AngloGold Ashanti Ltd

NYSE:AU

Earnings Call Analysis

Robust Financial Performance and Strong Second Half Expected

The company reported strong financial performance in the first half of 2024, with adjusted EBITDA rising 65% to $1.12 billion driven by a 14% increase in gold prices and higher ounces sold. Free cash flow turned positive to $206 million from a $205 million outflow last year. Production rose by 2%, and significant improvements in cost management were achieved despite inflationary pressures. Looking ahead, the company expects a stronger second half with free cash flow potentially doubling, and has declared an interim dividend of $0.22 per share. Production guidance remains unchanged, anticipating a 4% growth.

Introduction

AngloGold Ashanti's first half of 2024 displayed exceptional financial and operational performance, marking a significant turnaround from the same period last year. Driven by higher gold prices, cost management efficiencies, and improved production rates, the company showcased strong revenue growth, increased profits, and substantial free cash flow generation.

Revenue and Earnings Surge

The first half of 2024 saw a 14% year-on-year increase in the average gold price received, which, coupled with higher sales volumes and lower operating costs, propelled adjusted EBITDA to $1.12 billion—a 65% increase from the previous year. Headline earnings skyrocketed by over 400%, reaching $313 million compared to $61 million in the first half of last year. .

Operational Efficiency and Cost Management

Despite inflationary pressures and challenges such as the intense flooding in Australian operations and recovery issues in Siguiri, AngloGold achieved a 1% reduction in cash costs year-on-year. This was attributed to productivity improvements, better grades, and enhanced cost efficiencies, particularly in Latin America and Iduapriem. Operational adjustments led to improved free cash flow before growth capital expenditures, jumping nearly fivefold to $337 million year-on-year .

Strong Free Cash Flow and Dividend Increase

Free cash flow turned around from an outflow of $205 million last year to an inflow of $206 million. This cash generation allowed AngloGold to declare an interim dividend of $0.22 per share, reflecting a payout ratio of 27%, in line with their policy minimum of 20%. This demonstrates the company’s commitment to returning value to shareholders while maintaining a robust balance sheet .

Key Regions and Asset Performance

Several regions and assets showed marked improvements. Brazil saw a 15% year-on-year increase in gold production and a 19% reduction in cash costs, thanks to new leadership and operational efficiencies. Despite a challenging start, Australian operations recovered significantly in the second quarter. Obuasi’s production stabilized with an annualized production of 300,000 ounces in June, indicating strong cash flow potential moving forward .

Production Growth Guidance

AngloGold remains on track to meet its guidance, anticipating production growth of about 4% for the year. Cash costs per ounce are expected to remain flat as efficiency programs offset inflationary pressures. The company plans to slightly increase sustaining capital expenditures to support reserve development and invest in their growth projects, such as the major production center in Nevada .

Future Outlook and Strategic Focus

Looking ahead, AngloGold is optimistic about the second half of the year. They expect free cash flow to more than double if gold prices remain stable. The company is focused on maintaining operational excellence, cost management, and investing in high-potential assets to continue delivering strong returns to shareholders .

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the AngloGold Ashanti H1 2024 Results Conference Call. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Stewart Bailey. Please go ahead, sir.

[Stewart Bailey, executive]

Thanks very much, Danae, and welcome everybody to AngloGold Ashanti's first half 2024 results. As always, Alberto and Gillian will cover the material in the call, and you've got other members of the executive leadership team to take your questions. Before we go into the presentation, I would invite you to look at the Safe Harbor statement at the front end of the presentation deck. That contains important information regarding forward-looking statements, and we do encourage you to study it when you have a moment. Without any further ado, I'll hand over to Alberto.

[Alberto Calderon, executive]

