AngloGold Ashanti Limited (AU) CEO Alberto Calderon on Q3 2021 Results - Earnings Call Transcript

Nov. 08, 2021 3:54 PM ETAngloGold Ashanti Limited (AU), AULGF
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AngloGold Ashanti Limited (NYSE:AU) Q3 2021 Results Earnings Conference Call November 1, 82021 8:00 AM ET

Company Participants

Stewart Bailey - EVP, Corporate Affairs & Sustainability

Alberto Calderon - Chief Executive Officer

Christine Ramon - Chief Financial Officer

Graham Ehm - EVP, Group Planning & Technical

Conference Call Participants

Jared Hoover - RMB Morgan Stanley

Dominic O'Kane - JPMorgan

Stewart Bailey

Good afternoon, everyone. Welcome to AngloGold Ashanti's Q3 2021 Results. Thank you very much for making the time today. Alberto and Christine will handle the Lion's share of this presentation. And then I'll be handing over to Alberto for questions afterwards. And as always, please do note the Safe Harbor statement at the front end of the presentation, which contains important information regarding forward-looking statements. I'd ask you please to take a moment to look at that.

Without any further ado, I'm going to hand over to Alberto.

Alberto Calderon

Thank you, Stewart. I will start where we always do, which is with safety. Our all injury frequency rate was 2.15 injuries per million hours worked, which remained well below the ICMM member average. It's also worth noting that the injury severity continues to decline. We're making progress implementing our revitalized safety strategy, which is focused on the controls needed to eliminate our major hazards.

What does it mean? That each person on every site knows by heart the three or four major hazards that are most likely to cause fatalities, and the priority controls we need to prevent them. This is crucial in eliminating accidents and especially fatalities from our sites.

Our emphasis on COVID-19 remains on safely ensuring business continuity. We're also working with our host governments and communities to provide healthcare support, and other assistance in areas that are feeling strained from the pandemic. Access to the vaccines is improving in our operating jurisdictions, with all sides making good progress with about a quarter of our workforce having received the first dose. About 45% of the workforce has received at least one vaccine dose. Moment speaking up and higher vaccination levels will be a significant plus for our employees and our business.

Operating and financial highlights. Moving to the operational and financial performance of the quarter under review, while we saw a better quarter with the operating parameters stabilizing, there's clearly a lot more that needs to be done to improve relative to the potential of our assets. We started addressing the fundamental performance of the business and while able to time to get to where we want to be, you just start to see an improving trend.

Gold production was 613,000 ounces, underpinned by strong performance at Siguiri, AGA Mineração and Tropicana, with investments in our bigger assets AGA, Tropicana and Iduapriem track well and remain on schedule.

Brazil is working aggressively to completely the stay in Stan [ph] conversion to comply with new legislation. Cumulative inflation for the current year is estimated to be around 5%, mainly driven by fuel, freight, logistics steel, heavy equipment from both consumable pricing and competition for scare labor resources, particularly in Brazil and Argentina. COVID-19 impacted production by about 4,000 ounces and all-in sustaining CapEx by about $20 an ounce in the last quarter.

All-in sustaining CapEx were highly mainly quarter-on-quarter due to 27% increase in sustaining capital expenditure. We generated $18 million in free cash flow, this was lower year-on-year mainly because of higher CapEx and lower production and gold price.

The balance sheet remains in solid position, gearing is still very low and we have a $2.5 billion in liquidity. Revised guidance remains on track, albeit at the lower end of the production and the higher end of the cost range.

Obuasi has successfully resumed underground mining, and we've reached an agreement to acquire Corvus Gold, which will give us a clear pathway to our Tier-1 production base in Nevada.

At Quebradona, mining operations license was approved by [indiscernible] Secretary which is good news. But on the less positive side, the National Regulatory Environmental Rights declined to make a call. So we will require an appeal and a resubmission, and this will delay us by about 18 to 24 months, we're confident that we will get it in time, but it is a serious delay.

Core priorities, back to basics. With about two months behind me now it's clear we need to change how we do things we must go back to basics and successful follow from this. My objective in the short to medium term is to offer a compelling investment proposition, narrow our focus on cost per host, and perhaps the most critical thing, but also sharpen project execution and improved cash flow conversion. That starts with having the right team and structure in place, which makes the implementation of the proposed new operating model first, the most - the most crucial first step in our change.

I'll cover this structure and operating model more detail in a moment. But we're moving quickly on this and plan to have it in place by the end of the year.

We move to strengthen our leadership, we put our best operators in charge of our Ghana business. And we have new leadership across our Brazil operations and Latin America operations will continue to strengthen the bench.

Marcelo Godoy has joined us from Newmont bringing us, one of the best minds in the industry on mine planning and asset optimization. He'll be leading a detailed analysis together with our CEO [indiscernible] and every one of our operations, determining the capability of each asset and then developing detailed plans to close the gap between the current performance and their inherent potential.

He will be leading- in addition, we have a team conducting a productivity and cost review. This is focused on removing costs that are not aligned to our key strategic imperatives. These teams are carefully scrutinizing the 2022 plans to ensure they can be delivered with confidence and establishing stretch targets which will start to get at the potential of our assets.

Improving our overall social license to operate is fundamental. We're working on safety, we're continuing to respond to our host government and community needs, and making sure we have an updated and detailed climate response. All of this is vital to our long-term success.

Unlocking value through a more accountable, effective organizational structure. To ensure effectiveness and accountability in any business, functional service role should not be located at multiple different layers of organization. Ideally, these roles should apply in only two places, which is at the corporate level, and as close as possible to the assets that generate revenue.

The two level structure improves accountability and outcomes by providing the assets directly for the resource needed to deliver their plant production costs and other metrics.

The corporate functions should have a clear mandate to seven [ph] govern minimum requirements to which the assets must perform and in special circumstances provide the asset specialists temporary high quality support where needed.

My aim is to ensure that we design and implement an operating model that ensures the right people are in the right places, making the right decisions at all times. I have absolute conviction that the proposed course of action is in the best interests of the long-term success of the business, and the many 1,000 stakeholders who depend on it. This is a view solely fully supported by the board and the executive committee.

