AngloGold Ashanti's (AU) CEO Srinivasan Venkatakrishnan on Q4 2015 Results - Earnings Call Transcript

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AngloGold Ashanti Limited (NYSE:AU)

Q4 2015 Results Earnings Conference Call

February 22, 2016 08:00 AM ET

Executives

Stewart Bailey - IR

Srinivasan Venkatakrishnan - CEO

Chris Sheppard - COO, South Africa

Ron Largent - COO, International

Graham Ehm - EVP, Planning and Technical

Christine Ramon - CFO and Executive Director

Analysts

Harry Mateer - Barclays

Operator

Good afternoon, ladies and gentlemen and welcome to the AngloGold Ashanti Analyst Conference Call. All participants will be in listen-only mode. There will be an opportunity to ask questions at the end of today's presentation. [Operator Instructions]. Please also note that this conference is being recorded.

I will now turn the conference over to Mr. Stewart Bailey. Please go ahead, sir.

Stewart Bailey

Thanks very much, Judith and I'll start with the Safe Harbor statement and then we'll get into itinerary. Certain statements contained in this document, other than statements of historical facts including, without limitation, those concerning the economic outlook for the gold mining industry, expectations regarding gold prices, production, total cash costs, all-in sustaining costs, all-in costs, cost savings and other operating results, return on equity, productivity improvements, growth prospects and outlook of our operations, individually or in the aggregate, including the achievement of project milestones, commencement and completion of commercial operations of certain of our exploration and production projects and the completions of acquisitions, dispositions or joint venture transactions, our liquidity and capital resources and capital expenditures and the outcome and consequence of any potential or pending litigations or regulatory proceedings or environmental health and safety issues are forward-looking statements regarding our operations, economic performance and financial condition.

These forward-looking statements or forecasts involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied in these forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements and forecasts are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of the mine status, changes in the economic, social, political and market conditions, success of business and operating initiatives, changes in regulatory environments and other government actions, including environmental approvals, fluctuations in gold prices and exchange rates, the outcome of pending or future litigation proceedings, and business and operational risk management.

For a discussion of these factors, refer to our Annual Reports on Form 20-F filed with the SEC. These factors are not necessarily all of the important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results and consequently you are cautioned not to place undue reliance on these forward-looking statements.

We undertake no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except to the extent required by applicable law. All subsequent written or oral forward-looking statements attributable to AngloGold Ashanti or any person acting on its behalf are qualified by these cautionary statements.

The communication may concern certain non-GAAP financial measures, we use these measures and ratios in managing our business and they should be viewed in addition to and not as an alternative for reported operating cash flow from operations or any other measures of performance prepared in accordance with IFRS. In addition, the presentation of these measures may not be comparable to similarly titled measures other companies may use. We post important information on main page of our website at anglogoldashanti.com under the Investors tab, you should read it.

It’s a busy set of results today, so we’ll get right to it. Venkat, will be starting and followed by the operators and then Christine chatting to the financial results before Venkat wraps up. Venkat?

Srinivasan Venkatakrishnan

Thank you, Stewart. Good morning, ladies and gentlemen. It gives us great pleasure to stand before you today and present our fourth quarter 2015 and full year results. As you’d have seen from the results, the highlights include consistency around meeting our production guidance, beating our cost estimates, delivering free cash flow and a sharp reduction in net debt levels, all of which have happened despite the falling gold prices and some very good Brownfields exploration successes, which we have seen within our portfolio. You’ll recall that since 2013, we had implemented a number of initiatives and self-help measures and these results show cumulative benefits of these measures and efforts coming through.

Starting with our strategy, our strategy which was launched in 2013, has at its core, delivering sustainable cash flow improvements and returns, which in turn we believe will drive shareholder value in both bear and bull markets. This is supported by five simple business objectives, that have done the job well for the past three years. First; strong foundation built on safe production, best people and a well enshrined sustainability model. Second; placing enormous importance on balance sheet strength and flexibility. Third; focus and delivery on production improvements, cost management and sound capital discipline, then improving our portfolio quality consistently and remembering that mining is a long-term gain and therefore value adding growth remains important and therefore ensuring that we keep the long-term optionality firmly on the radar at an affordable cost. We’ll outline some of our successors later on during the presentation.

If we can move to Slide number 7, which shows the map of where the operations are. As you can see we are one of the gold industry's geographically diversified company with around 25% of our production coming from South Africa and 3 times that amount coming from our international operations. As Christine will elaborate, we offer good leverage to gold prices, weakening currencies and oil prices and this positions us very well in the current macro environment.

At a high level looking at the results, for the fourth quarter our production came in at close to 1 million ounces at an all-in sustaining cost of $860 an ounce and all-in cost of $959 an ounce, all coming in significantly better than guidance. Costs improved 14% year-on-year. For the full year 2015, production of 3.95 million ounces came in at the top end of our guidance, all-in sustaining costs of $910 an ounce and all-in costs of just over a $1,000 ounce was also a beat on guidance.

