AngloGold Ashanti Limited (NYSE:AU)
Q2 2017 Results Earnings Conference Call
August 21, 2017 09:00 AM ET
Stewart Bailey – IR
Srinivasan Venkatakrishnan – CEO
Chris Sheppard – COO, South Africa
Ludwig Eybers – COO, International
Graham Ehm – EVP, Group Planning & Technical
Christine Ramon – CFO
David Haughton – CIBC World Markets
Patrick Mann – Deutsche Bank
Tanya Jakusconek – Scotiabank
Good afternoon ladies and gentlemen and welcome to AngloGold Ashantis First Half 2017 Results Conference Call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of todays discussion. [Operator Instructions] Please note that this conference being recorded.
I would now like to hand the conference over to Mr. Stewart Bailey. Please go ahead, sir.
Thank you, Judith. And welcome everybody to our first half financial and operating results. We appreciate you making the time. And Id ask you please to go to the front of your presentation, which youll find on our website, and there is a Safe Harbor disclaimer. Right at the front, it has very important information. Wed urge you to read it carefully. Please get back to us if you have any question as far as that goes. We have a full slate today with our executive team and talking about the various aspects of the business.
Im going to hand over to Venkat for some introductory remarks.
Thank you, Stewart. Good morning, ladies and gentlemen. Before we move to the results for the first half of 2017, lets revisit our overarching strategy which has since 2013 remained consistent. We continue to be guided by our five key business objectives and how they can support our central strategic goal of delivering sustainable improvements to cash flow and returns. This is especially relevant today, as we provide a progress report on our plans to invest in delivering better quality production, improving margins, extending mine lives and shaping our international portfolio for the long-term.
Were also taking steps to address losses of some of our older operations in South Africa in order to ensure the viability of our core assets shift. Chris Sheppard will speak more about that shortly. This internal focus has been fundamental to our strategy over the past four years when we directed our efforts yielding opportunity that lies within our pipeline was optimizing our existing portfolio, improving our cost structures whilst fortifying our balance sheet. We continued to build our ability to withstand gold price shocks and to weather the challenges that tend to crop up, as you manage a globally diverse portfolio of long life gold assets such as ours, whilst executing on the self-funded, quick payback options that exist within our portfolio.
Now, turning on to slide five on safety. This is the proudest element of our results for the half year being our exemplary safety record to-date. At the end of June, we had passed more than 283 days without a fatality in the group and for the first time ever, we logged three back-to-back calendar quarters with no fatal accident at our operations. The achievement is also more noteworthy when you consider that at the end of the first half of the year, our ultra-deep South African operations registered 339 days fatality-free with every unit surpassing 1 million fatality free shifts. To this end, whilst we are proud of this accomplishment, well never be satisfied until we eliminate fatalities from all of our operations.
Again, while this shows world-class standards and safety management that we have developed over several years, it also reinforces our commitment to hazard management and the analysis of high potential incidents as we look to improve even further.
Turning now to slide six. Before we move on to our six months performance, Id like to spend some time on the second quarter results. This is especially important given the improving trends in South Arica from our core operations, after a weak start of the year, in the first quarter, coupled with steady improvements from our international portfolio. As youll see through this presentation, we have continued to follow our strategy of improving the quality of our portfolio through our inward investment in a strong suite of Brownfield project opportunities, as well as by continuing to remove loss-making ounces from our production profile.
Ive already covered safety, but its worth noting that we achieved that result whilst delivering a very strong second quarter with a 20% jump in our South African production from the levels seen in the first quarter and a 10% drop in the rand denominated costs. In fact, we saw improvements right across the portfolio in the three months through to June. Production was up 11% quarter-on-quarter and 4% year-on-year. All four regions reported quarter-on-quarter increases in production levels; that means cash cost reduced 4% from Q1 and the escalation year-on-year was contained at 10% despite mining inflation and markedly strong currencies.
Now, moving on to the six months results through to June of slide one. We saw production of 1.75 million ounces, which puts about 48% of our production in the bag when you take the midpoint of guidance, and very much at the levels seen last year. Thus, despite the abnormally slow start to the year, which shows the extent of catch-up weve been able to do in the second quarter.
In line with prior years, we see a stronger second half with most of the pick-up coming during the fourth quarter. Our all-in sustaining cost of $1,071 were up from the levels seen in the first half of last year, as they come on the back of stronger currencies in all of our key jurisdictions and also planned increase in our capital investment program which we flagged at the beginning of the year. Christine will break all of that down in detail during her discussion of the financials.
