Earnings Call Transcript - AU Q3 2023

Operator, Operator

Good afternoon, everyone, and welcome to AngloGold Ashanti's 2023 Third Quarter Production Update. I will now turn the conference over to Mr. Stewart Bailey. Please proceed, sir.

Stewart Bailey, CEO

Thanks, Judith, and welcome, everybody, to the AngloGold Ashanti Q3 2023 production update. We have a brief presentation today looking at the main production performance for the company over the quarter. Alberto will give that, and then we'll go straight to questions. Alberto?

Alberto Calderon, CEO

Thank you, Stewart. We'll begin with our focus on safety. We are very proud of our strong performance as we strive to keep our employees safe, even in a sometimes challenging operating environment. Safety remains our top priority. You'll see an example of this later with Obuasi. We are making steady progress toward our goal of zero harm, with our total recordable injury frequency rate being one of the lowest among large mining companies worldwide, about half of the ICMM average. This is an area where we dedicate significant time and resources, and we understand that we are only as good as our last injury-free day. Next, I’ll briefly cover our production performance for the third quarter of 2023. Due to our new corporate structure and before our voluntary conversion to domestic filer status in the U.S., we can only report on production data, not financials or costs for this quarter and the first quarter of next year. We will provide full results at year-end and the first half of next year, with full quarterly reporting expected to resume in Q3 of next year. We witnessed strong performance from several of our key assets that put us back on solid ground after setbacks in the first half. The transition of Cuiabá to concentrate operations resulted in a loss of about 13,000 ounces, and Siguiri’s CIL tank failure added another nearly 30,000 ounces in losses. While setbacks are a part of operations, what matters is how we recover, and our second-half performance will showcase this, especially at the two affected sites. We are building momentum in our production during Q3, with a 3% increase compared to Q2, a seasonal rise that we anticipated earlier in the year, driven by higher ore processed. Adjusted for CdS in Brazil, which was placed in care and maintenance in August, the increase is actually 5%. Importantly, we are maintaining the guidance provided in February of this year, including all aspects of that guidance. This year, we will need another production boost in Q4. We expect strong finishes at Cuiabá, which will exceed its production guidance, and improvements at Siguiri post-tank collapse, alongside Obuasi, which should match last year’s Q4 performance as it overcomes third-quarter ground issues. We will provide more details later. The highlights include significant increases for Iduapriem at 27% above Q2, followed by Siguiri at 22%, Kibali at 13%, Serra Grande at 9%, Geita at 6%, and Tropicana at 3%. However, there were setbacks specifically at Obuasi, which I will address shortly. It has been a busy period for us as we completed our corporate restructure, moving our domicile to the U.K. and our primary listing to the New York Stock Exchange. In October, we sold our stake in the Gramalote project in Colombia to B2Gold and made the difficult decision to put CdS in Brazil on care and maintenance, which should ultimately benefit our costs and cash flows. We adhere to the core principle of not indefinitely subsidizing unprofitable operations, which sometimes necessitates tough choices. At Cuiabá, we have seen a strong turnaround that we expect to continue through year-end, driven by both volume and grade, with a forecast of 240,000 ounces for the year. The much stronger second half in LatAm combined with decisive actions taken on CdS will significantly reverse the trends seen in the first half and position us toward a cash neutral stance in Q4. In Nevada, we expect the completion of the feasibility study for the North Bullfrog project in the fourth quarter of 2023, while the conceptual study for the Expanded Silicon Project is also on track for the fourth quarter. At Geita, gold production improved compared to Q2 due to higher volumes and grades, meeting our expectations, and the operations are set to achieve the production target of 500,000 ounces. After a few weak quarters, Kibali recorded a strong performance, with production up 13% quarter-on-quarter and 19% year-on-year, driven by increased ore processed and recovery rates. We are pleased to report that our exploration efforts are expected to replace reserves depleted this year, consistent with our performance in previous years. Iduapriem’s solid production was backed by higher volumes and grades following the commissioning of the new TSF and enhanced access to higher-grade ore blocks. Production at Tropicana increased by 3% quarter-on-quarter mainly due to improved rates. Regarding our tier 2 mines, the Sunrise Full Asset Potential program continues to yield positive results, showing an 18% year-on-year increase in underground ore processed in Q3, aligning with our goals. Siguiri also demonstrated strong production improvement quarter-on-quarter as it neared normalized levels following the CIL tank incident. At Cuiabá, mining has returned to normal rates. At Serra Grande, we are striving to enhance performance, and we are encouraged by rising processing volumes. Obuasi in general terms is making solid progress on key work areas. Most efforts have advanced as planned since my last update at the Denver Gold Forum. Nonetheless, it’s a complex mine, which will naturally encounter short-term issues. Specifically, production at Obuasi was hindered by challenging ground conditions and high-grade stopes in August and September, similar to previous experiences with mine grades around 20 grams per tonne. The difficult ground conditions necessitated additional support, slowing our mining rate and hampering ore removal from the stope after blasts. In August, we faced the loss of underground mining equipment due to a fall-of-ground incident; thankfully, there were no injuries. The decision was made to proceed carefully to prioritize safety. During August and September, we managed to keep about two stopes open, compared to the usual five to six. The team has since devised short- and long-term plans to address these challenges, allowing us to get back on track in October. We initiated the use of larger drilling equipment, a V30 reamer, which is three times the area of our previous equipment, enhancing our stope establishment efficiency. This change is enabling us to safely increase mining rates and achieve production levels akin to last year. We expect a similar Q4 performance to the last year, having produced 88,000 ounces in Q4 of 2022 and anticipating similar outputs in Q4 of 2023. We already have insights into August performance and a clear trajectory for November. Additionally, we are transitioning parts of the mine from sublevel open stoping to underhand cut and fill methods, which are better suited for our current conditions, improving safety and overall extraction efficiency. This method, which has been successful globally, will help us ensure ore delivery to the plant safely and consistently. While this transition won’t impact steady-state production expectations at Obuasi, it will alter the production trajectory slightly. Overall, we expect production from Obuasi this year to be similar to last year at around 250,000 ounces, with a projected increase to approximately 300,000 in 2024 and returning to our original guidance of over 400,000 ounces by 2025. In conclusion, we remain focused on implementing improvements and achieving consistent results in line with our targets. We have reached key milestones during this period, despite the challenges we all face. We have taken decisive steps to address issues in Brazil, we are recovering well at Siguiri, and have a solid plan for Obuasi. Our Tier 1 assets are performing admirably, with further enhancements planned. We are optimizing our Tier 2 mines and working closely with stakeholders to determine the best path forward for our remaining assets. Our focus remains on improving operating and capital efficiencies while enhancing our cost competitiveness. Thank you.

