AngloGold Ashanti Plc (AU) Q2 2016 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the AngloGold Ashanti Half Year Results Conference. All participants are currently in listen-only mode and there will be an opportunity for you to ask questions later during the conference. [Operator Instructions] Please also note that this call is being recorded. I would now like to turn the conference over to Stewart Bailey. Please go ahead, sir.

Thanks very much, Chris. Everyone thank you for joining us for our H1 results. We’ll follow the normal agenda for today. Just noting that Graham Ehm has a family issue to attend to in Australia and unfortunately won’t be joining us today, Ron Largent, will be covering the exploration piece. Just before we get going, as is customary the Safe Harbor statement. Certain statements contained in this document other than statements of historical facts including without limitation those concerning the economic outlook for the gold mining industry, expectations regarding gold prices, production, total cash costs, all-in sustaining costs, all-in costs, cost savings and other operating results, productivity improvements, growth prospects and outlook of our operations, individually or in the aggregate, including achievements of project milestones, commencement and completion of commercial operations of certain of our exploration and production projects and the completion of acquisitions, dispositions or joint venture transactions, our liquidity and capital resources and capital expenditures and the outcome and consequence of any potential or pending litigations or regulatory proceedings or environmental health and safety issues are forward-looking statements regarding our operations, economic performance and financial condition. These forward-looking statements or forecasts involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied in these forward-looking statements. Although we believe that the expectations contained in such forward-looking statements and forecasts are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of amongst other factors changes in the economic, social, political and market conditions, success of business and operating initiatives, changes in the regulatory environments and other government actions, including environmental approvals, fluctuations in gold prices and exchange rates, the outcome of pending or future litigation proceedings, and business and operational risk management. For a discussion of these factors, refer to our Annual Report on Form 20-F. For the year ended December 2015, which was filed with the SEC. Factors are not necessarily all of the important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements. Other unknown or unpredictable factors could also have material or adverse effects on future results; consequently, you are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to update publicly or release revisions to these forward-looking statements to reflect events or circumstances after this date or to reflect the occurrence of unanticipated events, except to the extent required by applicable law. All subsequent written or oral forward-looking statements attributable to the Company or any person acting on its behalf are qualified by these cautionary statements herein. This communication may contain certain non-GAAP financial measures, which we use in managing our business. Non-GAAP financial measures should be viewed in addition to not as an alternative for reported operating results or cash flow from operations or any other measures of performance prepared in accordance with IFRS. In addition, the presentation of these measures may not be comparable to similarly titled measures other companies use. We post this information and other important info on our website at anglogoldashanti.com, we update it regularly; you should consult it. I’ll hand over to Venkat?

Thank you, Stewart. Good morning and good afternoon everyone. I’m pleased to report another good operating and financial performance for the six months of this year, safe for one or two setbacks during the period. Starting with our overarching strategy that drives our business performance, our strategy has remained consistent since 2013 with our five key business objectives supporting our central strategic goal of delivering sustainable improvements to cash flow and return. We have certainly achieved that in these results for the first half of 2016 with the strong improvement in free cash flow over the six months period with the expectation more to come in the second half as these prevailing gold market conditions. My colleagues and I will dig into selected elements of the progress against the strategy through the presentation, notably our Brownfields and advanced Greenfields opportunities that we’re actively working through to deliver quality production that lap to margins, extend mine life and also shape the portfolio in the longer term for our business. Turning to the slide on safety, which remains our top priority and also our biggest challenge in terms of our deep underground South African operations, which continued to represent the vast majority of injuries and fatality. Our international operations continued to show world-class safety trends with several operations consistently exceeding previous high watermarks across Continental Africa, Americas and Australia. In South Africa, despite three of our deep labor intensive mines, namely Mponeng in the West Wits, Moab and Kopanang in Vaal River, we achieved 1 million fatality free shifts during the period, but despite this and Kopanang going fatality free over a year, we are still battling to make a sustained breakthrough in the region as a whole. Increased seismicity at our West Wits operations post a significant challenge during the period as of the failure in some key situations of our experienced personnel to adhere to our well-established and tested safety protocols and procedures. We are working very hard across a number of fronts, which Chris will touch upon to rid our SA operations of fatalities on a sustained basis. We are one of the gold industry’s most geographically diversified companies with a quarter of our production coming from South Africa and about three times that amount coming from our international operations. In terms of the highlights for the period, free cash flow more than tripled from the first half of last year and would have been at least $28 million higher for the period where it not been for the timing of proceeds from a gold and silver shipment from Argentina that fell in the first day of the second half. We anticipate this growth in cash flow to continue into our traditionally stronger second half of the year, particularly given current gold spot prices. Production came in at 1.745 million ounces with the second quarter exceeding the fourth quarter production by some 3%. This helped us to bank 47% of the midpoint of our annual production guidance in the first six months of the year. All cost metrics improved year-on-year. We continue to see strong cash flows helped by excellent cost performances to name a few from Mponeng, Sunrise Dam and Cerro Vanguardia. It is well-known now that Kibali struggled in the first half, Mark Bristow detailed that in the recent Randgold’s earnings call; and Ron Largent will provide some additional detail today. But suffice to say that steps have been initiated to turn the performance around by effecting enhancements to the plant, feeding additional oxide material from satellite pits and increasing production from the underground where the development is proceeding well and in accordance with the plan. We will be monitoring this very closely from our standpoint as a non-operating partner in the joint venture and lending our assistance where necessary as we have done to-date. Christine will talk to the balance sheet restructuring undertaken after the end of the first half, but suffice to say that our debt metrics continue to improve. Debt is almost a $1 billion lower than when it was a year ago and our overall financial flexibility is much improved. Costs are also better than what they were in the first half of 2015. But we would be the first one to admit that they could have been significantly better where it not been for the challenging first half at Kibali and difficulties we have experienced in the South African operating environment. These are two areas we continue to work on for the much needed progress over the balance of the year. Turning to slide number eight. This is the clearest exposition of the progress we continue to make across the business. The year-on-year drop in production from continuing operations can be explained largely due to loss of production from Obuasi, a poor first half from Kibali and the great drop in accordance with the mine plans at both Geita and Tropicana. Despite the above, the improvement across all costs, margin, free cash flow and debt metrics, have been impressive, particularly since 2013. We do need to note the headwinds that we are facing in South Africa where we and the mining industry in general has had a difficult first half of the year when it comes to fatal accidents. The response from the regulator has, as you can well imagine, been a strong one which we fully respect. We also don’t dispute the need for thorough investigation and remedial action to follow any serious accident and we welcome the input from the mine safety inspectorate in this regard. There is however, we believe, room for improvement in the application of these Section 54, as they are referred to, mine-wide stoppages to ensure that they are evenly applied and to also ensure that the interest of personnel safety could be better served by more targeted interventions where only the offending areas are suspended, pending the necessary remedial action rather than shutting down entire operations for protracted periods. Once we continue to engage constructively with the DMR in this regard, it is certainly worth pointing out that the scale, the sharp increase in the number and the frequency of these stoppages along with the trend of mass audits and routine inspection across our sites each quarter has made it increasingly difficult to accurately forecast production levels from our South African business. The very recent strengthening of our local currencies, in particular the SA rand and the Brazilian real notwithstanding the mitigation from higher gold prices does not afford us the luxury to sit back and rest. And this therefore reaffirms our commitment to dig deeper by challenging statistical [ph] and effecting operational improvements, efficiencies and cost reductions across our portfolio. I will now hand you over to Chris Sheppard to walk you through our South African performance.