Well be working very hard to maintain an improving trajectory over the remainder of the year, though its important to note that similar to last year, there will be a continued element of seasonality in the third quarter, driven by our mine plans in Brazil, the DRC and Australia before the customary strong finish in the fourth quarter.
With that said, we are keeping guidance intact on all key metrics. Id like to spend a moment to discuss the situation in Tanzania. Geita is an important asset for us and one that we are investing in for the long-term. As you can see from slide eight, its worth remembering that Geita has had a challenging past and has required capital injections at various points over the last 17 years. Starting with the initial investment to develop the mine back in 1999, then youll remember the collapse of the main pit wall in 2007, which took several years to dig ourselves out of and then with the major mill replacement in 2012.
As the life of the open pit starts to taper, were now investing in the extension of mine life through underground development. Were progressing well with the construction of the new power plant, guaranteeing reliable power over the extended life, whilst we have also commenced developing the underground mining infrastructure that will extract the ore from beneath the current Nyankanga and Star & Comet pits.
Tanzania has historically always been one of our preferred investment destinations, given both its geological endowment and the predictability afforded by our mine development agreement. Under the agreement, we have continued to operate and invest in a true Tier 1 gold asset for the benefit of all of our stakeholders. And analysis of the cash flows in and out of Geita since it was developed in 1999 shows that over this period the mine has delivered more than $1 billion to the Tanzanian government in the form of royalties, corporate taxes and employee income tax.
Turning to the important slide nine. As you see from the slide, in nominal terms, we only repaid the development capital Geita in 2011. It also shows that the government through tax and royalty payments has been a beneficiary since day one with its cumulative share of total benefit from Geita increasing as the mine life progressed.
In terms of net cash distribution to stakeholders, after accounting for repaying capital and obviously funding the operation, the net share of cash flows for the government of Tanzania thus far has been about 55% and our share 45% in nominal terms. When one takes into account the time value of money, the government share is significantly higher.
We hold as one of our core values, the beliefs that communities whether those directly affecting our operations or host countries at large must be material beneficiaries of our activities, if this enterprise is to remain sustainable. We have continued to strive to ensure that we strike that balance in Tanzania. We are one of the largest tax payers in Tanzania and the largest in the mining industry, and have received recognition from the authorities to this effect. It is a distinction we are proud of. We believe that as Geita goes from strength-to-strength, it will be an important tool in enabling Tanzania realize its goal of reaching middle income status.
Turning on to slide 10. In addition to making the requirement to list 30% of our Tanzanian mining operations on the local stock exchange during late June, over the course of less than a week, the government of Tanzania tabled, debated and approved a number of laws that could alter the landscape for the countrys extractive sector.
Whist we are seeking a dialogue with the authorities to gain clarity on how these new rules may affect our operation, given the protection afforded by our mine development agreement, we have continued to operate as normal at Geita. It has however been necessary to pay on a without prejudice basis, the additional 2 percentage points on royalty on revenue and the 1% clearing fee in order to ensure that the continued export of our gold dore` bars can take place.
During this capital investment phase, we are currently operating Geita on a self-funded basis, given the higher royalties combined with the continued lock-up of VAT receivables on eligible inputs at the mine. However, as a precautionary measure, as said in our announcement on July the 13th, our subsidiaries have initiated arbitration to protect the status of our mine development agreements.
We have, as I mentioned earlier, continued to seek dialogue with the government on the issue of how the new law and the associated impact will have with regard in the context of our mine development agreement, and we will continue on both of those tracks until we find resolution. This is the situation that requires patience, diplomacy and the need to take a long-term view. We must balance the optionality of this important asset on the goodwill of our Geita and Tanzanian stakeholders whilst planning for different contingencies and remaining careful custodians of shareholders capital.
With those introductory comments, I will pass you over to Chris Sheppard.