Equally importantly, we generated good free cash flow for both the fourth quarter and the year and applied it to further slash net debt, which currently stands at 30% lower than the same time last year. Looking back a year ago, we were certainly not the mining industry's most indebted company by any means, but we were the first to commit to a range of self-help measures to lower debt from internally generated cash without diluting shareholders. As you can see from the slide, we have delivered on most of our self-help measures such as margin improvements, cost savings throughout the business, significant Brownfield exploration success with Obuasi and Colombia being work-in-progress. There is still work remaining at Obuasi, which Graham will cover a bit later. In Colombia, given depressed market conditions for early stage Greenfield projects, we are rationalizing our annual spend further, whilst we work to continue to move these projects up the value curve.

Turning to safety, safety continues to remain top priority with our biggest challenge at our South African operations, which accounted for 80% of the fatal accidents for the year. We unfortunately lost two of our colleagues in the fourth quarter, [Mr. Peter Meynar], at our engineering electrical unit in South Africa and Mr. George Baffour at our Obuasi mine. Whilst we have made great strides in reducing injuries across our whole portfolio as evidenced by the improvement in our all injury frequency rate, we've continued to devote significant efforts and resources to realizing the next step change of improvement that is needed in this critical area of both our business and strategy.

Turning to Slide 10, our focus remains on high margin of quality ounces rather than an absolute production number. As this table that compares 2015 full year results with that of last year shows we faced headwinds from an 8% drop in the gold price combined with lower production arising from a below par performance from South Africa due to safety stoppages and loss of production from CC&V sale and Obuasi. Notwithstanding this, our costs dropped by 11%, EBITDA margins improved, free cash flow was up and net debt reduction targets were met. Whilst our cost reduction and efficiency measures helped keep a lid on local inflation and production changes at our operations, the tailwinds from currencies and fuel provided us with the additional mitigation that was needed.

Looking back at our journey over the past three years, our all-in sustaining costs have dropped by 54% from the peak of Q4 2012, but it was $1,597 an ounce dropped now to $860 an ounce. With those introductory comments, I'll hand it over you to Chris.

Chris Sheppard

Thanks Venkat. So, some three months ago, as I stated the key issues that needed attention were our unsatisfactory safety performance that saw unprecedented impacts on the business and the constraints we saw in immediately stope-able face-length, which reduced our mining flexibility. I was also clear that if we succeeded in addressing these issues we will see an uplift in production performance this year that will take much of the fourth quarter to recover from these stoppages and challenges with the full benefit only evident in the new year.

Turning to Slide 12, I am pleased to be able to show that quarter four saw our all-in sustaining costs improve to ZAR451,000 a kilogram, you will see here a double margin kicker with the improved costs taking place against the backdrop of an average gold price that has climbed to around ZAR505,000 a kilogram. This performance was underpinned by higher gold sales as opposed to pure production during the quarter and was also -- and also the move out of the higher winter power terrace we see each year. You will also be aware that we saw the benefit of the weak exchange rates. So to be clear that the Rand only really fell sharply in the last few weeks of the year. We will be the beneficiaries this year of higher dollar gold price and the significantly weaker Rand.

Turning to Slide 13, regarding the operational performance of our South African operations, the improvements in safety achieved during the quarter, saw a return of stability and consistency to our operations, though it's worth noting that the real recovery from the safety interruptions that hit quarter three came at the end of quarter four as we have flagged. That’s why you see similar production levels quarter-on-quarter. Mponeng improved its production levels by some 13% in line with the de-risk plan we put in place over the past three quarters to address the seismicity challenges we have experienced. This resulted in a pleasing 2% reduction in all-in sustaining costs to $959 per ounce.

Regarding the below 120 projects, the 123 level section continued its production ramp up to expectation and the completion of 126 level infrastructure support work is also continuing to plan. Operational readiness for the Phase 2 access to the lower carbon leader reserve, below TauTona is also progressing with a pre-feasibility study approved to evaluate the merits of increasing the project footprint on the lower carbon leader as well as co-extraction of the VCR from the same shaft deepening infrastructure platform. We expect to finish the study by the end of this year.

Next door at TauTona, we saw a steady performance reflected in the 13% improvements in all-in sustaining costs to $957 per ounce. Our technology project also demonstrated significant progress through last year with successful deployment of our latest generation reef boring machine at the TauTona lower carbon leader shaft pillar and preparations are now at an advance stage for the deployment of reef-boring technology at the Savuka mine carbon leader shaft pillar site.