Thanks Venkat. In my previous presentation and at year-end, I stated that the key issues that needed attention were firstly an unsatisfactory safety performance as to unprecedented safety stoppages and resultant loss of life and production; and secondly, constrained immediately stoppable face length that resulted in a lack of mining flexibility. Six months later, to-date, this focus continues. And it’s pleasing to note that progress is being made in a number of areas despite the challenges facing our industry currently. In particular, Mponeng mine has responded well and has delivered the expected results thus far. Regarding safety lengths inventories, these have been steady, despite the impact of safety stoppages which always has a drag on ore reserve creation. Turning to safety, for the past two quarters, the South Africa region has suffered two fatal incidents involving three of our employees, which occurred at our TauTona, Savuka operation. These and subsequent incidents have highlighted the need to ensure that changed management of safety improvement measures is more fully and rigorously exercised to ensure a sustainable outcome. Furthermore, the need to hold all levels in the organization accountable with safe outcomes has never been more compelling especially in the face of continued elevated levels of safety stoppages. Our focus continues through our safe production strategy to improve the skills, safe behavior, work planning and protecting and removing workers from risk and thereby improving levels of compliance. Whilst we’re supportive of the intent of Section 54 regulatory stoppages and mass audits, the manner in which they are exercised continues to have a significant impact on work routine and production. Turning to the operational performance for our South African operations, production decreased by 3% compared to the same period last year, keeping in mind the average historical decline of some 8% per annum. The all-in sustaining unit costs improved by some 13% in dollar per ounce terms assisted by the weaker exchange rate. TauTona suffered a major seismic event at the Savuka shaft section, right on one of the main haulage systems, which has effectively removed a portion of the life of mine from that section and resulted in a revised outlook for the rest of the year. Mponeng improved its production levels by some 25%, and this resulted in a pleasing 28% reduction in all-in sustaining cost to $893 per ounce. Regarding the below 120 project, the 123 level section continues its production ramp up to expectation and the completion of the 126 level infrastructure and support work continues to plan. Activities relating to the operational readiness for the Phase 2 access to the lower carbon leader reserve below 120 level continues according to program. Pleasing progress is being made with a previously reported prefeasibility study to evaluate value uplift by increasing the footprints of the projects on the lower carbon leader as well as co-extraction of the VCR, for instance those reefs from the same shaft deepening infrastructure platform. This study is still on track to be concluded by the end of 2016. These technology projects within AngloGold Ashanti have shown steady progress through 2016 with our latest generation reef boring machine at the TauTona lower carbon leader shaft pillar and the deployment of reef boring technology at the Savuka carbon leader shaft pillar, which commenced during the last quarter. Regarding our Vaal River operations, Moab Khotsong continued to focus on efforts to establish face-length in the middle of Moab Khotsong, while being heavily impacted upon by safety stoppages in a fatal-free half one. The Zaaiplaats project continues to be on hold while a prefeasibility study is anticipated for completion by the end of 2016. Kopanang, despite being fatal free for 12 months at half year, has also suffered significantly from safety stoppages. Productivity gains are now imperative to increase volumes and reduce unit costs in order to counter forecast lower grade. I am pleased to report that the previously reported decision to reconfigure the treatment plant at Mine Waste Solutions to float off the uranium first and then perform the carbon-in-leach gold extraction, which thereby improves the overall recovery of uranium and gold has resulted in a successful re-commissioning of the uranium circuit recently, as planned. It’s also pleasing to note that Mine Waste Solutions has delivered it best results to-date and is delivering healthy margins. Turning to rand based costs, the all-in sustaining unit costs rose some 12% against the backdrop of a corresponding 3% reduction in production volume. The gold price received during the period in rand terms increased by some 31%, resulting in a significantly improved margin and free cash flow. Efforts are underway to reduce off-mine costs along with on-mine productivity improvements, as well as reducing surface infrastructure footprint in order to manage the future unit costs with the anticipated production profile. And then as far as priorities are concerned, the first and most pressing of our key priorities for the rest of the year is to put an end to fatalities by improving workplace conditions and behaviors along with improved compliance. The Mponeng below 120 Phase 1 project production ramp up on 123 level remains critical, as well as the rock handling and logistics infrastructure for 126 level, as well as the work I mentioned previously on Phase 2, which underpins the longer term optionality for Mponeng. The outcomes of our project 500 plus optimization initiatives will also be crucial in this regard, with particular regard to off-mine costs. Moab Khotsong remains a key asset and a safe increase in volume is a key requirement for half two. As mentioned earlier, Kopanang needs to deliver an uplift in productivity through volume increase and reduced stoppages. Our significant commitment to our technology program will remain driven by focused project management team, fully focused on delivering a viable mining production system, capable of mining, all the gold, only the gold, all the time. We are currently progressing the authorization of continuous operations with the regulator to enhance the business case of this capital intensive technology. Surface operations will be focusing on volume increases, which bring more consistent ounces, given the current challenges within the South African mining sector. In closing, we’re seeing some pleasing momentum starting to develop from Mponeng. I’ll now hand over to my call colleague, Ron Largent.