Operator, Operator

Our first question comes from Adrian Hammond of SBG Securities.

Adrian Hammond, Analyst

Alberto, I have two questions. Firstly, does your 4% growth target for FY '24 still stand despite the setback at Obuasi? Are there any other strategies you can implement for the group's long-term sustainability? Secondly, can you provide an update on the Tarkwa-Iduapriem joint venture? Lastly, what is your current perspective on inflation? Has it remained stable since Q2, or have you noticed any relief?

Alberto Calderon, CEO

Thank you. Yes, regarding Obuasi in 2024, we mentioned it would be around 370,000, so there is a reduction there. However, we still expect to be within the guidance range we provided. I don't recall the exact figures, but I believe our guidance on cash costs for 2024 should also be met, which is significant. The joint venture is progressing well. The teams are collaborating effectively, and we're having discussions with the government, though the pace is slower than we would like. Thus, both companies are focused on ensuring our assets perform well. We are particularly pleased with the improvements at Iduapriem. Overall, patience is key. Combining these assets is a strong strategy, but we can only advance at the government's pace.

Adrian Hammond, Analyst

Sure.

Alberto Calderon, CEO

That was it? Or there was another question?

Adrian Hammond, Analyst

Just, Alberto, on inflation.

Alberto Calderon, CEO

We continue to see inflation averaging around 5% globally. It's not much higher than that, but it's also not significantly lower. In the regions where we operate, our recent results indicated that inflation tends to be even higher. Therefore, as we prepare our budget and guidance for February, we anticipate it will remain around 5% for the next year.

Operator, Operator

The next question comes from Frederic Bolton of BMO Capital Markets.

