AFRICAN BARRICK GOLD
LSE: ABG
23 July 2012
Interim Results for the six months ended 30 June 2012 (Unaudited)
Based on IFRS and expressed in US Dollars (US$)
African Barrick Gold plc ("ABG') reports half year results
â†' Continued progress, full year guidance maintained, dividend increased
Operational Highlights
Attributable gold production1 of 297,742 ounces (Group production1 of 305,692 ounces), 14% below H1 2011, due to expected lower grade material mined at Buzwagi, waste stripping at North Mara and batch processing at Tulawaka.
Cash cost per ounce sold2 of US$938 per ounce, up 43% on H1 2011, primarily due to lower production, higher energy costs and industry wide cost pressures.
Board approved the expansion of the Carbon in Leach Circuit at Bulyanhulu.
Waste rock permits for North Mara received, critical to the expected production increase in H2 2012.
Continued success in our exploration programmes:
Declared an in-pit gold resource of 3.75 million ounces Indicated and 0.85 million ounces Inferred at Nyanzaga.
Delineated an additional 1 million ounce gold resource at Gokona, North Mara.
Successfully extended Tulawaka's mine life into 2013.
Financial Highlights
Revenue of US$534 million, down 8% on H1 2011.
Cash margin2 of US$704 per ounce, a decrease of 13% on H1 2011.
Impact of planned lower production levels due to mine sequencing contributed to:
EBITDA2 of US$171 million, down 30% on H1 2011.
Net profit of US$65 million, down 46% on H1 2011, with EPS of US15.9 cents.
Net cash position of US$504 million as at 30 June 2012.
Proposed interim dividend of US4.0 cents per share, up 25% on 2011.
Three months ended Six months ended
African Barrick Gold plc 30 June 30 June
% %
(Unaudited) 2012 2011 change 2012 2011 changeAttributable Gold Production (ounces)1 153,099 171,950 -11% 297,742
345,857 -14%
Attributable Gold Sold (ounces)1 157,224 185,080 -15% 302,641
357,082 -15%
Cash cost per ounce sold (US$/ounce)2 950 652 46% 938
655 43%
Average realised gold price (US$/ounce)2 1,591 1,524 4% 1,642
1,461 12%
(in US$'000)
Revenue 266,930 311,760 -14% 534,467 578,387 -8%
EBITDA 2 81,381 140,072 -42% 170,939 244,927 -30%Cash generated from operating activities 54,783 99,450 -45% 110,309
186,134 -41%
Net profit attributable to owners 29,889 69,773 -57% 65,152
120,134 -46%
Basic earnings per share (EPS) (cents) 7.3 17.0 -57% 15.9
29.3 -46%
Dividend per share (cents) 4.0 3.2 25% 4.0 3.2 25%Operating cash flow per share (cents) 2 13.4 24.2 -45% 26.9
45.3 -41%
1 Group production and sold ounces consolidate 100% of Tulawaka's production base. Attributable production and sold ounces reflect equity ounces which exclude 30% of Tulawaka's production and sales base.
2 Cash costs per ounce sold, average realised price, EBITDA, operating cash flow per share and cash margin are non-IFRS financial performance measures with no standard meaning under IFRS. Refer to "Non-IFRS measures" on page 29 for the definition of each measure. Commenting on the results, CEO Greg Hawkins said: "Over the first six months of the year we have delivered solid results, while making significant progress in developing the business. The Board approved our first brownfield growth project, we declared a substantial in-pit resource at Nyanzaga and have further demonstrated our commitment to Tanzania through our new royalty agreement. Over the second half of 2012 our focus will be on continuing to deliver against our mine plan with an expected grade driven increase in production and corresponding decline in cash costs, while maintaining capital discipline. We maintain our guidance for the full year, although expect to be towards the upper end of our cash cost range. With the continuing cost pressure in the industry, we will be intensifying our focus on taking costs out of the business with the aim of maximising returns for shareholders."
Current operations
As expected, the first half of the year was characterised by the step down to reserve grade at Buzwagi, representing a 38% decrease on the prior year period, the ongoing waste stripping programme at North Mara and the start of batch processing at Tulawaka. As a result, we have seen lower production and higher cash costs than in the prior year period, with H1 2012 attributable production amounting to 297,742 ounces compared to 345,857 ounces in H1 2011. As we progress current mining schedules, we remain confident that we will benefit from increased grades during the second half of the year, which should allow us to deliver increased production and lower cost, in line with our guidance.
We continued to optimise our gold inventory levels throughout the reporting period and as a result sold 302,641 attributable gold ounces for the first six months of the year, 2% above production.
We mined 21.7 million tonnes in the first half of the year, compared to 22.7
million in H1 2011, primarily as a result of waste dumping constraints at North
Mara, which have now been alleviated as a result of the grant of the
potentially acid forming ("PAF") waste rock dump permit for the mine.
Tonnes of ore processed for the first half of the year totalled 3.7 million, a
4% increase on 2011 levels of 3.6 million tonnes. The average grade for the
first half of the year of 2.9 grams per tonne ("g/t") was in line with plan but
15% lower than H1 2011, driven primarily by the planned reversion to reserve
grade at Buzwagi.
Our copper production in the first half of the year of 6.1 million pounds represented a 22% decrease on H1 2011 (7.8 million pounds), driven by lower copper grades at both Bulyanhulu and Buzwagi.
We saw a 43% increase in cash costs per ounce sold over the first half of 2011 to US$938. The key contributors and the cash cost per ounce impact to this increase were:
lower production base and associated lower co-product revenue, combined with lower realised copper prices (US$137/oz);
higher energy costs due to increased usage and pricing of diesel in tandem with increased electricity tariffs (US$66/oz); and
increased maintenance costs due to the impact of plant downtime at North Mara and Buzwagi and a revised owner maintenance model at North Mara (US$44/oz).