Moving into the quarterly performance. Here is a snapshot of some of the key operating and financial metrics. I don't intend on going through it in detail, but let me draw your attention to some key points.

The surface capital, which more than doubled, as we continue to push ahead with our reinvestment strategy and compliance with TSF regulations in Brazil. We also continue to span Obuasi Phase 3 without the benefit of any meaningful production benefit.

Exploration was also up more than 50%., again, also aligned to the sharper internal focus on improving our ore bodies. We're still targeting at least to replace a depletion this year probably slightly more than that. You will see the impact of the increased investment in our costs and cash flows, which were also impacted by the lower production and lower price.

While the operation is safe and challenging three months, we did see an improving trend relative to the first two quarters. Some of the key points for the period, transitioning all our Brazilian operations to dry-stacking to be triggered to retain deadlines, completing the review of ground management plant at Obuasi, and we started mining operations and continually investment in exploration and development to improve flexibility and resource confidence, which is the foundation for improving our operational performance.

COVID-19 infections have been steadily declining across all operation jurisdictions as [indiscernible] scale momentum. In Australia, pressure remains in the labor market, and in Brazil our staffing levels are gradually returning to full complement. Still, we expect it will take some time before we return to pre-pandemic productivity levels.

Africa overview. Kibali report a gold production of 94,000 ounces for the quarter, and all-in sustainable CapEx of $771 an ounce which is in line for the same quarter of last year. A decreased production of 48,000 ounces was significantly below the 69,000 ounces achieved in the same quarter of last year. [Indiscernible] mine and process were 20% higher; however, this was not sufficient to mitigate the impact of lower mine grades.

We are making good progress however with waste stripping the Cut 7 and expect to access high-grade or in Block 7 and 8 later this year. We do expect a better year in 2022 in [Indiscernible] for the all-in sustaining capital for the period at 1,580 an ounce reflects the near-term investment in Waste Stripping and new tailings storage facilities.

Siguiri 76, 77,000 ounces was well above the 52,000 ounces achieved in the same quarter of last year. This reflects a combination of better grades and higher throughput as we ramp up the processing plant. All-in sustaining CapEx at 1,271 ounces was consequently 6% lower year-on-year. And we expect further improvements as we ramp up delivery of offsite or from Block 2.

Geita reported production of 125,000 ounces, which is lower than second quarter of last year. That mine is currently deposition period between the depleted Nyankanga open pit and the new Nyamulilima open pit. Until then it's entirely dependent on underground operations.

I'm encouraged of development of the open pit is ahead of schedule, ore mine will increase in the quarter and contribute 50% of gold production in 2022. I will probably add that it will be the first time we have three or four years of reserves and that should stay for the foreseeable future. That's a pretty good place to be for an asset like Geita.

Brazil, Latin American overview. Brazil produced 102,000 ounces in the quarter well below the 134,000 ounces in Q3 last year, so that's probably one of the regions where we've most been hardly hit. We have to take a short term decision to scale back plants through low throughput to keep without permitted tailing limits.

While we fast track the position to dry-stacking, a combination of lower production on the additional capital contributed to abnormally high all-in sustaining CapEx unit costs which are not comparable to prior periods. All-in sustaining CapEx unit costs will trade down this difficult transition to price when price backing is complete.

The Brazilian senior leadership team has been restructured as part of our operating model review and the full organizational review is underway. AGA Mineração reported a production of 84,000 ounces compared to 103,000 ounces achieved in the same quarter last year.

This is largely due to the underperformance of Corrego do Sitio mine which will now be managed by the two other operating team. Capital period for the period was $61 billion, which added $714 an ounce for all-in sustaining CapEx.

Cerro Vanguardia performance was significantly lower at 18,000 ounces relative to the 31,000 ounces reported in the same quarter last year. Cost included an additional 32 million of capital, which is equivalent to $1,800 an ounce and it's clearly not comparable to last year. The General Manager and Site Leadership Team has been replaced.

In Argentina, Cerro Vanguardia's operations are starting to normalize as COVID related travel restrictions are lifted, allowing underground and open pipe - open pit mining to return to full capacity.

Gold production of 38,000 ounces was 80% below the prior year's reporting period, which has the benefit of higher grade stockpiles. All-in sustaining CapEx at $1,402 an ounce was higher than previous year's, which reflects the increase capital of stripping or reserve development and maintenance projects that were put on hold during the COVID pandemic.

We now go to Australia. Australia's production was 24,000 ounces down year-on-year largely due to the wall failure in the Boston Shaker open pit, which we highlighted in Q2, a strong Aussie dollar hasn't helped either. The pinnacle slip at Tropicana resulted in gold production of 67,000 ounces compared to the 75,000 ounces in Q3 last year. This differs 30,000 ounces of gold production into next year on a sustaining CapEx at $1,146 an ounce was 5% higher than the prior year.

At Sunrise Dam gold production was 58,000 ounces, I guess 74,000 ounces last year. This reflects the unfavorable wage reconciliation in the underground mine. All-in sustaining CapEx was consequently higher at $1,485 an ounce compared to the prior year.

Q4 production is expected to increase with higher grade ores at most at more than three grams per ton from the Western Shear zone and the new we discovered Frankie orebody. Mining in the Golden Delicious pit is progressing well and this additional material will be stockpiled and blended with underground or contributed to higher productions in the final quarter.

Looking ahead, we expect to see ongoing improvements in our operational performance in Q4, as mines improve the productivities and ramp up our production. We expect to see also improvements in Tropicana, we expect to not be in mine constraint in 2022, and to see the full benefits of the Boston Shaker.

Obuasi redevelopment project, you will be aware that the Obuasi redevelopment project is to be developed in three phases. Phase 1 and 2 have been completed enabling a mining rate of 4,000 tons per day. Refurbishing of the KRS shaft and material sampling system is complete.

So is the GCVS ventilation shaft and the process plant and associated infrastructure including the water management facility. Focus is now on Phase 3, which sets up the required mining infrastructure to serve as the mine as production areas move deeper enters the north into blocks 10 and 11.

Phase 3 which wants to end up 2023 includes the upgrade of the KMS shaft and material handling system and new ventilation shaft, new KMS on the ground pumping stations and refurbishments of the BSVS sub-shaft below the KRS shaft. Setup is done and engineering and procurements are underway.