Frederic Bolton, Analyst

Alberto, just a quick question from me on Obuasi. Because you mentioned that you are proposing moving to cut and fill. Can you give us any indication on how that might impact mining costs in general?

Alberto Calderon, CEO

It won't impact our costs in any meaningful way. It's interesting because we have already started a trial, and we expect to produce about 8% of our tonnes using this mining method next year. This approach will only be applied to very deep, high-grade areas. We believe we will be able to extract all of the ore without dilution in a more consistent manner, which will likely result in slightly lower costs overall. Although this mining method is generally more expensive, we will probably see less dilution, leading to greater value.

Operator, Operator

The next question comes from Martin Creamer of Mining Weekly.

Stewart Bailey, CEO

Judith, it seems he's dropped off.

Operator, Operator

When we consider that we will be able to obtain all the ore without dilution in a more consistent manner, the cost should likely be slightly lower. While this mining method is generally more expensive, it may not result in significant dilution, allowing us to gain more value. The next question comes from Martin Creamer of Mining Weekly. Judith, it seems he's dropped off.

Stewart Bailey, CEO

And Judith, just perhaps a reminder that there is a facility for the webcast as well. No questions on there at the moment. But if anyone does have, please post those.

Operator, Operator

Our next question comes from David Hill of Ninety One.

Unknown Analyst, Analyst

I just had a quick question on the reporting side. It sounds like you are out of scope for South Africa and you're not in scope yet for the U.S. So you're kind of in the space where you don't have a high bar of compliance on the reporting side. So the question is, if you do have a sort of a surprise or you've got to adjust your guidance, at what point do you have to do that now? If there is a material difference between the expectations and the previous guidance, at what point are you supposed to report that to us?

Alberto Calderon, CEO

I will ask Stewart to assist me with this. However, I can't discuss it in detail, but I did begin the call by mentioning that I would refer back to what I said last time in H2, and nothing has changed since then. I can assure you that we are confident in our guidance. We do not take our guidance lightly. Last year, we were likely the only major company that maintained its guidance. We work hard to maintain credibility. Therefore, when we state that we will uphold our guidance on production, we mean it. When we affirm our guidance on cash costs, we intend to follow through as well. Regarding all-in sustaining costs, we believe we can meet our targets but anticipate being slightly higher by only a few points. So that's my statement for H2, and I would reiterate it now. However, Stewart, from an academic perspective, since it doesn’t apply to us, what would your response be?

Stewart Bailey, CEO

Yes. Look, I think your answer is good there, Alberto. I think obviously, as Alberto mentioned at the beginning, we're somewhat limited on this call to sort of reporting on production only. And by this time next year, we'll be back fully in the swing of quarterly reporting again.

Alberto Calderon, CEO

But I would imagine if we had a major issue, we would go under the normal sort of profit warning or something like that, I would imagine, that's why I mean academic or theoretical, because it doesn't apply.

Stewart Bailey, CEO

Yes, I think that's correct.

Alberto Calderon, CEO

I think there was another question, but is that clear?

Unknown Analyst, Analyst

Yes, that's perfect.

Operator, Operator

Our next question is the follow-up from Adrian Hammond of SBG Securities.

Adrian Hammond, Analyst

Alberto, since I'm speaking, I'd like to ask a follow-up question. I want to give you a chance to discuss the business further, considering your limitations. Can you provide some insight into the relocation of your team to Denver and how that's progressing? Additionally, I'm interested in any updates on the Asset Potential program, particularly regarding Geita and the opportunities and steps you're exploring there, as well as your perspective on Brazil given the current situation.

Alberto Calderon, CEO

Maybe I'll ask Marcelo, who’s on the call too, to give us an update. The Full Asset Potential continues to progress very well, and although we are restricted, we will provide guidance in February. We have discussed decreasing cash costs, and I feel much more confident about the full asset potential and how we are seeing things, which will likely allow us to reiterate that guidance. I’ll have Marcelo assist with that. The move to Denver has gone well. The entire Executive Committee was together last week, which was fantastic, and we accomplished a lot, including integration work. Currently, Stewart is the only Executive Committee member still in South Africa, while Richard is usually traveling in Africa between the U.K. and Perth, but also spending time here. The rest of us, six in total, are already living happily in Denver. We can definitely see the difference in having people in the office, and things are progressing smoothly. Marcelo, why don’t you...