Cash costs of US$76 per tonne milled for the first half of the year were 17%
higher than the prior year period, primarily as a result of the key cost
factors explained above which were partially offset by the increase in tonnes
milled.
We expect current cost levels to reduce throughout the second half of the year
as head grade and production levels improve at each of our operations. In
support of this, we will maintain our focus on minimising the impact of
inflationary pressures on each of our operations and will continue to explore
opportunities over the next twelve months to reduce costs through localisation
efforts, lower cost power sources and the ongoing optimisation of our
operations.
Bulyanhulu performed in line with expectations and delivered solid results for
the reporting period. During the period, the Board also approved our first
brownfield expansion project involving the construction of a new 2.4 million
tonnes per annum ("Mtpa") Carbon in Leach ("CIL") circuit at the process plant
which will provide additional production of 600 thousand ounces ("Koz") over
the life of mine ("LOM") from H1 2014.
As noted above, waste stripping for the first few months of the year was
constrained at North Mara, predominantly as a result of delays with PAF permits
and land acquisitions. The grant of the PAF permit at the end of April allows
us to move ahead with the waste stripping programme, in order to access higher
grade areas in the Gokona pit during the second half of the year.
As planned, Buzwagi has operated close to its reserve grade of 1.5g/t for the
first six months of 2012. In addition, ongoing grid instability and a number of
unplanned shutdowns have impacted the operation, with the process plant
operating at 80% of capacity over the reporting period. As part of the plan to
address this, the process plant at Buzwagi has been running predominantlyon
diesel power generationto ensure the reliability of power supply and we have
seen noticeable improvements to date. We are also increasing mining capacity,
in order to deliver increased future production, with further additions to the
mining fleet.
Tulawaka continued to perform in line with expectations during the reporting
period, as it transitioned to a solely underground operation and the process
plant began to operate under a batch processing method. This led to an expected
reduction in production and associated higher cost. An increase in the grade
profile is expected during the second half of the year, which should help to
increase production levels and lower cash costs at the mine. In addition, we
have progressed our exploration drilling programmes and have replaced reserves
mined so far in 2012 which will enable the mine to continue operating into mid
2013. We will provide further updates later this year as we progress our mine
planning for 2013.
Our Total Reportable Injury Frequency Rate ("TRIFR") of 0.82 is 31% lower than
the corresponding period in 2011 and we continue to implement further
initiatives in order to continually improve safety and ensure that all of our
employees go home safely every day. It is with great regret that we report a
vehicle incident in May at Buzwagi that claimed the life of one of our
contractors. We have carried out a thorough investigation into the incident and
are in the process of strengthening procedures to ensure this type of accident
is not repeated.
Financial results
Our financial performance over the first half of the year reflected the planned lower production levels when compared to the corresponding period, with the benefit of the 12% increase in the gold price compared to H1 2011. Notwithstanding the lower production levels, we generated EBITDA of US$171 million and EPS of US15.9 cents, which enabled us to declare an interim dividend of US4.0 cents per share for 2012, up 25% on 2011.
We are also in a position to continue to invest in profitable growth in our business, as evidenced by the approval of the Bulyanhulu CIL expansion during the period on which we expect to commit up to US$50 million in 2012. We have also invested US$119 million over the first half of the year in our ongoing operations in order to maintain our strong operational platform. While we are committed to investing in the business, we also remain focused on improving efficiencies throughout the organisation in order to further enhance cost and capital control.
Exploration and growth projects
We have made further progress in our portfolio of growth projects in the first half of the year, having announced Board approval for the Bulyanhulu CIL expansion, a project that will add over 600Koz of production over the LOM, starting from 2014 and will help to lower overall cash costs at the mine. In addition, we have made good progress on our other projects as follows:
Gokona Expansion: we continue to evaluate the extension of the open pit in parallel with the underground development at the Gokona pit. Following the successful completion of the 18 month drilling programme and initial reworking of the open pit, we have been able to delineate an additional 1.0Moz of resource in the extended open pit and the underground.
Bulyanhulu Upper East Project: mining of the test stope is on track to commence in Q3 2012 to test the mining method and geotechnical assumptions. We have initiated a further drilling programme to test whether Reef 2, which currently sits outside of the project, can be mined in parallel and we will provide further updates in due course. This will not affect the timing of the project. Tulawaka: drilling continues to be successful, and we have been able to replace reserves in the first half, thereby extending the mine life into mid 2013. Deeper drilling continues to encounter continuity of mineralisation at depth and we are targeting further extensions of the mine life. Greenfield exploration activities during the reporting period continued to focus on the Nyanzaga project where we were able to declare an initial in-pit resource of 4.1Moz of gold in January and then, in April, upgrade further to 4.6Moz, consisting of 3.75Moz at 1.42g/t Au Indicated and 0.75Moz at 1.81g/t Au Inferred, through the inclusion of Kilimani near surface mineralisation and further material at depth.
Interim Dividend
In line with ABG's formal dividend policy of paying out between 15% and 30% of earnings in the proportion of approximately one third following the interim results and two thirds following the final results, the Board of ABG has approved an interim dividend for 2012 of US4.0 cents per share, a 25% increase on the amount paid in 2011. The interim dividend will be paid on 24 September 2012 to holders on record at 31 August 2012. The ex-dividend date will be 29 August 2012. ABG will declare the interim dividend in US dollars. Unless a shareholder elects to receive dividends in US dollars, they will be paid in pounds sterling with the US dollar interim dividend being converted into pounds sterling at exchange rates prevailing at the relevant time. The last date for receipt of currency elections will be 3 September 2012. The exchange rate conversion for the interim dividend will be made on or around 4 September 2012.