Thank you, Chris; and good morning. I will provide some detail regarding our first half 2016 operating results for Continental Africa, Australia and the Americas region, and then discuss some priority work around the operating portfolio focusing in on the Tropicana, Siguiri and Colombia projects. Slide 14, this slide represents the quarterly all-in sustaining costs for the international operations for the past three plus years. I’d stated at the year-end 2015 results in February that our costs would be impacted by exchange rate and some levels of inflation. We actually saw this impact in our quarter two numbers with both the Australian and Brazilian currencies strengthening against the U.S. dollar. In addition to the foreign exchange and inflationary impact, we are lifting our investment in our Brownfields pipeline with aggressive drilling underway at a number of our operations and also execution of life of mine extensions that we have planned for this year and beyond. My take away from this graph is we’ve established a sustainable operating margin for our international portfolio. The next slide, slide 15. Regarding production, first half 2016 saw us deliver 1.26 million ounces, which is 9% lower than the first half of 2015. The difference is related to the completion or stop of the tailings treatment at Obuasi, a planned reduction in the ounce production at Geita and Tropicana mines, primarily due to a reduction in grade, which we flagged earlier this year, and the challenges in the Kibali sulphide processing circuit. As you’d expect, these lower volumes also impacted our all-in sustaining costs though this was somewhat offset by strong cost performances at Siguiri, Sunrise Dam and Cerro Vanguardia. The America region improved their all-in sustaining costs by 4% to $816 per ounce. We are expecting a strong second half performance from the Cuiabá mine in Brazil and the Tropicana operation in Australia. Slide 16, as we continue to develop the optionality of the international portfolio, it is important to recognize the ongoing work that we are undertaking to enhance our life of mine plan and asset values. In short, we have a slate of Brownfields projects with attractive capital and high returns that will continue to enhance the overall quality of our production base. In Brazil, the development of the higher grade ore bodies Inga and Palmeiras at the mine Serra Grande continues with ore deliveries to the mill scheduled in quarter four of this year. Additionally, the satellite ore bodies at Cuiabá are being defined. Ultimately, these ore bodies will offer mining sequence optionality and dropdown rate improvements. In Guinea at the Siguiri, we have approved the capital for construction with a combination plan, which will allow for the continuation of the current production profile by processing hard rock after the depletion of the free dig oxide material in 2018. I have slide later on where I will discuss this in more detail. In Mali, the Sadiola sulphide project is in the final stages of optimization with scheduled decision points before year-end. As we stated before, this project is an attractive one, a view shared by our partners, but it must go through our normal evaluation processes and must receive the proper undertakings from the Mali government around power supply and fiscal framework before we make our final investment commitment. In Tanzania, the Geita mine, underground mining has commenced ore production at the Star & Comet ore bodies that will be seen in quarter four production. This transition to underground has been extremely successful in quarter two. Further exploration work and underground designs are being completed in the main 9 Nyankanga and Geita Hill ore bodies. In Australia, the Sunrise Dam operation has transitioned completely to underground mining method. In 2016, ore production from the underground is scheduled to meet the 3 million tonne per year grade. The ongoing ramp up of the underground ore production will eventually equal mill capacity of 3.6 million tonnes per annum. As we progress the development to the higher grade Vogue, ore handling infrastructure will be installed to support this level of production. At Tropicana, continued success with the Brownfields drilling program, down dip and along-strike at the current ore bodies has allowed us to define a larger resource, and we plan to convert these reserves later in 2016. That was an overview of some of the ongoing value-adding work that is being actively completed in the international assets to drive longer life and improved asset value. I would like to now take us a little deeper into Tropicana, slide 17. As an example to illustrate the type of work that we are doing, I would like to highlight our effort currently underway. There is a set of parallel work that has been defined -- that is defining targets to grow the reserve, lower cost and extend life. I think it’s important to state that Tropicana mine has been built and operated in line with our investment case. The project was constructed on schedule and within the capital budget and most importantly, the payback schedule has been met despite the downward pressure on the gold price since commissioning more than three years ago. The ongoing work has included plant optimization and circuit upgrades that are targeting the 30% increase to the nameplate design. This improvement has been combined with the material growth to the ore body resource that we are increasingly confident of achieving, down dip and along-strike to the Havana South and Boston Shaker