Marcelo Godoy, SVP

Yes. Thanks, Alberto. Just quickly, on Geita. Geita remains on track to achieve this 500,000 ounces for 2023. And it's a very strong result for us considering the planned shutdown that happened in Q1. Gold production was 6% higher quarter-on-quarter. It's 126,000 ounces in Q3 compared to 119,000 in Q2. And that's mainly due to higher ore tonnes processed and higher overall recovery grades. I can say that Geita is one of the most successful sites in achieving full potential targets. We have been concentrating basically on three areas: open pit tonnes, which we have improved considerably; also in the Nyankanga underground ore tonnes, which have improved considerably. We have a consistent production, much higher than previous years there. And throughput and recovery is another focus for full potential. While throughput has been in a really good spot, recovery has been suffering a little bit because of a mix of different materials. But we are pretty happy with the Full Asset Potential at Geita and the results it's provided. Back to you, Alberto.

Alberto Calderon, CEO

Thank you. I wanted to put you on the spot, Richard. You know Geita well since you used to run it effectively. I've always believed it is underrated. What is your more long-term perspective on Geita, not in terms of numbers, but just in general?

Richard Jordinson, COO

Thank you, Alberto. Regarding the underground operations, I've reviewed Nyankanga, Star & Comet, and Geita, all of which are relatively new. There is significant potential for development and increased production at depth. Nyankanga stands out as the top underground operation, boasting high grades and substantial ounces, indicating strong underground potential. For the open pit, Nyamulilima is a medium-sized site with an average of around 2.5 grams per tonne. It is expected to sustain operations for over five years, with considerable stockpiles available afterward. From my experience, it is one of the most promising areas for exploration. Typically, brownfield exploration yields gold with drilling. Therefore, there is great exploration potential within the SML as well. Overall, it is an excellent asset and definitely a Tier 1 operation. Thank you, Alberto.

Alberto Calderon, CEO

Thank you, Richard. Before we move on to another question, let me summarize the production results for the year. It’s not typical to face such significant events as we have experienced. The tank failure, as the investigation indicates, seems to have roots going back about 18 to 20 years. This unexpected failure in Siguiri resulted in a loss of around 20,000 ounces. Additionally, the regulatory change in Cuiabá impacted us. The first quarter was quite challenging due to these issues, but it’s all about recovery. I am very pleased with how the year is closing, with Siguiri nearly back to normal. For Cuiabá, we initially projected around 180,000, but we anticipate finishing the year even stronger, thanks to the outstanding efforts of the team. When we discussed this in February, March, and April, the expected negative cash flow from Brazil was quite significant, and I look forward to sharing updates in February, as things have improved markedly. Regarding Obuasi, we did face challenges in August and September, which is typical for an ore body of this nature. However, we are back on track, and our long-term guidance remains unchanged for 2025 and 2026, as discussed previously. In conclusion, I must mention that I am somewhat limited by legal restrictions on what I can share at this time, but I am eager for February, as the upcoming results will provide a fascinating insight into 2024.

Stewart Bailey, CEO

Judith, I have a couple of questions from the webcast. Can I go to that now, please? Alberto, I'll start off with Mark Hassey from Oaktree, who says, could we just talk about progress on a solution for Serra Grande? And second, any updates on Cuiabá with respect to tailings?

Alberto Calderon, CEO

Serra Grande's goal for next year is to be cash neutral, and I believe we are on track to achieve that, although that is not the case for this year. Overall, we have a strong team in Brazil, which began with our acting COO and continued with Marcelo's contributions in Brazil, where he made tough decisions. We now have a new team in place, including Marcelo Pereira as the new Senior Vice President, new finance personnel, and new General Managers in Cuiabá and Serra Grande. Progress is being made. We have mentioned previously that if we find a suitable buyer who can maintain operations, we would consider it, but if not, we are ready to focus on care and maintenance in CdS while moving Serra Grande towards a better cash position. Regarding Cuiabá, we stated that this year would be spent on drilling and geotechnical work to support our budgeting program, which is expected to be completed by the end of this year. After that, we will begin work throughout 2024. It's crucial to emphasize that Cuiabá currently has a safe Tailings Storage Facility and is generating positive cash flow. The operation is stabilizing, producing gold with a mixture of gravimetric and concentrate methods. We have reached a solid agreement, and we are satisfied with the current status. However, we will be working on buttressing during 2024. This issue is a matter of time rather than cost, as it is relatively minor in the bigger picture, involving only a few dozen million dollars. It is more complex and will require time. Marcelo, could you add anything?

