this journey started AGS cost inflation was at the top end of the peer group. As you can see in this slide, In the last 12 months, we moved first to the midpoint and then to the lower end of this range, the last 24 months. We moved first to the midpoint and then to the lower end of the range. We know there is more work needed to do even better and ultimately to bend our cost curve downward, But we're quite satisfied with the progress up to date.

Speaker 2

Having said this, we expect to continue This trend of regaining our cost competitiveness and to close even further the gap Between ourselves and the main competitors. How will we do that? We will continue our full asset potential that will deliver results of Uasi Going in 2025 to +200,000, 400,000 ounces at very competitive cash costs will be a very Big part of this. And in the long term, we will, as I've said before, streamline the Brazil operations. That will be an important part.

Speaker 2

And finally, in the medium to longer term, Nevada will contribute significantly to the and further enhance our cost competitiveness. Let me discuss our corporate restructuring briefly. By now you're familiar with the proposed redomicile transaction. This comes after the progress we've made in many other areas of our business. The corporate structure was announced on May 12 and will provide AGA with a U.

Speaker 2

K. Corporate domicile and transition our current ADR listing in the U. S. To a primary listing of shares on the New York Stock Exchange and secondary listing in Johannesburg and Ghana. This move mirrors the transition Of our portfolio over several years and matches our corporate footprint to that reality.

Speaker 2

It will, we believe, provide us enhanced to capital in the world's largest market for gold share, improve our competitive positioning along the industry's highest rated and most valued gold miners, Increase the size of our sell side coverage universe and improve our overall strategic flexibility. We will do all of this with minimal disruption to all of our shareholders. The shareholder vote for this transaction will be placed the 18th August. A refresher on the before and after corporate structure to its business. As we put in place the new U.

Speaker 2

K. Incorporated topco, Following the scheme that new UK incorporated TopCo will have the same underlying shareholders as AngloGold Ashanti immediately prior to implementation, No change of economic substance, the current AngloGold Ashanti Group with no changes to the team. Our primary listing, as I said before, in the New Year Stock Exchange and secondary in JSE, A2X and Ghana, relevant approvals to implement the proposed transactions have been obtained from the South African regulatory authorities And we have also received the key administrative approvals required from other jurisdictions. As we mentioned in May, There are anticipated to be one off costs in implementing the proposed transaction comprising primarily taxes payable in South Africa, Which amount to roughly 5% of our market cap. These costs, primarily taxes in South Africa, will broadly in line with the change in market value and will be funded from available cash And other currently available sources of liquidity.

Speaker 2

We would anticipate that this transaction is approved on the 18th August to close by around September 2020. So, we talk about the largest capital market being the U. S, but it's important to see what it looks like. This is by any measure the largest and most liquid equity capital market in the world and home to some of the largest institutional investors. Its sheer Size dwarfs any comparison.

Speaker 2

More importantly, if you see the gold, that one on the right, the gold global concentration, 66% of it Is in the United States, UK 23 percent, rest of the world 4 percent, Europe 7%. So again, United States dwarfs and we are significantly underrepresented. If you look at that chart carefully on the left, You will see when we talk that we are underrepresented in the largest pool of gold capital, this is what it means. So we believe there's an enormous opportunity for us as we position ourselves closer to a large universe of active investors in particular, When you look at their holdings across our universe of North America, we see a lot of headroom to lift their positions as we transition to a primary listing. Okay.

Speaker 2

Thank you. And we are open to questions now. Judith?

Operator

Thank you very much. Ladies and gentlemen, we will now be conducting the question and The confirmation The first question comes from Catherine Cunningham of JPMorgan.

Speaker 4

Hi, guys. Thanks for the presentation. Just one question for me. So I appreciate you've already said that you expect cuts We lower in the second half of the year and that's one of the reasons why you've reiterated your full year guidance. But just curious, when you look across all of your operating geographies, Which regions do you currently have the most conviction in around inflation abating?

Speaker 4

And which regions in your opinion are at the highest risk of seeing a more sort of persistent and sticky inflation.

