AngloGold’s Dushnisky sets two-year window on whether to re-invest in SA

Mponeng

ANGLOGOLD Ashanti had two years before deciding whether to continue investing in South Africa, said the group’s CEO, Kelvin Dushnisky.

“We don’t really need to decide now,” said Dushnisky of whether to press the button on the phase two expansion of Mponeng, the only mine the group has in South Africa after having sold Moab Khotsong and Kopanang earlier this year (whilst still retaining some surface re-treatment facilities).

Commenting in the firm’s third quarter production results, Dushnisky said budgeting for 2019 was not yet complete, but investment in South Africa would continue in the short-term amid a solid performance from the mine. The group concluded a new three-year wage deal with South African unions and signed an agreement on new shift patterns, primarily focused on mineworker safety.

“The restructuring of Mponeng was well executed and it is cash flow positive,” said Dushnisky of Mponeng’s strong cost performance in the third quarter. “I don’t think we can do a victory lap after one quarter. But we want to continue to be positive, and we are investing capital. The mine will be measured on the same metrics [as other mines in the group for capital allocation] but generally-speaking, I’m pleased with the progress.

“We have another two years to decide; we’ve got a window,” he said.

Analysts have commented that continued exposure to South Africa was a millstone around AngloGold’s neck owing to the high cost of mining technically challenging and labour intensive deep, underground mining. If Mponeng was excluded, AngloGold falls into the median quartile in terms of global all-in sustaining costs (AISC) from the top quartile of costs, said Patrick Mann, an analyst for Bank of America Merrill Lynch.

There was similar scale risk attached to AngloGold’s Tanzania mine, Geita, although under significantly different circumstances. The mine requires investment in order to extend its mineral reserves from 2.7 years to its preferred reserve scenario of about 12 years.

Dushnisky was optimistic the Tanzanian government would acknowledge a Mine Development Agreement (MDA) governing the fiscal arrangements for Geita prior to new mining legislation enacted by the East African country this year.

He added that Geita was a question of continuous investment in which the mine would transition from an open pit format to underground mining. “At the moment, we have about three years of ore reserve life left at Geita which I think is reasonable. The mine will have to continue to perform and be self-sustaining”.

The mine reported a hefty lift in total cash costs in the third quarter which came in at $735/oz compared to $586/oz for the third quarter of AngloGold’s 2017 financial year. This was down to the increased cost of operating underground. Diesel was also more expensive, whilst normal inflation had an effect. But there was also a hit from “… additional royalties and clearance fees”.

Earlier this year, Tanzanian president, John Magufuli, signed off on new mining legislation that increased royalties and levies that is estimated to cost Geita an additional $20m/year, equal to an increase in costs of $40/oz. VAT repayments totalling $19m were also locked up  as of AngloGold’s interim on June 30.

Dushnisky expressed confidence that the application of the new legislation would be “… sorted out” which he hoped would be “sooner rather than later”. Asked for clarity on his optimism, he replied: “We will institute the right of our MDAs” – effectively stabilisation clauses in the mining right awarded by the Tanzanian government and which is now subject of an International Court of Arbitration proceeding.

“Our objective is to get this resolved over time. That’s Plan A,” he said. As for VAT repayments, he said they were being paid “… slowly”.