Turning to our Vaal River operations, we saw Moab Khotsong continue to focus its efforts on establishing face-length in the middle area of the mine as we migrate resources from previously seismically-damaged working places in the Great Noligwa section. All-in sustaining costs, they improved from quarter three, to some $997 per ounce. Zaaiplaats project remains on hold, while our options Study A has resulted in approval or pre-feasibility study to proceeding and anticipated that this will be completed by the end of 2016. At Kopanang, we continue our work on addressing previously reported face-length efficiency. That delivered a 27% increase in total meters developed in the quarter and a modest 7% increase in tonnage mined.

Our surface sources returned a similar performance to quarter three. You will recall that we took steps to improve recoveries at both uranium -- of both uranium and gold, by reconfiguring the treatment plant at Mine Waste Solutions in order to float off the uranium first and then perform the carbon-in-leach gold extraction. In line with that initiative, we will see the first of two floatation streams re-commissioned in quarter two. Lastly, it’s pleasing to note that the [months] of ore reserve position and face-length mined position have shown an overall improvement quarter-on-quarter.

On Slide 14, progress is being made on all four pillars of our revised safety strategy, or safe-production strategy should I say. They are; these are around, improved knowledge and skills, working on critical aspects of behavior and attitude, optimizing our work planning and most critically removing people from risk. Important to note that the single biggest shift from the previous safety strategy is the work being done on knowledge and skills. It is accepted in the South African region by the executive team that this critical aspect requires more prominence and focus from us and that will take time and effort to achieve excellence in this regard. It is however, a critical enabler to unlocking success in most other areas and achieving safe sustainable production. Mponeng is a pilot site for many of our safety initiatives and we will be closely tracking progress there.

I am mentioning a few key 2016 priorities, the first and most pressing of our key priorities for you is to put an end to the fatalities by improving workplace conditions and behaviors. We will look to create stability and control across the portfolio focusing on all of those developments and face-length available and face-length stope-able. We are pushing hard to ensure a full implementation of Project 500 cost reduction and continues improvement frameworks and projects which will firstly modify the operating model and drive out off-mine cost reductions.

We will be looking for some ZAR500 million worth of reduction this year. Secondly to debottleneck the business and thirdly secure labor productivity improvement. The Mponeng below 120 Phase 1 project delivery remains critical in the short to medium-term, while the work I mentioned on Phase 2 underpins the longer term optionality for Mponeng. The outcomes of Project 500 will also be crucial in this regard. Our significant commitment to our technology program will remain driven by a focused project management team fully integrated with the TauTona operational management team and guided by rigorous stage-gate mechanisms as we refine our research and development efforts.

In closing, we’re seeing some pleasing momentum starting to develop across our regions and I remain confident that we will deliver the 10% uplift in performance over last year’s numbers.

Now I will hand over to Ron Largent from International operations.

Ron Largent

Thanks, Chris and good morning. I will provide some detail regarding our quarter four 2015 operating results for Continental Africa, Australia and Americas region and then discuss some of the work streams that are underway to develop the optionality within this portfolio. As usual, I will not go into the detail of each individual operating asset as the detailed results are contained within the quarterly report.

On the all-in sustaining cost slide, as I stated last October, we believe this slide tells a compelling story around the outcomes that have been achieved by focusing on the operations and the relentless driving of efficiencies. Now with three years of data to support us, we can illustrate not only the effectiveness but also the sustainability of the process we have implemented. We commenced the project to improve our efficiencies throughout the International operations in late quarter four 2012. As this graph illustrates, we saw our first step change in early 2013 and then a second step change in 2014.

Now we have put together four continuous quarters in 2015 that indicated another step change to less than $850 all-in sustaining costs. We believe the foundation that has allowed the improvements shown in this slide have been ingrained in our operating framework and have set the foundation for the next step in operational efficiencies. Overall the International ops which account for somewhere between 70% and 75% of AngloGold Ashanti production have continue to improve margins even with a reduced price.

The next slide I first presented in quarter two 2015 to illustrate our journey compared to the global gold industry. Our objective was and is to continue to move our outcomes to the left on this slide. As you can see, it's been a transformational move for the company from the highest quartile in '13 to below industry average in 2015. AngloGold had all-in sustaining costs for 2015 of $910. This is below industry average of $938. For the International operations 2015 was completed with an all-in sustainable cost of $822. I want to remind everyone that our costs management work over the past three years has been focused at each individual site around all aspects of the operation including but not limited to procurement, strategic planning, mining contract evaluations, mining levels, asset reliability, capital management and operating efficiencies.

To unpack the numbers at a high level all-in sustaining costs at International ops, has reduced by approximately $300 per ounce since 2013. In this three year period, we can categorize it into three general groups of; currency about 13%, fuel and power about 15%, and cost management and efficiency net of inflation about 55%. Just one last comment I will make is, if we compare from '13 to '14, the industry had a reduction of a little more than $90, AngloGold reduced by $175, going from '14 to '15 industry reduced an additional $50 an ounce, AngloGold reached a $110 ounce reduction. We think this reflects our focus on cost management over this timeframe.