Outlook
Over the past six months, we have made significant progress towards the ongoing development of the business, through both our existing mines and our portfolio of growth projects. We look forward to building on this progress in the second half, where we expect production to increase with a subsequent decline in cash costs per ounce sold, in accordance with our mine plan. As a result, we maintain our production guidance of 675,000-725,000 ounces of gold for 2012. At the same time, we still expect our cash costs for the year to come within the range set of US$790-860 per ounce (US$740-810 per ounce on a cash operating cost basis, excluding royalties), albeit in the upper part of the range. As part of our longer term focus, we continue to drive operational efficiencies to optimise production at our existing assets, whilst focusing on the growth of our business through our organic projects and potential acquisitions. With the ongoing economic uncertainty and challenges within the global market, we remain positive on the outlook for gold, and are confident that the fundamental attraction of the precious metal as a store of value will continue to support future gold prices. Other developments
Agreement to Acquire Interests in Kenyan Licences
ABG has today announced that it has entered into an agreement with Aviva
Corporation Limited ("Aviva", ASX:AVA) to acquire all of the outstanding share
capital of Aviva Mining (Kenya) Limited ("AMKL"), the assets of which include
interests in a number of Licences in West Kenya, for initial cash consideration
of A$20 million. The acquisition is subject to the approval of Aviva's
shareholders, which is expected to be sought at a general meeting in lateAugust
or early September; and the consent of the Kenyan Competition Authority, with
completion expected shortly thereafter.
The properties, which have only seen limited previous exploration, contain
multiple large gold anomalies and cover five contiguous licences over a land
package in excess of 2,800km2 of the highly prospective Ndori Greenstone Belt
in Kenya, which forms part of the Tanzanian Archaean Craton. Sporadic, historic
and current exploration activities have identified a large number of targets
that justify extensive follow-up, and ABG intends to implement a systematic and
focused gold exploration programme. These targets will represent a significant
addition to the grassroots and target delineation segments of our exploration
pipeline.
Board Changes
Following his departure from Barrick in June 2012, Aaron Regent stepped down as
Chairman of ABG. Since then, Derek Pannell, Senior Independent Director of ABG
has been Acting Chairman of the Board. We also welcomed Kelvin Dushnisky,
Executive Vice President, Corporate and Legal Affairs of Barrick, as a nominee
Director to the Board of ABG during the reporting period, and he brings many
complementary and valued skills to the Board.
Also, during the first half of the year James Cross stepped down as
Non-Executive Director. Mr Cross' breadth of experience and detailed knowledge
of Africa was a valued source of advice for the Board and we wish him well for
the future.
More recently, on 19th July 2012, we welcomed Rick McCreary, Senior Vice
President, Corporate Development of Barrick as a nominee Director to the Board
of ABG. Before joining Barrick in April 2011, Mr. McCreary worked in mining
investment banking for over fourteen years culminating as Head of CIBC World
Markets' Global Mining investment banking group. Prior to his career in mining
investment banking, he worked in the Noranda/Falconbridge organisation for
eight years in various areas, including metals marketing, geophysics,
geological engineering and technology development.
We are in the process of identifying an additional Independent Non-Executive
Director for the Board. This will restore the appropriate balance between
Independent and Non-Independent Directors following the recent changes to the
Board.
Regulatory and tax framework
During the reporting period we concluded discussions with the Tanzanian
Government with respect to the level of royalty payments applicable to our
operations. In light of the current gold price environment, we have agreed to a
voluntary additional 1% royalty going forward. This is in addition to the 3%
rate stipulated in our Mineral Development Agreements ("MDAs"), which remain
unchanged. This decision is an important step for ABG and has been taken after
careful consideration, based on ABG's overall tax status in Tanzania, in order
to ensure we achieve the optimum long-term structure for our operations and all
of our stakeholders.
North Mara licence renewal and Environmental Protection Order ("EPO") update
The Mining Advisory Board required to approve the renewal of the Special Mining
Licence at North Mara was formed during the reporting period and we have been
informed that it will deal with the licence renewal as one of its immediate
priorities. In the meantime, operations at North Mara will continue under the
terms of our existing licence, ensuring that there remains no disruption to our
mining activities.
The joint water sampling exercise with NEMC, the Tanzanian environmental
regulator, and an independent third party, to test the quality of the output
from the water treatment plant at North Mara continued through the period and
will extend into the second half of 2012. Once successfully completed, the EPO
should be lifted, which would allow North Mara to discharge water from the mine
site. We aim to complete this exercise in the second half of 2012.
For further information, please visit our website: www.africanbarrickgold.com
or contact:
+44 (0)207 129
African Barrick Gold plc 7150Andrew Wray, Head of Corporate Development & Investor
Relations
Giles Blackham, Investor Relations Manager
+44 (0)207 251
RLM Finsbury 3801
Charles Chichester
About ABG
ABG is Tanzania's largest gold producer and one of the five largest gold producers in Africa. We have four producing mines, all located in northwest Tanzania, and several exploration projects at various stages of development. ABG has a high-quality asset base, solid growth opportunities and a clear strategy for growth.
The key pillars to our strategy are:
driving operating efficiencies to optimise production from our existing asset base;
growing through near mine expansion and development of advanced-stage projects; and
organic greenfield growth and acquisitions in Africa.