Thank you, Stewart. Before we go to the numbers, I'll start with safety. After 3 years with no fatalities at our managed operations, we received a tragic reminder in May that we're only as good as our last day with no serious injury. [indiscernible], a colleague and father of 3, who worked for a drilling contractor at Geita, lost his life with a light motor vehicle he was driving overturned after he lost control driving down a steep hill. Marcelo Godoy, our CTO, completed an in-depth investigation into the incident, which identified clear steps to do everything we can so that there is no repeat going into the future. Our thoughts are with [ Obert's ] family and loved ones as we mourn his loss. I have led a series of town hall meetings across our business over the past few weeks, reflecting on the learnings from this tragedy and leading a campaign to ensure continuous focus on the very few critical controls needed to eliminate, what we call, high-consequence, low-frequency events like this one. We continue to invest considerable resources in understanding the root causes of all accidents, including high potential incidents or near misses in order to prevent recurrences. This process is a strong indicator of the strength of our safety culture and the effectiveness of our systems and provides a good foundation on which to continue working to realize our ultimate goal of zero harm. Next slide, before we turn to the numbers in detail, I'm very pleased to report a strong operating and financial results for the half year. These results show the hard work that has been done by so many to improve the fundamentals of our business, to drive productivity benefits, and to manage costs. Most of our Tier 1 assets recorded a solid performance, driven both by higher tonnes and higher grades mined. At the Tier 2 mines, we continue to drive full potential initiatives to enhance asset performance. Now that we are well into the full potential execution, we have seen our cost trend lower. We will talk about that later. We are the only gold major that has reported so far to post an improvement in cash costs at the half. That means that we're able to capture the benefit of stronger gold prices. Revenues up more than $400 million on year, all of which has flowed directly into the bottom line. We are building a strong operating momentum into the second half when we expect to deliver not only further production and cost improvements, but significantly stronger cash flows. So to go into the numbers, production was up 2% year-on-year, driven by strong performance from our key assets. That result was significantly aided by a strong Q2, where production was 12% higher versus the first quarter. This was driven by Australia's strong improvements following the biblical flooding in March and Siguiri bouncing back from the recovery challenges that hurt Q1 production. Brazil's turnaround is a clear highlight with a cash flow turnaround that was barely imaginable a year ago. Our cash costs were 1% lower year-on-year, as I mentioned a moment ago. This is not luck. In fact, the improvement was achieved despite the stiff headwinds we faced in Australia and Guinea in Q1, and it is a testament to our full asset potential program, which is yielding much of the benefit we expected. And we believe more is yet to come. On the back of this production and cost improvements, we are starting to see the leverage to a higher gold price that has been so rare across the sector during previous upcycles in the gold market. We reported a 65% increase in EBITDA to $1.12 billion, and more importantly, a swing of more than $400 million turn in free cash flow, which came in at $206 million versus an outflow of $205 million last year. This was well ahead of the higher price due to improvements in both ounces sold and costs. Most encouraging is that we anticipate a stronger second half. With that in mind, we have declared a dividend that reflects that confidence. Gillian will cover that in more detail, but it is clear that we have the conviction and the consistency of our operating performance and a commitment to ensure shareholders see improved returns. This of course, underpinned by confidence in our balance sheet. Liquidity is very strong, gearing is low, even while we invest in our existing portfolio and growth pipeline and we are well on track to achieve guidance. As I said in May, we were focused during Q2 on recovering from the obvious Q1 challenges that caused us significant ounces in Australia and Guinea. You can hear -- you can see the extent of the flooding that hit our Australian operations in March. Pits and infrastructure were flooded at Tropicana and crucially, the 400-kilometer access road to this remote site had significant stretches underwater. This took some time to dry and cure sufficiently before it could reopen. Remedial works were completed in Q2, and we started -- restarted operations successfully. This in turn saw improved production at both sites, although ongoing rainfall during Q2 caused intermittent interruption to our supply lines into Tropicana, sometimes hampering our ability to restock consumables and another important items. Nonetheless, we expect to recover a significant portion of the lost production in the second half. I spoke about the challenges we saw at Siguiri in Q1, low digger availabilities, poor availability of spares, and most of all, the steep drop in recoveries. We have improved maintenance, addressed spare inventories, and saw 38% bump in our tonnes in Q2. A new excavator has also been delivered, which will help us to continue that improving trajectory in Q2. Metallurgical recovery stabilized at around 80% -- 87% in Q2, up from the low-70s in Q1. In fact, we have seen average recoveries above 90% in July. We're looking at the work that can be done to improve carbon management and oxygen efficiency in the plant, which will help maintain and potentially improve these strong recoveries even when reintroduced the challenging Bidini ore to the plant. The good news is that we're in no rush to do that given the ability to source ore from alternative pits, so we may only need the Bidini ore in 2026, and we will then be well prepared to process it. Brazil picture. It's probably not even us probably would have imagined such a turnaround. It's hard to overstate it what has happened in the past 12 months under the new leadership we appointed last year. The team delivered a 15% year-on-year increase in gold production in H1, a 19% reduction in cash costs year-on-year. The free cash outflow of $140 million during the first half of last year, which hammered our half year result, has turned into a $53 million inflow during the first half of this year. As you can see on the waterfall, this was not simply a gold price story, but rather was driven by the controllable factors, which we manage across the business. More extraordinary is that this cash flow result was achieved under the weight of a roughly $200 ounce discount for every ounce of concentrate we sold from Cuiaba while the Queiroz plant has been suspended. The very good news is that the path is now clear to restart that facility during the second half, which would allow us to resume refined gold production and