Now next slide, for quarter four, the International operations produced 745,000 ounces at cash cost of $619 and all-in sustainable costs of $786. To highlight a couple of areas of performance, Geita had another strong quarter performance in quarter four producing 139,000 ounces at $465 cash cost. The Americas region delivered 831,000 ounces in 2015 with all-in sustainable costs of $792 an 18% year-over-year cost improvement. At Tropicana, it produced its millionth ounce in quarter four and as per the investment plan 2016 grade reductions are being actively interrogated. The Kibali mine had another strong quarter 69,000 ounces attributable at $603 cash cost while production ramp up continued throughout the year.

The next Slide 19, each quarter I try to talk about an individual asset or two, with I think significant changes. I'd like to highlight the work at the Geita operation. In January the first round was detonated that commenced underground mining at this asset. The mining of the Star & Comet ore structure will consist of decline and incline access to known remaining high grade structures. First ore was delivered to the mill from activities as the structure was exposed in the depleted open pit. The current resource that we're planning to mine averages little more than 6 grams per tonne. This underground project is the beginning of our work to expand mine life and is self funding in the way we have it designed in line with our Group strategy. This 117,000 ounce resource can be perceived as not being really relevant to the Geita mine but strategically this commences a new mining method at this asset and we believe leads us to the real potential Nyankanga and Geita Hill deeper resources.

The next slide is Nyankanga underground potential. This current work will set the stage for future evaluation and potential development of underground mining in Nyankanga and Geita Hill ore bodies. You can visually see on the slide the resources that we have identified under the open pit design at Nyankanga. As you can see there are indicated inferred resources already defined. This is a longer term future of the Geita operation along with the continued Brownfields exploration for surface mining resources.

Slide 21, 2016 priorities, I won't go through each set of work in detail but we have optionality throughout our operating assets. The Sunrise and Siguiri work will be discussed by Graham as these are two areas actively being implemented. At Tropicana, down dip and the long-strike extensions to the existing ore bodies are being defined by drilling to allow for mine planning options to be evaluated. We are in the middle of understanding our options to address the planned mill-feed grade reductions. At Iduapriem Brownfields drilling continues with successful results that allow for considerable ore reserve in 2015 and planning the extraction sequence is currently progressing. In Argentina, we’ve completed an agreement with our neighboring land holder that allow us to explore the known structures that are contiguous to our existing operation.

In Brazil, Serra Grande the development of the high grade Inga ore bodies are on schedule for ore delivery in the second half of 2016. Drilling will continue on the second high grade ore body Palmeiras Sul in this year. These higher grade systems are the reasons AngloGold Ashanti purchased our JV partner's ownership in 2012. And then at the Cuiabá mine, we continue to define and understand the high grade satellite ore bodies and the hanging wall and footwall of the known systems. This allows us to reduce our dropdown rate and also reduces the development costs per ore tonne metric. As you can see that gives us tremendous options, opportunities and potential outcomes that we can manage within this suite of assets.

With that I will turn it over to Graham Ehm.

Graham Ehm

Thanks, Ron. Today I will cover our 2015 results as well as exploration results and I'll provide an update on some studies and projects. I am starting on Slide 23. Our reserves at the end of 2015 were 51.7 million ounces compared to 57.7 million ounces 12 months ago. Reserves are calculated at the same gold prices last year or $1,100 an ounce. Key changes have been the Cripple Creek sale and depletions of 4.3 million ounces. Half of 2015's depletions have been offset by gains at the Iduapriem, Obuasi, Sunrise Dam and across the other assets, as a result of exploration success and mine optimization.

Our resources at the end of 2015 were 207.8 million ounces compared to 232 million ounces 12 months ago. For 2015, we have reduced the resource gold price from $1,600 an ounce to $1,400 an ounce. Key changes have been the disposal of Cripple Creek & Victor and Mongbwalu and depletions of 4.9 million ounces. There were gains at Obuasi and Sunrise Dam offset by reductions at Geita in South Africa and at Colosa.

Now turning to Sunrise Dam, Sunrise Dam continues to show strong potentials. Over the last few years the mine has fully transitioned to underground mining and the underground mining has increased from around 1 million tonnes per annum to 2.8 million tonnes per annum. Mining costs have come down considerably from well over $100 per tonne to $45 per tonne. Exploration has continued to be successful and as recently returned 11.7 meters at 16 grams per tonne, 4.75 meters at 350 grams per tonne and 10 meters at 15.7 grams per tonne from Cosmo Vogue area. Deeper the Carey Shear continues to grow with recent drilling.

The strategy being pursued at Sunrise Dam is to increase the milling rate to 3.6 times the mining rate -- to 3.6 million tonnes per annum to match the mill capacity, while growing the resources in reserves particularly at Vogue. And to decrease costs, we are looking at an inclined conveyor and underground crushing system taking ore directly to the mill. There is also scope to increase recovery by up to 5% through flotation and fine grinding. This would sustain Sunrise Dam as a 250,000 to 300,000 ounce a year producer and reduce its all-in costs to under $900. We expect to complete the work this year, leading to a decision in early 2017.