systems. The plant throughput improvements combined with the resource growth, has allowed us to reevaluate the mining sequence to ultimately reduce mining costs. We have secured a 600 tonne face shovel that is scheduled for delivery in quarter four 2016. This will drive a reduction in mining unit costs and improved productivities. All this work is aimed at making material movements at Tropicana life of mine from next year and beyond. Slide 18, as I just stated, the 600 tonne face shovel has been procured for the operation. This will allow us to alter mining schedule to manage waste stripping volume. As illustrated on this slide, our current plans which have evolved in the past year have us utilizing the mined out Tropicana pit for waste disposal, materially reducing the mining cost. In general, we have potentially reduced the vertical height and distance that waste material needed to be halted for deposition. This non-typical hard rock mining method is an example of the innovative thinking that’s been taking place to drive value. Slide 19, to back up my comment regarding the plant throughput optimization Tropicana, this slide shows the nameplate volume 5.8 million tonnes per year were met in 2014 and exceeded over the past four quarters. A series of low cost upgrades combined with the series of optimizations will increase the plant capacity to 30% above nameplate by the end of this year. These include an upgrade to the ore stockpile to decouple the client operations, additional capacity in the CIO circuit, conveyor upgrades and consuming the installed capacity of the high pressure grading circuit. Resetting the annual capacity of the plant drives optionality with the newly defined ore body resource. Slide 20, I’ve mentioned a newly defined resource. So, this slide is indicative of excellent drill result our exploration team continues to deliver. The intercepts are exciting and have effectively confirmed the potential of the two ore bodies that will take Tropicana to the next level at Boston Shaker and Havana South. They’re intersections of 10 to 20 meters in thickness and variable grades from 2 to 10 grams. Next slide on Siguiri, Siguiri has been a strong contributor to the AGA portfolio since 2004, delivering 33% internal return on investment. The free dig material quantities are limited. We have a reserve that will take the life of mine to at least 2023, if the plant is altered to allow for processing of hard rock material. It has good regional geology beyond that and this project allows us ample time to explore that capability. The design is complete, the project has been approved by our Board and the Convention de Base with the government has been signed and is on schedule to be formally ratified by the end of the year. This project’s estimated cost is $115 million, will extend the mine life at the current production rate, which is approximately 300,000 ounces per year through 2023 at competitive cost. This is a robust project in the jurisdiction we understand and has limited execution risk. Next slide on Kibali, Kibali had a tougher six-month in 2016 while it had to deal with multiple ore types and plant challenges. Looking at the medium term when Kibali is in full production, it will draw 80% of its ore from underground. And as you can see from this slide, both mining and development of the underground operation are making solid progress. At the metallurgical plant, modeling has confirmed that the capacity of the ultra-fine grind and associated pump sell should be increased and preoxidation tankage is installed to guarantee best performance on a 100% sulphide feed. The foundations for this work -- or in the plant are already installed as part of the original plant construction. There is also plan to install a hybrid crusher as a second stage of crushing for direct feed into the number 2 mill oxide circuit to ensure maximum flexibility to treat different ore types at the same time. In the short term, in addition to some of the plant improvements referred to earlier, the availability of 3 million ore from the [indiscernible] pit will ease the situation and should support a significant step up in grade and production at the end of quarter three and through quarter four. This pit is only 1 kilometer from the Kibali plant and is a relatively high grade deposit with much better metallurgical property, which means that this ore can be processed through the oxide circuit rather than through the sulphide flotation circuit. In addition, the operator, Randgold gold has tasked the exploration team with delivery 50,000 additional ounces of plus 3 gram by the end of the year. With the current pit already being fast-tracked, two smaller satellite pits are currently being evaluated as part of this exercise. Randgold has therefore maintained Kibali’s production guidance for this year on a 100% basis at 600,000 ounces per year. Slide 23, Colombia, Colombia is our medium and long-term optionality in our portfolio. We’ve committed to complete the prefeasibilities at Gramalote and Colosa project by the end of the year 2017 and Quebradona in 2018. This will allow for decisions in late 2017 and early 2018 as which direction AngloGold wants to take. It’s important to note that in 2016 Gramalote was permitted by the Colombian government and is a first major mine to be permitted in approximately 30 years. We are managing the temporary [ph] resource of 37 million to 38 ounces and we plan on making ultimate decisions as far as path forward in late 2017 early 2018. Thank you. And I’ll now hand over to Christine.