Speaker 2

Thanks, Catherine. Look, We still expect inflation. So when I we talk about this guidance and it's interesting, we experienced In the first half, about 9% inflation, but there's a denominator effect in that one. That means that in the Q1 of last year, We had not seen any major inflation because we were using old stocks. We started to see that in Q2 and then we fully saw inflation in Q3.

Speaker 2

So as you move into Q3, just by the denominator effect, you would expect a much lesser impact on a year to year basis. So but we are assuming that the inflation for the full year will be higher than what we initially told the market. I believe we initially told the market we Expected around 6%. I think for the full year, we're expecting a 7% to 7.5% increase inflation for the full year. Then again, the issue with guidance is you have to meet it whatever it is.

Speaker 2

You don't put on a guidance saying guidance but this in general. So we will have to overcompensate with efficiency, the higher costs and the higher inflation, and we plan to do it. And we plan to do it also by the effect of the significantly higher production that will bring down by again a denominator effect The cost in all those big those places where we have a lot of confidence in our Tier 1, in Obuasi, in Keita, in Kibali, We have confidence that they will reach we are already seeing them reach the levels that are required to substantiate what I have said before.

Speaker 4

Okay, cool. Thank you very much.

Operator

Thank you. The next question comes from Jarrod Hoover of RMB.

Speaker 5

Afternoon, Alberto and team, and thanks for the call. Just a few questions from my side, please. The first just around the degree of volatility in your business and probably aligned to the full asset potential as well. And I mean I appreciate the comments on the call that You seem to have quite a high degree of confidence in meeting your full year 2023 outlook. That implies quite a step up into the Performance in the second half of the year, but generally your business has an inherent level of seasonality in it and that seems to be exacerbated this year By the one offs at Seguri and Kuwaba.

Speaker 5

And I guess that's why when you have free cash on negative quarters like the Q1 and the Q2, it almost makes Investors are a bit skeptical that the turnaround is working. So I guess my question really is, when do you think we might get to a stage Where you'll have less volatility on your business so that investors can more wholeheartedly buy into the investment case at AngloGold? So that's my first question. My second question is just around costs. And you've got quite a nice waterfall chart In your pack where you outlined the non controllable factors and the one offs, I think Seguri and Kuwaba were about $20 an ounce Each in the first half of the year.

Speaker 5

I'm just trying to understand the amount of those costs that would be repeated into the second half of the year. And for example, if you don't manage to sell all of your concentrate at Quava, would we see some of those costs potentially in 2024 as well? My last question is on Slide 33 regarding your restructure. I think you've got a table on the left hand side. And I guess my takeaway from this is that you almost telling us that it doesn't matter whether you get inclusion into Mesquite U.

Speaker 5

S. And Mesquite DM, we know that Mesquite have already told us that they won't be included AngloGold in those indexes. And potentially if you don't get inclusion in Russell 2000 either that there still is quite a big pool of capital in the U. S. That would potentially still be looking at you to take positions.

Speaker 5

So have you had any discussions with some of these global investor number 1 to number 15 who you think might be interested in your stock? I'll leave it there. Thanks.

Speaker 2

Thank you. Okay. Look, There are some things that you can control and others that you can't, like Seguity. As I told the team, you will always strip it's How you stand up and they did a very good job. Yes, I wouldn't I'm not happy that losing 25,000 ounces, but I'm very happy that everybody was safe And that they fixed it so quickly and they were back to normal.

Speaker 2

So that volatility, you can never really do anything about it. Brazil, it's been an issue for a while and it takes a time. You can't shrink yourself into greatness. So you try to fix things, but at some point you take decisions Okay, this is the way forward. And that's what we're communicating with you today.