We have maintained good continuity with the project team from the earlier phases and expect to work relatively with the Ghana contractors to support the project. In the first two phases, I would just before handing over to Graham, I will just say we are on track that he said by June to reach the 4,000 tons per day enhance the 250,000 ounces of production for 2022.

So with that, I'll hand over to Graham to discuss the resumption of mining and an update on phase 3.

Graham Ehm

Thank you Alberto. Underground mining resume at Obuasi in mid-October. Underground mining activities had been voluntarily suspended following the sill pillar failure on the 18th of May, which resulted in the tragic loss of one of our colleagues.

This was quite a disruption to the project ramp up, which had been tracking reasonably well and had navigated the global pandemic challenges. A detailed review of the mining and ground management plan was conducted by cross-functional internal team and supported by an independent third-party Australian mining consultants.

A comprehensive series of protocols have been introduced to supplement the existing operating procedures. The full suite of procedures ahead of the mining front now include the existing systemic probe drilling procedure, extensive use of technology including cavity monitoring systems and cavity water laser systems or method [ph] with visual inspections to confirm the position and status of backfill in previously lined areas.

These protocols are being integrated into the line operating system. It's estimated that the supplementary operating procedures introduced following the view will add about $10 to $20 a ton to the lines operating costs or about $50 per ounce. This does not materially change the line plan, or otherwise the public reserves and mineral resources.

Our production in 2022, as the line ramps up is estimated to be around $240,000 to $260,000 ounces per annum for that year, and an all-in sustaining costs of about 1,250 to 1,350 per ounce with cash costs around $900,000 per ounce.

As Alberto mentioned, the plan is to undertake the ramp-up in the first half of the year achieving the 4,000 tons a day rate by the middle of the next year. We estimate that in the fourth quarter of next year, the annualized production rate will be around 320,000 to 350,000 ounces a year. And we expect the annual production will remain at around that level in 2023 until Phase 3 is completed in quarter four of 2023.

At that point, we estimate that the mining rate will step up to around 5,000 tons per day. With all three phases of the project complete, production from 2024, 2028 anticipated to every 400,000 to 450,000 ounces at an all-in sustaining costs of around $900 to $950 an ounce. Thanks, Alberto.

Christine Ramon

Thanks, Graham. I'll now discuss the financials. Our cost performance reflects a significant reinvestment phase at key assets across our portfolio in particular Iduapriem, Geita and Tropicana and as Alberto mentioned also the Brazil tailing compliance costs. Our focus remains on improving our operational performance, which will be underpinned by cost and capital discipline.

Cash costs increased 23% or about $172 an ounce to $927 an ounce, and that was largely due to lower grades, stockpile and golden process movements and inflationary pressure. This was partly mitigated by higher bar product sales, lower royalty payments, improved efficiencies, and weaker local currencies.

Recovered open pit grades are 32% lower year-on-year, with most operations reflecting lower grades, except for Siguiri and Sunrise Dam. Recovered grades from underground operations were 2% lower year-on-year, as all operations except for Kibali.

Underground grades have however improved by 6% against the prior quarter at all operations, except for Obuasi with CVSA recording a 46% increase in recovered grade and Geita, a 19% increase. Stockpile drawdowns were noted at Geita, Iduapriem, Tropicana and Siguiri.

So compared to the previous quarter, cash costs improved by 8%, mainly due to higher production from producing assets and lower operating costs. All-in sustaining costs for the quarter was 35% or $356 an ounce higher at $1,362 an ounce compared to the third quarter of 2020. And that was on the back of higher cash costs and the planned higher capital expenditure to improve mining flexibility, and orebody confidence, as well as tailings compliance and reserves.

We saw sustaining capital increased by 70% to $213 million and that was mainly due to the Brazil total capital expenditure and continued stripping activities at Tropicana and Iduapriem.

Moving to sustaining costs in the third quarter of 2021 included an estimated $20 an ounce impact due to COVID-19, and an estimated $94 an ounce impact relating to the Brazil tailings compliance program.

For the year-to-date, the COVID impact is estimated at $43 an ounce and that includes $20 an ounce related to estimated additional costs and $23 an ounce related to the loss production of 47,000 ounces.

We are keeping a close watch on inflation. Cumulative inflation for the year-to-date is estimated at around 5% for the group, and that was predominantly driven by the current level of the Brazil crude oil price, higher freight and logistics costs, higher steel and heavy equipment passing, some bulk consumable pricing and competition for case resources, particularly labor in key jurisdictions including Brazil and Australia.

We are focusing on the retention of critical skills and strengthening the necessary training and graduate programs for succession planning. We also continue to proactively monitor global supply chains to maintain resilience and continuity of supply and did not experienced any material negative impacts of supply shortfalls during quarter three.

Due to our strategic partnerships and global spin categories as well as stocking strategies at our operations, we have benefited from a delayed inflation impact. However, we've increasingly seen cost increases in the third quarter of 2021 and anticipate continued pressure throughout the remainder of 2021 and into 2022. We will use our long range consumable contracts [indiscernible] and operational excellence program to mitigate these cost pressures.

Moving on to the balance sheets, our balance sheet strategy continues to enforce disciplines, capital allocation, and long-term balance sheet improvements based on a self-funded approach.

Adjusted net debts at $871 million or 60% down from the peak. We remain committed to maintaining a robust balance sheet with an adjusted Nifty to adjusted EBITDA target ratio of one time through the cycle. Our current ratio of 0.43 times is well below their targets.

Liquidity remains strong and continues to provide good flexibility. We currently have cash balances of $1.1 billion excluding our share of the Kibali cash balance of $512 million.

From a liquidity perspective, cash is mainly supported by the multi-currency $1.4 billion RCF which was largely unroll. The Corbis transaction is anticipated to close during Q1 2022, and the acquisition cost will be funded from available cash on hand.

On the 22nd of October, we successfully raised a new seven year bond of $750 million priced at a record low coupon of 3.375%. This translates into an interest saving of around $13 million per annum.

The proceeds from the new bonds will be used to repurchase the 750 million, 5.125% notes due in 2022 through a cash tender offer followed by the redemption of any remaining notes. There are no other significant near term maturities.