Marcelo Godoy, SVP

Sure, Alberto. The positive update regarding Cuiabá is that the dam is no longer at an emergency level, and all emergency plans have been approved. The dam is stable, and engineering work is progressing. There are two major dams at Cuiabá: one that contains the disputed tailings from the flotation plant and the Queiroz plant. The Calcinados dam is undergoing a similar engineering process, and we anticipate having detailed capital costs and a project schedule for the completion of that buttress in 2024 within the next couple of months.

Stewart Bailey, CEO

Okay, Marcelo. I have a couple more questions from the webcast. Cameron Needham from Bank of America asks how you balance giving operational teams at each asset time to implement improvements with possibly pursuing alternative measures for the sites.

Alberto Calderon, CEO

You need to trust the teams. The Full Asset Potential is a collaborative effort involving a central team and the on-site assets. Ultimately, it's the on-ground assets and their management that ensure delivery, following an agreed timeline. Trust is essential for those operating on site. We have a regular process in place; once we set a timeline for completion, we monitor it closely. I participate in monthly meetings, but I know Richard and Marcelo engage even more frequently. There’s always a sense of urgency, but as long as the assets remain profitable, we don't pressure for faster timelines. The key to these initiatives is the ownership taken by the local teams, and we will continue to support that.

Stewart Bailey, CEO

Thanks, Alberto. Then Martin Creamer is back. We lost him from the line earlier. But he says, could you just provide some insight into the decarbonization project at Geita, and then more generally?

Alberto Calderon, CEO

The decarbonization at Geita. Richard?

Stewart Bailey, CEO

I can start off and then pass it over to you if there's anything else. Martin, we are using diesel generators to provide most of the power for the processing plant at Geita, and we have been doing this for a long time. We are transitioning to the national grid, which receives a larger share of its energy from alternative sources, primarily hydro. We will keep the diesel generators on-site as backup. This transition with the state utility in Geita will take place towards the end of this year and into next year. You will notice a significant decrease in our emissions on-site as a result. This project is very beneficial for us, depending on the hydro levels in the dams in Tanzania being favorable. It is progressing as planned, and by around mid-next year, you should start seeing the full benefits, including a reduction in costs and emissions. Richard?

Richard Jordinson, COO

Nothing to add, Stewart. You covered it.

Stewart Bailey, CEO

Thanks. More generally, we signed the deal with Pacific Energy at Tropicana. The construction for that project has started, and currently, we are focusing on Tropicana and Geita. After that, Ghana is potentially next on the list for a significant solar project, and we will provide more details on that in the new year.

Operator, Operator

Judith, I think we have one more question on the conference call from Tanya. We can take that.

Operator, Operator

The next question comes from Tanya Jakusconek of Scotiabank.

Tanya Jakusconek, Analyst

Great. Apologize if you've already dealt with this. As you know, there are three calls going on at the same time. So I have a question on Obuasi, if I could. And I have seen that you have struggled with some ground conditions and you are looking to change the mining method from long-haul stoping to cut and fill. I know that, Alberto, you mentioned that '25, '26 production profile long term of that 450,000 ounces hasn't changed. But can you talk a little bit about if that had any impact on 2024? And obviously, cut and fill is more expensive than long-hole stoping. Has anything changed on the costing front on the long-term mine plan? That's my first question.

Alberto Calderon, CEO

Thank you, Tanya. I'll ask Richard to assist me. We discussed that there hasn't been a significant impact on costs. If anything, we believe this will help us address the more challenging areas more effectively, resulting in less dilution and faster progress. Ultimately, it will add more value than sticking with the current system. Richard, could you elaborate on this?