Maintaining our licence to operate through acting responsibly in relation to our people, the environment and the communities in which we operate is central to achieving our objectives. ABG is a UK public company with its headquarters in London. We are listed on the Main Market of the London Stock Exchange under the symbol ABG and have a secondary listing on the Dar es Salaam Stock Exchange. Historically and prior to our initial public offering (IPO), our operations comprised the Tanzanian gold mining business of Barrick Gold Corporation (Barrick), our majority shareholder. ABG reports in US dollars in accordance with IFRS as adopted by the European Union, unless otherwise stated in this report.
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This report includes "forward-looking statements" that express or imply expectations of future events or results. Forward-looking statements are statements that are not historical facts. These statements include, without limitation, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future production, operations, costs, products and services, and statements regarding future performance. Forward-looking statements are generally identified by the words "plans," "expect," "anticipates," "believes," "intends," "estimates" and other similar expressions.
All forward-looking statements involve a number of risks, uncertainties and other factors. Although ABG's management believes that the expectations reflected in such forward-looking statements are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of ABG, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements contained in this report. Factors that could cause or contribute to differences between the actual results, performance and achievements of ABG include, but are not limited to, political, economic and business conditions, industry trends, competition, commodity prices, changes in regulation, currency fluctuations (including the US dollar; South African rand and Tanzanian shilling exchange rates), ABG's ability to recover its reserves or develop new reserves, including its ability to convert its resources into reserves and its mineral potential into resources or reserves, and to timely and successfully process its mineral reserves, risks of trespass, theft and vandalism, changes in its business strategy, as well as risks and hazards associated with the business of mineral exploration, development, mining and production. Accordingly, investors should not place reliance on forward-looking statements contained in this report. The forward-looking statements in this report reflect information available at the time of preparing this report. Subject to the requirements of the Disclosure and Transparency Rules and the Listing Rules or applicable law, ABG explicitly disclaims any obligation or undertaking publicly to release the result of any revisions to any forward-looking statements in this report that may occur due to any change in ABG's expectations or to reflect events or circumstances after the date of this report. No statements made in this report regarding expectations of future profits are profit forecasts or estimates, and no statements made in this report should be interpreted to mean that ABG's profits or earnings per share for any future period will necessarily match or exceed the historical published profits or earnings per share of ABG or any
other level.
AFRICAN BARRICK GOLD
LSE: ABG
TABLE OF CONTENTS
Key Statistics 7
Interim Operating Review 9Exploration and Development Update
13
Financial Update 22
Non-IFRS measures 29Principal Risks and Uncertainties
31
Statement of Directors' Responsibility
32
Auditor's Review Report 33Consolidated Income Statement and Consolidated Statement of Comprehensive
34
Income
Consolidated Balance Sheet 35Consolidated Statement of Changes in Equity
36
Consolidated Statement of Cash Flows
37
Notes to the Consolidated Interim Financial Information
38
Key Statistics
African Barrick Gold
African Barrick Gold plc Three months
ended Six months ended
30 June 30 June
(Unaudited) 2012 2011 2012 2011
Operating resultsTonnes mined (thousands of tonnes) 11,834 10,901 21,673 22,660
Ore tonnes mined (thousands of tonnes) 1,848 1,614 3,595 3,223
Ore tonnes processed (thousands of tonnes) 1,840 1,693 3,742 3,613
Process recovery rate (percent) 87.4% 88.7% 86.7% 87.9%
Head grade (grams per tonnes) 3.0 3.6 2.9 3.4Attributable gold production (ounces) 153,099 171,950 297,742 345,857
Attributable gold sold (ounces) 157,224 185,080 302,641
357,082
Copper production (thousands of pounds) 3,121 4,068 6,126 7,809
Copper sold (thousands of pounds) 3,443 4,147 5,959
7,882
Cash cost per tonne milled² (US$) 81 71 76
65
Per ounce data (US$/ounce)
Average spot gold price³ 1,609 1,506 1,6511,445
Average realised gold price² 1,591 1,524 1,642 1,461
Cash cost² 950 652 938 655
Amortisation and other costs² 218 168 222 172
Total production cost² 1,168 820 1,160 827
Cash margin² 641 872 704 806
Average realised copper price (US$/lb) 3.07 3.89 3.53 4.20
Three months ended Six months ended
30 June 30 June
(Unaudited)
Financial results 2012 2011 2012 2011
(in US$'000)
Revenue 266,930 311,760 534,467 578,387
Cost of sales (201,159) (176,487) (386,981) (344,639)
Gross profit 65,771 135,273 147,486 233,748
Corporate administration (10,454) (7,667) (25,609) (20,525)
Exploration and evaluation costs (3,870) (8,621)(10,385) (16,078)
Corporate social responsibility expenses5 (4,611) (642) (6,750) (1,372)
Other charges5 (1,360) (10,260) (4,275) (14,200)
Profit before net finance expense and taxation 45,476 108,083 100,467 181,573
Finance income 813 437 1,079 809
Finance expense (2,378) (2,239) (4,689) (4,121)
Profit before taxation 43,911 106,281 96,857 178,261
Tax expense (14,829) (33,862) (31,335) (54,031)
Net profit for the period 29,082 72,419 65,522 124,230Profit/ (loss) attributable to:
- Non-controlling interests (807) 2,646 370 4,096
- Owners of the parent 29,889 69,773 65,152 120,134
Three months ended Six months ended
30 June 30 June
(Unaudited)
Other Financial information(in US$'000 except per share figures) 2012 2011 2012
2011
Cash and cash equivalents 503,667 455,077 503,667 455,077
Cash generated from operating activities 54,783 99,450 110,309 186,134
Capital expenditure4 70,835 67,275 124,906 118,666
EBITDA2 81,381 140,072 170,939 244,927Basic earnings per share (cents) 7.3 17.0 15.9
29.3
Operational cash flow per share2 (cents) 13.4 24.2 26.9
45.3
Equity 2,807,761 2,651,571 2,807,761 2,651,571
1 Production and sold ounces reflect equity ounces which exclude 30% of Tulawaka's production and sales base.
2 Cash cost per tonne milled, average realised gold price, total cash cost per ounce sold, amortisation and other costs per ounce, total production cost per ounce, EBITDA, operational cash flow per share and cash margin are non-IFRS financial performance measures with no standard meaning under IFRS. Refer to "Non-IFRS measures" on page 29 for definitions.