Our dividend policy remains unchanged, which is 20% of free cash flow. Free growth capital paid semi-annually. We paid an interim 2021 dividend of $0.06 per share in August based on free cash flow generated in the first half of the financial year.

The final dividend will be formula based and declared at the end of the financial year. Our free cash flow continued to be impacted by lockups effects at Geita and Kibali and export duties at CBS.

In Tanzania, the recoverable vaccine put credits increased by $8 million, $252 million despite a 7 million offsets against corporate tax payments in September. The offsets for the VAT accumulated since July 2020 and is expected to continue, although there is an expected lag in the administrative process.

We continue to engage with the relevant Tanzanian authorities regarding a recovery mechanism on the historical VAT that was accumulated until 30th of June 2020, and the historical amount of $132 million.

In the DRC, the cash is held in the Kibali JV's bank account in US dollars, which is fully available for operational requirements. Barrick our JV partner and the operator of Kibali continues to [Technical Difficulty] $74 million and in Argentina, the export duty receivables remain at $23 million. CVSA had a cash balance equivalent to $147 million on the 30th of September 2021 of which $140 million eligible to be declared as dividend. We've submitted applications to the Argentinean Central Bank to approve this amount to be paid.

Finally our credit ratings remained unchanged during the quarter. Both Moody's and Fitch maintain an investment grade rating for the company with Moody's and sending a negative aspect and such a stable outlook. S&P maintained a rating of one notch below in business grade.

Concluding on the guidance for 2021, our revised guidance issued in August remains on track. We're tracking towards the bottom end of the range for the revised production guidance of 2.45 million ounces to 2.6 million ounces. As in the prior years, Q4 is expected to be our peak production quarter with improvements expected at Iduapriem, Siguiri Australia and results.

We are testing towards the top end of the range for both total cash costs and AISC. The revised guidance is $90 an ounce to now $50 an ounce and $1,240 an ounce to $1,340 an ounce respectively.

Other operating expenses is the negative multi-million dollars includes Obuasi, Siguiri maintenance costs of between $45 million to $50 million for 2021. Guidance excludes any impact on production and costs relating to the COVID pandemic.

The revised guidance also does not assume any production contribution some Obuasi for the second half of 2021 is underground ore will only be used to be finished the run of mine stockpiles after recommencing underground ore mining in mid-October 2021. We expect Obuasi to ramp-up to the full mining rate of 4,000 tons a day by the end of the first half of 2022.

Capital expenditure is tracking within the guided range of 1,000 or let's say $1.030 million to $1.190 million. For the remainder of the year, we will continue our reinvestment program as we pursue key growth driven brownfield projects across the portfolio. Our sustaining capital spend rate for the nine months ended 30th September was $288 an ounce, which was in line with our estimated spin labels of $270 to $290 an ounce for the year.

Growth capital expenditure in Q4 relates to Obuasi, Geita, Tropicana, Siguiri and then the two Colombian projects from Gramalote and Quebradona. On four Obuasi phase, two achieved commercial production stage by mid-2022. Reserve development capital will continue to be classified as growth project capital. So despite the reclassification of capital the overall Obuasi capital remains unchanged.

Key risks facing the business including inflationary pressures and the continued spread of COVID-19 and higher than normal employee turnover rates.

In Brazil, our tailings facilities are currently being converted to dry stacking operations in advance of decommissioning the existing tailings facilities. This program taking place amidst the COVID 19 pandemic is leading to increased competition for skills and engineering resources, which has resulted in an increase to the planned investment to complete the conversion by the legal deadline. Our current estimates indicate that capital expenditures required in 2021 to implement this new technology will not exceed $150 million.

And we expect this work to continue during 2022 to 2025 but based on preliminary estimates today, we anticipate that the annual capital expenditures for each of these years, while for material would be significantly less than in 2021, and will decline over time.

So with that, I'll now hand over to Alberto to conclude. Thank you.

Alberto Calderon

Thank you, Christine. So looking forward, so why AngloGold Ashanti, we have a high quality asset portfolio, a self generated project pipeline, great people and excellent balance sheet. Those are the critical foundation blocks to make a long-term success of the company.

However, we are not realizing our full potential, there is significant latent potential value to unlock. How do we unlock it? We have to get back to basics. We have to get the business of mining right. We'll continue to strengthen our teams wherever necessary, ensuring we have the right people in the right roles at every level. The operating model, review will ensure we're optimally structured and organized to execute work in a way which supports our values and our strategy.

Our program of assessing the full potential gap will be fundamental in regaining the asset competitiveness that we have lost or in other words are significantly increasing asset productivity and reducing costs.

We will at the same time continue to entrench our leadership in ESG, particularly in the climate sphere, where we have more than half our emissions over a little more than a decade.

I firmly believe the process we are undertaking is necessary and the journey to begin to taking AngloGold Ashanti and its valuation back to its place among the top gold mining companies, which is where it belongs. Thank you.

With that, I will open to questions.

Question-and-Answer Session

Operator

Thank you, very much sir. [Operator Instructions] At this time, we would like to hand it over back to Mr. Bailey for questions. Thank you.

Q –Unidentified Analyst

[indiscernible] And Alberto and these are from the webcast, in the first instance from [indiscernible] And the first one is could you take us through the inflationary pressures at Serra Grande and what has been the main driver, and is this trend sustainable into 2022?

Alberto Calderon

Local inflation has been in Brazil around 8% due to pressure on primary products, COVID impacts and labor pressures. But the main issue by far has been the spending on tailings is $150 million of our CapEx, if you put it in terms of the production of Brazil, it's about $300 an ounce. So that hits us very hard.

So yes, inflation has been complicated, but the biggest influence has been the PSF. And we've also had to reinvest a significant amount in creating operational flexibility. A big part of the issue that we have faced in Brazil is that we have mines that are mine constraint which is the worst thing to be, you want to be constrained where your most expensive capital assets are, which is the plants and not in the mine and in many ways we've locked themselves into corners and that's where we've had a lot of the difficulties and the very low grades that we have seen.

Q –Unidentified Analyst

Thanks, Alberto. Secondly, at Siguiri recovered grades have improved by 24%. Can we expect this trajectory to be maintained into next year?