Thank you, Ron; and good morning and good afternoon everyone. As you heard from Venkat and my other colleagues, we continued to deliver on our target reflecting improved cost management metrics and lower debt levels. The trebling of free cash flow generation compared to the first half of last year, reflects the improved efficiencies, our strong leverage to gold price currencies and the oil price, as well as the interest savings on the back of meaningful debt reduction. I’ll now talk through our first half performance and conclude on the outlook for 2016. Moving to slide 25, our currency exposure across various geographies in which we operate, continues to provide a natural hedge to inflationary effects and to the volatility in the gold price. As reflected in the graph, the AGA production weighted increased in the gold price. This diversification differentiates AngloGold Ashanti from the majority of the peer group, providing continued resilience in a volatile market as we realize currency benefits in about two-thirds of our portfolio. The lower Brent crude oil price benefits our input costs, in particular in Continental Africa and in Tropicana in Australia. We remain sensitive to changes in currencies and the oil price and we issue the following sensitivities with a health warning. For every $10 per barrel change in the average Brent crude oil price, it will impact our cash cost by approximately $8 an ounce. And for every 1% change in our currency basket, it will impact our cash cost by approximately $6 an ounce. Slide 26, H1 2016 reflects continued strong cost discipline, despite 7% lower production. Year-on-year production FROM continuing operations declined due to weaker production from Kibali, Obuasi’s move into limited operation, planned decline in grades at Tropicana and Geita as South Africa’s disruption links to safety stoppages, which were partly offset by improved production at Mponeng. The lower cash costs and all-in sustaining costs for H1 2016 at $706 an ounce and $911 an ounce reflect the benefits of our cost savings initiatives, weaker currencies and lower oil prices. We saw good improvement in all-in sustaining costs across the region in South Africa, in particular at Mponeng, CBSA, both South Africa and Argentina benefiting from weaker currency and the latter benefiting from higher silver byproduct sales. We saw further reductions and cost reductions at Sunrise Dam, Siguiri and Iduapriem. All-in cost for H1 was 3% lower than the prior year period at $982 an ounce on the back of lower all-in sustaining costs and lower project capital. We expect all-in sustaining cost to trend higher in the second half, due to higher sustaining CapEx, as well as higher exploration and corporate costs in line with historic trends. Despite a 2% lower adjusted EBITDA at $781 million for H1, the EBITDA margin improved to approximately 40% from 39% last year. Free cash flow for the first half at $108 million more than trebled year-on-year on the back of lower cost, interest savings and the higher gold price despite negative working capital movement. The negative swing in working capital of $131 million from last year primarily related to a delay in an Argentinean shipment of $28 million and increased VAT receivables, particularly as it relates to Tanzania and South Africa. The Argentinean shipment proceeds were received in July. However, timings of recovery of debt receivables are unpredictable in nature especially in Continental Africa. We expect working capital to improve in the second half, in line with the past trends. Slide 27, the half year ended with adjusted headline earnings of $159 million compared to $61 million last year, reflecting an improvement of 161%. We adjust headline earnings for unrealized losses on non-hedged derivatives, fair value adjustments, and impairment for comparability purposes. Adjusted headline earnings benefitted from weaker currencies, higher gold prices, lower finance and operating cost as well as the positive impact of translation differences on deferred tax in South America. This was offset in part decline in ounces sold, inflationary effect and lower income from the Kibali and Morila joint ventures. Our consistent focus on margins has resulted in the steady reduction both in our all-in standing cost and all-in cost per ounce. This is now slide 28. Although lower oil prices and weaker currencies have helped with the cost reduction, our focus has been on the controllable factors such as cost management, portfolio improvement and operational excellence, particularly maintenance strategy. All-in sustaining cost has been reduced by approximately $415 an ounce, one-third from H1 2013 and all-in cost has been cut by more than 40% over the same period. Our margins have improved through the cycle, reflecting a 2% improvement in our all-in sustaining cost margin compared to last year at 25%. Moving to slide 29, looking at the cost performance in detail, year-on-year, we note that both weaker currencies and volumes were each delivering the improvement in cash cost for the first half, although this was offset by inflation and a planned reduction in grades at Geita and Tropicana. All-in sustaining cost per ounce was $13 per ounce lower in H1 compared to last year on the back of lower cash cost and lower corporate costs. Slide 30, the net debt level in the Group fell by 32% from last year, mainly due to the $819 million net proceeds received on the disposal of CC&V in August 2015 as well as strong cost management. Going forward, we expect our positive cash flow momentum to continue benefitting from efficiency improvement as well as the leverage to gold price, currencies and the oil price. We have saved $34 million on the interest bill compared to the first half last year by repurchasing approximately 62% of the high-yield bond. On 1 August, we fully redeemed the remaining balance of the high yield bond from cash on hand and draw on our U.S. dollar RCA facilities to the extent of $330 million. The repayments of the balance of the 8.5% bond will further reduce the Group interest bill by $40 million on an annualized basis. The premium on the redemption was $30 million and is a one-off cost that will come through in the second half, which will be excluded from adjusted headline earnings for the full year. Our net debt to adjusted EBITDA ratio of 1.44 times reflects ample headroom to our covenant labels of 3.5 times net debt to adjusted EBITDA. Our balance sheet remains robust with strong liquidity, sufficient undrawn facilities and long dated maturities, providing the financial flexibility required in the current volatile environment while positioning the company for value adding growth. Lastly slide, 31. Finally, we maintained both, our overall production and cost guidance for 2016 with stronger production and higher cost expected in the second half. Our annual production guidance remains at 3.6 to 3.8 million ounces taking into account the disposal of CC&V, Obuasi in limited operation phase with no production, planned reduction in Geita and Tropicana, according to the mine plan and declining production in the in the Mali mine. South Africa’s production has been significantly impacted by the safety stoppages. Going forward, South Africa’s planned recovery will be impacted by the safety stoppages, although, we should bear in mind that the first half in South Africa was slower, post the festive season and Easter break. No production disruption, power shortages or changes to the asset portfolio have been factored into the uplift. Cash costs of $600 to $720 an ounce and all-in sustaining cost of $900 to $960 an ounce take into account to revised average exchange rate and oil prior as stated, as well as production guidance and grade variances. Capital expenditure of $790 million to $850 million includes project capital of $120 million to $140 million relating to Siguiri, Kibali and Geita underground at Mponeng with 85% of CapEx in 2016 relating to sustaining capital. The expected increase in capital spend relates primarily to South Africa, which was impeded by safety stoppages and an expansion at Mine Waste Solutions. It also includes increased spend in Continental Africa with particular reasons to Geita and Siguiri, which will now gain momentum now that the agreement has been reached regarding the fiscal and other project terms with the governmental authorities. I will now hand over to Venkat to conclude.