3 Reflects the London PM fix price.
4 Includes non-cash rehabilitation asset adjustments and finance lease purchases during the period.
5 Restated to separately disclose corporate social responsibility expenses on the face of the income statement.
Interim Operating Review
Bulyanhulu
Key statistics
Six months
Three months ended ended
Bulyanhulu 30 June 30 June
(Unaudited) 2012 2011 2012 2011Underground ore tonnes hoisted Kt 256 271 506 538
Ore milled Kt 286 286 532 539
Head grade g/t 8.4 8.3 8.5 8.6
Mill recovery % 90.4% 90.4% 90.8% 91.1%
Ounces produced oz 69,750 69,272 131,586 135,537
Ounces sold oz 71,201 72,698 133,417 141,805
Cash cost per ounce sold US$/oz 699 573 700 578
Cash cost per tonne milled US$/t 174 146 176 152
Copper production Klbs 1,851 2,186 3,482 4,224
Copper sold Klbs 1,808 2,202 3,253 4,141
Capital expenditure US$(000) 21,424 18,553 40,239 34,769
Operating performance
Bulyanhulu performed in line with management expectations and continued to deliver solid results for the reporting period.
Gold production for the first half of the year was 131,586 ounces, 3% lower than the prior year's total of 135,537 ounces due to slightly lower head grade and recoveries. Production for the second quarter of the year increased by 13% on the first quarter and was marginally ahead of the prior year comparative period. Mill throughput for the first half of the year was broadly in line with the prior year period. We saw an improvement in the second quarter of 16% over the first quarter, and we should see further benefit from the investment in plant efficiencies in the second half of 2012. We continue to expect the upgrading of our back up power capacity at the mine to be completed during the third quarter. Tonnes hoisted for the year were 6% lower than the prior year period and were negatively impacted by shaft availability due to the impact of power outages and associated maintenance. Copper production for the first half of the year of 3.5 million pounds was 18% lower than that of the same period in 2011 as a result of lower grades. Cash costs for the first half of the year of US$700 per ounce sold were 21% higher than the prior year comparative of US$578. This increase is predominantly attributable to the lower production base and co-product revenue, increased energy costs from the increased necessity to self generate power, and increased maintenance costs to address plant operational inefficiencies. This was in part offset by lower smelting and refining fees and increased capitalised underground development.
Cash costs per tonne milled increased to US$176 in 2012 compared to US$152 in the prior year period as a result of the cost increases outlined above.
Capital expenditure for the six month period totalled US$40.2 million, 16% higher than the US$34.8 million in the prior year. Key capital expenditure included:
Capitalised development: capitalised underground development of US$22.1 million;
Expansion capital: Bulyanhulu CIL expansion project and Upper East expansion of US$1.2 million; and
Sustaining capital: US$16.9 million mostly relating to mining equipment, infrastructure and continuous improvement projects and non-cash rehabilitation asset adjustments of US$1.9 million.
Buzwagi
Key statistics
Three months ended Six months ended
Buzwagi 30 June 30 June
(Unaudited) 2012 2011 2012 2011
Tonnes mined Kt 7,088 4,347 11,991 9,672
Ore tonnes mined Kt 1,189 646 2,108 1,677
Ore milled Kt 837 583 1,765 1,423
Head grade g/t 1.5 2.5 1.5 2.4
Mill recovery % 85.6% 89.5% 83.9% 88.0%
Ounces produced oz 34,459 41,613 70,731 97,926
Ounces sold oz 37,928 46,932 71,249 101,033
Cash cost per ounce sold US$/oz 1,195 566 1,152 620Cash cost per tonne milled US$/t 54 46 47 44
Copper production Klbs 1,270 1,882 2,644 3,585
Copper sold Klbs 1,636 1,945 2,707 3,741
Capital expenditure US$(000) 19,418 17,916 32,485 20,900
Operating performance
As planned, Buzwagi has operated close to its reserve grade of 1.5g/t for the
first six months of 2012, a 38% decrease on the prior year period. As a result
there has been a focus on increasing mining rates in order to maintain
production. Tonnes mined for the half year increased by 24% on the comparative
prior year period due to an increased focus on waste stripping, additional
hauling capacity and the improvement in equipment availability. Equipment
availability in the second quarter was notably improved due to enhanced
maintenance regimes which led to an increase of 45% in total tonnes mined
compared to the first quarter of 2012.
As a result of the lower grade and resultant lower recoveries, gold production
of 70,731 ounces for the six months was 28% lower than the previous year period
despite a 24% increase in tonnes milled. Gold ounces sold were broadly in line
with production. The process plant has not reached the expected throughput
rates over the period as a result of ongoing power related issues and a number
of unplanned maintenance shutdowns. As a result of this, during the second
quarter Buzwagi moved to running predominantlyon diesel power generationto
ensure stability of power supply to the process plant. We continue to expect an
improvement in throughput as we move into the second half of the year.
Copper production for the six month period of 2.6 million pounds was 26% below the prior year's production. This was mainly due to the lower concentrate production as a result of lower grade.