Speaker 2

I expect that in the let's say in 20 Before with the Tier 1 and Tier 2 assets and the Tier 1 being much, much more predictable, we will go back to historically it's a 40 five-fifty 5 It's always like that. This now for those three assets, it's going to be like Maybe 42 split a little bit more skewed, but there's good reasons as to why. In GATA, there was good reasons Why in Obuasi we're ramping up and in Gaeta and I'm sorry, Gaeta it was the we were Doing scheduled maintenance, and Kibali, probably it also has its seasonality. So I think that investors So to have confidence that there's always that seasonality in 40 five-fifty 5. And what you probably what we're going into so much detail is Saying, well, we are expecting an increase in production driven by things that we have done in the past.

Speaker 2

We've done it in Gaeta, we've done it in Obuasi and we've done it in Kibali. So there's no reason why we won't do it again. So I'm I probably would see it a bit differently than you. If people understand the business and understand what our seasonalities, I think that we should be fine. But I do agree that when you have too many things, we have the issues in Cuyaba, we have the issues of regulators Then you have additional security.

Speaker 2

There's a bit more volatility than you would want to, but that's it's I'm just trying to convey that The very solid reasons why H2 will be better. Let me ask Jillian to help me on the cost one. She That's very clear.

Speaker 3

Yes, no worries. Thanks for the question. So I think we see Siguiri and Cuiaba as truly one off. And I'd like to just sort of help you understand why we see that. So firstly, in security, as Alberto has mentioned, The team have successfully recovered and they're coming back, that come back online and we see this as a sort of One off event that happened in the first half.

Speaker 3

For Quellabus specifically, what you just need to remember is that The team needed to mobilize very quickly from a mining processing refining business to concentrate sales. And so in the first half, they needed to very quickly mobilize, set up logistics Pathways, storage facilities, negotiate with the port, arrange contracts with traders. So Very much almost sort of new sort of business operations needed to be thought through. And so that had a cost associated with it in the first half. They have successfully built that capacity in Quiba and they have we ran 3 trials Before we settled on a contract with a trader, which we have done, we feel Relatively comfortable with the pricing mechanism that we have in place and also with the term so, to help us kind of release the And optimize the working capital in the second half.

Speaker 3

So for those two reasons, we sort of see Both of those items as absolutely one off impacts and not to be repeated in the second half And also not impacting our 2024 performance. So I think that's probably all I would say.

Speaker 2

That's it. Thank you. On the restructure, I'll ask Stuart to help me. But overall, we expect in the meaning to longer term a quite positive influence and also but In the short term, there's going to be pluses and minuses. But there's a particular public clarification in that table.

Speaker 2

And again, Stuart will talk about it, but it means They don't necessarily have to follow an index, but Stuart, why don't you?

Speaker 1

Yes, I think your characterization, Jarrod, was pretty much there. And correct that MSCI will keep us in the EM category for now. And that could well change in the sort of medium term once our sort of filing status in the U. S. Changes if indeed it does.

Speaker 1

So I'll just stress what I've said earlier and before which is that the indexation wasn't the key driver of the transaction and neither is it something we control. But to repeat, Alberto, we're still positive in the medium to longer term that the indexation is Will be positive for us. As you mentioned, there's not only MSCI, EM, there's Russell, there's Crisp And there are other big opportunities in that market. On the active side, we have conversations with investors all the time, Not just in the run up or to the boat and following announcement of the transaction, but over years years. And so I think we're reasonably comfortable of the fact that there's a latent demand there for us to tap into once the shift is made.

Speaker 5

Very clear. Thank you, Tim.

Speaker 1

Thanks very much, Jared.

Operator

Thank you. The next question comes from Teppo of Value Corp.

Speaker 6

Hi. Thank you for taking my call. Am I audible?

Speaker 1

Yes, you are.

Speaker 6

Okay. Yes. I'm just actually questioning. My questions are maybe I've got 2, 3 questions. First on in Nevada, the Blue Frog.

Speaker 6

How much can you remind us again how much will it do? What is the estimated capital of that Of that project? And the other question that I've got is actually on your all in sustaining margin. At current run rate, trailing 12 months To date, you are almost back to the 2016 or so level, which was 16%, 17%. Alberto, maybe can you characterize what is driving this?