Thank you, Venkat. Good day, ladies and gentlemen. If you can turn to slide 12 in the pack. The South Africa region has now accumulated more than 7 million fatal-free shifts, including Kopanang, which reached 1 million fatality-free shifts last month and Moab Khotsong which passed 2 million fatality-free shifts during the reporting period. In fact, at the end of June, Moab registered 21 straight months without a workplace fatality. These are impressive stats but we cannot declare victory yet in this important aspect of our business. We are as focused as ever on pursuing the implementation of our safe production strategy which we launched at the end of 2015, following, if you recall, a particularly challenging period of safety. A huge amount of effort has gone into entrenching integrated workplace planning, workplace management routines and workplace service strategies. Leadership accountability remains critical for effective execution of the safe production strategy and delivery of the required outcome. So, at this stage, we are certainly proud of the achievement but definitely not satisfied.
Turning to slide 13. Our core assets operated in line with plans during quarter two, clawing back quarter one underperformance and delivering strong results. We experienced continued challenges at TauTona and the hard rock surface sources units.
In the Vaal River, Moab Khotsong production was up 3% year-on-year due to improved throughputs and face time. And in the West Wits, Mponeng mined according to plan with localized lower grade areas, which resulted in lower year-on-year production and higher costs.
Production improvements at Mine Waste Solutions resulted from reclaiming higher grades, and this has partially offset the disappointingly low grade of some of our marginal ore dumps, as well as plant availability constraints in the ore receiving sections with limited mill availability due to plant shutdowns for a pit.
Kopanang and TauTona both posted unsustainable losses with half-one cash costs of $1,472 per ounce and $1,639 per ounce respectively. Kopanang was affected mainly by declining grades as well as mining mix and dilution, thus perpetuating the negative margins.
The Savuka section of TauTona continued to operate at lower volumes, resulting from reduced available mining ground. And finally, we halted the opening up project on a 116 level following the seismic incident of April 2016.
Turning to slide 14. The South Africa region produced 435,000 ounces for the first half compared with 486,000 ounces in the same period last year. The second quarter registered a recovery from a poor first quarter whereby the poor adherence to mining schedules experienced in the first two months of the year and this resulted in poor face-length availability and limited access to higher grade areas; these have been largely remedied. All-in sustaining cost for the South African operations was $1,259 per ounce compared to $958 per ounce in the same period of 2016. Total cash costs were unfavorably impacted by lower output, the markedly stronger local currency against the dollar, inflationary pressures mainly related to labor, consumables and power and an unfavorable byproduct contribution.
Turning to slide 15. Given the challenging operating conditions, a tough decision has to be taken to restructure the South African assets after review of our assets in quarter one, in order to ensure that our long-term assets are positioned for sustainable future. While we made our initial disclosure on this at the end of the June, I must affirm our clear view that job loss is always a last resort, particularly within the context of elevated unemployment within South Africa.
We have considered integrated TauTona into our long life Mponeng, similarly as was done with the previous integration of Savuka mine into TauTona mine from years back which led to an extension of profitable life. Unfortunately, it does appear at this stage that there is simply limited potential to replicate that model on a sustainable basis. Our initial number of roles impacted catered for this eventuality; there is no change in that regard. We have commenced two separate processes of engagement, firstly with the Minerals Board subcommittee convened under the auspices of MPRDA Section 52. We have provided plans, forecasts, options and assumptions to unions and DMR for scrutiny and expert review as committed.
Secondly, as from the end of June, a mandatory consultation is progressing in terms of Section 189 of the Labor Relations Act to mitigate job losses. We anticipate reaching a conclusion during the second half of the year, meanwhile in parallel with these consultations, a voluntary severance package or program has been opened up to all employees. And depending on the timing and the outcome of the process, we will make the necessary amendments to our outlook and an update on our future cost and production profile.
On that note, Ill hand over to Ludwig.
Thank you, Chris. Good day ladies and gentlemen.
Turning to slide 17, Im pleased to report that our international portfolio again delivered strong performances with increased production from all our operations in the second quarter relative to the first. That trend is encouraging and one that we are working on extending into the second half of the year, which as Venkat has pointed out, well see a very strong fourth quarter at key operations.
Looking out for year, its the fact that year-on-year despite stronger currencies and ever present mining inflation as well as the higher cash cost at Kibali, weve managed to contain our overall increase in cash cost to less than 5%. The increase in all-in sustaining cost was driven mainly by higher sustaining CapEx. We saw exceptionally strong operating performances over this period from Siguiri, Iduapriem and of course Tropicana, which Ill talk to you in a lot of more detail in a minute. Siguiri in particular was a knockout performer during the first half. On the back of commencement of mining at new Seguelen pit, which came with the anticipated increase in grades, we also saw better grade performances from Geita as well as weve expected. Kibali has moved on from last years plant commissioning challenges and now moving towards a ramp up of the underground, which will allow it to fully show and embrace its potential. Graham has more on that in a moment too. The Americas also showed improved performances from Minerao where underground tonnages improved and at CdS where the gains are driven by better plant performance.