Cash costs for the first half of the year were US$1,152 per ounce sold compared to US$620 in H1 2011. The key drivers of this increase were the step up in mining and processing levels together with the expected reduction in grade compared to the prior year period, as well as the lower production base and co-product revenue. The increased activity led to significantly higher energy costs which were also driven by the increased reliance on self generation, and increased consumable costs due to additional usage. These were partially offset by the capitalisation of waste stripping; higher cost allocation to ore stockpiles on hand predominantly driven by lower throughput compared to mining and a higher cost base; and lower contracted services costs.
Cash costs per tonne milled increased to US$47 in H1 2012 from US$44 in H1 2011. The increase in costs was primarily due to the key cost factors explained above which was partially offset by increased tonnes milled.
Capital expenditure for the reporting period totalled US$32.5 million, 55% higher than the US$20.9 million in the prior year period. Key capital expenditure included:
Capitalised development: capitalised deferred stripping of US$8.7 million; and
Sustaining capital: US$23.8 million relating to plant improvements and mining
equipment of which US$5.3 million related to the mining acceleration project
and US$2.0 million of non-cash rehabilitation asset adjustments.
We are expanding the mining fleet at Buzwagi in order to accelerate mining with
a view to delivering increased production, whilst reducing operating risk and
cash costs by ensuring the required effective utilisation is maintained. The
mining fleet expansion will cost an estimated US$21 million of which
approximately US$8 million will be incurred in 2012.
North Mara
Key statistics
Three months ended Six months ended
North Mara 30 June 30 June
(Unaudited) 2012 2011 2012 2011
Tonnes mined Kt 4,461 6,254 8,852 12,390
Ore tonnes mined Kt 374 668 879 947
Ore milled Kt 677 751 1,337 1,500
Head grade g/t 2.3 2.3 2.2 2.1
Mill recovery % 82.8% 83.8% 81.1% 81.4%
Ounces produced oz 41,515 46,003 76,876 83,602
Ounces sold oz 41,550 49,700 79,600 85,650
Cash cost per ounce sold US$/oz 1,100 853 1,119 814Cash cost per tonne milled US$/t 67 56 67 46
Capital expenditure US$(000) 21,365 24,468 35,201 52,143
Operating performance
The focus for the first six months of the year at North Mara remained on the
waste stripping programme in the Gokona and Nyabirama pits. Activity was
constrained due to delays in the issuing of waste dumping permits at the newly
constructed PAF waste dumps and delays regarding land acquisition and
relocation of communities surrounding the Nyabirama pit, resulting in lower
tonnes mined. Approval of the PAF permit was obtained at the end of April, and
full PAF waste movement commenced in June. This will enable us to deliver in
line with the mine plan by accessing higher grade zones in the Gokona pit from
the second half of this year.
Gold production for the first half of the year was 76,876 ounces, down 8% on H1
2011 but broadly in line with expectations. Ore mined from the Gokona pit drove
overall mine grade slightly higher at 2.2g/t but the impact was more than
offset by lower mill throughput as a result of unplanned maintenance. Gold
ounces sold amounted to 79,600 ounces for the first half of the year, lower
than the same period in 2011, but in line with lower production. The second
quarter of 2012 showed a 17% increase in production over the first quarter of
the year driven mainly by improved throughput, grade and plant recoveries.
Cash costs for the first half of the year were US$1,119 per ounce sold compared
to US$814 in the prior year period. The increase in cost was primarily driven
by the lower capitalisation of costs compared to H1 2011 and a reduction in the
production base. These were partially offset by lower contractor services costs
due to a move away from contract maintenance and a reduction in consumable
usage due to lower mining and milling activity.
Cash costs per tonne milled increased to US$67 in H1 2012 from US$46 in H1 2011, primarily due to the key cost factors explained above and lower plant throughput.
Capital expenditure for the reporting period totalled US$35.2 million, 32% lower than the US$52.1 million in the prior year period. Key capital expenditure included:
Capitalised development: capitalised deferred stripping of US$8.2 million;
Expansion capital: capitalised exploration drilling of US$4.6 million; and
Sustaining capital: US$22.4 million driven predominantly by mining equipment,
investment in continuous improvement projects, the water treatment plant and
non-cash rehabilitation asset adjustments of US$1.3 million.
The joint water sampling exercise with NEMC, the Tanzanian environmental
regulator, and an independent third party, to test the quality of the output
from the water treatment plant at North Mara continued through the period and
will extend into the second half of 2012. Once successfully completed, the EPO
should be lifted, which would allow North Mara to discharge water from the mine
site. We aim to complete this exercise in the second half of 2012.
In March 2012, we were pleased to announce the signing of individual agreements
with all seven villages surrounding the mine, which provide for an investment
of US$8.5 million over the next three years in the local communities. These
agreements include two new Village Benefit Agreements with the villages of
Nyakunguru and Matongo that did not previously have formal agreements in place,
together with implementation agreements with each of the five villages
(Nyangoto, Kewanja, Kerende, Genkuru and Nyamwaga) that had previously signed
Village Benefit Agreements with North Mara in 1995/96. The form of investment
in each of the villages will differ, but includes the development of school
infrastructure, provision of clean water, the upgrading of a local health
centre, rehabilitation of village offices and improvements to the road
infrastructure. In addition, we are continuing to invest in a range of
initiatives in the communities surrounding all of our operations through the
ABG Maendeleo Fund.