Last quarter, we reported good results at Cuiabá in Brazil. This has continued this quarter with good results on the Serrontinho lode, including 9 meters at 38 grams per tonne. The drilling has grown the resource by 238,000 ounces and improved confidence to indicated levels in some parts. The footwall quartz veins has also added 235,000 ounces to the resource and drilling intersects this quarter were narrow, but very high grade including 0.8 meters at 156 grams per tonne and 1.43 meters, at 137 grams per tonne.

On the next slide in Guinea at the Siguiri mine the first-grade controlled drilling in the hard rock pivot pit, the Kami Pit has returned better than expected results, with consistent grades of around 3.5 grams per tonne over 30 to 35 meters. This leads me into the Siguiri hard rock project on the next slide. The Siguiri hard rock project involves adding hard rock crushing capacity to the current process plant to treat the fresh and transitional ore containing approximately 1.6 million ounces. The feasibility study has been completed and front-end engineering has commenced. The project extends the mine life from 2019 to 2023 and opens significant potential from satellite pits. Annual production would be maintained at 300,000 ounces per annum and all-in costs would be less than $900 an ounce. Capital is approximately $115 million over two years and project returns at $1,200 an ounce are good at 24%. We expect to give the project the full go-ahead by mid-year when all the requisite consents and approvals are in place.

Now turning to Obuasi. Here we were disappointed that Randgold withdrew, as we believed we could successfully redevelop the mine together. In withdrawing, Randgold commented that the project didn’t make their investment criteria of 20%, at $1,000 per ounce, a pretty tough target. We have now refocused our efforts on three fronts. Firstly, we are optimizing our feasibility study to decrease upfront capital especially in mine development and reduce operating costs and improve recoveries based on recent test work. We expect to finish this work by mid-year. We are working with the Ghana EPA to undertake a thorough environmental review process for the redevelopment. We expect this to take us into the second half of this year. Thirdly, we are working with the government of Ghana to agree an investment development agreement which will define and stabilize the fiscal conditions under which the project will operate. With these three elements in place, we’ll have a full investment package to offer a prospective development partner.

And lastly, you will have seen from our press release that there has been an incursion of several hundred illegal miners, or Galamsey in local language in the northern part of the Obuasi mine. To provide a little bit of context, illegal mining is causing considerable disruption to mining operations across Ghana and in early 2013, the government implemented a program to remove the Galamsey from legal mining tenements across the country, including at Obuasi. And through the Chamber of Mines, the industry entered into an agreement with the government to provide ongoing security support to supplement with the efforts of our own security people. The tenement map in this slide shows the area of the lease and it shows the location of the Galamsey in the northern end of the mineralized corridor.

Unfortunately on the 2nd of February, our supplementary security support was withdrawn and this was followed by an incursion on the 6th of February of several hundred Galamsey. As the situation was volatile, we took steps to remove all non-essential people from the mine. We have kept government stakeholders updated on the developments on-site at every step of the way and we’ve engaged with the authorities to the highest levels for the re-establishment of law and order and the removal of the illegal miners from the site. Our priority is a safe and peaceful resolution to the current situation. And last Monday a high level delegation was sent to the site to evaluate matters and we're awaiting formal feedback from the visit. We are hopeful of a speedy resolution and a situation where law and order is reestablished and the security of the mine is reestablished.

Thank you. I will hand over to Christine.

Christine Ramon

Thank you, Graham. Good morning and good afternoon, everyone. As you've heard from Venkat and my other colleagues, we continue to deliver on our self-help measures reflected in the strong set of results again beating market consensus views. These improved metrics together with lower debt levels have resulted in improved free cash flow generation in the Group providing the much needed flexibility in the current volatile environment.

I'll now talk through our fourth quarter's and full year's performance and conclude on the outlook for 2016. Slide 32, our geographic diversification continues to differentiate AngloGold Ashanti from the majority of its peer group providing resilience in a volatile market. With the exception of the dollarized environment in Continental Africa, we realized benefits which cushioned the impact of the lower gold price in South Africa, Brazil, Argentina and Australia. Together these comprised the remaining two-thirds of our production. We note that even though the gold price has declined by 8% in the past year, on a production weighted basis the Group has realized a 30% increase in the gold price when taking our currency exposure into account.

We remain sensitive to changes in our currency baskets and the oil price and we issue the following sensitivities with a health warning. For every $10 per barrel change in the average Brent crude oil price, it will impact our cash cost by approximately $8 per ounce and for every 1% change in our currency basket it will impact our cash cost by approximately $6 an ounce.