start to recapture the full margin once again. Obuasi's Q2 production was a steady 54,000 ounces. The V30 reamer continues to work as expected, helping to safely push underground ore volumes from the large open stopes. We've seen better results with ore tonnes in Q2 averaging around 97,000 per month, 6% up in Q1. If you compare H1 2023 to H1 2024, we're up 12%. We are, however, experiencing some challenges in Block 8, a very mature block with fewer suitable working areas, more congestion and hence less flexibility than we'd like to have and probably with significant volatility in its grade in this last part of Block 8. That impacted mine grade, particularly during April and May, the zones that we were mining. We did, however, reach equivalent annualized production of 300,000 ounces in June and are on track to surpass that this month. Consequently, we expect to reach a production for the year around the lower end of guidance. We also anticipate, and this is probably the most important thing, strong cash generation from Obuasi during this ramp-up, a solid cash -- free cash for the year, probably surpassing $80 million, demonstrating a very strong cash flow potential. As I've said before, the real price that is coming relatively soon lies on the higher grade Block 10. This is virgin ground with average grades above 8. In addition, in later years, there is Block 11 with grades -- grades above 17 grams to provide another kicker. A critical path to bring Block 10 into production is getting ventilation infrastructure into the right place, which we expect towards the Q2 of next year. We'll see that in the next slide. This will allow us to ramp up Block 10 and also to bring in Block 1, getting us comfortably over 300,000 ounces next year. Turning to the trial of the Underhand Drift and Fill mining method, this has gone to plan. The concept is proven in the trial area with paste strength good and curing time down to 14 days. We will continue to ramp this over the rest of this year as we establish a new full scale -- full scale site in Block 8 lower. So Phase 3 of our project -- of construction project achieved 89% of overall completion by the end of Q2 2024. Dewatering has been completed to the shaft bottom and construction has started on the dam and pump station building. The settlement of the project is expected to add another 6,000 tonnes per day hosting capacity for the mine. Refurbishes -- refurbishment of the KMS shaft is on track for completion by the end of 2024 and the added flexibility a significant benefit. At the same time, the KMVS venture will allow us to ramp up volumes from the Block 10. More specifically, we will be able to develop several mining fronts on Block 10 and Block 1, which will help optimize the significant infrastructure we will have ready and hence surpass the 400,000 level we have spoken in the past. We plan to host a site visit to Obuasi, ahead of next year's Indaba, where we'll be able to showcase the huge strides made in infrastructure development that will enable this access to the mining areas and we will also provide an expected ramp up during the next 5 years of Obuasi. Full asset potential continues to yield results across the portfolio. At Sunrise Dam, despite the weather challenges in Q1, underground tonnes in Q2 stepped back up at around 220,000 per month. The better haulage performance was underpinned by improvements in stope availability and fleet utilization. We look to sustain these levels in 2024, thereafter drive the next step changes to the full asset performance target. We have completed all of our assets and are now starting a second wave of FAP, starting again with Sunrise, where we have already identified more than $100 million of potential benefits. Full asset potential will continue to be at the heart of our improvements in productivity and hence reductions in our cash cost. As I showed earlier, recoveries at Siguiri are up after interventions in Q1. We have excluded Bidini ore from the blend and ores being sourced from alternative deposits, stabilizing plant performance. We will look to make low CapEx modifications to the plant with a specific focus on management of carbon and oxygen levels. Iduapriem continues to perform very well. We've driven improvements in drill and blast as well as processes to get better fragmentation. We've optimized the load and haul process to get better ore delivery to the plant and we've sharpened our maintenance practices to achieve better overall equipment availability. At Geita underground, ore tonnes from Nyankanga are ahead of our full asset potential targets. We're delivering backfill directly to stopes via drills from surface rather than using trucks. This in turn has debottlenecked our underground materials handling capacity and improved overall stope availability. Apart from the benefits in the incremental EBITDA we've been able to generate, the true value of this program goes beyond dollars and ounces. Over the past 2 years, the full asset potential program has given us significantly more resilience to help offset inflation and counter that impact of production interruptions across our portfolio. I'll tell you the same thing that I tell our employees and my Board, which is that the proof is in the numbers. The proof is in the bottom line. It's our ability to meet and to sustain and improve bottom line that matters, improvements in bottom line. And that's what this is, $464 million of improvements of incremental EBITDA in the past 3 years. And regarding the future, we have a strong pipeline of organic options. We are executing on Obuasi that will give us additional medium term ounces. Nevada is a game-changer, and we'll talk more about it now. We see the region producing as many as 500,000 ounces of our multiyear period at Tier 1 cost. And longer term, we have a world-class copper gold deposit in Quebradona, which gives us optionality and exposure to the energy transition. This is, I think, a very nice graph and this is different. We put new information. It continues -- Merlin continues to deliver strong asset results, further supporting this is a high-grade world-class ore body. In this section, you can see the extent and size of the deposit, along with some very exciting new intercepts, which continue to upgrade the quality of this impressive ore body. 66,000 meters, 66 kilometers of mainly infill drilling were completed during the first half. You will obviously look to this cross-section in your own time, but I'd just like to highlight some of the high-grade intercepts over significant widths. So you can see there, 144 meters at 10.53 grams per tonne. You can see 30.4 meters at 8.53 grams per tonne. You can see 190 meters at 5.2 grams per tonne. You can see 160 meters at 5.85 grams per tonne. You can see 50 meters at 3.9 grams per tonne. So it is -- all of this is -- has all of the signs of one of the truly Tier 1 deposits in North America. The PFS program to expand silicon is expected to be completed by mid-2025. At North Bullfrog, where permitting is underway, engineering reached the 30% completion milestone in Q2 2024, in line with the planned engineering schedule and we will continue to provide further updates in Q3. Okay. This is now to Gillian.