Moving to slide 18. As I mentioned earlier, we have continued to maintain margins over the extended period of time, which boosted our focus on operational efficiencies through our operational excellence program. The bars for quarter one and two show that weve managed to hold out a good all-in sustaining cost margin even as we increased sustaining CapEx into our Brownfield projects, which will drive fundamental operating improvements in the medium to long term.
Turning to slide 19. A quick look at our progress on some of our value-adding projects shows that all aspects within our control are progressing exactly to plan. At Geita, the power plant is 80% complete, underground development is on track and Brownfield exploration is looking very promising. At Sunrise Dam, the project is bearing a 6% improvement in recovery, its tracking a planned, the grades [ph] at bulk are meeting our high expectations and Graham will talk to the excellent regional potential were uncovering at the nearby surface drilling program at Butchers Well.
At MSG in Brazil, we are on schedule to develop the high-grade Palmeiras and Inga ore bodies and are ensuring the pipeline remains [indiscernible] Brownfields and reasonable drilling program. The collection of intervention aimed at increasing mine life and margins at Minerao are on track and yielding good earlier results. Finally, whilst we remain positive on the potential at Sadiola, the ball is firmly in the mining [ph] government support with respect to negotiations around the agreements we need to proceed. Meanwhile, well mine oxides into early next year and continue processing into 2019. Our mine plans are being reviewed and will change depending on the progress of our negotiations.
Turning to slide 20. On to a very good new story that is develop ping at Tropicana, weve continued to exceed our initial planning assumptions. Weve now accelerated mining rate to 90 million tonnes per annum with the introduction of a 600 tonne face shovel. This, combined with increased throughput following the processing plant optimization and expansion project, has enabled us to resume grade streaming and bring forward 200,000 ounces of production into the 2017 through 2019 timeframe. Further optimization of the plant will lift throughput to 7.7 million tonnes per annum by the end of the year from a feasibility design of 5.5 million tonnes per annum. In addition, we have identified an opportunity to increase production at this mine by introducing a second ball mill. This will lift the throughput rates to 8.2 million tonnes and more importantly, at the finer grind size, thereby increasing recovery at the same time. The accelerated mining rate has brought productivity improvements to lower mining unit cost by 37% over the past two years. Importantly, the successful transition to a higher mine rate has set us on the pathway to implement the proposed Long Island mine plan, which will see mining rates of between 100 to 110 million per year.
Turning to slide 21. We have also made excellent progress on the Long Island strategy. This concept has been driven by signing a more cost-efficient way to mine wastes in CapEx. [Ph] It involves using strip mining approach that minimize waste [indiscernible] by using input backdrop. [Ph] The Long Island life of mine plan gives us optionality. Long Island comprises eight stages and there are three major decision points, which is great, because it gives us the flexibility to tailor our approach at each decision point depending on the market conditions.
The mineralized zone for Tropicana remained open as is, and there is potential to carry out underground mining in conjunction with the Long Island mine plan. The extensive drilling program carried out last year further enhances underground potential and identified additional high-grade underground zones at Boston Shaker. We have underground resource of almost 3 million ounces at Tropicana with the potential to grow this further. Well be carrying out underground studies over the next year, and this is — underground providing higher grade additional mills [ph] in parallel with the Long Island mine plan from 2021 onwards.
And that completes the international operations. I will hand it over to Graham.
Thanks, Ludwig. Good morning, everyone. Ill start on slide 23. Today, Ill make comments on the progress at Kibali; the progress on the Siguiri hard rock project; Ill provide an update on our thinking around Obuasi; and share some exploration results that are proximal to Sunrise Dam.