Thank you, Christine. To conclude, we have seen another half year of fairly consistent performance and one where our margins have widened further. We have kept our annual guidance unchanged. With reduced debt levels and improved free cash flows, our balance sheet remains robust. Our focus areas remain the following: Continuing to work to improve safety in our South African operations; Continuing our various engagements in Ghana for the authorities to resolve the law and order at the Obuasi mine; Providing support to the Randgold team in their efforts to reach annual targets and to effect sustainable improvements at Kibali; Advancing our exciting slate of near to medium-term, high-return Brownfields project that Ron touched upon; And advancing our Gramalote and La Colosa projects through to the end of their prefeasibility studies and related reserve declaration from those projects at the end of next year. I’ll now hand you back to Stewart.

Alright. Thanks Venkat. And we’ll take questions now. Chris?

Thank you, sir. [Operator Instructions] Our first question is from Richard Hatch of RBC Capital Markets. Please go ahead.

Richard, go ahead.

Richard, your line is open.

Chris, maybe let’s just go to the next question.

Not a problem. Next question is from Eily Ong from Bloomberg Intelligence.

Hi, good afternoon; Eily Ong from Global Intelligence. Thank you for taking my question. Three questions, if I may, probably for Venkat and Christine. The first question is on your balance sheet. In your view, what is the optimal AngloGold Ashanti balance sheet structure? Following to second question, given your ongoing efforts to lower debt, do you think it’s prudent to protect the balance sheet in any event of gold price decline, which the market consensus is expecting in next two years, especially in context of what Christine say of potential higher all-in sustaining costs in the second half? And my third question is on CapEx. Given it’s already August, I was just wondering if you could give us a little bit of color on what to expect the CapEx to progress next year; is there a range that we could be looking at? Thank you very much.

Actually, let me pick up the overarching theme coming through on your questions and then pass it across to Christine, it’s Venkat here, to cover the detail. Firstly, from the optimum point on the balance sheet, we did say that over a year and a bit ago, we said that our balance sheet has got higher debt, we are targeting a covenant ratio of about 1.5 times through the cycle, we will achieve that with the sale of one of the assets CC&V mine, and further application of cash to reduce debt. And at the same time, the target we set ourselves was to reduce and optimize interest and that has been done by taking the high-yield bond out of the equation. In terms of actually ability to withstand gold prices, and without getting into the debate on consensus, the balance is quite robust. We have withstood gold price falls before, which have been steeper with a higher amount of debt. And one has to bear in mind, given the portfolio diversification we got a natural hedge from currency in the event gold price falls in the back of U.S. dollar strength. That’s the sort of overarching comments. I’ll hand you over to Christine to comment on those and your response to your CapEx question.

Yes, I think the only other comment I would like to make is that by redeeming the high-yield bond, we have actually reduced the high [ph] debt. Yes, we’ve actually reduced -- redeemed the balance of the high yield bond through cash on hand as well as a draw on the RCA facilities but the flexible debt; and as cash becomes available, we will actually repay debt, the RCA facility. I think as it relates to CapEx, which was your second question, I think importantly is we despite be holding the guidance -- I just wanted to clarify, did you want to speak about the CapEx in the second half or next year?

Next year.

Next year? We’re not actually guiding on next year at this point in time. I think we will certainly guide on next year’s CapEx later in the year, we normally do that at financial year end. I mean, we’ll guide on CapEx for the coming year. I think in particular as it relates to the second half, I think I have covered as to which -- it will comprise of increased CapEx, both across the project capital and the sustaining categories, there has been a lag but this is in line with historic trends. And I think particularly as it relates to projects, with the Siguiri project that’s gaining momentum and then obviously the Kibali and Geita underground and then there is an Mponeng project as well that’s included in project capital.

Yes, thank you very much.

Thank you.

Thank you. Our next question is from David Haughton of CIBC. Please go ahead.

Good morning, Venkat and team. Thank you for the update. I know that you’ve gone through this with the South Africa audience, so thank you for the North American run of this too. Just following on from Christine’s response, just having a look at that CapEx guidance, I’m not so much worried about the spend rate on the development CapEx which is $120 million to $140 million, it’s the catch-up on the sustaining. Is there any particular project or mine rather that has got a catch-up or is it just across the board as far as getting back on track to your guidance?

So, thanks for the question. I think it’s across the board, but in particular we see the catch-up in South Africa. And as we see, South Africa was impeded by safety stoppages. So, we see a catch-up there, and in particular in South Africa as it relates to Mponeng as well as the Mine Waste Solutions, Vaal River Surface operations by our planning and expansion. And so that’s where we’re actually seeing a catch-up. And then of course at Kibali, in Continental Africa, as well as Geita underground we’re seeing increases in CapEx coming through in the second half and of course not to mention Siguiri as well. And for the balance of it, it’s really across the operations we’re achieving the catch-up in sustaining CapEx coming through. And I think just to point out, this is very much in line with what -- with trends that we’ve actually seen previously, typically the CapEx spend in the third quarter increases but you really see a big catch-up coming through in the fourth quarter as well.

Okay. Then having a look at the production, you just touched below the run rate for the lower end of your guidance, and I would expect then -- South Africa would also be the catch-up there. You don’t have the holidays and as much impact hopefully of those safety stoppages. Kibali should be coming back on track and Tropicana likely moving into better grade. Is that the main points or where you’d expect the catch-up in the second half of production?

David, that’s absolutely right. The uptick comes in, in terms of South Africa, not so much in the third quarter, but in the fourth quarter, which tends to be the better quarter and hopefully normality returns on Section 54s. Then Kibali is certainly another area that where the production picks up. In addition to that, you referred to Tropicana and Sunrise Dam, as well as in terms of the fourth quarter. And one shouldn’t forget Brazil is getting back into higher grades, in the third and fourth quarter. Those are the broad areas of catch-up, and that’s one of the reasons we are actually -- we’re quite confident in terms of the production guidance aspect here. And when you talked about the run rate at the lower end of the guidance, we made it 47% of the midpoint of 3.6 to 3.8 million ounces. And if you look back in history, generally the first half of the year at some instance has been even as low as 43% or 44% at times.