Slide 33, despite the falling gold price since the fourth quarter of 2012, we have been able to steadily reduce both our all-in sustaining costs and all-in costs per ounce through relentless focus on cost controls, portfolio improvements and operational excellence. All-in sustaining costs have been reduced by approximately $735 per ounce from the quarterly peak and all-in costs has been cut by more than $1,200 an ounce over the same period. Our margins have improved through the cycle, reflecting a 3% improvement in our all-in cost margin compared to last year at 21%.

Slide 34, quarter four, has delivered a strong operational and cost performance with production and cash cost beating guidance. Year-over-year production declined due to the disposal of CC&V, Obuasi's move into limited operation, South Africa's disruptions linked to safety stoppages and the grade related reduction in contribution from Australia. Both the cash costs and all-in sustaining costs for quarter four at $663 an ounce and $860 an ounce respectively are the lowest since 2012 and reflects the benefits of our cost savings initiatives, weaker currencies, lower oil prices, favorable inventory movements and lower sustaining capital spend.

All-in costs for Q4 were $959 an ounce. Despite 3% lower adjusted EBITDA at $388 million for quarter four margin improved to approximately 38% compared to a little under 33% in 2014. Free cash flow for the quarter at $160 million improved significantly as a result of lower all-in costs, tax and VAT refunds, which together amounted to $36 million, favorable inventory movements which amounted to $35 million and lower finance costs.

Moving onto Slide 35, looking at the cost performance in the year -- year-on-year, we note that efficiencies were key to delivering the improvement in cash costs for the quarter compared to last year as the favorable currency effects were offset by inflation and lower volumes and grades. All-in sustaining costs per ounce were $145 per ounce lower in quarter four compared to last year on the back of lower cash costs, lower sustaining capital and favorable rehabilitation and other non-cash effects. In particular, the lower sustaining capital benefited from favorable currency effects, mine plan adjustments at Iduapriem resulting in lower deferred stripping and lower ORD development in the South Africa region due to the safety stoppages. The lower deferred stripping together with favorable currency effects can be banked as permanent savings and the ore reserves development in South Africa is regarded as a timing issue.

Moving on to Slide 36, the full year ended with an adjusted headline earnings of $49 million or US$0.12 per share compared to an adjusted headline loss of $1 million last year. As indicated on the slide, we normalize the adjusted headline earnings for deferred tax rates, prior year adjustments, inventory and other provisions for comparability purposes. Adjusted headline earnings was mainly impacted by the 8% decline in the gold price, lower ounces sold and inflation increases, whilst it was offset in part by weaker local currency, lower oil prices, improvements in operating costs and lower finance costs.

Slide 37, the $819 million net proceeds received from the disposal of CC&V in August 2015 helped reduce the net debt levels in the Group by approximately 30% compared to last year. We have now reached our target net debt to adjusted EBITDA ratio of 1.5 times through the cycle and we compare favorably to our peers. The ample headroom to our capital levels of 3.5 times net debt to adjusted EBITDA, our stronger liquidity, sufficient undrawn facilities and long dated maturities provides the financial flexibility required in the current volatile environment.

Slide 38, our self-help measures have benefitted our free cash flow generation and for the first time since 2011 we have been free cash flow positive on an unadjusted basis and that is after taking all costs and CapEx into account, including tax. On an adjusted basis, excluding once-off payments related to the bond offer repurchase premium in 2015, the Obuasi retrenchment payments and the Rand Refinery loan in 2014, for two consecutive years we have been free cash flow positive. Going forward we expect the positive cash flow momentum to continue, benefiting from efficiency improvements as well as the leverage to currencies and the oil price. Furthermore, we will be significantly reducing the spend in Colombia to approximately $44 million in 2016 reflecting AGA's attributable share while retaining optionality on the project spend.

As Graham mentioned, we will be proceeding to secure a reimbursement package for Obuasi and the related spend in this limited operational space will be reduced to approximately $70 million in 2016. We have saved about 30% on our annual interest bond by repurchasing 62% of the high yield bond in the past year. We continue to see the option on the high yield bond at the end of July 2016 as an opportunity and we will keep all options open in this regards. Hence, we will prioritize further deleveraging in 2016 with the aim of further optimizing the interest bill in order to improve free cash flow. We are focused on creating a platform to deliver sustainable returns to shareholders whilst pursuing incremental growth opportunities.

Finally on Slide 39, which deals with the outlook for 2016. Our production guidance of 3.6 million to 3.8 million ounces takes into account the disposal of CC&V. Obuasi in limited operations phase with no production, planned reductions in Geita and Tropicana according to the mine plan, mitigated by the recovery in South Africa. Please note that the first half in South Africa factored in a slower startup post the festive season and the Easter break. No production disruptions, power shortages or changes to the asset portfolio have been factored into the outlook.