At Kibali, the focus is on the completion of the shaft materials handling system and commissioning of the automated loading system, enabling ore hoisting in quarter four this year. Once completed, underground production will increase to 3.5 million tonnes per annum. Grade control, stope design and the build up and drilled and broken stalks is on track to enable this ramp up. Apart from the construction of the third hydropower station at Azambi, this will complete the construction of the Kibali project thats been in progress for the few years. Then 2018, Kibali will be producing at a rate of 760,000 ounces per annum. You will recall the low recovery issues in 2016 with four additional concentrate fine grinding mill and the expansion of the pump-cell circuit has been commissioned. Plant recoveries have improved substantially and are now at or above design. The process plant is operating very well with good run time and above nameplate capacity. The second hydropower station at Ambarau was commissioned earlier in the year, lifting hydro capacity to 32 megawatts. The third and final hydropower station, Azambi will be commissioned late next year and it will increase hydro capacity of 42 megawatts.
On the next slide and still on Kibali, underground exploration is delivering very good results. As shown on the left hand side of the slide, drilling of the up plunge extension and central sections of the 3,000 load has added approximately 360,000 ounces of 4 grams. [Ph] Drilling at the down plunge has commenced and caught of service 660,000 ounces. On the right hand side of the slide, drilling of the up plunge extension of the 9,000 load has added 700,000 ounces. And drilling further up plunge, towards the Sessenge pit has scope to add a further 1 million ounces.
On the next slide in regard to the Siguiri combination plant, the project adds hard rock milling capacity and expands the power station capacity from around — by around 20 megawatts to 40 megawatts, the whole project has a capital cost of $158 million. The project extends the mine life of more than five years, adding 1.6 million ounces. All the long lead items have been ordered and major commitments have been made. As you can see from the photographs, the mill sells have been fabricated and are on their way and the construction camp has been assembled. The project is on budget and schedule for commissioning in quarter four next year.
Now in regard to Obuasi. The site remains clear of illegal miners, and care and maintenance activities are ongoing. Ghana as a country has definitely done a 180 degree turnaround in the first half of this year, following the election of the new government and the President Nana Akufo-Addo. The government has made its support for Obuasis redevelopment very clear in its election manifesto. Were engaging with the government of Ghana to obtain all the requisite consents and approvals. Were very pleased to say that this engagement is progressing well and we anticipate having everything in place before the end of the year.
On the environmental front, we have agreed and executed a new reclamation security agreement which defines the approach and the cost range for reclamation of this 120-year old mine site. Following public consultation and approval of the stoping report by the EPA, we have submitted the final EIS, based on which the EPS will issue the permit.
Assuming that all the government consents and other approvals are received, we would approach Obuasis redevelopment in a phased manner which enables a reasonably quick start to gold production and reduces the capital cost. The long section in this slide illustrates the main mining areas. Mining will start in the Sansu and Block 8 areas progressing to Block 10 and then to the very high grade Block 11 areas.
The first year would involve establishment of the project and operating teams, the recommencement of mining and the refurbishment of plant and infrastructure to enable the commencement of operations in the second year at 2,000 tonnes per day. Production would ramp up to 4,000 tonnes per day in the third year and be at that level for subsequent years. Gold production would start at 200,000 ounces a year in the second year, increase to 300,000 ounces for the next [ph] and then increase further to 400,000 ounces a year when the high grade area at Block 11 is reached. Mine life would be over 20 years, producing over 8 million ounces. Compared to a larger project, this approach provides very good capital efficiency and returns that are comfortably above our benchmarks. We will provide further update in the next quarter.
Turning to the next slide, we look out to exploration near Sunrise Dam. We have been progressing work on the area that was part of a farm-in with Saracen Mineral Holdings announced late last year. This has provided a consolidated tenement package along the western side of Lake Carey. Despite its location, this area is underexplored due to a long history of fragmented tenement holdings and because the drilling carried out to date has only been to the base of oxidation or about 40 meters.
The first round of diamond drilling beneath the Butchers Well pit over a 3 kilometer strike length has returned high-grade intercepts from beneath the Hronsky-Enigmatic pits and identified a new mineralized zone. The results indicate that the steeply west-dipping Enigmatic zone extends down dip to a vertical dip of more than 400 meters. The drilling also picked up the northerly offset extension of the Enigmatic zone and a dip of about 300 meters. Follow-up diamond drilling is in progress while aircore drilling is testing the strike extent to the north. The resource potential currently estimated at around 500,000 ounces to 1 million ounces.
Thanks very much. I will hand over to Christine.
Thank you, Graham. Good day, everyone. We have delivered a solid operational performance, reflecting good recovery in Q2. Our cost performance reflects our planned capital reinvestment plan as well as the impact of stronger currencies. Finally, our balance sheet remains strong and positions the Company well to fund its Brownfield reinvestment strategy and weather the current volatility.
