CFO’s report and outlook
2022 can be characterised by significant macro-economic volatility and inflationary pressure, stability in operational performance and a focus on aspects that we control
Gillian Doran
Chief Financial Officer (CFO)
The Group’s performance reflected an underlying cash cost improvement relative to its peer group despite significant inflationary pressure – a clear demonstration of its continued progress to recover cost competitiveness.
Following a challenging 2021, AngloGold Ashanti saw an improved operational and financial performance in 2022 against the backdrop of significant inflationary pressure, which impacted the full cost base including contractor labour and services. Inflation increased significantly in 2022, the highest that many countries experienced in decades.
Supply chains also experienced disruptions related to factors mainly impacted by the war in Ukraine and the lingering effects of the COVID-19 pandemic. The business worked proactively to mitigate the impact of inflation on its cost structure through the continued integration of its new Operating Model, the existing Operational Excellence programme and the Full Potential (FP) Programme launched during 2022.
Overall, the Company achieved its production, all-in sustaining costs (AISC) and total capital guidance. Total cash costs were less than 1% or $9/oz above the top end of guidance given the high global inflation rates throughout the year.
A final dividend of ~18 US cents per share ($75m) was declared, taking the gross dividend for the year to ~47 US cents per share ($194m). The balance sheet remains in a solid position, with approximately $2.5bn in liquidity, including cash and cash equivalents of approximately $1.1bn, at the end of 2022.
Financial results for the year included:
- Profit attributable to equity shareholders decreased to $297m from $622m in 2021, after impairments of $246m (net of tax)
- Total cash costs of $1,024/oz for 2022, an increase of 6% from $963/oz in 2021
- All-in sustaining costs (AISC) of $1,383/oz compared to $1,355/oz in 2021, an increase of 2%, reflects the increase in total cash costs impacted by inflationary pressures
- Net cash inflow from operating activities increased by 42% to $1,804m in 2022, from $1,268m in 2021 despite a marginally lower gold price
- Free cash flow of $657m in 2022, compared to the $104m in 2021, includes a significant cash lock up release at the Kibali joint venture in the DRC
- Adjusted net debt of $878m at the end of 2022; adjusted net debt to adjusted EBITDA ratio of 0.49 times
Production and cost performance to optimise margins
| Production and cost metrics | 2022 Guidance | 2022 | 2021 | |
|---|---|---|---|---|
| Production (000oz) | 2,550 – 2,800 | 2,742 | 2,472 | |
| Costs | All-in sustaining costs ($/oz) | 1,295 – 1,425 | 1,383 | 1,355 |
| Total cash costs ($/oz) | 925 – 1,015 | 1,024 | 963 |
Strategic priorities
The key financial indicators by which the Company measures shareholder value creation remains production, AISC, normalised cash return on equity (nCROE), and absolute and relative total shareholder return (TSR) (see Rewarding delivery). Production and AISC targets are measured on an annual basis, while the nCROE and TSR targets are measured on a three-year trailing average basis. In meeting these targets, the Company focuses on three strategic priorities: production and cost performance to optimise margins; improve balance sheet strength and preserve liquidity; and free cash flow generation – while applying a disciplined capital allocation framework.
The Group’s cost performance in 2022 reflects the impact of increases in oil and commodity prices, labour and contractor costs, and higher royalty costs due to higher ounces sold. These increases were partly offset by improved grades and favourable inventory and exchange rate impacts.
Margins slightly narrowed in 2022, resultant of inflationary pressures experienced and a slightly lower gold price received ($1,793/oz vs. $1,796/oz in 2021).
Our overall focus remains on improving our operational performance, underpinned by the introduction of the new Operating Model, continued cost discipline and the Full Potential Programme launched in 2022.