Alberto Calderon

Look, the main reason for this has been dropped to, as we probably said that from months ago, that is a higher grade oxide. And as all of you know, that leads to much more productive and higher grade, it's actually an increase in 50% in the grade.

So yes, we expect that to continue in 2022. Nevertheless, there are also significant things to improve, we need to improve the productivity of the plan. We need to improve labor productivity. So there's a lot of things, costs are really not - are too high or not acceptable to graded. But we are happy with the - our Block 2 is performing.

Q –Unidentified Analyst

And across all operations with the exception of Kibali and Siguiri, there has been a common issue, which is softening of grades. Why is this the case? Is the trend also come into common to peers?

Alberto Calderon

No, this is interesting. And that's a good question. If you can see our cash costs increased and the quarter versus quarter and about $180 an ounce and 140, we say it's lower grades and about $40 is that we have to use inventory from lower grade stockpiles.

Actually, this is a consequence, it's not a decision when you use a stockpile, so the lower grade is that in most cases we were not able to meet the plans that we wanted, it's not that we have a plan that we found lower grades is that we were not able to meet our plans.

So take for example, Tropicana, we have the issues in the beginning with the Havana, and that affected the whole '21. And we were really in catch up, and when you're in catch up mode, you're far away from your optimal plan, and then you have those issues.

Brazil is clearly an example of that. The lack of operational flexibility and the fact of the mine plane means that any small problem you had and we didn't have a small, we had a lot of problems with people and COVID and all of that.

So we were way behind our plans. And then that leads to lower grades and then you have just the - we were reinvesting, we had the West Rock stripping, and then you had in also in Sunrise, you were in transition in case that you were in transition to Nyamulilima. So all of that were - I would put in temporary lower grades.

So we expect to see better grades in some of those. So Tropicana, we would expect them better grading in 2022. In Premium [ph] for example, we also would expect to see better grades. And as we assess this full potential, and we are able to ensure that we have more flexibility, and we are able in our mines, and we're able to ensure that we are not mine constrained in most of our assets. And that's part of the job of that full potential assessment, we should see a better performance in let's say 18 to 24 months.

Q –Unidentified Analyst

Thanks, Alberto. And then lastly from - what significance and I think is does the recent coup heaven in Guinea have on AngloGold and its future in the country? And are we likely to pursue any diversification, bauxite, aluminum, et cetera?

Alberto Calderon

No, really, if you read all of the communications by the new government is that they want to work with foreign investment. I think they've gone out of their way to ensure the continuity of the operations. We certainly have felt that we have delegations actually as we speak on the ground that have been speaking to the different levels of government, including the administer of mines that used to work with us.

And all of the feedback that we have received is encouraging. So we will keep at what we do. We are gold miners, if anything -- maybe some comparable certainly not much more at this stage.

Q –Unidentified Analyst

Thanks, Alberto. Then a couple of questions on a similar topic here David Houghton from Global Mining Research and Ammad Hakim from Oasis Asset Management here.

Effectively elimination of duplication is one of your goals. Could you give us some examples of so we can understand the scale of the issue and what are the potential savings and time for execution is the first part.

Alberto Calderon

Look the operating model is more around how the functions interact with operations. And we should be finished by most of it by the end of this year. And by February when we next meet, we can give you more numbers.

What are we talking about? It's more that the issue is the lack of effectiveness that that type of model would entails. When you talk to several of and I spoken to all of them of our operators in the old model, they had above them, people in functions, but that were part of the line that is sort of a bit strange.

So we had two Chief Operating Officers and each had structures combined had about 200 people in functions, that they were all a lot of their many good people, but they were trying to help the assets from the center. But the assets at the same time were trying to run their day-to-day operations and there was a lot of confusion.

And then a lot of destruction you start may say, what we will have now is those functions will go to where they should sit, which is in the corporate functions. And then the line really is empowered, strengthen. And by that I mean, you take for example, the Head of Tanzania will report into once you have all those reports it to be.

So it's clarified he doesn't have four or five bosses, like one of the GMs told me I have five bosses, I sometimes don't know it will be really one and then the CEO, so the compatibilities are clear.

More importantly, in the old model, we have functional sitting at four levels of the organization. So for example, you have HR at the Corporate, you had at the CLO international one, our Head of HR at Latin America, you had another Head of HR, and then you went to Colombia and you had another Head of HR.

What you have now it's only in two places. So you go to Colombia and you have take again Australia for example. It's a big as VP of Business Unit, Michael, he will have everything to deliver day-to-day, so he will have reporting to him Finance person, HR person, technical person. And supply and then they will only see there and at the corporate, so only in two levels of the organization.

And the people at the Corporate are really there to, for governance and for just to put the methodology for example in supply well, we're going to have supplied excellence, we're going to have one master data, we want to have contract in system and other things. And maybe in supply anything that we can do a scale. So the few big contracts will be negotiated with the center.

But most the bulk of the - what they buy, how they buy, when they buy is decided by the asset. So I repeat the business unit Australia will be empowered to deliver day-to-day results. And they will also be held accountable to deliver day-to-day results.

Q –Unidentified Analyst

Thanks, Alberto. Two questions on Colombia. Could you just explain what happened at Quebradona and second with that delay could you just talk us through what the cash burn rates are there at the moment?

Alberto Calderon

What happened is we got good news, which was we got the approval of the state but wasn't a given because there was some opposition by some landowners over there. At the national level, we got a delay. Basically, they didn't reject it. They just said we need more information.

We have a certain situation. And we are comfortable that we can address all of the technical sort of uncertainties and they're all addressable, there is no showstoppers, but it will delay the process by about 18 to 24 months.

One of the reasons is because there's going to be a change in government. So I really don't think that this agency will do much more right now, the government will change in seven months. So we're estimating at 18 to 24 the delay.

What we did do is we had to resize and probably that was the first thing we did weeks into it was resize the Colombia to be able to withstand that delay. And so we would have reduced by about 40% to 45%, the burn rate in Colombia and brought it around to about $8 million per year or something like that. So that's what we have done.

