JOHANNESBURG (miningweekly.com) – Gold mining company AngloGold Ashanti is keeping a close watch on inflation from which its stocking strategies provided delayed impact in the three months to the end of September, CFO Christine Ramon said on Monday, when the company reported higher costs that reflected a significant reinvestment phase.

Newly appointed AngloGold CEO Alberto Calderon who has prioritised reductions in all costs, improvements in operating and capital efficiencies and the implementation of a new operating model, described the company as not realising its full potential.

Cumulative inflation for the year to date is estimated at around 5% for the group, driven predominantly by the current level of the Brent Crude oil price, higher freight and logistics costs, higher steel and heavy equipment pricing, some bulk consumable pricing and competition for scarce resources, particularly labour in key jurisdictions including Brazil and Australia.

“We are focusing on the retention of critical skills and strengthening the necessary training and graduate programmes for succession planning. We also continue to proactively monitor global supply chains to maintain resilience and continuity of supply and did not experience any material negative impacts of supply shortfalls during quarter three,” Ramon said during the Johannesburg- and New York-listed company’s third-quarter results presentation covered by Mining Weekly.

Owing to partnerships on global spend categories as well as stocking strategies at its operations, the company, Ramon said, had benefited from a delayed inflation impact.

“However, we’ve seen increasing cost increases in the third quarter of 2021 and anticipate continued pressure throughout the remainder of 2021 and into 2022,” Ramon said.

She cited key risks facing the business as including inflationary pressures, the continued spread of Covid-19 and higher-than-normal employee turnover rates.

In Brazil, tailings' facilities are currently being converted to dry-stacking operations in advance of decommissioning the existing facilities.

This programme, taking place amidst the Covid 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.

Current estimates indicate the capital expenditure required in 2021 to implement this new technology will not exceed $150-million and the work on this is expected to continue through 2022 to 2025.

“Based on preliminary estimates to date, we anticipate that the annual capital expenditures for each of these years, whilst still material, will be significantly less than in 2021, and will decline over time,” Ramon calculated.

When Calderon was asked to outline the main driver of the inflationary pressures at the Serra Grande gold mine in Brazil, he spoke of labour inflation in Brazil as being around 8%.

However, the main issue, by far, he said was the spending of $150-million on the new tailings’ facility.

“We’ve also had to invest a significant amount in creating operational flexibility. A big part of the issues we have faced in Brazil is that we have mines that are mine constrained, which is the worst thing to be. In many ways we’ve locked ourselves into corners and that’s where we’ve had a lot of the big difficulties and the very low grades that we’ve seen,” said Calderon.

Third-quarter Latin American gold production was 140 000 oz at an all-in sustaining cost (AISC) of $1 805/oz compared with 181 000 oz at an AISC of $963/oz in the corresponding three months of last year.

Overall, the company’s AISC per ounce rose by 35% $1 362/oz in the three months to end September from $1 006/oz in the corresponding period of last year while all-in costs per ounce were 48% up to $1 631/oz.

HOW POTENTIAL WILL BE UNLOCKED

“We have to get back to basics,” is how Calderon answered his self-posed question of how the full potential of AngloGold would be unlocked.

“We have to get the business of mining right. We’ll continue to strengthen our teams wherever necessary, ensuring that we have the right people in the right roles,” Calderon added.