Speaker 6

What Seemingly coming out as a deterioration in your business. It's the asset quality deterioration. Well, I know you got your full potential program, but why not amp it up? Why take an asset at a time? Why not maybe take 3, 4 assets at a time To actually see meaningful impact so that we can address the decline in this quality of asset that seemingly is coming through your results.

Speaker 6

That will be all for now. Thanks.

Speaker 2

Thank you, Sito. Look, we've said that by the end of this year, we will talk about The results of the feasibility study in North Gold Frog and we will anticipate what we can say of the concept study that we would expect to finish For the silicon merlin, I will talk more about CapEx. What we have set up today is that these What we anticipate is low CapEx, heat leaching, some mills, but nothing out of the ordinary. But we haven't given Detailed CapEx numbers, but it would be on the low side. What we do know, what we have said is that When we model the whole sort of district, we expect to have all in sustaining costs in the high 900s.

Speaker 2

So that just tells you in the long run that, yes, the CapEx is really these are not complex projects. Look, on the all in sustaining, I probably categorize it different. And the one thing that probably I'd ask you to consider is inflation. We can't be hold accountable for inflation like no other mining company can. We have if you If we had lived in a world of normal inflation, our cash costs and all in sustaining would have gone down.

Speaker 2

I would probably advise you to look in carefully at that graph that we put in our all in sustaining costs. And you can see how like sustainably every quarter we have closed the gap with our competitors. And in the end that is what matters. We cannot control inflation, but we can control the relative gap between us and our competitors. And we're doing much, much better than 18 months ago.

Speaker 2

So for me, that is not a deterioration. For me, that is an improvement. But again, We may see things differently.

Operator

That does conclude your questions. We're going on to the next question, which comes from Adrian Hammond of SPG.

Speaker 7

Good day, everyone. Two questions, please. Firstly, for Stuart, if you Perhaps I've addressed my query around credit ratings and whether the redomicile to the U. K. Would improve the credit rating.

Speaker 7

And then secondly for Gillian, just curious to see your interpretations and initial impressions Of Angwood Goldsmiths joining and whether you've identified any obvious opportunities? Thanks.

Speaker 1

Thanks, Adrian. Just I think in and of itself, the redomicile, no, on the credit rating. It's not because it doesn't On day 1 change the company. But I think the opportunity sits in with credit rating Agency like Moody's, which has a, like as a rule or a policy sort of tethers your rating to your sovereign wherever you're based. So The you will trade you cannot trade more than 2 rungs away from the Sovereign with Moody's.

Speaker 1

And so obviously, we would be looking for some benefit in that regard. But I think for the medium to longer term for us, The best and fastest way to credit rating changes to just stick with what we're doing, Improve margins, improve costs and keep the balance sheet strong and that's where we're at.

Speaker 2

I think we won't be capped and that's the biggest thing Which we worked at before. It's interesting, if you look at the price of our bonds in the past years, they've actually been better than our rating. And a little bit is that recognition that We were, yes, we were being held back. So in time, I do expect that we should improve as we continue to deliver.

Speaker 5

Thanks. Okay.

Speaker 3

So look, thanks for the question, Adrian, I actually didn't expect that one today. What I would say is, I'm even more happy that I joined the organization. When you look at how Alberto is characterizing the portfolio. We have a set of Tier 1 world class assets, Fantastic people. So I've been here in South Africa for the last 2 weeks and I'm always impressed by the capability of the team, capability, commitment and focus of the team.

Speaker 3

And so that's both from a finance perspective, of course, But also from a technical perspective, I believe in the future strategy. I think we can we have a lot that we can do to develop and grow our business. And so, yes, like I said, very happy and looking forward to presenting a really strong set of results at the end of the year.

Speaker 7

Thanks, Julian. We look forward to that too. Thanks.

Operator

The next question comes from Cameron Needham of Bank of America.

Speaker 8

Thanks very much for the presentation, All. Just two Quick questions from me. So firstly, on full asset potential, how challenging do you think this sort of result at Sunrise Dam is going to be to Okay. Across the portfolio, is it a case that a lot of these measures that you kind of take are highly asset specific and the Sunrise Dam, these are some of the easiest wins or is that not the case? And then just secondly, actually on exploration, I'm just interested given the kind of nature of gold mining and gold assets, How are you thinking about the right amount to be spending here, given where AngloGold is on its journey and things like reserve life?