[Gillian Doran, executive]

Thank you, Alberto, and good day, everyone. I'll start with the macro factors. So gold price was up strongly during the first half at 14%, outpacing most major asset classes. Most encouraging is the fact that this move upwards doesn't appear to be driven by a single factor and that it came despite elevated rates in the U.S. We saw continued healthy demand from central banks, robust investment flows in Asia and resilient customer demand, all against the backdrop of growing geopolitical uncertainty. As we've said before, we entered into 0 cost collars at the start of the year to cater for downside price risk given the high cost and uncertainty at our Brazil operations. The contracts cover the full year of 2024 with 150,000 ounces remaining for the second half of this year. The average spot price in the first half was $2,205 an ounce, which equates to a realized loss of $118 an ounce or [ $23 million ] during the first half. Due to the strength of the U.S. economy, inflation remained at elevated levels. Our realized inflation rate was about 6% for the first half of '24. And this impact was partially offset by currency exchange weakness against the U.S. dollar, most notably for AGA in the Australia and Argentina business units. As Alberto has highlighted, really strong financial performance for the first half. The average gold price received was up 14% year-on-year. Adjusted EBITDA of $1.12 billion was up 65% year-on-year, again, well ahead of the higher price and on the back of higher ounces sold and lower operating costs. Headline earnings of $313 million or USD 0.74 per share were well up compared to $61 million or $0.41 per share in the first half of last year. This improvement of more than 400% was due to the strong operational performance, offset by one-offs with the realized hedging loss I mentioned earlier and additional decharacterization costs for the active closure management at both CdS and MSG. Total capital increased by 11%, and this is in line with our internal plans, resulting in free cash flow of $206 million against the prior year outflow of $205 million. Free cash flow before growth capital expenditure, the metric on which dividend payment is based, was $337 million, a near fivefold increase year-on-year. Given our robust financial performance and the confidence we have in our ongoing performance for the second half, we declared an interim dividend of $0.22 per share, which equates to a payout ratio of 27%, in line with our policy minimum 20%. We are mindful that despite the healthy gold price environment, we must remain focused on proactive cost management. This is a nonnegotiable for us as we continue to regain our cost competitiveness. If you look at our costs, you will see we've delivered an aggregate 1% reduction year-on-year. When you unpack the detail, you can see CPI inflation was around 6%. Royalties from higher gold price, 2%, a slight increase in fuel price, offset by currency change of 4%, as I mentioned primarily in Australia and Argentina. We then normalize for one-offs, which was last year's impact from the tank fail in Siguiri unwinding and this year's impact of the rainfall event in Australia. The reduction in cash costs of $44 an ounce is related to volume, grade and costs, mainly characterized by improved operational performance through productivity improvements, better grades, enhanced cost efficiency, particularly across LatAm and in Iduapriem. The 2% year-on-year increase in ASIC followed a planned increase in sustaining capital investment, and this is really around ensuring we have adequate flexibility in operations with longer leads in ore development and stripping. Our targets for ore development is at least 12 months in advance and longer for stripping. On free cash flow, this chart is just helpful in showing how we managed to capture and flow through the benefit of higher gold price. The higher gold price drove a $318 billion (sic) [ $318 million ] increase in cash receipts. The positive movement in sales volumes, operating costs and working capital is a consequence of the discipline in operational excellence. We focus specifically on cash conversion, which has not historically been one of our strengths. We received cash inflows from Kibali in the form of loan repayments and dividends of $90 million. At the end of June, our share of outstanding cash balances from the DRC was $19 million, down from $51 million at the end of last year. Higher profits resulted in a $40 million increase in tax payments alongside the higher CapEx that I previously mentioned. The balance sheet remains strong with cash on hand and undrawn facilities providing very good liquidity at around $2.3 billion. Leverage is well within our target range at 0.6x even as we invest in our operating assets and pipeline, and we have no material near-term maturities. S&P concluded their annual review in April, leaving our credit rating unchanged and our outlook are stable. We continue to engage with the rating agencies to communicate the improvement -- the improving fundamentals of our business. On guidance, our guidance remains unchanged. At the midpoint, we anticipate production growth of about 4% this year. Cash cost per ounce are more or less flat at the midpoint as we see full potential benefits offsetting inflation and the anticipated stronger Aussie dollar. We see sustaining CapEx growing slightly as we increase investment in reserve development, but in line with our plans. Growth CapEx is also expected to increase from last year's levels as we continue to invest in our next major production center in Nevada. I'll hand back to Alberto for his concluding remarks.

[Alberto Calderon, executive]

Thank you, Gillian. When I joined this business just under 3 years ago, the mission was simple, to safely regain cost competitiveness, to be able to approach the multiples of our largest gold competitors. At the time, we have jumped to the top of the industry cost curve. Then in late 2021 with new senior leadership working alongside empowered operating and with a new clear operating model in place, we implemented the full potential program to turn the tide. Today, we can take a step back to check in how we are tracking against our original goal. With mid-2021 as the base and adjusting for U.S. CPI only, although we have faced stronger than that, our cash costs are about 4% lower in real terms relative to a 16% average increase for the peer group. And even with the inevitable stumbles that happened in this business, we've managed to achieve guidance on our key metrics each year. And in 2024, barring any unexpected event, we'll do it again. We obviously have more to do, and we will always have more to do because this is an improvement -- continuous improvement mentality. But we believe we have now embedded in our business, the tool that helps us to do that. In conclusion, at the halfway point this year, the performance has been, I would say, very solid even after the headwinds of Q1. What you've heard is that the year-on-year comparison are strong. The simplest view shows production up and cash goes down. Cash conversion is significantly better, hence, the strong gains in cash flow, earnings and dividends. Q3 is off to a good start, teeing up to an even better second half. Full potential is working as intended. Our free cash flow showed a stunning turnaround from minus around $200 million in H1 2023 to a positive plus $200 million in the first half of this year. As we look to the second half and all things being equal, the gold price staying where it is, we anticipate free cash flow more than doubling the H1 levels. More importantly, if we go back to this half, the growth in cash flows in H1 has outpaced the impact of the higher gold price on our revenues and profits. In fact, it is 30% higher. This effectively means we've been able not only to keep every penny of the gold price increase but to surpass it, thanks to our full asset potential program. In closing, we're stronger, more competitive and well placed to continue this improving trajectory, and we have our eyes on the remaining catalysts to completely close this gap. Thank you.

[Operator]

[Operator Instructions] The first question that we have comes from Adrian Hammond of SBG Securities.

[Adrian Hammond, analyst]

Thanks Alberto and Gillian for the presentation, and well done on the good performance. I have a couple of questions, if I may. Alberto, just your cost performance clearly really good when you put up that slide of a 4% reduction in real terms. So where do you think they could end up with the asset potential program? What's more to come? And notwithstanding your peers have also had some trouble with their own profiles, and I suspect there's some benefits coming their way. So as you know, with this business, it's -- you're on a treadmill constantly and you're trying to remain competitive. So do you think you have enough ammo in the kitty down the line to remain a competitive position on the cost curve as you are moving towards? That's the first one. And then secondly, on Obuasi, you mentioned a target of [ 360 ] in Q3. When do you see that being achieved now?