Q –Unidentified Analyst

Thanks, Alberto. The next question from Adrian Hammond from Standard Bank. He says Barrick recently alluded to an agreement in principle with the DRC regarding repatriation of funds in the form of dividends and repayments of shareholder loan. What does this mean for current monies held within the country of about $0.5 billion AngloGold share and what does it mean for future cash flows from Kibali relative to the current 60:40 split?

Alberto Calderon

I am crossing my fingers, we’re in touch with Barrick on a weekly basis and I think that this time we will see what we have announced in the past. What that means is there is 60% of what is the joint ventures profit, let's say remaining country 40% we repatriate now. And they're distributed as loan repayment. So that 50% is that 500, and our share with the $512 million that we have locked up.

As you mentioned, more [Bristol] has alluded to an agreement, where we will be able to get that $512 million out in two forms in dividend repayment. And once an agreement is reached on loan repayment. So we will be able to share more light when we would last retaliation mechanism is approved. A permanent solution will be possible as we said before with an exception of the mining code.

[Indiscernible] and Alberto and these are from the webcast, in the first instance from [indiscernible] and the first one is could you take us through the inflationary pressures at Serra Grande and what has been the main driver, is this trend sustainable into 2022?

Alberto Calderon

Local inflation has been in Brazil around 8% due to pressure on primary products, COVID impacts and labor pressures. But the main issue by far has been the spending on tailings is $150 million of our CapEx, if you put it in terms of the production of Brazil, it's about $300 an ounce. So that hits us very hard. So yes, inflation has been complicated, but the biggest influence has been the PSF. And we've also had to reinvest a significant amount in creating operational flexibility.

A big part of the issue that we have faced in Brazil is that we have mines that are mine constraint which is the worst thing to be, you want to be constrained where your most expensive capital assets are, which is the plants and not in the mine and in many ways we've locked themselves into corners and that's where we've had a lot of the difficulties and the very low grades that we have seen.

Stewart Bailey

Thanks, Alberto. Secondly, at Siguiri recovered grades have improved by 24%. Can we expect this trajectory to be maintained into next year?

Alberto Calderon

The main reason for this has been dropped to, as we probably said that from months ago, that is a higher grade oxide. And as all of you know, that leads to much more productive and higher grade, it's actually an increase in 50% in the grade. So yes, we expect that to continue in 2022. Nevertheless, there are also significant things to improve, we need to improve the productivity of the plan. We need to improve labor productivity. So there's a lot of things costs are really not -- are too high or not acceptable to graded. But we are happy with the -- our Block 2 is performing.

Stewart Bailey

Across all operations with the exception of Kibali and Siguiri, there has been a common issue, which is softening of grades. Why is this the case? Is the trend also come into common to peers?

Alberto Calderon

No, this is interesting. And that's a good question. If you can see our cash costs increased and the quarter versus quarter and about $180 an ounce and 140, we say it's lower grades and about $40 is that we have to use inventory from lower grade stockpiles.

Actually, this is a consequence, it's not a decision when you use a stockpile, so the lower grade is that in most cases we were not able to meet the plans that we wanted, it's not that we have a plan that we found lower grades is that we were not able to meet our plans. So take for example, Tropicana, we have the issues in the beginning with the Havana, and that affected the whole '21. And we were really in catch up, and when you're in catch up mode, you're far away from your optimal plan. And then you have those issues.

Brazil is clearly an example of that. The lack of operational flexibility and the fact of the mine plane means that any small problem you had and we didn't have a small, we had a lot of problems with people and COVID and all of that. So we were way behind our plans. And then that leads to lower grades and then you have just the we were reinvesting, we had the West Rock stripping, and then you had in also in Sunrise, you were in transition in case that you were in transition to Nyamulilima. So all of that were -- I would put in temporary lower grades.

We expect to see better grades in some of those. So Tropicana, we would expect them better grading in 2022. For example, we also would expect to see better grades. And as we assess this full potential, and we are able to ensure that we have more flexibility, and we are able in our mines, and we're able to ensure that we are not mine constrained in most of our assets. And that's part of the job of that full potential assessment, we should see a better performance in let's say 18 to 24 months.

Stewart Bailey

Thanks, Alberto. And then lastly from -- what significance and I think is does the recent coup heaven in Guinea have on AngloGold and its future in the country? And are we likely to pursue any diversification, bauxite, aluminum, et cetera?

Alberto Calderon

No, really, if you read all of the communications by the new government is that they want to work with foreign investment. I think they've gone out of their way to ensure the continuity of the operations. We certainly have felt that we have delegations actually as we speak on the ground that have been speaking to the different levels of government, including the administer of mines that used to work with us. And all of the feedback that we have received is encouraging, so we will keep at what we do. We are gold miners, if anything -- maybe some comparable certainly not much more at this stage.

Stewart Bailey

Thanks, Alberto. Then a couple of questions on a similar topic here David Houghton from Global Mining Research and Ammad Hakim from Oasis Asset Management here. Effectively elimination of duplication is one of your goals. Could you give us some examples of so we can understand the scale of the issue and what are the potential savings and time for execution is the first part.

Alberto Calderon

Look the operating model is more around how the functions interact with operations. And we should be finished by most of it by the end of this year. And by February when we next meet, we can give you more numbers, what are we talking about? It's more that the issue is the lack of effectiveness that that type of model would entails. When you talk to several of and I spoken to all of them of our operators in the old model, they had above them, people in functions but that were part of the line that is sort of a bit strange.

So we had two Chief Operating Officers and each had structures combined had about 200 people in functions, that they were all a lot of their many good people, but they were trying to help the assets from the center. But the assets at the same time were trying to run their day-to-day operations and there was a lot of confusion. And then a lot of destruction you start may say, what we will have now is those functions will go to where they should sit, which is in the corporate functions. And then the line really is empowered, strengthen.

And by that I mean, you take for example, the Head of Tanzania will report into once you have all those reports it to be. So it's clarified he doesn't have four or five bosses, like one of the GMs told me I have five bosses, I sometimes don't know it will be really one and then the CEO, so the compatibilities are clear. More importantly, in the old model, we have functional sitting at four levels of the organization. So for example, you have HR at the Corporate, you had at the CLO international one, our Head of HR at Latin America, you had another Head of HR, and then you went to Colombia and you had another Head of HR.