Moving to slide 30. Our focus remains on improving margins despite currency headwinds and lower grades anticipated for this year. The all-in sustaining cost margin has significantly narrowed H1 to 13% due to the planned higher capital spend signaled earlier this year which was exacerbated by stronger currencies.
We will continue to focus on improving margins through our operational excellence program, which is what Ludwig referred to which looks to innovative ways to improve efficiencies and enhance recovery as well as our targeted investments to improve the portfolio mix.
Slide 31. Despite the marginal increase in the gold price and improvement in the overall production for the six months, our cash costs and all-in sustaining costs reflect the impact of stronger currencies, inflation and our significant capital reinvestment program.
Adjusted EBITDA was impacted by the one off silicosis provision of $63 million, contributing to the lower adjusted EBITDA margin of 30%. Finance costs are $16 million lower than last year, benefiting from Group cash optimization and the settlement of the high yield bond last year. However, free cash flow has declined due to planned higher CapEx, stronger currencies and the working capital lockup in Continental Africa which I will elaborate on later in the presentation. Free cash outflow in Q2, however, improved to $42 million compared to the outflow of $119 million in Q1, largely on the back of improved production.
Slide 32. The half year adjusted headline earnings have been impacted by non-cash once off provision. The adjusted headline loss of $93 million reflects the SA redundancy provisions of $47 million relating to the potential outcome of the Section 189 process and an estimated provision in respect of the silicosis class action lawsuit of $46 million, both these amounts are stated post-tax. On a normalized basis excluding the impact of these once off non-cash provisions which are also referred to efficient items, adjusted headline earnings would be neutral for the first half.
In addition, as a consequence of the restructuring of certain South African business units and impairment of $36 million post-tax was recorded in earnings for the period, which impacted basic earnings but was excluded from the excluded from headline loss and adjusted headline loss.
Looking the cost performance in detail year-on-year. We note that cash cost has increased by 6% excluding the impact of stronger currency, due to the adverse impact of inflation. However, lower grade was offset by positive movement in inventory and byproducts. Cash cost is Q2 was down by 4% compared to Q1 at $781 an ounce. In addition, all-in sustaining cost increased by 18% on the back of higher cash cost and significantly higher planned sustaining CapEx which increased by $67 an ounce in H1 compared to the prior comparable period. Sustaining CapEx increased by 46% to $400 million compared to $274 million in H1 2016.
In Q2, all-in sustaining cost at $1,082 an ounce increased by 2% from Q1, primarily due to a $22 an ounce quarter-on-quarter increase in sustaining CapEx. The higher capital spend, reflects the groups strategic inward investment on life extension and margin improvement, principally across its international operations. All-in sustaining cost $1,259 an ounce for the South African operation was 31% higher due to the slower than anticipated ramp up in production in Q1 after the festive break, despite the claw back in production in core assets in Q2 as explained by Venkat and Chris. We also saw a 14% stronger rand -dollar exchange rate.
All-in sustaining cost for the international operations at $988 an ounce was underpinned by solid performance across the operations and reflects the impact of the capital reinvestment program, inflationary pressures, as well as a 14% stronger Brazilian real.
Moving on to slide 34. The free cash flow lockups relating to the increase in net VAT receivables across Continental Africa and the Argentinean Patagonian port rebate has negatively impact on the groups free cash flow generation and earnings. These receivables have increased by $61 million year-on-year after currency devaluation. Geita in Tanzania is the most significant contributor to the VAT lockup over the period amounting to $40 million. [Ph] We have received $5 million in the current period from the Argentinean authorities and this picked up the Patagonian rebate which is positive. In addition, our attributable share on VAT and fuel levies receivable from Kibali which is treated as an associate and therefore not included in the groups working capital movement, but does impact on free cash flow generation from associates amounted to $64 million as at 30th of June, 2017, after the impact of $15 million due to currency devaluation and also had a negative impact on free cash flow generation.
We continue to spend significant effort engaging with the authorities to recover VAT and fuel levies across Continental Africa. However, this remains an area of concern and continues to impede free cash flow generation across our business, whilst also exposing the group to the adverse impact of the devaluation of local currencies in these jurisdictions.
