AngloGold prepares Sadiola sale as Dushnisky opens account seeking “simpler” portfolio

Kelvin Dushnisky, CEO, AngloGold Ashanti

KELVIN Dushnisky described AngloGold Ashanti’s 14 mine portfolio as “heavy” and reiterated an earlier comment that the group would streamline, focusing on assets that had “critical mass” and offered “optionality”.

Dushnisky, formerly president of Barrick Gold, was appointed CEO of the Johannesburg-headquartered gold producer on July 23.

Speaking during a media conference call following the publication of AngloGold’s third quarter operating numbers, Dushnisky said it made sense to streamline the company over time, starting with the possible divestment from Sadiola, a mine in Mali which was previously owned by Anglo American Gold & Uranium division, the precursor to AngloGold.

AngloGold said in its quarterly notes that it and its partner in Sadiola, IAMGOLD, “… have initiated a process to identify third parties that may be interested in acquiring their collective interests in Sadiola”. The two companies own a combined 82% stake in the mine. The divestment process was at “… a very preliminary stage”.

The potential divestment from Sadiola comes as capital spend decisions are required for a   sulphide project which also requires an agreement with the Mali government. In this context, selling Sadiola also demonstrates that assets with a long-term future will best compete for capital allocation in the new AngloGold.

It said in opening its third quarter commentary that it remained “… committed to its strategy of safely improving cash flows from a simpler, higher quality portfolio”.

AngloGold’s sole underground asset in South Africa, Mponeng, is still considered core, however.

“There are no plans to exit the operation,” said Dushnisky today who added that whilst the 2019 budget cycle had not been completed, there were commitments to continue exploring in South Africa. Mponeng has a Phase Two project currently awaiting budget support.

All in all, AngloGold posted a strong set of third quarter results although free cash flow fell to $34m compared to $88m in the corresponding quarter of the previous financial year. This was owing to higher working capital timing of gold sales, prepayments and dividends received. A lower capex bill and cost management helped offset the effects.

As reported previously, AngloGold is heading for a strong production year in which it would test the upper end of full-year production guidance, set at 3.38 million ounces. Production with nine months of the financial year down was 2.48 million oz. Some 851,000 oz was produced compared to 979,000 oz although the group sold its Moab Khotsong and Kopanang mines earlier this year.

The impact from the sale of the South African assets was clearly visible with total cash costs falling about 25% in that region quarter-on-quarter and 18% year-on-year. Group-wide, total cash costs improved 11% year-on-year to $722/oz in the third quarter.

TANZANIA

Dushnisky acknowledged that political risks were increasing in a number of regions, although he later qualified this was a broad comment not meant to directly refer to AngloGold’s exposure, especially in Africa.

Nonetheless, AngloGold is potentially vulnerable in Tanzania where a dispute between Acacia Mining and the Government of Tanzania carries risk of spill-over. The government recently referred to “… a war it was fighting in its mining sector” – a reference to the Acacia dispute, which is over unpaid tax.

Dushnisky said there was no evidence of civil dispute near Geita, AngloGold’s largest single operating mine and where major capital calls fall due in the medium-term. “We are not seeing that in Geita,” he said in response to a report from a non-governmental organisation in Tanzania of police brutality at Acacia’s North Mara mine.

Geita continued to perform well, he said. “We have a strong relationship with the community so from Geita’s perspective we have no problem continuing,” he said. Asked for his view on Tanzania, Dushnisky said: “I do know Tanzania. I am positive about the country generally-speaking”. He said the application of new mining legislation “… had created concern and we hope it will be addressed”.

Geita contributed to nearly 22% of earnings before interest, tax and depreciation from 2012 to 2017 off some 500,000 oz/year in gold production on average, or 13% of total output.

In addition to his previous role at Barrick Gold, Dushnisky was also previously chairman of Acacia Mining. He said today he had not met Tanzania’s president, the controversial John Magufuli.