Chief financial officer’s report
Maintained balance-sheet flexibility in a year characterised by a falling gold price coupled with operational and industry challenges.
The year under review was marked by a falling gold price, which decreased by almost $500/oz over the course of the year. This put increased pressure on the business, as highlighted by the CEO in his report. From a finance perspective, the balance sheet received immediate attention, particularly around liquidity and financial flexibility. Ongoing, high capital spend of close to $2bn, as the Tropicana and Kibali projects moved closer to production, added to the funding pressures. Liquidity and financial flexibility requirements were pro-actively addressed from July through to year-end, as set out in my feedback on delivery against 2013 finance objectives as discussed further on in this review.
The lower gold price resulted in a mid-year write down of some $3.4bn (pre-tax) of mining assets, equity-accounted investments and stockpile and other inventory values. The group continued to maintain a balance between financial flexibility and growth options to enhance shareholder value through continued funding of its key growth projects (Tropicana, Kibali, Cripple Creek & Victor’s Mine Life Extension project and the Mponeng Below 120 level project), while targeting the sale of non-core assets, and driving cash conservation and cost saving measures.
The successful commissioning of the two new expansionary projects at Tropicana and Kibali, with both being completed ahead of schedule and within budget in the third quarter, is to be commended. These new projects contributed to the company’s first year-on-year growth in production since 2005. Production from the America’s increased to 1Moz for the first time with the higher output and grades principally at Cerro Vanguardia and the first full year of 100% ownership of Serra Grande after the 50% increase in shareholding during July 2012.
In Australia, Sunrise Dam also performed better than in 2012 on the back of improved output and grades although planned targets were missed with mill failures and delayed access to higher grade areas.
Challenges around the recovery from the unprotected South African strike in 2012 continued into 2013, exacerbated by disruptive safety stoppages. The decline in production was, however, partly offset by higher grades mined. In Continental Africa, production was further impacted by the replacement of the semi-autogeneous grinding (SAG) mill at Geita, the transition to owner mining at Obuasi and operations, such as Yatela, nearing the end of their working lives.
The sharp retreat in the gold price resulted in the company, together with several others in the industry, being downgraded by global ratings agencies. AngloGold Ashanti was downgraded by a single notch, by both Moody’s Investor Service and Standard and Poor’s (S&P), to baa3- with a negative outlook and BB+ with a stable outlook, respectively. The Moody’s rating places the company at the lowest level of investment credit grade and S&P has the company at the top level of subinvestment credit grade.
Delivery against 2013 financial objectives
Maintaining a flexible statement of financial position with sufficient long-term debt headroom
The falling gold price in 2013 significantly increased funding pressure given the planned capital intensity around the completion of the two core, high-margin, long-life projects, Tropicana and Kibali. Net debt was forecast to increase over this period, before the gold price drop, and the group therefore moved prudently and pro-actively to manage its financial flexibility. The steps taken in this regard included:
- Successful issuance, in July 2013, of an 8.5%, seven-year $1.25bn bond, with part of the proceeds being applied to early settle the $732.5m convertible bond due in May 2014 and cancel the associated $750m stand-by facility, put in place as a contingency refinancing measure;
- Precautionary and temporary easing of our net debt to EBITDA banking covenant, from 3 to 4.5 times, was obtained for two testing periods (end December 2013 and end June 2014) in the light of ongoing gold price volatility and prevailing labour uncertainty in South Africa at the time;
- Conversion of the $789m mandatory convertible bond that matured in September 2013 through the issuance of 18.14 million shares in AngloGold Ashanti;
- Restructuring of our South Africa financing towards the end of the year by securing a five-year, R1.5bn revolving credit facility (RCF) and a three-year R750m floating rate bond, to complement financing under the current Domestic Medium Term Note Programme (DMTNP); and
- Managing the balance sheet gearing in 2013 – the company’s net debt to EBITDA covenant ratio was 1.86 times at year end.
Maintaining earnings and cash flow generation to shareholders
Earnings for the year were negatively impacted by the lower gold price as noted earlier, as well as by operational issues in the South Africa and Australasia regions. The group nevertheless delivered production, at 4.105Moz, slightly above its revised annual guidance of 4.0Moz – 4.1Moz range.
Looking ahead to 2014, the key financial objectives are to:
- continue to maintain sufficient balance sheet liquidity and flexibility in a lower gold price environment; and
- maintain ongoing focus in the management of costs to deliver competitive all-in sustaining costs and all-in costs in continuing to target sustainable cash generation.
Review of group’s profitability, liquidity and statement of financial position for 2013
The key financial and operational metrics for 2013, when compared to 2012 and 2011, reflect the adverse impact of the falling gold price and the operational issues faced at certain operations.