Richard Jordinson, COO

Yes, just for your information, without open stoping, we post fill, so we paste. Paste is linked to both mining methods, underhand cut and fill and long hole open stoping as a first. We do not expect any significant increase in costs. Once we establish the working areas and phases, we anticipate a more reliable and consistent supply of high-grade ore to the plant. Due to the ground conditions, there are delays in addressing ground control issues. We've initiated a trial this quarter and will have a better understanding of performance by the end of the first quarter next year. Beyond that, we do not expect major issues; it's primarily a learning exercise to ensure the process and our technical assumptions are correct. Over time, we will transition all the mining blocks to underhand cut and fill, especially the high-grade ones. Thank you, I hope that answers your question.

Tanya Jakusconek, Analyst

Richard, what percentage of the ore body do you anticipate will use the cut and fill method compared to the long haul or stoping method?

Richard Jordinson, COO

Well, next year, we're anticipating around 25,000 ounces. So a little over 10%, 10% to 15% next year, for '24. But it will increase over time as we open up these areas.

Tanya Jakusconek, Analyst

Okay. I was just kind of thinking from a reserve standpoint, what percentage do you think would have to be treated by cut and fill? Like just for us, like should we be thinking like it's going to be that 15% to 20% of the ore body?

Richard Jordinson, COO

No, it's going to be most of the orebody. As we go deeper, we have to address the high-grade stopes. This method will be more effective in the high-grade areas, especially since we typically have challenging ground conditions. I suggest that in a few years, most of the production will come from underhand cut and fill.

Tanya Jakusconek, Analyst

Okay. All right. No, that's helpful.

Richard Jordinson, COO

There should be no significant impact on costs, as I mentioned, because both methods we are using are indeed costly.

Tanya Jakusconek, Analyst

I understand about the paste fill and cut and fill. I'm trying to clarify that you're planning a test stope next year, and I assume you have a contractor or experts involved in the mining method. Cut and fill is typically used in selective mining, and not everyone has that expertise. I'm curious about where you source that expertise.

Alberto Calderon, CEO

Well, fortunately, Tanya, we have the expertise in-house because both Richard has done it. And also, we have our GM of Geita, Terry, has also had significant experience. So of course, we're getting people on the outside. But fortunately, we have probably our two most senior underground experts in this method.

Tanya Jakusconek, Analyst

No, it's good.

Richard Jordinson, COO

That's correct. It is.

Alberto Calderon, CEO

It is. It is.

Tanya Jakusconek, Analyst

I wanted to ask one more question about 2024. I know you're going to provide more information in February. Can you remind me, Alberto, will we be receiving 2-year guidance? Are we getting updates for 2024 and 2025? I'm just trying to understand what we're getting in February and what the long-term outlook is. When will we have more than 2 years of guidance?

Alberto Calderon, CEO

So we're providing two years of guidance in February. I will address your second question then. We're still facing challenges. I can't discuss costs at this point, but I will provide clarity in February. I understand we have been focused, but we are handling many tasks. However, I can confirm it will be for 2024 and 2025.

Tanya Jakusconek, Analyst

Okay. And then in terms of reporting for us so we understand, so full-year financials in February. Then in Q1 of next year, we're still only getting the production numbers. And then in June of 2024, that's when we start to go to full reporting under U.S. GAAP quarterly? Is that how I should think about it?

Alberto Calderon, CEO

Yes.

Tanya Jakusconek, Analyst

Okay. So more information in February, so lots to come.

Alberto Calderon, CEO

Yes, yes. I can't wait either. Because yes, things are progressing well. Thank God.

Operator, Operator

It appears we have no further questions on the conference lines. I will now hand back to Stewart Bailey for closing remarks.

Stewart Bailey, CEO

I, in turn, will hand over to Alberto.

Alberto Calderon, CEO

Thank you all for joining the conference. I've likely shared my concluding thoughts about the past year already. We're pleased with how things are wrapping up. As we know, it's important to wait until the end to assess everything. October is looking promising. If we can maintain the momentum from October into November and December, we expect everything we've discussed to come to fruition. It's crucial to keep up the positive energy from October. We'll connect again in February to discuss cash costs and more. I'm looking forward to that. Thank you very much.

Stewart Bailey, CEO

Thanks, Judith. Thanks, everybody.

Operator, Operator

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