Obuasi turns the corner for AngloGold

Allan Seccombe | Mon, 03 Aug 2009 08:56
[miningmx.com] -- It has taken five years, but the first real glimmers of potential are shining from AngloGold Ashanti’s Obuasi mine in Ghana.

AngloGold has revised its mine plan at Obuasi and it has the added fillip of lower electricity and contractor costs, which meant for the first time the mine has generated positive cash flow for the group since it took over the Ashanti assets five years ago.

The mine has loads of potential, with 500,000 oz of output on the cards, but it’s going to take a two or three years. The focus on the mine has shifted from chasing after increasing the ounces to restore the mine to profitability to mining smarter to give the mine a margin at current production levels of around 400,000 oz and providing a floor off which to build up output.

There are three operations that will form the backbone of African gold production outside South Africa. These are Obuasi, Geita in Tanzania, which coincidently is also receiving very close management attention, and Siguiri in Guinea.

“Those operations on a combined basis should be delivering 1.5 to 1.8 million ounces and generating R500m free cash flow,” said Mark Cutifani, AngloGold’s chief executive.

Those three mines, annualising the June quarter production numbers and forecasts, will produce slightly more than a million ounces this year.

Cutifani told the market when he started in his position a year and a half ago that he wanted Africa to turn from a negative cash flow in five years to generate $500m positive cash flow. He says the group is half way there in less than two years.

In the June quarter the African operations outside South Africa contributed $57m to the group and annualising that shows cash flow of $228m.

The new mine plan at Obuasi involves longitudinal retreat mining as opposed to transverse stoping. What this means in English is that basically AngloGold will run tunnels straight into the ore body instead of developing lots of off-reef tunnels to mine gold-bearing rock.

This has major cost implications.

“You take a lot of the development out of the mine, 400km over the next seven years,” said Cutifani. “It makes a big difference.”

Richard Duffy, head of African mining, estimated development – or digging out rock that doesn’t contain gold to put tunnels into the ore body – at $5,000/metre. “It fundamentally repositions this asset. It means more continuous mining, which in turn improves productivity and costs,” he said.

It will take two years to implement the new mining method. At the moment, just 20% of the stopes have been moved over to the new mining method and the mine, for the first time in AngloGold’s hands, has generated free cash.

Expanding production beyond 500,000 oz/year from Obuasi below 50 level by initially using ramps and declines will be funded from cash generated by the mine rather than from the parent company.

A similar two-year time frame is needed to bring Geita up to 500,000 oz and possibly more. Siguiri is also benefiting from the adjusted management thinking, Cutifani said.

The thinking at the troubled opencast Geita mine was it needed to lift production to make it profitable, but the thinking has now switched to making it profitable at current production levels and then grow production.

“The team, for the first time, is really focusing on real business approaches, driving cash flow and real value instead of just fixating on absolute production,” said Cutifani.