Obuasi Heads For ‘Snooze’ Mode In Anglogold Bid To Stop Cash ‘Bleed’

Mr. VenkatakrishnanGold miner AngloGold Ashanti is taking steps to end the “unaffordable cash bleed” of the 100-year-old Obuasi gold mine in Ghana, which is being hard-hit by the low gold price.

The gold mining company, which on Monday posted results that saw it break into moderate $9 million free cash flow for the first time since March 2012, has impaired to the extent of $1.1 billion the troubled West African gold asset that gave it half its name.

“We’re tackling this asset head-on now as the cash bleed is simply not affordable,” AngloGold Ashanti CEO, Srinivasan Venkatakrishnan (Venkat) told Mining Weekly Online, adding that the company was in consultation with a wide range of “extremely supportive” stakeholders.

What is involved is effectively putting the underground into “snooze” mode for a period and retrenching a large number or perhaps even all of the 6 500 employees, at a cost of $220 million.

This will enable the company to develop the southern section of the age-old, problematic mine, where a decline is being sunk from surface to 26 level and later to 41 level.

At the same time, the existing Obuasi will be reconfigured, the social footprint reduced and a new high-grade operation brought about within a smaller concession area.

It has cost the company a $120 million of shareholder injection in 2012, another $220 million in 2013 and $40 million has already gone into it in 2014.

A radical approach is being taken to the mine, the age of which brings with it a rash of challenges.

Even the King of Ashanti has been drawn into the confidence of the company, which despite its “problem child”, managed to increase production by 17 per cent in the three months to March 31 and slash its all-in sustainable (AISC) by a creditable 22 per cent to $993/oz.

Negotiations are taking place at every level of Ghana’s social strata to persuade the people of the country to take short-term pain in order to have long-term gain — “and the support we have received from all of our stakeholders has been remarkable,” Venkat told analysts and journalists.

“We’ve never seen such solidarity and support before to address this problem”, which is being handled by project wizard and AngloGold Tropicana stalwart Graham Ehm, the Australian who piloted Geita in Tanzania out of a nosedive and into a sustained liftoff.

Ehm is heading a collective thrust aimed at ending legacy overhangs, eliminating a number of outdated business models and bringing the asset into the twenty-first century.

Venkat staved off insistent analyst and journalist attempts to box him into a fixed remedial timeline and insisted that Obuasi be placed into a work-in-progress category ahead of the backing by labour of the blueprint.

The retrenchment estimate of $220 million is based on the “generous” Obuasi retrenchment terms, which prescribe an outlay to a long-service workforce of US-dollar-denominated three months pay for every year worked, and it has been the ballooning potential retrenchment liability that has frightened off would-be joint venture partners.

AngloGold Ashanti is looking to replacing the current “unsustainable” retrenchment model with a higher-pay but also higher-skilled model that takes the mine into a new era of mechanisation.

The mine is going to be shrunk to a single tailings source and the underground put into “snooze mode” while AngloGold Ashanti develops its decline project to 26 level.

“The orebody is still hugely attractive,” Venkat told Mining Weekly Online, but “social noise” around the system has made it difficult to access its high-grade portion.

AngloGold Ashanti has, meanwhile, worked cost-cutting and production growth wonders in the first quarter, with the exception of South Africa, where production fell 11% as a result of questionable government safety stoppages.

Adjusted headline earnings were $119 million, or $0.29 a share, with the miners continuing to manage costs “aggressively”.

With some significant wins under its belt, focus remains on continuing to deliver positive results under tough market conditions.

First-quarter production of 1.06 million ounces at a total cash cost of $770/oz, was the strongest first-quarter performance in four years, compared with lower-end guidance of 950 000 oz at an upper end $850/oz.

AngloGold Ashanti’s AISC, which includes sustaining capital expenditure (capex), as well as corporate and exploration costs, declined by 22 per cent to $993/oz.

The 17% rise in production year-on-year and 22 per cent decline in costs were aided by the continued ramp-up of the two new, low-cost Kibali and Tropicana mines, together with ongoing efficiency improvements across the company.

It has taken decisive steps to adapt to the sharp decline in the gold price and more volatile market conditions.

Corporate and exploration costs have more than halved, the company is on track to realise its targeted $500 million in annualised operating cost savings by year-end, and capex of the past is being turned to profit.

The company continues to invest in the expansion of its Cripple Creek & Victor mine in the US, extending the life of its Mponeng mine in South Africa, supporting a focused, high quality project and exploration portfolio and funding the important new South Africa technology, which gives new potential life to narrow-reef hard-rock underground mines, including platinum mines.

 

 

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