Speaker 8

Thanks very much.

Speaker 2

Thank you. Actually, we have a dedicated team Led by very experienced, let's say, veterans in the company on continuous improvement. And so they actually have a system to replicate, sort of what they see as quick wins. So probably the one that I would highlight is On plants, plant recovery, metallurgic recovery improvements, and that's what I see that we're doing that In like about 3 or 4 places already. So just in and this is about putting new cyclones, Those improving the leaching, sort of the chemical reaction and hence increasing The recoveries from and it's enormous.

Speaker 2

If you go from Sunrise 82, Dow to 85 and projected to 88, There's a lot of money in that. So that's one particular that I can remember that has been replicated in most places. The other one is, I would say, the everything around increasing efficiency of Transportation, be it underground tonnage that we saw in Sunrise Or being it in Tropicana and also on the everything around haulage, around Trump, around truck, Increasing truck availability, use of availability and productivity. So they're relatively Sort of not rocket science, but they do take time implementing. This one in particularly, for example, on plants in Gaeta, Which we're doing right now, all you got to order the shear reactor, you got to order the cyclones, all that take months months months.

Speaker 2

And that's why you only start seeing the benefits, let's say, in 2024 and the full benefits in 2025. But, yeah, there's a lot of comorality And learnings that we quickly that this theme that is, let's say, in weekly conversations All of the assets are implemented full asset potential. That's the sort of modus operandi. Exploration, look, I think we spend about $35,000,000 in greenfields and that team has Earn its money every on average, their objective is to discover a Tier 1 every 5 years and you look at Well, they're the ones in silicon. Silicon is an amazing story.

Speaker 2

It's I think it has surprised A lot of our peers that were already there, so how can they find this? And it's an interesting story, but this was this Particular acreage of silicon was out of, you couldn't claim it because it was under a nuclear Facility and it was there's provision because of the nuclear facility and then suddenly they left the moratorium and for some reason our team was able to go in And that really put the ground for our ability to buy Corvus because we could buy Corvus And paid a premium on Corvus because we were going to have shared infrastructure on their acreage and our acreage and we've moved from 0 to 14,000,000 ounces by the So that exploration greenfield of 35 is I think at the right level. Brownfield is a Different one. We spent about $280,000,000 on brownfields. And in the team, we have the CDO, Terry.

Speaker 2

He has Moved and created a new person reporting into him that is the new brownfield head and he will try to look at ways to Probably optimize the $280,000,000 So I is that the right amount or could we spend a bit less? My guess is that we could spend a bit less, but that's part of the that's what an operating model does and the focus On a probably company lens versus an asset lens will do.

Speaker 8

Thanks Alberto. Very clear.

Operator

Thank you. The next question comes from Veerun Mody of HSBC.

Speaker 9

Hi, good afternoon guys. Thanks for the opportunity. Alberto, I was wondering if you could maybe give us A bit more detail on your thinking around the other assets or the Tier 3 assets, so CDS and Cerro Grande. In terms of how much time do you want to give yourself to try and turn those assets around And get a buyer before you make the decision to close. Is there a scenario where you decide to keep them And run them instead.

Speaker 9

And then if you were to close them today, what would that cost you? And then just on the redomicile costs, I appreciate that You expect to become free cash flow generative in the second half of the year and you've clearly said you're going to fund those out of internal cash. Is there a scenario where you decide to use equity instead? If There are some concerns around your balance sheet. I suppose it is an equity story after all.

Speaker 9

It's about In equity rerating, it does make sense to use your equity, especially If you have credit agencies trying starting to raise concerns around your balance sheet. I'll leave it there for now. Thanks.