[Alberto Calderon, executive]

Thank you, Adrian. It is, you're right, the treadmill, and it's relative performance. Look, I can only -- again, we've seen how we've closed this year, the guidance. And I can only say that we -- when we look, for example, at Sunrise, and I mentioned about this is where we relaunched the second wave. And I don't know if the word is surprised, but we were quite happy with the possibilities that the team found again. At some point, this will diminish. But the possibilities on Sunrise in the second wave, as I mentioned, was about $100 million. So look, I think that we should still be able to continue to counter inflation. And if that is the case, I think that we will remain quite competitive. Again, we don't bank on this high gold price, but it is probably clear that the long-term gold price will be more -- probably more on the $1,800. And even at that level, we plan to have a very profitable company. But in the meantime, obviously, we want to maximize the cash flows. I probably -- I would want to make a bit more. It's related to what you said. But yes, the ability of companies to pass the gold price into profits, I think, is something that is quite important right now. In Obuasi, so what happens, we probably will access Block 10 a bit later than we thought we would. We right now probably think we can get to [ 300,000 ounces, 320,000 ounces ] of annualized. But probably until we get to Block 10, we probably can't access higher than that. What we plan to do, Adrian -- and that's why I said we plan to have this visit in January. We're very -- the good news is that the infrastructure that has cost more than $1 billion will be soon be over, and we will have everything in place to produce what we've said in the past in the medium to longer term, 350,000 ounces and then plus 400,000 ounces. It's just a matter of the ventilation is very critical, and we now know that we can only access very limited Block 10 until we have that full ventilation shaft working. We said Q2, we're trying to accelerate it. So 2025 depends of when we can have that ventilation and when we can properly assess Block 10. What I would say is, and I've said it in the past, do we have any doubts or anything that we were able to access properly, Block 10 and Block 11 and get this mine where it should be? We have 0 doubts about that. Well, we have some volatility still in months. Yes, we probably still. We're talking about being in the lowest end of the guidance but still within guidance. So we're trying to do everything to kind of be around that number for this year.

[Adrian Hammond, analyst]

That's clear. And then just for Gillian, on the credit rating, it seems like I get a sense it should be a bit better. Do you not think that, that's up for review given your improved performance as a business as it is and notwithstanding your operations are still in the same jurisdictions, but your listing has changed. But I would think your plans of exposure growing into Nevada should appease the credit rating agencies. And where do you think that rating could go? And what sort of benefit you should see on the finance charges?

[Gillian Doran, executive]

Thanks, Adrian. I think I definitely wouldn't want to opine specifically on what credit rating agencies will do. We are sort of actively engaging with them as we should. I think they are quite positive around the sort of consistency of performance and consistency of delivery, and that's definitely getting us positive momentum. I think you highlighted the sort of jurisdictional profile of our business, and the reality is Nevada is not an operating asset at this point in time. I think the other thing I would probably say is the rating agencies quite rightly don't consider the gold price environment, and they're not as bullish on gold price either. So I probably would round it off by saying we're pleased with the dialogue that we have. There is some positive momentum. We are getting good feedback around consistency and delivery, and we'll continue to engage with them as we should. But I wouldn't want to anticipate timing of a change at this point in time.

[Operator]

The next question we have comes from Leroy Mnguni of HSBC.

[Leroy Mnguni, analyst]

I've got 2 questions for Gillian. So your effective tax rate is pretty high. I think is about 45% when I recalculate it. It's much higher than I had expected. Could you please unpack what is driving that? And then generally, if I look through your numbers, you seem to have beaten or at least broadly in line on most of the numbers except your HEPS. Are there any other sort of abnormal items included in HEPS or nonrecurring items that we should consider when analyzing that?

[Gillian Doran, executive]

Yes. Thanks. Thank you for that, Leroy. So on the effective tax rate on current tax, our tax rate is 32%. We do have an adjustment for deferred tax. It's a difference between local GAAP and IFRS accounting policy in Brazil and Argentina. It's not derived from earnings. It pushes the tax rate up. So it's a $75 million adjustment noncash and nonearnings driven basically. So it's almost one of those anomalies in the way we need to report our tax position. But I think it's important to note that our effective tax rate or current tax rate is in line with prior -- the prior period at 32%. On the -- on the sort of one-offs in earnings, I mentioned the 2 primary ones, and they are one-offs. But just to sort of reiterate those, it's the hedging loss that I talked about for the hedge. And then we had 2 additions to closure provision in Brazil, $18 million at CdS and $41 million at MSG. And that goes directly to earnings, just as a consequence of the fact that you're in active decharacterization of those tailings facilities. How do we see this playing out in the future? So we characterize those aspects as one-offs. We are in active closure for those tailings facilities in Brazil. We continue to monitor them. But today, we believe we've provided adequately for the closure within our accounts as you would expect us to. So not anticipating a change from today, but in an active closure, we'll continue to monitor.

[Leroy Mnguni, analyst]

All right. That's very clear. And then maybe just one question for Alberto as well, if I may. It seems like at Obuasi, the underhand cut and fill testing went pretty well, and you're fairly confident that, that would work as you roll it out. I remember in the past, you've said it actually is a better mining method because you're able to be more accurate and you're taking less waste. So I was wondering if you would consider applying underhand cut and fill to some of the areas that were initially intended for sublevel stoping? Is there an opportunity there at all?

[Alberto Calderon, executive]

Thanks for the question. So look, we continue to make process with this method. What we believe is that it will be used in the areas where we find the most difficult ground conditions. So for example, what we right now are doing it is at the lowest of Block 8 and we're starting this now informed. So we anticipate that part of Block 10 will be mined with this method. But we have to get there and we will have to assess. We'll give you more details. We have some plans already of what percentage, it's still going to be low, but significant in 2025, but we'll talk about more when hopefully you accompany us at on site in January of next year.

[Operator]

The next question we have comes from Chris Nicholson of RMB Morgan Stanley.