Cash costs have been guided at $680 to $720 an ounce and all-in sustaining costs at $900 to $960 an ounce and that takes into account the revised exchange rates and oil prices as stated as well as the lower production guidance and grade variances. Capital expenditure of $790 million to $850 million includes project capital of $120 million to $140 million, which relates to Siguiri, the Kibali underground and Mponeng with 85% of CapEx in 2016 relating to sustaining capital. In order to reduce costs slightly and keep the focus on the value-adding business initiatives AngloGold Ashanti will be moving to half-yearly reporting. We will continue to provide market updates on selected key data on a quarterly basis. However, the full interim financial reporting will now be done on a six-monthly basis. We will continue to engage with the market in this regard.

I will now hand over to Venkat to conclude.

Srinivasan Venkatakrishnan

Thank you, Christine. Turning to Slide number 41, as you can see for the past three years, we have quarter-by-quarter, brick by brick built a strong track record of consistent performance and delivery and that’s being despite formidable headwinds. This slide tracks our actual production and cost performance versus our market guidance and as you will see we have for four consecutive quarters either met or beaten our production and cost targets. Looking at it on an annual basis for '13, '14 and '15, this is also the first time that AngloGold Ashanti has met its annual production and cost targets for three consecutive years.

Moving to Slide 42. Our to-do list for this year is a busy one too. Top priority is to turn around safety and operational performance at our South African operations where we are targeting a 10% year-on-year improvement. We’ll continue to target efficiency and cost improvements within the business to further improve margins and cash flow, which will be applied prudently to scale-back debt. These efforts will not slack despite the recent improvements seen in the gold price or the weakening of the exchange rates. Despite currently not being in production, Obuasi will occupy a disproportionately higher weighting in our list, wherein the next steps include optimizing further our feasibility studies and securing the full package of regulatory consents and approvals needed before we seek to develop these assets through a joint venture. Despite the recent security setback that Graham elaborated on, given the most recent proactive feedback received from the highest levels within the Ghanaian government, I’m cautiously optimistic of demonstrating further progress this year on this large reserve asset that is highly geared to the gold price.

Looking at our portfolio on Slide 43, our job is to manage and improve the quality of our mining asset portfolio. This important slide shows how we monitor and evaluate this, key is for the operations to move up and to the left. As you can see from this slide, we’ve been successful in improving the quality of our Continental African, American and Australian operations within the business. This year, we should start to see the benefits of our efforts on the outlier, our South African operations, start to yield both production and cost improvements thereby pushing these closer to our international operations.

To conclude, we have a strong investment case with several catalysts that we are methodically ticking one-by-one. We have a high quality portfolio of long life gold assets with strong leverage to gold price, particularly on the back of improved margins, leverage to energy and currencies also. We are a transparent and decisive management team that is focused on delivery and returns. We tell you what we are going to do, go away and do it and then we come back and set a higher hurdle for the next round of improvements. We continue to prioritize margins over production growth with relentless cost and capital discipline and it’s our decisive actions to-date that have provided us with much needed balance sheet flexibility.

Finally, when we had the call last year, same time, I did say that I felt optimistic about the prospects of this business and this has been proved with the benefit of hindsight a year later. I feel little reason why this optimism should wane during 2016. Thank you.

Stewart Bailey

Chris, we are ready for questions.

Question-and-Answer Session

Operator

Thank you very much, sir. [Operator Instructions]. Our first question is from Christopher [indiscernible] from Debtwire. Please go ahead.

Unidentified Analyst

My name is Christopher and I am an reporter with Debtwire. You mentioned reducing your net debt by a further 30% on the year in 2016; I'd be very interested in knowing exactly how you plan to undertake that? And that's my first question. My second question is, I also wanted to find out if the company for its maybe its [indiscernible] more than anything else is planning to raise any new debt or what it plans to do in order to or may as well as might be undertaking either this year or the coming years to finance any new assets coming on-stream? Thank you.

Christine Ramon

Thank you, Christopher, it's Christine speaking, I'll answer your questions. I think importantly that we spoke to the debt reduction we were referring to 2015 that we have reduced the debt stage for related levels by approximately 30%. I think what we did of course said we would like to reduce the cost of debt in the Group at a level was to that we would like to optimize the interest bond and we are exploring the various options in that regard. I did speak to the high deals volumes and at the end of July is being if that option comes back certainly see that as an opportunity. But at this point in time, [indiscernible] market conditions as you know it has changed compared to last year and we certainly are keeping all options open in that regard.

Graham Ehm

And then Christopher on your Ghana question, we have no plans to raise any fresh debt for anything in Ghana or any other projects that are on the sites at the movement.

Unidentified Analyst

Okay got it. One thing though, you said that you would like to reduce the cost of your debt, can you indicate what is it now and what you're aiming for?

Christine Ramon

Well, we have given you guidance on the finance costs for next year and I think it's $175 million on the cash flow on the income statement and $190 million on the income statement -- sorry $175 million cash flow, $190 million income statement. I think clearly we'd like to reduce that even further and hence you know we certainly have to keep you informed as we go forward as regarding that.

