Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong operating and financial results for H1 2024, with production up 2% year-on-year.
- Significant improvement in cash costs, with a 1% reduction year-on-year.
- EBITDA increased by 65% to $1.12 billion, and free cash flow turned positive to $206 million.
- Brazil operations showed a remarkable turnaround with a 15% increase in gold production and a 19% reduction in cash costs.
- Declared a dividend of $0.22 per share, reflecting confidence in ongoing performance and strong balance sheet.
Negative Points
- Tragic fatality at the Geita operation, highlighting ongoing safety challenges.
- Operational disruptions in Q1 due to severe weather events in Australia and Guinea.
- Obuasi mine facing challenges in Block 8, impacting production and grade consistency.
- High effective tax rate of 45%, driven by deferred tax adjustments in Brazil and Argentina.
- Ongoing issues with tailings facilities in Brazil, requiring active closure management and additional provisions.
Q & A Highlights
Q: Your cost performance has been impressive with a 4% reduction in real terms. Where do you think costs could end up with the asset potential program? Do you have enough resources to remain competitive on the cost curve?
A: We believe we can continue to counter inflation and remain competitive. For example, at Sunrise, we identified more than $100 million of potential benefits in the second wave of our asset potential program. We aim to maximize cash flows and maintain profitability even at lower gold prices.
Q: On Obuasi, you mentioned a target of 360,000 ounces in Q3. When do you see that being achieved?
A: We expect to reach 300,000-320,000 ounces annualized until we access Block 10. Full production will depend on completing the ventilation infrastructure, expected by Q2 next year. We are confident in achieving our long-term targets of 350,000-400,000 ounces.
Q: On the credit rating, given your improved performance, do you expect a review? How will your Nevada exposure impact this?
A: We are actively engaging with rating agencies and receiving positive feedback on our performance. However, Nevada is not yet an operating asset, and agencies do not factor in bullish gold price environments. We continue to work on consistency and delivery.
Q: Your effective tax rate seems high at around 45%. Can you explain the drivers? Are there any abnormal items in HEPS?
A: Our current tax rate is 32%, with a $75 million non-cash adjustment for deferred tax in Brazil and Argentina. One-offs include a $23 million hedging loss and $59 million in additional closure provisions in Brazil.
Q: On Obuasi, the underhand cut and fill method seems promising. Will you apply it to other areas initially intended for sublevel stoping?
A: We will use this method in areas with difficult ground conditions, such as the lower parts of Block 8 and parts of Block 10. We will provide more details during our site visit in January next year.
Q: With anticipated free cash flow doubling in H2, what are your plans for the cash? Will you increase dividend payments?
A: Our dividend policy remains a minimum of 20%, but we may go higher. We are confident in a significant year and will likely exceed the 20% dividend for the full year. We will decide on further actions as we approach year-end.
Q: Which assets pose potential risks in H2, and how confident are you in Obuasi's production targets?
A: All operations have positive momentum, underpinning our confidence in meeting production guidance. Obuasi achieved an annualized 300,000 ounces in June and will surpass that in August. We expect significantly better performance in H2.
Q: Can you comment on the working capital movement in H1 and expectations for H2?
A: We reduced inventory and receivables in H1, resulting in a positive $46 million year-on-year movement. We aim to maintain this discipline and optimize our payables book, with no anticipated unwind in H2.
Q: Regarding Nevada, there seems to be significant drilling to the west of Merlin. Is there anything noteworthy?
A: The focus has been on infill drilling within the Merlin pit outline. Some drilling to the west is for geotechnical stability, but the primary focus remains on infilling the mineral resource.
Q: On guidance, you mentioned production at the midpoint. What about costs? Are they still trending towards the lower end?
A: Costs are trending towards the lower end of the guidance range, around $1,075-$1,100 per ounce. This includes changes in attributable reporting. We aim to offset inflation through our asset potential program.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