Despite inflationary headwinds, margins remain healthy and reflect the Company’s ability to generate sustainable cash flow.
| Year ended | Year ended | |
|---|---|---|
| Margins | 2022 | 2021 |
| Total cash costs | 43% | 46% |
| All-in sustaining costs | 23% | 25% |
Cost performance reflecting inflationary impacts
- World Gold Council Standard
Total cash costs per ounce were $1,024/oz for the year ended 31 December 2022 compared with $963/oz for the year ended 31 December 2021. Total cash costs per ounce were higher year-on-year mainly due to increases in oil and commodity prices, and labour and contractor costs. Total cash costs per ounce were also impacted by activity changes and higher royalty costs due to higher ounces sold. This increase in total cash costs per ounce was partly offset by improved grades and favourable inventory and exchange rate impacts.
AISC was $1,383/oz for the year ended 31 December 2022 compared with $1,355/oz for the year ended 31 December 2021. AISC was marginally higher mainly due to higher cash costs, partly offset by higher gold sold. AISC in 2022 includes a $31/oz impact relating to the Brazilian TSF compliance programme, compared to an estimated impact of $55/oz in 2021.
Basic earnings (profit attributable to equity shareholders) for the year ended 31 December 2022 were $297m, or 71 US cents per share, compared with $622m, or 148 US cents per share, for the year ended 31 December 2021. Basic earnings were lower yearon-year mainly due to the impact of the impairments recognised at the Córrego do Sítio (CdS) mining complex ($151m, net of taxation), the Cuiabá mining complex ($57m, net of taxation) and the Serra Grande mine ($38m, net of taxation) in Brazil, as well as higher operating and exploration costs, higher finance costs and foreign exchange losses, lower by-product revenue, and lower equity-accounted joint venture income. These effects were partially offset by higher gold sold, lower tax expenses and a reduction in the care and maintenance expenditure at Obuasi as compared to 2021, as well as a premium on settlement of bonds and once-off retrenchment costs with the implementation of the new Operating Model, which did not recur in 2022.
Headline earnings for the year ended 31 December 2022 were $544m, or 129 US cents per share, compared with $612m, or 146 US cents per share, for the year ended 31 December 2021 and reflects the same impacts as noted for basic earnings, except for the impairments recognised in Brazil.
Adjusted earnings before interest, tax, depreciation and amortisation (adjusted EBITDA) for the year ended 31 December 2022 was $1.797bn compared with $1.801bn for the year ended 31 December 2021. Adjusted EBITDA was marginally lower year-on-year mainly due to higher operating and exploration costs, lower by-product revenue, and lower equity-accounted joint venture income, partially offset by higher gold sold.
Adjusted net debt increased by 19% from $740m at 30 June 2022 to $878m at 31 December 2022, and on a year-on-year basis increased 15% from $765m at 31 December 2021. The ratio of adjusted net debt to adjusted EBITDA was 0.49 times at 31 December 2022 from 0.42 times at 31 December 2021. The Company remains committed to maintaining a strong balance sheet with an Adjusted net debt to Adjusted EBITDA target ratio not exceeding 1.0 times through the cycle.
At 31 December 2022, the balance sheet remained robust, with strong liquidity comprising the US$1.4bn multi-currency RCF of which $1.36bn was undrawn, and the South African R150m ($9m) RMB corporate overnight facility which was undrawn, while the $150m Geita RCF and the new $65m Siguiri RCF (put in place during October 2022 following the cancellation of the $65m Siguiri RCF in August 2022 after full repayment ($35m)) were fully drawn. At 31 December 2022, the Company had a cash and cash equivalent balance of approximately $1.1bn, taking overall Group liquidity to approximately $2.5bn.
Credit ratings remained unchanged at investment grade from Moody’s (Baa3, stable outlook) and Fitch (BBB-, stable outlook changing to negative outlook). The Standard & Poor’s rating remained one notch below investment grade (BB+, stable outlook).