[Christopher Nicholson, analyst]

A couple of questions, I think, mainly for you, Gillian. Just the first one is just around the dividend payments and free cash flow. You mentioned obviously that you anticipate free cash flow more than doubling in the second half. What are you going to do with all the cash? If prices remain here, you should have scope to lift that dividend payment even higher. So any views on that? And then second, just to confirm specifically on the hedging, clearly, with the plants coming back on in Brazil now. Just to confirm, it's still your thinking that these were one-off type of hedging events. There's no intention to roll any hedges further into 2025 onwards at these gold prices.

[Alberto Calderon, executive]

I'll probably take that, Gillian, if you -- and you can complement me. Starting for the -- probably by the second one, the hedges, it was -- it's the exception to the rule that we don't hedge last year after we -- especially after losing $100-and-something million in the first half in free cash flow. We wanted to ensure that we would give certainty to the operations of a price, and it was with a collar that would -- and at that price, they had to be cash neutral. And that was sort of the mandate. I think it was the right decision, then it would have been difficult, we believe if the prices have kept at that level where they were when we took the hedge to have another year of negative sort of cash flow. So I think we -- it was the right decision then. But yes, it was the exception. So we don't plan to renew them. We don't plan to extend them. And right now, we don't see any necessity for cash for any hedging. So in dividend, what I wanted to take that is, look, the policy hasn't changed. The policy is a minimum of 20%, but obviously, we can go higher. And so right now, the only thing that we are signaling at this stage is that we're confident that we're going to have, again, without anything unusual, a significant year. And hence, will -- most probably will be above the 20% dividend for the full year. So at this stage, I don't want to -- we will probably be at a very low end of gearing, maybe [ 0.3, 0.4 ] around the year. So yes, we'll cross that bridge when we get there. But there's no intention right now to change any policy or anything of that sort. We'll probably keep dealing it with dividends.

[Operator]

The next question we have comes from Raj Ray of BMO Capital Markets.

[Raj Ray, analyst]

My first question is your -- is on your operational outlook for the second half. I mean, Q2, we saw production improve across most of your asset bases. If you look at the second half, which assets do you think there's potential risk outside of Obuasi? And then coming to Obuasi, the second half, even if you do like the lower end, [ 275,000 ounces ], that's still almost a 50% to 60% improvement you need or what you did in the first half of the year per quarter. Can you comment on how -- where you stand at this point in August with respect to be able to -- with respect to development rates and your ability to meet that production? And then lastly, a question for Gillian. On the working capital movement for the first half of the year, can you comment on that? And how much of that would you expect to unwind in the second half?

[Alberto Calderon, executive]

Look, all operations are an interesting sort of beast because they have an inertia on the positive side and on the negative side. And right now, we have a positive inertia, I think of all of our operations, in Siguiri, in Sunrise, in Tropicana, we've recovered Brazil, CVSA is doing well. And then there's a positive momentum in all the others. So that sort of underpins the confidence of why we think we are guiding towards sort of the middle of the range in terms of production. Now Obuasi, I mentioned we did annualize [ 300,000 ounces ] in June, and we're going to surpass that in August. We sort of know where it is. And we know it's the grade. I talked about a grade of about 7.9 in June, while the average grade for the first half was 5.6. So that's where we do see a significant uplift in production in the second half. If it gets to exactly [ 270 or 260 ] or if it's [ 160 or 170 ] again, nobody knows. Is it going to -- are we seeing already the levels in June and August are required to sort of reach that low end of the guidance, we are seeing there. As I probably said before, the most important thing for the future is that level of [ 100,000 ] tonnes of ore per month, and maybe eventually, it's going to be 110,000 tonnes of ore per month and then 120,000 tonnes of ore per month when we have all of the infrastructure going. And that level, if you look at the average grades of Block 10 and then Block 11 is what really -- yes, that's when you start getting much, much higher ounces per month. But for the volatility in the short run, the answer is we do expect significantly better in the second half. We will see exactly where we end up, but already it's showing good signs.

[Gillian Doran, executive]

So thanks, Raj, for your question. I think on working capital, we're not anticipating an unwind. We -- what we did in the first half was reduced inventory. So gold didn't have -- basically no gold on the ground and in process material. We also had a reduction in receivables because we didn't have the sort of concentrate debtor that we did have at the first half of last year out of Brazil as you'll probably recall. So we anticipate maintaining that discipline around inventory and debtors. On the AP side, we do see further opportunity. We had an reduction in payables in the first half, and we're working with our supply chain lead and our treasury team to just optimize that payables book. So a long way of saying we want to stay stable, albeit Alberto wants to optimize further as well. But definitely no unwind for the second half.

[Raj Ray, analyst]

Okay, Gillian, and then can you -- I didn't see the number on the cash flow statement. What was the working capital movement for the first half?

[Gillian Doran, executive]

So the movement year-on-year was a positive $46 million on the free cash flow reconciliation. Actual movement was $160 million of change in working capital year-on-year, which was better than the prior year.

[Raj Ray, analyst]

Okay.

[Alberto Calderon, executive]

I still think it could be a bit better, but okay.

[Operator]

The next question we have comes from Adrian Day of Adrian Day Asset Management.

[Adrian Day, analyst]

Yes. I wanted to ask, if I may, about the Nevada. You said that most of the drilling you've done recently has been infill drilling. But when I look at the map, there seems to be quite a lot of drilling to the west of silicon, which you mentioned on your last conference call, but you didn't talk about it today. Is there anything significant there?

[Alberto Calderon, executive]

That I'm probably going to ask for our help on Terry, I don't know, or Marcelo.

