AngloGold Ashanti Limited
Q4 2011 Earnings Call Transcript

Published: 15 Feb 2012

[Operator:]

Good day, and welcome to the AngloGold Ashanti Q4 2011 Results Conference Call. [Operator Instructions] Please also note that this conference is being recorded. I would now like to turn the conference over to Mr. Stewart Bailey. Please go ahead, sir.

[Stewart Bailey:]

Thanks, Dylan. And everybody, good morning and welcome to the presentation by AngloGold Ashanti's Executive Team of our results for the quarter ended -- quarter and full year ended 31st of December 2011. The presentation format will be as usual

[Mark Cutifani:]

Thanks very much, Stewart. Ladies and gentlemen, I will start with a couple of comments on the gold price. Certainly, since the pullback in the gold price late last year, we've certainly had a much more positive start to 2012 with the price up a healthy 10% since the beginning of January. We believe the fundamentals for a strong gold price remain intact. Inflation across many of the key emerging markets is a reality. The euro crisis continues to rage across the continent, and the Fed has created certainly near-0 interest rates for the foreseeable future. The long-term resolution to the expanded U.S. balance sheet, however, is a little less obvious. And while demand remains robust from investors and consumers alike, the industry is finding it tough as ever to respond to record price levels, notwithstanding AngloGold Ashanti's very prominent pipeline or great pipeline that will kick in over the next 2 years. Consistent with gold's revitalized value proposition in our uncertain world, we believe the AngloGold story is one of a revitalized business, leveraging value for shareholders over both the short and the long-term by -- and through 3 key areas

[Srinivasan Venkatakrishnan:]

Thank you, Mark. Good morning, ladies and gentlemen. I'll be covering the following 4 areas in today's presentation, starting with the fourth quarter financial results, and then full year financial results, moving onto free cash flow and balance sheet, and then concluding with the outlook for 2012. Starting with the fourth quarter financial results, adjusted headline earnings of $295 million for the fourth quarter were adversely impacted by the following 3 factors, all of the amounts post-tax

[Mark Cutifani:]