Slide 35. Net debt was 3% higher at $2.15 billion compared to $2.1 billion in the first half of last year due to the free cash outflow of $161 million. Negative free cash flow was impacted by higher CapEx of $136 million, which includes Kibali, adverse working capital movement of $62 million and increased operating costs. We expect production improvements to benefit our cash flows over the remainder of the year, similar to what we saw in 2016. Our capital investment plan which we constantly review will impact cash flow as will possible retrenchment costs in South Africa. And we are seeking to put additional Vaal facilities in place to fund the possible retrenchment costs. We remain strongly leveraged to the gold price from which we expect continued benefit as well as from efficiency improvements, which will offset currency headwinds.
Net debt to adjusted EBITDA ratio of 1.56 times reflects ample headroom to our covenant level of 3.5 times. That shows a balance sheet that remains robust. We have strong liquidity, ample undrawn facilities and long-dated maturities, providing us the flexibility required in the current volatile environment. We remain focused on self-funding our Brownfield capital program and preparing our facilities as the opportunity arises. Our credit ratings remain intact despite the downgrade in the SA sovereign ratings.
Finally on guidance for the year, slide 36. Our cash costs and all-in sustaining costs guidance remain intact for the full year, on the back of improved second half production, despite stronger key exchange rates and including our assumption of $10 per barrel lower Brent crude oil prices. Guidance for corporate and exploration costs have been reduced. Our cost and cash flows remain highly sensitive to changes in commodity process, operating currencies and production. We provide indicative pre-tax sensitivities on all-in sustaining costs and cash flows with a health warning at our forecast average commodity prices and exchange rates.
Total CapEx for the year remains within the original guidance at $950 million to $1,050 million. About 85% that figure is sustaining capital relating directly to ORD and infrastructure at AGA Minerao, Geitas underground development and power plant, the cutback at Iduapriem, recovery improvement at Sunrise Dam and the mine optimization at Tropicana. We expect to incur about 56% of our capital expenditure in the second half, in line with our stream. We continue to see sustaining capital reducing to levels between those we saw in 2016 and 2017, in 2018. We reaffirm this years growth capital at between $100 million and $150 million, which relates primarily to the Siguiri hard rock project and power plants, Kibali underground and Mponeng.
Finally, Ill hand back to Venkat.
Thank you, Christine. So, after that detailed presentation, please allow me to recap. We are executing our strategy of realizing the options that exist within our portfolio. In Brazil, for example, our exploration work is looking very promising indeed and we are confident of extending mine life there, whilst our investment in increased oil reserve development will yield future benefit to the productivity of those operations. Continental Africa is a hive of activity. Our investment will see production ramp ups coming through from Siguiri, Kibali and Geita, with significant latent potential still come from Obuasi and Sadiola once we have reached agreement with our host governments there. Iduapriem continues to tick along very well.
In South Africa, we are investing in the significant restructure of our South African capacity, stripping out loss-making production and focusing on a core set of cash generative assets that we have proved can be operated safely. In Australia, leading edge optimization work has turned Tropicana from a short life low margin operation into a true Tier 1 asset with world-class margins and more upside to be realized through the Long Island project. Sunrise Dam remains an excellent regional option but looks more attractive with each hole drilled on site and on the neighboring tenements. Together, these two operations remain one of Australias most attractive gold packages. We have advanced all of this work in a self-funded, self-executed package of projects that are on-budget and on-schedule and are underpin by solid balance sheet and appropriate overhead structures, given our operational base. We will continue to look for latent value in the business and take steps to realize it, whilst keeping our eyes firmly on the fact that we are careful custodians of our shareholders capital.
In conclusion, we are pleased with the first half operating performance despite a slow start to the year and are confident in our ability to meet full year guidance. We have a clear-eyed view of the fact that as Ive said many times before, mining is indeed a long-term game. And as managers of the worlds largest emerging market gold producer, we need to take a long view in managing some of our current volatility whilst keeping a tight rein on capital. For the remainder of the year, well be focusing our efforts on, first, continuing our strong safety performance; second, completing the restructure of our SA assets to ensure a vibrant cash generative business for the longer term; third, continuing to execute on advancing our high return Brownfields projects; engaging with our host governments and jurisdiction where we see significant long-term potentially; and finally, further enhancing the portfolio which should result in improving free cash flow trends across the business.
With that, Im happy to take questions.
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AngloGold Ashanti’s (AU) CEO Srinivasan Venkatakrishnan on Q2 2017 Results – Earnings Call Transcript – Seeking Alpha