Tulawaka
Key statistics
Six months
Three months ended ended
Tulawaka (reflected as 70%) 30 June 30 June
(Unaudited) 2012 2011 2012 2011Underground ore tonnes hoisted Kt 29 30 59 60
Open pit ore tonnes mined Kt - - 43 -
Open pit waste tonnes mined Kt - - 222 -
Ore milled Kt 41 74 108 151
Head grade g/t 5.9 6.7 5.6 6.3
Mill recovery % 95.9% 95.0% 95.6% 94.3%
Ounces produced oz 7,376 15,062 18,550 28,792
Ounces sold oz 6,545 15,750 18,375 28,595
Cash cost per ounce sold US$/oz 1,305 645 1,046 686
Cash cost per tonne milled US$/t 211 138 178 130
Capital expenditure (100%) US$(000) 4,442 5,384 9,564 9,279
Operating performance
Tulawaka continued to perform in line with expectations during the reporting
period. We are progressing our exploration drilling programmes and have
replaced reserves mined to date in 2012, allowing the mine life to be extended
again, into the middle of 2013. Work is currently ongoing to construct a second
underground portal, which will provide increased access for mining and future
drill platforms.
During the second quarter of 2012, Tulawaka focused on process plant
optimisation given ore stockpile levels. This resulted in the application of
batch milling where the mill was being run at optimum throughput levels for
shorter periods of time as opposed to low throughput levels on a consistent
basis. This resulted in mill throughput decreasing by 39% in the second quarter
of 2012, leading to production for the quarter of 7,376 ounces, 51% lower than
2011.
As a result of the above, Tulawaka's attributable gold production for the six
months was 18,550 ounces, 36% lower than the 28,792 ounces produced in 2011.
Gold ounces sold were in line with production and 36% lower than in 2011. Head
grade was 11% lower than 2011 as a result of the blending of the last of the
low grade stockpiles into the mill feed in the second quarter and should
improve as we progress through the year.
Cash costs for the first half of the year were US$1,046 per ounce sold compared
to US$686 in the prior year period. This cost increase was mainly due to the
lower production base, an increase in mining activity (specifically relating to
open pit mining during the first quarter) in combination with the costs
incurred to service an ageing mining fleet and increased general administration
cost.
Cash costs per tonne milled increased to US$178 in H1 2012 from US$130 in H1 2011, primarily as a result of the higher cost base as explained above and lower mill throughput due to the batch milling campaign.
Capital expenditure for the reporting period totalled US$9.6 million, 3% higher than the US$9.3 million in the prior year period.
Key capital expenditure included:
Capitalised development: capitalised underground development of US$3.6 million;
Expansion capital: capitalised exploration drilling of US$1.9 million; and
Sustaining capital: US$4.1 million sustaining capital including a non-cash rehabilitation asset adjustment credit of US$0.6 million.
Exploration and Development Update
Exploration and development programmes during the first half of the year met
with good success, especially at our North Mara and Nyanzaga projects, where
drilling continues to deliver encouraging results. The Exploration and Projects
teams remain focused on ABG's strategy of organic growth through near-mine
exploration, resource expansion, optimisation of existing assets, and regional
exploration programmes. The principal focus for the first half of 2012 has been
on advancing the highest ranked projects in ABG's development pipeline. A total
of 422 holes for 79,400 metres have been completed across the exploration and
development projects and significant progress has been made on most projects.
At the Nyanzaga Project, an initial in-pit resource of 4.1Moz of gold,
consisting of 3.5Moz at 1.47 g/t Au Indicated and 0.6Moz at 2.05g/t Au Inferred
was released in January 2012. This represented a fourfold increase on the
previously declared resource of 0.3Moz Indicated and 0.6Moz Inferred.
Subsequently, in April 2012, we announced the resource had increased by a
further 0.5Moz and is now in excess of 4.6Moz Au, consisting of 3.75 Moz at
1.42g/t Au Indicated and 0.85Moz at 1.81g/t Au Inferred. The updated modelling
confirms the opportunity to exploit the Tusker and Kilimani mineralised zones
in a single open pit and the project is expected to move into the
pre-feasibility study stage in the second half of 2012.
At Bulyanhulu, the ABG Board approved a construction of a new 2.4Mtpa CIL
circuit. The project has a pre-tax Internal Rate of Return ("IRR") of 22.1% at
current gold prices and will provide additional life of mine production in
excess of 600 thousand ounces ("Koz") from H1 2014 at a lower cash cost than
the underground mine. This is the first step in the future optimisation of the
Bulyanhulu mine.
At the Bulyanhulu Upper East Reef 1 Project, the feasibility study is complete
and mining of the test stope will commence in Q3 2012 to assess the proposed
mining method as well as geotechnical conditions in the zone. Drilling
programmes on near surface material on Bulyanhulu Reef 2 at the Upper East Zone
have shown initial success and will be expanded to better delineate reserves
and resources between 150 metres and 600 metres below surface, in order to
investigate the potential of expanding the Upper East Zone Project to
incorporate accessing Reef 2 Upper East ore at the same time as Reef 1.
At North Mara, positive results continue to be returned from the 2011-2012
infill drilling programme and we have delineated an additional 1.0Moz of
resource beneath and within the expanded Gokona open pit. The results of the
drilling programme are being incorporated into an updated feasibility study on
Gokona Underground which is being undertaken in conjunction with the current
optimisation of the open pit expansion.
Also at North Mara, testing below the final planned Nyabirama open pit for
potential mineable underground resources has been positive with drilling
intersecting multiple, high-grade zones. With a number of assays still to be
received, we estimate that a resource of 0.5Moz will be delineated. The current
phase of drilling is expected to be completed in early H2 2012 with a second
phase of drilling likely to be undertaken once an initial underground resource
and study is complete.
At Tulawaka East Zone Underground, exploration drilling continues to be
successful, and we have been able to fully replace mined reserves in the first
half, thereby extending the mine life into 2013. Deeper drilling continues to
encounter continuity of mineralisation at depth and we continue to be
optimistic about extending the mine life further.