Thanks very much, Venkat. We continue to make very good headway on project development, and a notable indicator here is not only our focus on staying within budgets on projects, but also our improving capacity internally to fully invest the capital expenditure budgeted for each year. Our total capital bill last year was $1.53 billion against guidance of $1.6 billion. Good progress in all our major growth projects, which accounts to more than $500 million of that expenditure. As Venkat mentioned in his outlook phase, we will significantly step up the growth portion of our expenditure in the coming year as we move into development in the DRC and Mali and continue to progress Tropicana towards production. I'm pleased to announce approval, as we flagged at our Analyst Day in November, of our [indiscernible] Phase 2 project at Moab Khotsong at a capital cost -- and this is a life of mine capital cost -- of $395 million, and the first phase of the below 120 CLR project at Mponeng of $416 million, again a life of project estimate. And in fact, our project expenditures in South Africa are about $170 million for the year, about 17% of our project capital spend, both large-scale, very important projects, but at the same time, extremely cash generative and will be self-funded by the South African business, and they will still have good cash flows above and beyond those projects. So again, low risk, high return projects that extend the life of the 2 cornerstone mines in South Africa on a relatively low commitment in terms of the full project capital portfolio allocation. At Tropicana, the project remains on budget and on track to go full scale in Q4 2013. We expect to be -- that will be the first of our major projects to start delivering gold to the expanded AngloGold Ashanti. The 220 kilometer access road to site need completion during the quarter, and work continue on earth works on the plant site, internal roads and the airstrip. Engineering and procurement is now substantially complete, and all key positions in the new operating management team were filled. Drawing of the borefield 40 kilometers north of the project was wrapped up during the quarter. At Mongbwalu in the DRC, the optimized feasibility study is complete and will be submitted to the joint venture board next month. The good news is our board and the joint venture board have continued to support our pre-project funding of critical project items, so that will maintain our focus on the timeline to deliver production beginning 2014, so that timeline won't be compromised. Meanwhile, our team on the ground at Mongbwalu has made significant progress on the physical developments. Staff accommodation was upgraded and good headway was made on the construction of the road to Buna. This remains an important beach head project for us in a very prospective key load built region where active greenfield and brownfield exploration continued on our extensive tenements. Similarly, at our Kibali joint venture with Randgold, the board supports continuing commitment to critical project expenditures, and Randgold's team has continued to successfully drive the project's momentum. A further 250 families were relocated from the first of 14 villages identified in the relocation plan. As of year-end, about 500 houses had already been built. The design of the tailings facility, the mid-plant, shared service facilities and general mine infrastructure was completed, while work on the detailed mine design continued. Importantly, major long lead items as I see it continue to be purchased and are progressively being to deliver this to site. As with Mongbwalu, funding for critical path items have been released and supported by our board, allowing Mark Bristow and his team to continue according to their public stated timelines ahead of final approvals from our board. And finally, at Córrego do Sítio, the most advanced of our projects, the mine ramp phase continued according to plan. The second entrance to the underground mine was connected to the surface during December and the [indiscernible] commissioned last month. That amounts to a successful execution for this 140,000 ounce a year project on time and substantially on budget given the exchange rate fluctuations throughout the development period. So our track record of delivering on our commitments on projects after the -- over the last 3 years remains on track and will certainly underpin, we believe, the success of our new projects going forward. On reserves and resources, we've seen a significant effort in building the resource base with excellent progress during the year, more than offsetting and -- with increases more than offsetting production and other depletion. We've used fairly conservative prices in these calculations when compared to the current stock price, sticking close to the levels midway through 2011 of $1,100 an ounce for reserves and $1,600 an ounce for resources. As you can see, we saw a 6% net growth in reserves and a 5% net increase in our reserves -- resource base further expanding an already impressive mine life profile. As in the slide, if you take the last 3 years average gold price at $1,280 that $1,100 looks to be an extremely conservative figure in that context. Through the work done by our South African team on developing technology in house to improve recovery from our tailings den, we've added 3.2 million ounces to our reserve base. Importantly, these are low risk, low complexity ounces in our tailings facilities, which come with a potentially lucrative uranium byproduct to help offset rising labor and power cost in the country. Other notable success on the resource front from our extensive drillings program came at La Colossa, where we added another 3.8 million ounces, taking the total -- the project to a 16.3 million-ounce. And at Gramalote, we bagged almost 1 million additional ounces. In brownfields exploration, the drilling has again yielded a good crop of results with the work on extending the lift at Geita looking particularly promising. In our campaign during the quarter, which saw more than 11,000 meters drilled, we continued to hit good, thick high-grade sections, which confirm and extend underground potential. The base intersection for us during December was 24.2 meters at more than 22 grams per tonne at a relatively shallow depth of 262 meters. With this mine now fulfilling its potential from an operating perspective, and I mean that as a current operating perspective, notching 500,000 ounces a year mark, these results take on increased significance and certainly increased economic significance for the group. Similarly, at Siguiri, we are aggressively targeting the Silakoro oxide target, which lies within 2 kilometers of the plant. That is 2 kilometers. Among a good set of results were 7.7 meters at 4.4 grams per tonne and almost 14 meters at 5.6 grams per tonne. This is potentially a very rich feed for the plant, which is setting new operating records and -- but with grade constrained, so this drilling has a real potential to give us a sweetener that will certainly improve our capacity in 2012, probably more significantly in 2013. At Tropicana, we added another 1 million ounces to the resources during Q4, given the success of drilling the Havana Deeps portion of the ore body, which lies between the Tropicana and Havana pit areas. Again, this vindicates Graham Ehm and his team, who have long believed the additional potential exits -- the additional potential exists to increase the reserve and maintain the elevated levels of production envisaged by the mine plant in the first 3 years of production. At Cerro Vanguardia in Argentina, drilling of the bank structures continues to show stellar results, albeit at a narrow width associated with the vein structures typical of the region. One intercept returned grades of 151 grams of gold per tonne and 94 grams of silver per tonne over less than a meter. Another over a true width of 20 meters, returned grades of 1.23 grams of gold and 3.8 grams of silver. As this operation ramps up its heap leach and underground projects, the options to increase the size of the mine continue to be evaluated by a project team seconded from our Denver office. And finally, at Colossa, 5 drill rigs continue working around the clock to build the resource still further. A look at these results shows good grade in the sections over wide areas, and we're talking about 100 meters over 2 grams along the northern edge of the concession. This will almost certainly add a very large source during the coming year while also enhancing the average grade of the resource as well. On greenfields, it may be worthwhile to point to you to some key areas worth looking out for in 2012 as we again step up a level from 2011 when we drilled in excess of 200,000 meters across our key areas along with an enormous amount of target generation and early-stage discovery. Key areas of focus for us will be the so-called blocks 2, 3 and 4 adjoining our Siguiri mine in Guinea where the Kounkoun and Saraya targets bode well for our overall expansion ambitions in the region. At Saraya, the main resource results includes 9 meters at 2 grams and 4 meters at 17 grams from a 66-meter hole. Areas outside of the immediate Tropicana project area will also get more attention as they did last year as we search for another significant deposit in this area that we control along a strike length of several hundred kilometers. Similarly, in Colombia, where we hold a dormant land position of 60,000 square kilometers across several provinces in the country's most prospective regions. [indiscernible], an early-stage target, is showing copper-gold potential from early drill testing and will be one that we'll be reporting on in the next quarters. And finally, the other area is Egypt, where the greenfields team is becoming increasingly enthused at what they're seeing at the Hutite target, where drilling was successfully intersected up and down, deep extensions of the targeted line. You can also expect to hear more about this project as the year progresses. And now, on cash flow improvements. It is a worthwhile look at the record earnings and cash flow generated in a difficult operations year. The chart that we've shown in the pack makes clear -- or demonstrates the clear gains that we've made in improving the underlying health of the business since launching our new strategy 3 years ago. And the games have built on 3 -- have been built on 3 legs