What you have now it's only in two places. So you go to Colombia and you have take again Australia for example. It's a big as VP of Business Unit, Michael, he will have everything to deliver day-to-day, so he will have reporting to him Finance person, HR person, technical person. And supply and then they will only see there and at the corporate, so only in two levels of the organization.

And the people at the Corporate are really there to, for governance and for just to put the methodology for example in supply well, we're going to have supplied excellence, we're going to have one master data, we want to have contract in system and other things. And maybe in supply anything that we can do a scale. So the few big contracts will be negotiated with the center. But most the bulk of the -- what they buy, how they buy, when they buy is decided by the asset. So I repeat the business unit Australia will be empowered to deliver day-to-day results. And they will also be held accountable to deliver day-to-day results.

Stewart Bailey

Thanks, Alberto. Two questions on Colombia. Could you just explain what happened at Quebradona and second with that delay could you just talk us through what the cash burn rates are there at the moment?

Alberto Calderon

What happened is we got good news, which was we got the approval of the state but wasn't a given because there was some opposition by some landowners over there. At the national level, we got a delay. Basically, they didn't reject it. They just said we need more information. We have a certain situation. And we are comfortable that we can address all of the technical sort of uncertainties and they're all addressable, there is no showstoppers, but it will delay the process by about 18 to 24 months.

One of the reasons is because there's going to be a change in government. So I really don't think that this agency will do much more right now, the government will change in seven months. So we're estimating at 18 to 24 the delay, what we did do is we had to resize and probably that was the first thing we did weeks into it was resize the Colombia to be able to withstand that delay.

And so we would have reduced by about 40% to 45%, the burn rate in Colombia and brought it around to about $8 million per year or something like that. So that's what we have.

Stewart Bailey

Thanks, Alberto. The next question from Adrian Hammond from Standard Bank. He says Barrick recently alluded to an agreement in principle with the DRC regarding repatriation of funds in the form of dividends and repayments of shareholder loan. What does this mean for current monies held within the country of about $0.5 billion AngloGold share and what does it mean for future cash flows from Kibali relative to the current 60:40 split?

Alberto Calderon

I am crossing my fingers, we’re in touch with Barrick on a weekly basis and I think that this time we will see what we have announced in the past. What that means is there is 60% of what is the joint ventures profit, let's say remaining country 40% we repatriate now. And they're distributed as loan repayment. So that 50% is that 500, and our share with the $512 million that we have locked up.

As you mentioned, more [Bristol] has alluded to an agreement, where we will be able to get that $512 million out in two forms in dividend repayment. And once an agreement is reached on loan repayment. So we will be able to share more light when we would last retaliation mechanism is approved. A permanent solution will be possible as we said before with an exception of the mining code.

Stewart Bailey

Thanks, Alberto. And then once that $0.5 billion comes out this again from Adrian, would you distributed all to patient shareholders or only 20% as per dividend policy?

Alberto Calderon

On this stage, let me wait -- the excitement that is approved, but -- I think it will be significant addition to that 20% dividend policy at this stage. I wouldn't see any need to change that. But that will be $100 million more. So that will be good.

Stewart Bailey

All right. Excellent. Thanks, Alberto. Just -- and operator if we could go over to the line. See, there are a few questions on the line.

Operator

Thank you very much. The first one comes from Jared Hoover RMB Morgan Stanley

Jared Hoover

Yes, hi. Alberto and team. Thanks for the call. I've got a few questions from my side, please. I think I'll start with the easier ones. There was an earlier question on cost inflation. And I just wanted to clarify, really, it seems from your commentary that you've pretty much been buffeted from inflationary pressures year-to-date tracking about 5% because of your stocking strategies. But going forward, it looks like some of that pressure could actually come into the business from the fourth quarter and into 2022? So I was hoping that maybe you could give us some color as to whether should we be thinking about double-digit cost inflation pressures from an OpEx perspective into 2022? And would that be on an absolute level or on $1 per ton basis? And I guess what I'm trying to get to is how much more upside there is to current cash cost outlook of $800 to $840 ounce , obviously, notwithstanding the fact that there'll be updated guidance in February next year? So that was my first one on cost inflation, and I'll hand it over and then follow up with a few more.

Alberto Calderon

Okay. What we have seen up-to-date for the years that 5%. At this stage, we don't have better information than probably anybody else, we're assuming the similar 5% to 6% inflation. We don't have any evidence, I probably in my gut, I think it'll be somewhat higher. But that's what we are assuming in our budgets and all of that, which is significant. And then how we try to compensate with that.

I don't really know who to believe if you help temper this nature's if the bottlenecks and supply bottlenecks are going to start to improve. There's a lot of uncertainties. So at this stage, we're not planning for anything more than that 5%.

Jared Hoover

Okay, thanks, Alberto. And then just staying on the cost inflation theme. I think we've touched on OpEx. But in terms of CapEx and new project inflation, some of your peers are talking anywhere between 10% and 20% on that, and I mean, if I think about your business, I think you've alluded to 2019 to 2020 CapEx is being a bit too low. So potentially there is upside in the future to your CapEx. Then you throw in some inflationary pressures be given that you recapitalizing the business and project items. So, I'm really trying to get a feel for how much more upside there is to the current CapEx in your outlook, on top of the fact that you'll have Brazilian TSF, CapEx coming to between 22 and 25. So any comments on project CapEx and new projects would be quite useful, please.

Alberto Calderon

If you look at the growth in the total capital between 2020 and 2021, roughly, it's going to be about $400 million increase, out of which about $150 million in Brazil, but then there is $250 million in other Obuasi, Geita, Tropicana, Brazil, etc. So it is a massive increase, if you look at -- what I've said is a lot of it was needed. There was -- we need to improve the operational mind flexibility, we you cannot be my constraint any longer. But it's not going to be so we probably won't go back to the levels of 700. But it's not going to be 1200, where it's going to be somewhere in the middle. I don't like putting forecast, but we should be able to go in 2023, especially to a much more reasonable number.

Now, how much will inflation, if you look at our case are different than the big one, because some of these companies are in steady state. And so when you reach steady state and inflation is hitting you, it's not an inflation, it's not hitting us, it's not the $400 million is dwarfing any inflation that we're having. So we should be able to -- yes, as I said reduce from that very high amount that it -- this year is really this and the next are going to be big years. And so in spite of any inflation, we should be able to produce.