Cash lock-ups continue to improve – down 56% since peak:
Free cash flow generation
Net cash inflow from operating activities increased by 42% year-on-year to $1,804m for the year ended 31 December 2022, compared to $1,268m for the year ended 31 December 2021. This increase was mainly due to higher gold sold, lower cash taxes and higher dividends received from joint ventures, partly offset by higher cash costs, working capital outflows, and the marginal lower gold price received.
The Company recorded free cash flow of $657m for the year ended 31 December 2022, compared to free cash flow of $104m for the year ended 31 December 2021. Free cash flow was mainly impacted by higher net cash inflow from operating activities.
AngloGold Ashanti received cash distributions of $74m from the Kibali joint venture in the fourth quarter of 2022. Cumulative cash distributions received from Kibali for the year ended 31 December 2022 were $694m. At 31 December 2022, the Company’s attributable share of the outstanding cash balances from the DRC was $40m, which was down from $499m at 31 December 2021.
Significant progress was made in 2022 to release cash of $468m from a balance of $872m at the end of 2021 to give a balance of $404m at the end of 2022. Free cash flow in 2022 continued to be impacted by lock-ups of value added tax (VAT) at Geita and Kibali, and foreign exchange restrictions and export duties at Cerro Vanguardia:
- In Tanzania, at Geita, net overdue recoverable VAT input credit refunds (after discounting provisions) increased by $11m during 2022 to $153m from $142m at 31 December 2021, as a result of new claims submitted and foreign exchange adjustments, partly reduced by offsetting verified VAT claims against corporate tax payments and additional discounting. The Company plans to continue offsetting verified VAT claims against corporate taxes
- In the DRC, at Kibali, the Company’s attributable share of the net recoverable VAT balance (including recoverable VAT on fuel duties and after discounting provisions) increased by $13m during 2022 to $86m from $73m at 31 December 2021
- In Argentina, at Cerro Vanguardia, the Company recorded a $10m decrease in the net export duty receivables (after discounting provisions) during 2022 to $9m from $19m at 31 December 2021
- Cerro Vanguardia’s cash balance decreased by $23m (equivalent) during 2022 to $116m (equivalent) from $139m (equivalent) at 31 December 2021. The cash balance is available for operational requirements and to be paid to AngloGold Ashanti’s offshore ($105m (equivalent)) and onshore ($15m (equivalent)) investment holding companies in the form of declared dividends.
- An application to release $54m (equivalent), under a special regime established for dividend payments in 2022, was submitted to the Argentinian Central Bank during the third quarter of 2022. In December 2022, the Argentinian Central Bank approved, based on the applications submitted under this special regime, the payment of $18m (equivalent) to AngloGold Ashanti
Free cash flow results are used in the determination of the Company’s achievement of nCROE, a measure of how much cash is generated by the Company for each US dollar of equity in Issue. Cash generated is adjusted for once-off, abnormal items to achieve a normalised cash flow. This is then compared against a US dollar cost of equity (USD COE), which is calculated using an external financial model and is not Company specific.
Capital allocation framework
Our capital allocation approach continues to be robust and focused on delivering optimal financial performance, maintaining asset health for the long term, returning cash to shareholders and investing in the most value accretive growth options.
Free cash flow generated by the business is applied in a balanced manner to the four pillars of our capital allocation strategy, in order of allocation:
- Sustaining capital expenditure to prioritise Mineral Reserve growth
- Maintaining a strong and solid balance sheet to provide optionality and flexibility through the cycle
- Return of value to shareholders through the dividend policy
- Self-funding any major growth capital projects
In 2022, we generated $1.2bn of cash from operations and received $694m of dividends from Kibali, our joint venture. After tax payments and financing costs, we invested $708m * (57% of our cash from operations) in sustaining capital, to fund Ore Reserve Development (ORD), waste stripping and tailings compliance.
We self-funded our growth capital incurred in 2022 of $320m *. The strategy of improving operating flexibility through investment in ORD and Mineral Reserve expansion at sites with high geological potential is expected to continue in 2023.