Srinivasan Venkatakrishnan

Thanks, Christopher.

Unidentified Analyst

No. What I meant was do you still -- how you guys are looking to reduce the costs exactly?

Srinivasan Venkatakrishnan

Christopher, we're just going to have to take another question on the line. I think we don't give the average cost of debt.

Christine Ramon

That's okay. It's about 5%, [indiscernible], average cost update.

Unidentified Analyst

Okay fair enough. And any idea how much you like to bring that down to?

Srinivasan Venkatakrishnan

Chris we're going to go onto the next question here, I think we've got a couple in the line.

Operator

Thank you, sir. Our next question is from [indiscernible]. Please go ahead.

Unidentified Analyst

I was wondering if you could -- it's my understanding that we're going to see elections in the DRC this year and I was wondering if you still -- if you could give us an update on the situation and if those elections were to become a bit more problematic than expected whether you expect any disruption to your Kibali operations or any potential changes in the royalty regime in the DRC?

Graham Ehm

We are aware that the election is coming up towards the end of the year and the general intents of the current incumbent president. The operation is being proactive in that regard and in the Orientale province, that province by the government is divided into three and the local governor -- the present intention of the government is to put a strong local governor in place and likewise in terms of the security or police force in that area to also put a strong leader in place more or less to be proactive and on the front foot should there be any possibility of disruption. Overall we don’t expect any disruptions in Kibali. Our security intelligence is sophisticated, that's well developed and that's well communicated in partnership with the government. So we're not expecting disruptions even though there might be in the country leading up to the election.

Unidentified Analyst

Got you. And I had a quick question for Christine, you mentioned that you have a focus on reducing interest costs and I am just wondering on how you guys think of your capital structure because you obviously have the 20-20 bond which is 8.5% yield but you also have a long duration bond which trades at a significant discount to par. And on a kind of yield adjusted basis could be probably at similar levels in terms of the interest costs savings. So, how would you look to optimize the interest though in relation to these two instruments?

Srinivasan Venkatakrishnan

I think let me fix it up actually because at the end of the day we look at all opportunities on a completely weighted basis to see which gives the best return for our shareholders. What we don’t want to comment out here is which bond, when and how much we'll be actually looking at this at this stage. We like to keep all of the options open when we assess that and we have got to compare it with other return opportunities that provides to shareholders.

Unidentified Analyst

All right, thank you.

Operator

Thank you very much. Our next question is from Harry Mateer from Barclays. Please go ahead.

Harry Mateer

Hi guys two from me. So I guess the first just another balance sheet item but I know Moody's is undertaking a broad review of the mining sector, not just a Ashanti in particular. But given you have reached your net debt target is there any sense you can give us for your discussions with the agency and your expectations for the rating there?

Christine Ramon

Look we do have regular discussions with both rating agencies and as you have referred to that we did have placed the commodity fix on a negative outlook. So, we are due for a ratings review in the near term with the both ratings agencies. I think quite importantly what differentiates us from other gold companies in particular is our exposure to currencies. About two-thirds of our production is actually exposed to currencies which certainly mitigates the impacts of the gold price. I think quite importantly as we saw the 30% net debt reduction in our business and we've also seen the benefits of lower costs coming through. And yes, we’ve had the benefit of currencies in our overall process but I think quite importantly what we've been able to demonstrate is the efficiency improvements in our business as well as the flexibility in our business. So, we've got financial flexibility and I think certainly this stands us in good stead for the ratings review.

Harry Mateer

Okay thanks very much. And then secondly can you just talk a bit about the M&A environment what you are seeing? Whether there any assets at this point that would be of interest to the company and if you thing that the big asset spreads are getting to a point where there might be some opportunities for Ashanti to use some of this balance sheet flexibility and free cash flow to actually deploy into acquisitions?

Srinivasan Venkatakrishnan

I'll pick that one up actually Harry. From our point as you would have seen from the presentation we've outlined now. We are seeing very good Brownfield opportunities in our own backyard and we have highlighted a few here. One is in respect of Siguiri in Guinea. We have highlighted on what prospect Sunrise Dam holds and Brazil holds. So, these are just sort of illustrative in that regard. In addition to that we are looking at other options from within the portfolio itself. So, there is really no need to go fishing for M&A. I think the best return is the one which is right next to our own backyard in terms of actually getting that into the production machine and delivering the cash flows from it.

Harry Mateer

Okay. Got it. Thanks very much.

Operator

Thank you very much. Gentlemen we have no further questions at the moment, if you would like to make some closing comments.

Stewart Bailey

All right folks thanks very much. And thank you everybody for making the time today and we will be in touch and certainly with the schedule for the next quarter's reporting under the new regime. Thank you very much.

Operator

Thank you very much. Ladies and gentlemen on behalf of AngloGold Ashanti that concludes this afternoon's conference. Thank you for joining us and you may now disconnect your lines.

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