AngloGold Ashanti shows strong cash recovery in Q3

Cape Town – AngloGold Ashanti [JSE:ANG] posted a strong free cash flow generation for the third quarter ended 30 September 2016 at $161m (R2 310.35m), which helped the group to further reduce its net debt. 

In a statement to shareholders the group ascribed the stronger cash flow position to the development of affordable, high-return brownfields projects. 

The $161m free cash flow for the period ended 30 September 2016, is a significant improvement from the $50m outflow recorded in the same period in 2015, and was a 49% improvement from the $108m in the first half of this year, the mining firm said on Monday. 

Cash inflow from operating activities for the third quarter of 2016 was $386m – a 59% improvement from the corresponding quarter in 2015. 

The improvement in cash flow was achieved despite lower production and can be ascribed to the higher gold price year-on-year. 

AngloGold Ashanti CEO Srinivasan Venkatakrishnan said the increase in costs experienced in the second half of the year was made worse by the poor performance in South Africa, a delay in accessing higher grades of gold in Brazil, capital expenditure absorbed over fewer ounces and strengthening currencies. 

“Work is already well advanced to turn this around in the near term by improving volumes and accessing higher grades,” he added. 

Production 

AngloGold Ashanti’s production in the third quarter of 2016 was 900 000 ounces (oz) – lower than the 974 000oz recorded in the corresponding quarter of 2015. 

South African production dipped 7% year-on-year to 235 000oz, mainly due to lower average recovered grades. Lower production from international operations of 665 000oz was as a result of lower grades as planned. 

AngloGold’s adjusted earnings before tax, depreciation and amortisation (Ebitda) rose by 36% to $395m in the third quarter of 2016 – up from $291m in the corresponding period in 2015. 

The improvement was mainly due to an increase in earnings after a 19% gain in the average gold price year-on-year – from $1 123/oz to $1 334/oz. This, however, was partially offset by strengthening currencies in some countries. 

Net debt was lower at $1.972bn, compared to $2.098bn in the second quarter of 2016, and also lower than the $2.291bn recorded in the third quarter of 2015. 

The reduction in net debt, along with improved adjusted Ebitda over the past 12 months has resulted in net debt to adjusted Ebitda ratio of 1.26 times, compared with 1.54 times in the third quarter of 2015. 

Projections 

AngloGold Ashanti’s outlook for production and capital expenditure for the full year has been “narrowed”, primarily due to the strengthening of local currencies. 

Production is expected to be between 3.5moz and 3.65moz (previously 3.6moz and 3.8moz), while capital expenditure is projected to be between $790m and $820m (previously $790m and $850m). 

Both production and cost estimates assume neither labour interruptions, power disruptions and changes to asset portfolio and operating mines.