Profitability and returns
Higher full year gold production of 4.11Moz, and the strong focus on costs and overheads, resulted in total cash costs remaining flat at $830/oz when compared to $829/oz recorded in 2012. Total cash costs were maintained as a result of Project 500 savings, higher production and weaker local currencies in 2013, which were largely offset by inflation.
|2013||(2) 2012||(2) 2011|
|Profitability and returns|
|Adjusted headline earnings (1)||$bn||0.6||1.0||1.3|
|US cents per share||153||255||345|
|(Loss) profit attributable to equity shareholders||$bn||(2.2)||0.9||1.6|
|Return on net capital employed (1)||%||12||15||20|
|Return on equity (1)||%||18||19||26|
|Dividends per ordinary share||SA cents per share||50||300||380|
|US cents per share||5||35||49|
|Liquidity, cash flow and net debt|
|Net debt at year-end (1)||$bn||3.1||2.1||0.6|
|Free cash (outflow) inflow (1)||$bn||(1.0)||(0.7)||0.8|
|Earnings before interest, taxes and depreciation
and amortisation (EBITDA) (1)
|Net debt to EBITDA (1)||times||1.86||0.81||0.19|
|Total cash costs (1)||$/oz||830||829||703|
|Total cash cost margin (1)||%||41||50||55|
- (1) Non-GAAP measures.
- (2) Restated in terms of IFRIC 20.
Adjusted headline earnings of $599m for 2013, equivalent to 153 US cents per share, declined by 39% when compared to 2012. The adjusted headline earnings included a once-off gain of $567m relating to the settlement of the mandatory convertible bond. Thus on a comparative (normalised) basis, the large decline of $956m in adjusted headline earnings is principally the result of the sharp fall-off in the gold price, which in addition to the reduced income from gold, resulted in the write-down, post-taxation, of $216m in inventory ore stockpiles to net realisable value.
During 2013, a loss attributable to equity shareholders of $2.2bn was recorded compared to a profit of $0.9bn in 2012. The deviation from the 2012 profit attributable to shareholders to a loss position in 2013 is mainly attributed to the significant impairment of mining assets, equity-accounted investments and inventories of $2.5bn post-taxation, as well as deferred taxation asset impairments of $330m coupled with the 16% fall in the gold price, operating cost inflation and higher finance costs. These were all partly negated by improved production, net fair value gains on the various convertible bonds, lower corporate and marketing costs and reduced exploration and evaluation costs.
As part of the cash conservation measures, lower total dividends of 50 SA cents per share were declared in 2013 (2012: 300 SA cents per share).
Liquidity, cash flow and statement of financial position
For the full 2013 year, cash flow metrics were lower than in 2012, primarily as a result of the lower gold price. Additionally, in the case of free cash flow, significant investment in the key growth projects resulted in a considerably higher cash outflow:
- EBITDA: $1.7bn (2012: $2.5bn);
- Cash inflow from operating activities: $1.2bn (2012: $2.0bn); and
- Free cash outflow: $1.0bn (2012: $0.7bn).
Net debt levels as at 31 December 2013 were $3.1bn, $1.0bn higher than the level of $2.1bn at 31 December 2012. The two principal factors accounting for the increase in net debt levels were:
- project capital of $1.0bn (Tropicana, Kibali, Cripple Creek & Victor and Mponeng accounting for around 80% of the spend); and
- lower cash flows, a consequence of the lower gold price, of approximately $750m post-taxation compared with 2012.
Turning to the statement of financial position and the financing facilities available, the group’s principal US dollar and Australian dollar debt facilities included the following:
- Fully drawn rated bonds – $1.75bn in aggregate – that mature in April 2020 ($700m), August 2022 ($750m) and April 2040 ($300m);
- Fully drawn $1.25bn bonds that mature in July 2020 which were, in part, used to early redeem the $732.5m, May 2014 convertible bond;
- A $1bn revolving credit facility that matures in July 2017 that is currently undrawn;
- An A$600m credit facility earmarked for the construction of the Tropicana project that matures in December 2015, of which A$548m had been drawn at year-end;
- A R750m South African, floating rate bond that matures in 2016; and
- A R1.5bn South African revolving credit facility that matures in December 2018.
Net debt to EBITDA as at 31 December 2013 was 1.86 times, higher than that of 0.81 times as at 31 December 2012, but within the normal borrowing covenant of 3 times as well as the extended banking covenant for the two test periods of 4.5 times (end December 2013 and end June 2014).
A more detailed analysis of the group’s income statement, statement of financial position and statement of cash flow for 2013 is available in the Annual Financial Statements 2013.
Richard N Duffy
Chief Financial Officer
18 March 2014