[Unknown Executive]

All the -- I mean, we're not infill drilling silicon. Our focus is on the higher grade portion you see outlined on that map, that map shows the Merlin long section, which is the focus of our PFS.

[Adrian Day, analyst]

Right. I'm sorry. I meant Merlin, but there's a lot of drilling to the west of Merlin, but you mentioned on your last conference call, is that what you're meaning by the infill drilling?

[Unknown Executive]

Infill drilling is within the Merlin pit outline in red on that plant view map on Slide 13. All the drilling has been within that pit area.

[Adrian Day, analyst]

Okay. Okay. Okay. But there seems a lot of drill holes to the west of the pit of Merlin.

[Unknown Executive]

Yes. I mean if you're looking like a green dots on the map, yes, some of that is earlier drilling or geotechnical drilling for high wall stability. But as I said, most focus has been on infilling the mineral resource.

[Operator]

The next question we have comes from Tanya Jakusconek of Scotiabank.

[Tanya Jakusconek, analyst]

Great. Just wanted to follow up with you on the guidance, which you said production is going to be at the midpoint of the guidance range. What about costs? Previously, they were trending towards the lower end of the guidance range. Is that still the case because we've got the tailwinds from FX as well?

[Alberto Calderon, executive]

Thanks, Tanya. Yes, they are. I think that I saw something in probably Gillian's script, but it's not the midpoint. We're going towards the lowest end. There is some technical changes in -- that we are now going to be reporting attributable. So 100% of Siguiri and 100% of the others. And so that has -- will increase a bit, but we're still much closer. So the low end of the guidance is $1,075. And I think we will be going, yes, maybe $20, $25 higher than that. So that's the lowest end in my mind. And this is after the change that we've done in attributable. Without that change, we would be just...

[Tanya Jakusconek, analyst]

Okay. So it's volume as well. Okay. Got it.

[Alberto Calderon, executive]

Yes.

[Tanya Jakusconek, analyst]

And then just -- and again, keeping in mind that any further asset potential progress you're making, we're just thinking of that as just offsetting inflation.

[Alberto Calderon, executive]

I don't know, Tanya. I think at least inflation would be my thing. But if I look at Sunrise again and if we can actually right now is -- we have a target that is a bit more than [ 100 ]. But if that were the case, yes, that would probably even more than offset inflation. So I don't know. I don't -- you know I've been very hesitant on giving up targets. I have preferred to just show what we delivered. So I would probably put it at a minimum and hopefully going more than offsetting.

[Tanya Jakusconek, analyst]

Offsetting. Okay. And then just a couple of housekeeping items. I just saw -- just wanted to know where we stand on Ghana, that joint venture. Is that happening anytime soon or where are we on that? And I also noticed you mentioned Quebradona. I haven't heard about this asset for a while. So what's changed there as well? And then I have a final one for Gillian on U.S. GAAP.

[Alberto Calderon, executive]

Okay. So look, the JV, I would probably say that I am more optimistic than I would have been in the last quarter. We're very -- keep very aligned with Gold Fields. And I think we've made very good progress with the government. But there's still somewhere sometime and some processes to go. We're still in the middle of negotiations. So I wouldn't want to comment on any detail. But just if you [indiscernible] sort of I would be more positive that this will eventually happen. And we should, for the next quarter, I think we should have more news. But I think that, yes, I would say it's a much, much more positive outlook that the JV will happen than I would have been 3 months ago. Quebradona, we just continue to make progress on an optimized feasibility study, and I'm measuring water and all of that. So -- but as we point out, it's a long-term sort of option. Currently, with, I would say, this government in place is probably not the friendliest of oil or coal or any type of mining. So we would expect to continue sort of negotiations, renew them in about 2 years. But this is for the license, but we continue to make progress on the -- as I said, on the optimal feasibility study and all of that. And it is a very good project. But as we put out in the presentation, it's a much more long-term option.

[Tanya Jakusconek, analyst]

Okay. And then maybe for you, Gillian, just on U.S. GAAP. Am I still thinking we're still 12 months to 18 months out on adopting U.S. GAAP?

[Gillian Doran, executive]

Thanks, Tanya. So I think first, we probably would say that we are now set up to report our full financials quarterly under IFRS from now. So Q3 will be the same level of disclosure as you can see here in Q2 and then ongoing. We have reconfirmed our domestic filer status under the SEC rules this -- in June. And so that means that next test will be the 30th of June 2025. Our plan is to go live with U.S. GAAP from the 1st of January 2026. If we were in a position where we -- our foreign filer status next June, we would adopt to that. But for now, you can consider 1st of January 2026 for U.S. GAAP. I think maybe just to -- just kind of advance in that, we as AngloGold Ashanti, some people will know reported under U.S. GAAP 13 years ago. And so the exercise of re-reporting under U.S. GAAP requires the sort of reconciliation of the balance sheet from that 13 years ago to today. So big piece of work that the team is very actively working on now, but sort of no small work for the finance team anyway.

[Tanya Jakusconek, analyst]

Okay. Congrats on a good quarter.

[Alberto Calderon, executive]

Thanks, Tanya.

[Operator]

The last question we have on the conference call is a follow-up from Leroy Mnguni. Leroy, your line is live, sir.

[Leroy Mnguni, analyst]

Apologies for that. Alberto, I just wanted to follow up on a few comments you made when you spoke about the quarterly results in May. The first one, I remember you said for CdS, there was a potential buyer that was interested that you thought was a responsible operator and a good candidate. Does anything come from that? And then Serra Grande, it's sort of -- you're hinting towards it not really having a future in your portfolio. But I guess, in a higher gold price environment, your views on that asset changed at all?