*Excluding equity-accounted joint ventures
Capital expenditure (including equity-accounted joint ventures)
| 2022 | 2021 | Revised guidance | |
|---|---|---|---|
| Total ($m) | 1,118 | 1,100 | 1,050 – 1,150 |
| Sustaining capex ($m) | 779 | 778 | 770 – 810 |
| Non-sustaining capex ($m) | 339 | 322 | 280 – 340 |
Capital expenditure on waste stripping at Tropicana (Havana) and Iduapriem (Cut 2) continued to progress through 2022. At Geita, the underground portal development at Geita Hill East progressed according to plan and mining operations continued to ramp up at the Nyamulilima open pit. In Brazil, the Company continued its investment to convert existing TSFs to dry-stack facilities at all mine sites, in a market characterised by increased competition for skills and engineering resources due to the COVID-19 pandemic and the industry-wide requirements to meet regulatory deadlines relating to TSFs.
Total capital expenditure (including equity-accounted joint ventures) increased by 2% year-on-year to $1.12bn in 2022, compared to $1.10bn in 2021. Total sustaining capital expenditure increased to $779m in 2022, from $778m in 2021, which includes $83m for the Brazilian TSF compliance programme. Total non-sustaining (growth) capital expenditure increased to $339m in 2022 from $322m in 2021. The strategy of improving operating flexibility through investment in Ore Reserve development and Mineral Reserve expansion at sites with high geological potential is expected to continue.
As we continue to allocate capital to this important exploration and development programme, in addition to increased capital expenditure on tailings storage facilities (TSF) (mainly in Brazil to comply with new legal requirements), sustaining capital expenditure is expected to remain at current levels between 2023 and 2024.
(Refer to Maintain long-term optionality for an update on capital projects.)
Shareholder returns
Free cash flow before growth capital, our dividend metric, was $996m (2021: $426m). Our dividend policy remains 20% of free cash flow, before growth capital, paid bi-annually. In line with this policy, our Board approved a final dividend of 18 US cents a share ($75m), based on free cash flow generated in the second half of 2022, payable in March 2023. The declaration and payment of the final dividend resulted in a total dividend, based on the financial performance in 2022, of 47 US cents per share ($194m), following an interim dividend of 29 US cents per share ($119m) declared and paid in August 2022.
Despite the challenging year, the Company has demonstrated its ability to balance the competing capital needs of the business with delivery on key objectives against the backdrop of leadership change, and amidst the inflationary environment in which it operated.
- Restated for IAS 16 “Property, Plant and Equipment – Proceeds before Intended Use”, effective 1 January 2022
Delivery against 2022 financial objectives
1. Achieve guidance in all metrics
|
✓ |
2. Achieve Obuasi ramp-up target – move to steady state operations – progress Phase 3
|
✓ |
3. Continue reinvestments across the portfolio – continue to grow Mineral Reserve, net of depletion
|
✓ |
4. Embed Operating Model redesign
|
✓ |
5. Initiation of the Full Potential Programme
|
✓ |
✓
Objective met
✓
Objective partly met or ongoing
Looking ahead to 2023
| Guidance and indicative outlook | 2023 (1) | Cuiabá 2023 | |
|---|---|---|---|
| Guidance | Guidance | ||
| Production (000oz) | 2,450 – 2,610 | 180 (2) | |
| Costs | All-in sustaining costs ($/oz) | 1,405 – 1,450 | |
| Total cash costs ($/oz) | 1,050 – 1,120 | 1,396 | |
| Capital expenditure | Total ($m) | 960 – 1,070 | |
| Sustaining capex ($m) | 680 – 760 | ||
| Non-sustaining capex ($m) | 280 – 310 | ||
| Overheads | Corporate costs ($m) | 85 – 95 | |
| Expensed exploration and study costs ($m) | 210 – 240 | ||
| Depreciation and amortisation ($m) | 600 – 680 | ||
| Interest and finance costs ($m) – income statement | 125 – 135 | ||
| Other operating expenses ($m) | 55 – 65 | ||
- Excludes Cuiabá Mine Complex
