FINANCIAL AND CORPORATE REVIEW
Third quarter overview
AngloGold Ashanti delivered strong free cash flow generation of $161m (before taking into account the once-off $30m cost of
redeeming the remainder of the high-yield bond) for the third quarter ended 30 September 2016, helping further reduce net
debt. The performance reflects continued progress toward the key strategic objective of delivering sustainable improvements to
free cash flow and returns, whilst developing affordable, high-return brownfields project options.
Free cash flow for the third quarter of 2016 of $161m (before the once-off $30m bond redemption cost), represents a significant
improvement on the $50m outflow in the third quarter of 2015, and w a s 49% more than the $108m generated in the first half
of this year.
Cash inflow from operating activities for the third quarter of 2016 was $386m, was 59% more than the $243m in the
same quarter of 2015. The cash flow improvement was achieved despite lower production, and was attributable largely to the
higher gold price received year-on-year, and the timing of proceeds received on a metal shipment from Argentina.
“We generated strong free cash flow in the third quarter, taking this year’s cumulative free cash flow to more than quarter of a
billion dollars, further reducing debt.
Whilst we had previously indicated costs would be higher in the second half, the increase
was exacerbated by a poor performance in South Africa, a delay in accessing higher grades in Brazil, capital expenditure
absorbed over fewer ounces, and strengthening currencies,” Chief Executive Officer Srinivasan Venkatakrishnan said. “Work is
already well advanced to turn this around in the near term by improving volumes and accessing higher grades as per our plans,
and over the medium term by investing in our low-capital, high-return brownfields projects.”
Production in the third quarter of 2016 was 900,000oz compared to 974,000oz in the third quarter of 2015, which included
a combined 32,000oz from Cripple Creek & Victor (CC&V) and Obuasi, which have been sold and idled respectively.
Improved performances in the third quarter compared to the same quarter in 2015 were delivered by Moab Khotsong,
Mponeng, Iduapriem, Siguiri and Serra Grande. Production from South Africa dipped 7% year-on-year to 235,000oz, mainly
due to lower average recovered grades from underground of 7.34g/t, 8% lower than the prior year’s 8.01g/t. Lower production
from the International Operations of 665,000oz in the third quarter of 2016 was mainly a result of lower grades, as planned, at
both Tropicana and Geita, whilst this was partially offset by Kibali’s strong recovery from the previous quarter.
Overall production increased to 900,000oz in the third quarter, from 883,000oz the previous quarter, driven by improved
performances from Geita, Kibali and AngloGold Ashanti Mineração.
Cash costs per ounce increased by 8% to $797/oz compared to $735/oz in the third quarter of 2015, mainly as a function of lower
grades, lower units of production, and inflation.
All-in sustaining costs (AISC) in the third quarter of 2016 were $1,071/oz, a 14% year-on-year increase which reflects the
increase in total cash costs, exploration, corporate and marketing costs and a planned increase in capital expenditure. All-in costs
were at $1,166/oz for the third quarter of 2016.
Adjusted earnings before interest, tax, depreciation and amortisation (Adjusted EBITDA) rose by 36% to $395m in the third
quarter of 2016, from $291m in the third quarter of 2015. The improvement was mainly due to an increase in earnings following the
19% gain in the average gold price received year-on-year, from $1,123/oz to $1,334/oz, which was partially offset by strengthening
currencies in some jurisdictions.
At the end of the third quarter of 2016, net debt was lower at $1.972bn compared to $2.098bn in the previous quarter and
$2.291bn for the third quarter of 2015 mainly due to the strong improvement in free cash flow generation. The balance of the high
yield bond was redeemed in early August, resulting in a reduction in net finance costs. The reduction in net debt, along with
improved Adjusted EBITDA over the past 12 months, has resulted in a net debt to Adjusted EBITDA ratio of 1.26 times, compared
with 1.54 times at the end of September 2015. Accordingly, debt levels remain well below the covenant of net debt to Adjusted
EBITDA of 3.5 times under our revolving credit facilities (RCF).
The balance sheet remains robust with strong liquidity and long-dated maturities providing significant financial flexibility. Undrawn
facilities comprise approximately $820m available under the $1bn US dollar revolving credit facility, A$210m undrawn on the
A$500m Australian dollar RCF, approximately R3.4bn available from South African facilities, and cash and cash equivalents of
$276m, at the end of the third quarter of 2016.
Total capital expenditure (including equity accounted entities) during the third quarter was $211m, compared with $197m in the
third quarter of 2015 (which excluded $10m for CC&V). Of the total capital spent, project capital expenditure during the quarter
amounted to $25m. Capital expenditure is expected to increase again in the fourth quarter, in line with past trends.
The outlook for production and capital expenditure for the full year has been narrowed but remains within the original guidance.
The cost guidance has been revised primarily due to the strengthening of local currencies. The revised outlook is as follows:
·
Production between 3.6Moz and 3.65Moz (previously 3.6Moz and 3.8Moz);
·
Total cash costs between $730/oz and $750/oz (previously $680/oz and $720/oz);
·
AISC between $980/oz and $1,010/oz (previously $900/oz and $960/oz); and
·
Capital expenditure between $790m and $820m (previously $790m and $850m).
September 2016 Market update - www.AngloGoldAshanti.com
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