[Alberto Calderon, executive]

Thanks, Leroy. In CdS, we continue to talk with this interested party. So that is continuing. And on Serra Grande, look, the world changes when you have a cash producing asset. So I just think that the team has done a fabulous job in focusing on the things that matter. If you look at the biggest, there's 2 things that changed significantly in Serra Grande, which is the grade and the cost. So that's what makes it a positive free cash flow operation in the first half. But yes, it's -- that produces 2 things, which is there's no burning platform to sell it, but it is of a scale that is probably the [ Jack Welch ], where probably will be worth more with somebody else than with us. So there's nothing active on selling, but if we get a reasonable sort of buyer, and it's going to be much easier now. Now there are some things that we are in both assets. We are still working a lot on making sure that we don't leave any significant license to operate environmental issues, in particular, on TSFs, like outstanding and in particular, the decharacterization of some of these dams. So we want to make sure we finish it ourselves, and then we don't leave any significant liability in the year, if I may say so. So that probably would delay things. But -- so in a nutshell, we're happy with it right now. There's no burning issue. It's giving cash. The team is doing a great job. If there were a reasonable ask, yes, we would contemplate.

[Stewart Bailey, executive]

Thanks, Leroy. Alberto, we've got some questions from the webcast now, just a rapid fire round. We've covered a lot of them in the other answers. But if I might just start by saying, given the elevated -- this is from Martin Creamer at MiningWeekly. He says given the elevated performance, how far do you estimate AngloGold Ashanti may be from catching up with the valuations of its North American peers?

[Alberto Calderon, executive]

Look, we -- we always knew just because of precedent, what happened in particular for Anglo American, for example, and others built on, I mean, it's getting its time and all of that. It takes time for a rerating 2 years or 3 years. And the reason for that is that you need to -- obviously, the rerating comes from accessing and a, let's say, a good percentage of the gold capital that we today are underrepresented. And so that will take some time. But I am happy by the following. If you look at things, I don't usually talk about the share price because it is so volatile. But if you look at our performance in the last 3 years, it's probably with Gold Fields have been the, by far, the best performances. So I think we're already beginning to catch that valuation with our peers. And obviously, so our performance in share price versus our large competitors has been significantly higher. So -- but there is still a gap to close in indicators like EV to EBITDA, and I think it will take some time. I'd probably finalize by saying the interest in the company from the American, from the U.S. and the Canadian market is significant. And we're very busy. Again, Gillian, Stewart and I and all of the experts, but mainly us 3 are very busy in after results and in all of these meetings of Denver Gold Forum, et cetera, et cetera. So the interest is there.

[Stewart Bailey, executive]

Right, Alberto, just a quick follow-on from Martin, he says AngloGold has clearly declared war on inflation. What do you find most effective in lowering costs? And are you still confident you can do more?

[Alberto Calderon, executive]

Look, one area where we are starting now to do probably more is on supply, and that's now an important part of full asset potential. We already started it with -- we're very happy with a very, I think, win-win negotiation we did with explosives, where we now have a global -- mainly eventually, we'll have a global explosives company in a long-term contract. And so that win-win allows you to -- for much more transparent pricing. And what was very good with that contract is we were able to get back to the prices of 2021. If you remember, 2022, '23 with inflation, ammonia went dramatically up, fuel went dramatically up. But one of the problems with these type of mining services, if you don't -- are careful, they never go down, and they should go down because ammonia went down and oil went down, et cetera. And so that's -- so we have -- we're going to work on the big -- on supply, and we think we still have a way to go there. But probably, I will add to Martin's question. A lot of us is not by lowering the numerator, but the denominator, and that is doing more ounces with the same costs. And that's how we have been able to lower in real terms, the cash cost per ounce.

[Stewart Bailey, executive]

Alberto, just a couple more. [ Sandile Magagula ] [indiscernible] says, does the free cash flow figure of $202 million include Kibali proceeds, loans and dividends? That's the first one. And the second, is the Brazil performance sustainable into H2? What has been the run rate in the opening months of H2?

[Gillian Doran, executive]

So on the first one, yes, the free cash flow does include Kibali proceeds, loans and dividends.

[Alberto Calderon, executive]

Yes. And then Brazil, it is sustainable. As you can see, we're seeing it right now as we start the third quarter. It is -- it's just the new team is doing a much better job. So that inertia that I spoke about is continuing into the second half.

[Stewart Bailey, executive]

Good. And then...

[Alberto Calderon, executive]

Positive movement.

[Stewart Bailey, executive]

Thanks. So pardon me, Alberto. Herbert Kharivhe from Absa. Herbert, your tax charge question asked and answered. Catherine, your Obuasi guidance question, I think, asked and answered as well. So I think with that, Alberto, we're out of time. So maybe just a concluding remark and we can wrap.

[Alberto Calderon, executive]

Look, we just need to continue to do what we're doing. There's a whole company, I just always want to remind, there's just 30,000 people who do this. And there is a good organization. There are good processes, good procedures in place, good operating model in place. People are empowered at the assets. We have very good operators from GMs, SVPs, VPs across the company, and everybody sort of knows what to do. And so we are confident, again, we're -- barring anything that we don't know today that, that momentum that we especially see in the second quarter will continue into Q3 and Q4. And that's it. It's just keep doing what we're doing.

[Stewart Bailey, executive]

Thanks, Alberto.

[Alberto Calderon, executive]

Thank you. Okay.

[Stewart Bailey, executive]

Thanks, Alberto.

[Alberto Calderon, executive]

Good. Thank you, all. Cheers. Bye. Thank you.

[Operator]

Thank you very much, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.