- AngloGold Ashanti expects that the Cuiabá Mine Complex will continue to extract gold from the gravity circuit at a rate of 5,000oz on average per month and will produce gold in concentrate at an average of approximately 10,000oz per month, with options being assessed to sell gold concentrate until the Queiroz plant resumes operation
| Economic assumptions for 2023 are as follows: Currency and commodity assumptions | 2023 |
|---|---|
| A$/$ exchange rate | 0.71 |
| $/BRL exchange rate | 5.4 |
| $/ARS exchange rate | 260 |
| $/R exchange rate | 17 |
| Oil ($/bbl) | 83 |
Cost and capital forecast ranges are expressed in nominal terms. In addition, estimates assume neither operational or labour interruptions (including any further delays in the ramp-up of the Obuasi redevelopment project), or power disruptions, nor further changes to asset portfolio and/or operating mines and have not been reviewed by AngloGold Ashanti’s external auditors. Other unknown or unpredictable factors, or factors outside the Company’s control, including inflationary pressures on its cost base, could also have material adverse effects on AngloGold Ashanti’s future results and no assurance can be given that any expectations expressed by AngloGold Ashanti will prove to have been correct. Measures taken at AngloGold Ashanti’s operations together with AngloGold Ashanti’s business continuity plans aim to enable its operations to deliver in line with its production targets. The Company, however, remains mindful that the COVID-19 pandemic, its impacts on communities and economies, and the actions authorities may take in response to it, are largely unpredictable and therefore no incremental additional impact is included in the cost and capital forecast ranges. Actual results could differ from guidance and any deviations may be significant. Please refer to the Risk Factors section in AngloGold Ashanti’s annual report on Form 20-F for the year ended 31 December 2022 filed with the United States Securities and Exchange Commission (SEC).
Sensitivities on key economic metrics based on budgeted economic assumptions for 2023 are as follows:
| Sensitivity* | Total cash costs ($/oz) | AISC ($/oz) |
Cash from operating activities before taxes for 2023 ($m) |
|---|---|---|---|
|
10% change in the oil price |
5 | 5 | 14 |
|
10% change in local currency |
44 | 60 | 148 |
|
$100/oz change in the gold price |
4 | 4 | 271 |
| 50koz change in production | 19 | 26 | 80 |
- All the sensitivities based on $1,650/oz gold price and assumptions used for guidance.
Governance
Materiality
The related material financial matter identified in our materiality assessment process is: Ensuring the safety and integrity of our tailings storage facilities (Capital expenditure on dry stacking and buttressing). See Focusing on our material issues in the <SR>.
Oversight
Governance of our financial performance and reporting is overseen and monitored by the Audit and Risk Committee, on behalf of the Board. See Corporate governance for further detail on this.
External audit rotation
At the May 2022 Annual General Meeting the resolution for the appointment of Pricewaterhouse Coopers Inc (PwC) as external auditors of the Group with effect from 1 January 2023 was approved by shareholders. Transition activities between PwC and Ernst & Young Inc (EY) have begun and are ongoing. I would like to express my gratitude to the global EY team for the professional services rendered to AngloGold Ashanti over their tenure.
Financial risk management
Details of our financial risk management exposures can be found in Group note 33 of the <AFS>.
Acknowledgment
I wish to record my gratitude to the broader finance team across the Group which includes the regional finance teams, financial reporting, tax, treasury, global supply chain and internal audit functions. Our strong balance sheet, robust financial systems and sound internal control environment enable proactive risk management and well informed business decisions. This would not be possible without the calibre and dedication of individuals within our finance team.
A very special thank you to Ian Kramer, who stood in as interim CFO for a period of six months during the reporting period, for his exemplary leadership, steady hand and impeccable professionalism.
Gillian Doran
Chief Financial Officer
15 March 2023