Yes, you have a lot of trouble with downtime for Christmas and Easter and you tend to get that in the second half.

Correct.

Okay. Just, Ron had been talking about Tropicana potential for 30% increase in throughput, nameplate currently 5.8 million tonnes. I presume it’d be going to something like 7.5 million tonnes. What sort of CapEx would be required and timing would be required to get to that level?

Well, actually we’re almost there, if you look at that chart. Last quarter, I think we were at 6.8 million tonne run rate. So, there hasn’t been -- there isn’t a lot of capital, if you went back, we did a little stockpiling, improved some conveyer systems and it was all about getting a higher pressured grinding circuit to 95% of its capacity. So, we’re basically there. What we did add and we’ve already spent, it was about $20 million on two tanks to add retention time to the CIO plant, and those actually started up last week. So in my opinion, all we have to do is get from 6.8 to 7.2, and we are confident we’ll be there before the end of the year.

Okay. And is there any change in the hardness of ore as you’re moving through. Should we be concerned as the pit goes deeper that throughput rate might need some additional upfront crushing or grinding to be able to sustain that plus 7 million tonnes per annum?

No, we’ve done considerable met testing on material and it doesn’t seem to be any different at all. And I think what some people may be missing is the real key to this is you increase -- you can go back to full grade ore. The whole plant at Tropicana was around grade streaming to get to pay back. And by extending and deepening these mines, we’re able to go back and feed a 100% of full grade ore versus nominal 80% and 20% from a stockpile. That’s the real key is to extent the mine life at nominal production.

Okay. Over to Obuasi, you’ve initiated arbitration with the government. What’s the next step?

I think, there are two traction progress at the moment. David, obviously the diplomatic engagement continues with the government in terms of getting them to fast track the removal of illegal miners from the site. I’ve got to be honest; it’s been quite frustratingly slow in this regard. The government has shown their ability to act when they want to. We have seen that with regard to when the illegal miners were entering the area where we were using to basically pump water and for ventilation purposes and we said, if this continues, we’ve got to draw our people on grounds of safety. And the army, which has actually stationed at the mine, was quite helpful in removing the people, the illegal miners from those areas. We’ve actually given two-thirds of the concession that we don’t need back to the government for them to redistribute the pit. [Ph] They’ve established a movement committee, which is working currently with a view of trying to see how they can promote artisanal mining, understandably illegal mining doesn’t fall under artisanal mining; it needs to be regulated. So that process is ongoing. Needless to say, there is an election period coming up in Ghana, which is obviously going to distract people in terms of moving as fast as they can, but at the same time our process in terms of the arbitration is proceeding, each parties are nominated, they are arbitrator and the two arbitrators together should choose an independent arbitrator and then the hearing will actually commence in that regard. So, it is a slow process but nevertheless one where we keep engaging with the various levels within the government and also the local traditional structures and the local community. And that’s why you see a number of people speaking up in the media in favor of Obuasi and again, what’s happening in terms of illegal mining there.

Of the thousands of illegals or people coming on site each day, is that both on the surface and underground?

David, it’s Stewart here. It’s predominantly underground.

Okay. And how are they gaining access then, if you’ve got control of that or has everyone just sort of disappeared, the army is not there and they can walk in and out of the decline as they wish?

No, no, no. They are not going in the decline. These are just sort of informal adducts [ph] that have been created at various points on some of the nearer parts of the underground workings and some of the further extremities, and they are, just to be clear, on areas that are not being properly built. [Ph]

Yes. In fact, the reality is what’s happened that the military was originally sent in after close to about 2.5 months to help make the area safe, and they were making it safe when their instructions were withdrawn by the government at that stage and they were asked to guard the shaft entrances and the entrance to the decline. So, it’s like guarding the front portion of the house when something is coming through the roof in fact. That’s the dilemma we have, which is the frustration we face. We are appealing to the government to basically go in and have a look at it. They’ve had a number of inspections to the site at various levels and various ministers all pledging action but we have not seen the action emerge. A lot of words but we haven’t seen the action come through.

Okay. Just moving over to balance sheet, free cash flow generation obviously raises the question that I’ve seen mentioned in the press already this morning about dividends. What’s your view on dividends now?

Thanks David, I’ll answer the question. I think certainly it is on our agenda, and we are -- what we said previously is we really wanted to get comfort around the sustainable levels of free cash flow generation and we certainly are there. And I think that it’s something that will be considered by our Board at the end of the financial year. I think from a management perspective, we certainly see dividends being a component of our capital allocation and I think certainly a component based upon free cash flow generation.

Okay. So, the Board consideration for year-end, presumably if a dividend is going to be announced, it would be tied with the year-end results. Would there also be some statement of a policy do you expect so that instead of it being a one-off, there is some sort of formula that we could consider?

Yes, I think absolutely, it will be as part of a policy and we see that policy being linked to a component of free cash flow generation. And yes, I think it’s likely at the end of financial year.

Thank you. Our next question is from Tanya Jakusconek of Scotia Capital. Please go ahead.

Yes, good morning everybody. I just wanted to thank you again for the North American and United call that you’re hosting. I have a couple of questions. I think I heard you mention that you did not felt everything that you produced in Q2, you had a shipment of gold and silver that was sold after Q2. Is that correct and if so how much?

Yes, hi Tanya. We did sell it at the end of June; it was just a cash proceed that came in post the end of the half year. So, it came through -- that was $28 million in Argentina and that actually came through in the first couple of days of July.