[Operator:]

[Operator Instructions] Our first question comes from Sabrina Grandchamps of the HSBC.

[Sabrina Grandchamps:]

My first question is on Kibali. Can you maybe provide some details on what is required for board approvals and how that differs from what has been done so far? And hypothetically speaking, when could the holdup in approvals be negative to the project timeline?

[Mark Cutifani:]

The holdup in project approvals will not be negative to project timelines. The board approved commitment on critical part expenditures. It will not have an impact on timelines. What we're actually doing is finalizing the detail in the feasibility study that our board requires to sign off that all risk measures have been appropriately addressed. We've already demonstrated in material form that those issues are under control. The board was satisfied and supported the continued commitment to the timelines that we've put forward. I expect the approval will occur in the next few weeks, certainly probably before the next set of board meetings. But one must remember that we have made a massive change to our project execution strategies in the group. Unlike most other groups, we are not reporting drags in timeline delivery or capital estimates, and we're going to make sure that we don't change that with Kibali and Mongbwalu. I think Mark and his team have done a [indiscernible] job at Kibali and there should be no impact, certainly from our end, with respect to the delivery of the Kibali project and for Mongbwalu on the same regard -- in the same regard.

[Sabrina Grandchamps:]

And can you provide an update on your South Africa technology project?

[Mark Cutifani:]

Yes. We're very pleased with the way that's going. The team is actually putting together a proposal for a prototype implementation to be installed at Great Noligwa. They are hoping to have that completed by the end of 2013, so that we've actually got an operating product up in 2014. And for us, that's a really important milestone. It's both a safety project, it's a productivity project, it's a cost reduction project, it's an energy reduction project, and it will change the face of mining in South Africa. So we're very excited. We expect to see a prototype in place, and we will, in fact, be presenting some key elements of that project in Brazil in April as part of the Kellogg Global Innovation Network meeting that I'll be chairing with the head of the Mining Innovation Group out of the Kellogg University from Chicago. I'm very proud to be lead player in that program.

[Operator:]

I have no further questions. Sir, would you like to make some closing comments?

[Mark Cutifani:]

Very happy, as we said from the outset. The last 3.5 years, the organization has been through a major restructure. We've seen record earnings results, return on capital employed is 25%, return on equity, 20%. We're investing cash flows in high return projects that will add value for our shareholders. And at the same time, we are continuing to build our dividend return to our shareholders on the basis of a very solid balance sheet, a very conservatively geared balance sheet. We believe that 2012 will be another significant improvement year. And as we move into 2014, that growth, as we grow both production base per share and our cash flow per share, we think, provides compelling value and demonstrated leverage compared to the physical gold where a 1% increase in gold price, in our case, represents a 2% improvement in our key financial metrics and, for us, with our improving dividend yield, we think, presents a compelling case for the purchase of equities and, in particular, AngloGold Ashanti equities. And thanks for listening.

[Operator:]

Thank you very much, sir. On behalf of AngloGold Ashanti, that concludes this conference. Thank you for joining us. You may now disconnect your lines.