Speaker 2

Thank you, Leroy. So look, they're different, MSG Sierra Grande and CDS. At CDS and Sierra Grande, what I've said is that we're happy that the team on the ground has been able To move it and to lay an operating plan that will move in the second half and we're already seeing it in, let's say, in July, Into breakeven, it lost not a lot, about €15,000,000 €20,000,000 in the first half, But still, we don't want to have anything that cross subsidizes in a structural way. And so that's the message. So We're happy that Sierra Grande has sort of turned the corner.

Speaker 2

They've done very good work. They've done full asset potential. And so The fact that they become, let's say, breakeven in second half takes a lot of the pressure out. In the longer term, It's just the size. It's not the size of a company like ours.

Speaker 2

But if there's no buyer, we're going to keep it open. We're going to keep producing And we'll continue to be good stewards. We have a good team on the ground, so there's really no rush. CDS is a bit different, very high All in sustaining costs of close to $3,000 and really difficult to improve production. So we have to take a decision this year.

Speaker 2

We haven't taken the decision. We would love to be able to sell it and there is some interest again in Some companies that would probably be good stewards, so we will keep trying to do that. But what I've said is that you don't expect to have That one in particularly as an ongoing concern in let's say towards the end of the year. So we would have done 1 or the other, because at this stage, it's still negative cash flow. And so that's that will have to stop.

Speaker 2

So there's a lot of attention to it. But yes, we will have to take I would think that we will have clarity the next quarter that we talk. Regarding the redomicile, I would probably start by saying that I have heard at least myself no concerns on the balance sheet. I think I believe it is very solid as Gillian talked about it. And we have it's just no point of Going for what will be whatever €400,000,000 or something to do equity.

Speaker 2

So there's no plans and we will not do any equity raising. For that, we said that we will fund it with internal resources and we are as we look into I've quoted just the second quarter, We had an almost $300,000,000 of net operating cash flow from net cash flow from operations. So we expect a much better second half and then we'll use the balance sheet. It's in a very strong position.

Speaker 9

Thank you. Appreciate it.

Speaker 2

Thanks, Stuart.

Operator

I will now hand it back over to Mr. Stuart Paley for a question from the webcast.

Speaker 1

Alberto, just a quick one from Rene Hochreiter at Noah Capital. Just saying, could you give us any news on Quebradona at the moment?

Speaker 2

Look, Quebradona, we continue to optimize. It is a great project We will build it one day. Unfortunately, the country is in a big turmoil. You can see if you don't follow the news, you can see the latest news in Colombia. It is a typical Mexican Colombian telenovela.

Speaker 2

So anyway, it's very difficult right now. It just makes it very Difficult to get any right now permission. So we continue to engage with the government. It's a good project. In the long term, we will do it.

Speaker 2

But I can't give you any updates on any progress because it's there's some the Minister of Mines changed. He's new. So it's right now probably no news. Still I would put it It fits well with the sequencing of CapEx. The big CapEx of Nevada will come, let's say, in 2026, 7, 28 and then Kepler Drona will come in.

Speaker 2

That's my expectation. But at this stage, I can't give you any update.

Speaker 1

Alberto, that's it. Any closing remarks?

Speaker 2

Look, the closing remarks is, I hope We were able to convey why Q2 was much better than Q1 and why the things that hampered us in Q2 and partly in Q1, Brazil, Seguity are now in a much better state and why we have confidence that our Tier 1 assets, Our big cash providers will have a much better second half, Kibali, Obuasi and Geita. So we're confident on our H2, are confident on our guidance. We don't take our guidance lightly. Last year, we were probably the only one of the big companies that kept guidance. We work hard on credibility.

Speaker 2

And so when we are putting out and saying we will keep guidance on production, we will keep guidance on cash costs And on all in sustaining, we say we think we can, but if anything, we're a little bit higher, but only a couple of points. It's because we value and we respect again our stakeholders and we want to keep our credibility. So we have confidence that we can do that and I hope that we have given you the details to underpin that confidence and I hope you we can get it. But anyway, Thank you all and we're again look forward to Q3 and seeing you again. Thank you.

Operator

Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your

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Earnings Conference Call
AngloGold Ashanti H1 2023
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