Okay. Alright. Okay, sorry about that. I thought it was actual gold sale. Then my second question comes back to the Sadiola sulphide then, we were on the IAMGOLD conference call and heard that portion of what’s being done at the Sadiola sulphide and the economics do look promising. But perhaps you can remind us what exactly you’re doing with the government in terms of getting the power and the fiscal schedule in place to move forward with this? What exactly needs to be done and what do we need?

I think there are two parts to this Tanya. Firstly, the feasibility study, which IAMGOLD actually had, we are actually working with the IAMGOLD team to refresh it, get it more up-to-date and also doing some additional work, which Ron will touch upon, in terms of actually optimizing the study further to improve the returns. It is a good project, don’t get us wrong. But the three things which need to happen from a government point of view; and here again we are working very closely with IAMGOLD and with the governmental authorities, it’s around getting the reliability and affordability of power aspect, one. Secondly, the fiscal stability and concession over that period where the project is actually going into development mode and production mode; and finally the various permits. We concur with IAMGOLD that as far as the government is concerned, they are not -- they wouldn’t want to see Sadiola close. So, it’s in their interest to basically provide the consent that we are both seeking from the government in this regard. So, what we want to do is to get the approvals from certainly both those, then go to the government as part of this approval exercise to say where are you in terms of your thinking, in terms of the three areas of approval. Ron can perhaps cover the areas on the feasibility study that is being worked upon.

And Tanya, there is two areas that are changed from the past feasibility study. One is tailings deposition, which is the big cost savings and capital; and the other one is around really the mine plan, if you got into the capital, it had a huge deferred capital spend upfront. And the work that’s been done in the past 2.5, 3 years of identifying some materials in the satellite pit, really changes. So it’s a more on the planning. And both -- actually IAMGOLD’s team is here this week to come to conclusion on these. So, it’s moving forward. And they know what we said; we don’t always have to agree in timing and but we’re working through it. And I think we’re both as excited about the potential of Sadiola.

Okay. So, I understand the reliability of the power, I guess the taxation and so forth that has to go in and the government’s contribution et cetera to that. But maybe just on the permitting side, what exact permits are required?

Actually, we’ve got to refresh, but the big one is around the change in the tailings deposition, which is, if we’re moving it and actually doing or asking to go back in and use an old pit as -- in their tailings, and that has to be approved through their environmental ministers. And we’re getting the information and we’re working through that. That’s the major one. There is the other typical ones, but they were approved and now have to updated.

And the advantage here Tanya is the government of Mali is a shareholder in the mine. So, the information which we provide at the Board meeting is shared to them real time and they clock in directly to the Minister of Mines.

Okay. That’s good. And then, maybe just one last one if I can, just on Tropicana, just to make sure I understood that you are looking at a new mining method underground. Is that what I understood?

It’s basically -- if you go into instead of large cutback to consume considerable upfront deferred capital, you take this more into a large volume, large production in low volume areas, so you can get to the ore fast. But the key is you’ve got to be backfilling pit to reduce the mining costs. And it’s a non-typical in the gold sector.

And so, what sort of cost savings are we expected to see with this; are we expecting cost to decline by 20%, just as an idea?

From our current mining costs, yes, we would expect maybe even more than 20; 20 would be a pretty considerable number. But, we’re working through that right now, because all has to do with length of haul and height of haul, and that’s exactly what we’re working through now.

Okay. Look forward to hearing more about it. Thank you.

Yes.

Thank you. Our next question is from [indiscernible].

Hi. Thank you very much for the call. My question is regarding your cost guidance. On your cost guidance, you are assuming the rand would be something like 14.97 and the Brazilian peso 15 I think or something and so on. My question was -- I mean, would you be able to keep your guidance if the rand is maybe 13 or went down to 12 and if the other currency is also firmed?

Yes, I think that’s why we give you the assumption, and those are average assumptions for the year. So, obviously, you are going to get current spot and then you’ve got to look at what is your average assumption for the full year. And I think when you take those assumptions into the account; we have hold it across [ph] guidance that we’ve given. And I think we’ve also given you the same sensitivities to cost. So, I think if the deal were to change, we would have to assess it. Right now this is the view. And I think you’ve got to plug in your model as to what your assumptions are and I guess you know leave an effect.

Thank you. Our final question is from John Tumazos of John Tumazos Very Independent Research.

Thank you for taking my call. I just wanted to ask if you have completed the debt reduction phase and you’re moving into the asset accumulation phase again, in which of your operating countries you think are most prospective to add assets.

If I can pick the answer to your question here, one thing which will not change in our approach is capital discipline. So, when you use the word asset accumulation, it’s certainly not shopping around with the check book. We’ll certainly be very focused in terms of returns, and that’s why we are looking at projects are incremental and effectively expansion in terms of our existing mine site and our existing operations which have got modest capital, high returns and relatively good payback. In terms of prospectivity, they are pretty much outlined in the presentation that Ron gave. We see Australia as being quite prospective, South America as being prospective, areas of Continental Africa being quite prospective as well; and in terms of South Africa, we see Mponeng having the potential to be a flagship mine going out into the future. So that’s the area of focus in this regard. I hope that answers the question?

Sure. So, you’re hunting everywhere.

No, we’re not hunting everywhere, in our own backyard.

Thank you.

Thank you.

Thanks, John. Everybody thank you very much for making the time this afternoon. We know it’s a detailed presentation. And Sabrina and I are available to take any further questions after this call. And we’ll chat to you again in November with our trading update.

Thank you very much, sir. Ladies and gentlemen that concludes this conference. Thank you for joining and you may now disconnect your line.