Jared Hoover

Okay, thanks, Alberto. And then I've got one or two more questions on the operating model as well. And I appreciate that the…

Alberto Calderon

Maybe if you have one last question, because we need others to have questions too. I think -- but just one last question and then we make a return if we have time.

Jared Hoover

Sure. So just on the operating model. I mean, I appreciate that it's qualitative in nature, and that you probably give us some quantitative numbers in February. But I was hoping you could just chat to some of the changes that you've made to date. I know you've alluded to changing the CDS team in Brazil.

I think there is maybe one CEO at the moment, but if you could just chapters maybe some of the promotions you made within your business, maybe some of the highest you've made and why and will you be disclosing that technical review that Marcelo Godoy is currently busy with? I'll leave it there for now.

Alberto Calderon

Look – so we have -- we will announce the full structure in probably in a couple of weeks, and we'll talk more about in February why would others legal's sort of processes that we need to finish? And we just don't want to jeopardize any of that from -- it's more from a legal perspective that I prefer not to talk about, but I did put out the structure in the presentation. So it's very clear, it is one COO, one CFO, one CTO, one CDO probably newer Chief Development Officer. So that's all in the presentation. But the people I can tell you a bit. There has been we talked about a new person leaving South America, so that was the person who was in Argentina is not going to leader of Argentina and Brazil.

The SVP Head, we're also solidifying that whole team. We're bringing the finance person from Colombia. We're also bringing a very experienced HR person. Also into that Latin American position, we have our top secret and Mike, I can teach you one of our top operators that has done an excellent job in Tanzania will be also now moving into Obuasi, and we'll be looking at a both premium Obuasi.

And then, so I think that then on the new hires at the expo, just as I will probably mentioned later, Graham Ehm will be retiring at the end of this year. And so we have to bring the CTO and that is Marcelo Godoy. He was working at Newmont, he's resume again, it's exactly what we needed. Really enormous experience in project development, in mine planning, in resource optimization, and lately in exploration. So we are very happy with my fellow. And then also unfortunately, Italia, HR head had come back actually as a consultant. She wasn't fully in the role, but she has wanted to retire and move to Boards and other things.

And so we recruited Lisa Ali, she is by training a chemist biochemist career 10 to 12 years in BP, was CEO for a while, went back into HR and has been leading the HR in Newcrest. So that's, I think, an interesting strengthening of the team right now. So probably, that's as much as probably I can share right now.

Operator

Thank you. The next question comes from Dominic O'Kane of JPMorgan.

Dominic O'Kane

Hello, thanks for taking the question. Just two slightly interrelated questions. For Columbia, do you regards Quebradona and Gramalote as interdependent project approvals? So does it delay Quebradona naturally push down the road by at least 18 months to two years of an approval for Gramalote. And then going beyond that, I've recognize the comments around the updating the operating model for February. But given the portfolio review that you've done so far during your 10 year. Do you think that the longer-term guidance that was provided earlier in the year is still reliable in terms of the sort of four-year outlook for production costs CapEx, et cetera?

Alberto Calderon

So thank you. So the answer to the first question is no. They are not interrelated. They are completely different than my view. Gramalote is JV, we don't operate it. We used to be, but for some reasons that I don't fully understand we are not anymore. And so that right now is the project as it was this didn't meet our thresholds. There we're spending the JV $17 million more so $8.5 million of our part to optimize, re-optimize and improve the economics.

So we will take a decision at the end of that. If it's a goal then we'll go earlier, but they're not interrelated. And we don't run it. So it's probably easy from that point of view. And then Quebradona that will be a project with very strong economics. And so it's more an issue of getting that environmental license, and then it's a complicated blockading project that will take time. It won't be ready in many, many years. But it will -- we will try to go as quick as possible when it is approved. If we go in terms of February, and guidance so what was exactly the question now it's -- I wrote guidance, but nothing more.

Dominic O'Kane

So my question is, obviously, with the capital markets update earlier in the year?

Alberto Calderon

Yeah, it's a capital market. Look, I have been clear that I am, I this has started all over. I will only give guidance in February for 2022. And maybe we will have three-year guidance by the end of '22, or '23. So, why is that? Because, look, I -- one thing that I understand very well is credibility is difficult to build and very easy to lose. And I've asked for your indulgence in that, but when we come out with numbers, I want to be as firm as possible in the understanding that we can deliver on them.

And so that's why we will only do the February the 2022, in February. And then only after we have assessed the full potential what we can do, where we then give a three to four year guidance. But let me tell you probably something related to that. And there's one question that I have been asked, and that is, what is the optimal size? Or am I worried about the optimal size? Or is there a number that we will need to get to? And the answer is no.

I think that the structures that we are building on the operating model, the functional, an organization like the Chief Technology Officer, but it's a very technical, highly qualified, not inexpensive organization. You can sustain it for an organization that has around 3 million ounces, it can be plus or minus 10% or 50%, probably minus 5% of that. So wherever we get to around that, it will be okay. I'm not waded to any particular size, what I am waded is that whatever assets we have in our portfolio performance at its peak potential and adds value to the company.

Dominic O'Kane

Thanks so much. Thank you.

Alberto Calderon

But, yes the guidance -- the long-term guidance it will take some time. Okay. Thank you.

Operator

Thank you. at this time, I would like to hand back to -- I mean to Alberto for closing remarks.

Alberto Calderon

Okay. Stewart anyway, we're all here. Okay. So thank you all for joining us today. As I said before, the Graham Ehm will be retiring at the end of this year. And so we bid a very form farewell to Graham who has not only build a very strong record of delivery in AngloGold. With more than two decades of the organization that has exemplified its values at each step of the way, Graham will oversee that we started of watching 2021. And will also is working very closely with by seller in the coming months to ensure a smooth handover of the portfolio. So thank you, again, all. It's been an interesting long day. And we will reconnect at our full-year results in February of next year. Thank you all again. Bye.

Operator

Thank you. Ladies and gentlemen, with that the conference has concluded. You may now disconnect your line. Thank you.

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