ORGANIC GROWTH PROJECTS
NORTH MARA
At North Mara the focus year to date has been on the infill drilling of Inferred resources around the Gokona open pit. Phase one of the resource definition programme at Gokona was completed in late May 2012, and a revised mid-year resource for both the underground and an expanded open pit has been calculated, with the plan now to progress both the pit expansion and the underground feasibility study once all assay results have been received. The Nyabirama Deeps infill programme has been expanded and is moving towards completion with positive results from the drill programme continuing to be received. The aim of all these programmes is to delineate, and ultimately produce, underground ounces at North Mara and at the same time extend the life of mine.
Figure - 3D view of Gokona open pit models and current underground block model (with blocks greater than 2g/t Au shown)
[For picture see www.africanbarrickgold.com]
Gokona
The successful 2011 and 2012 Gokona drilling programme has effectively added approximately 1.0Moz of resources, split between the expanded open pit (0.5Moz) and the underground (0.5Moz) with only approximately 65% of the original planned programme completed due to access issues in and around the mining infrastructure.
Open Pit Expansion
Due to the improvement in community relations at North Mara, we now have the opportunity to re-site a public road which had previously constrained access. As a result we have reworked the mine plan to incorporate a lateral cut back of the open pit. Mine plan optimisations remain ongoing but the latest pit designs incorporate an additional 0.5Moz into the open pit. We will provide a further update on this later in the year once we have completed the re-optimisation
of the open pit planning. Underground The first phase of a significant resource drill-out programme beneath the planned Gokona and Nyabigena open pits was completed during H1 2012. A total of 12,636 metres of drilling was completed during H1 2012, bringing the total for the resource definition drill programme to 40,810 metres. An additional resource of 0.5Moz has been calculated with the revised underground resource now to approximately 0.9Moz, which will now be incorporated into an updated feasibility study on the underground which we expect to complete during H2 2012. Infill drilling has continued to return very positive assay results showing good continuity of mineralised zones encountered in broader spaced exploration drilling. Several wide zones of high-grade gold mineralisation were also returned. Based on the positive results from exploration and infill drilling which show the system remains open and robust in terms of grade at depth, it is anticipated that further deep drilling is warranted and could further expand the underground resources in the future.
Selected significant assay results received for H1 2012 include:
GKD334: 3m @ 17.9g/t Au from 29m, 3m @ 3.7g/t Au from 174m and 21m @ 15.4g/t Au from 188m.
GKD337: 7m @ 31.0g/t Au from 457m and 11m @ 8.2g/t Au from 467m.
GKD338W: 5m @ 5.6g/t Au from 326m and 3m at 24.9g/t Au from 363m.
GKD348A: 20m @ 22.4g/t Au from 415m and 8m @ 11.8g/t Au from 478m.
GKD349: 12m @ 5.6g/t Au from 347m.
GKD351: 3m @ 8.2g/t Au from 544m, 3.5m @ 10.9g/t Au from 562m, 3m @ 57.0g/t from Au 590m, and 5m @ 36.2g/t Au from 612m.
GKD355A: 2m @ 12.2g/t Au from 347m, 3m @ 4.5g/t Au from 444m and 4m @ 3.9g/t Au from 469m.
GKD369: 17m @ 14.2g/t Au from 320m.
GKD371: 14m @ 18.8g/t Au from 125m.
GKD372: 6m @ 24.8g/t Au from 257m, 10m @ 5.6g/t Au from 290m, and 13m @ 16.1g/ t Au from 367m.
Figure - Gokona Deeps - Section 12,625mE (looking mine west) showing recent drill intercepts
[For picture see www.africanbarrickgold.com]
Nyabirama Resource Definition and Extension Drilling
The Nyabirama programme is aimed at defining underground potential from areas previously not able to be drilled from the open pit or during early exploration drilling. During H1 2012, 5,479 metres of core drilling were completed bringing the programme total to 35,660 metres. Assay results received during the half continue to confirm the current resource interpretation, intersecting multiple high-grade gold zones within a broader 1g/t Au mineralised envelope. Based on the drilling to date, and with a number of assays still to be received, we estimate an underground resource of 0.5Moz has been delineated and once all assays are received, we will incorporate the results into the scoping study.
Selected significant assay results during H1 2012 include:
NBD040: 3m @ 143.0g/t Au from 99m and 6m at 5.2g/t Au from 208m.
NBD042: 2m @ 14.1g/t from 84m, 5.60m at 2.6g/t from 122m and 5m at 3.4g/t from 211m. NBD045: 1m @ 57.0g/t Au from 167m and 22m at 4.4g/t Au from 217m.
NBD048: 4m @ 76.3g/t from 93m, 3.6m at 12.0g/t from 440m and 4m at 13.3g/t from 484m.
NBD061: 3m @ 20.0g/t from 6m and 3m at 12.6g/t from 232m.
NBD068: 5m @ 10.2g/t Au from 159m, 6m @ 84.8g/t Au from 263 and 11m @ 6.3g/t Au from 366m.
NBD071: 2m @ 22.2g/t Au from 100m and 7m @ 23.3g/t Au from 200m.
NBD074: 9m @ 12.6g/t Au from 200.8m, 10.9m @ 29.3g/t Au from 237m and 4m @ 22.1g/t Au from 255m.
NBD085: 5m @ 19.3g/t Au from 39m, 2m @ 40.1g/t Au from 204m and 6m @ 13.8g/t Au from 333m.
The results received continue to show that mineralisation extends deeper than previously interpreted.
Figure - Nyabirama drill plan showing location of section 8350mE (below) and planned Nyabirama West holes
[For picture see www.africanbarrickgold.com]
Figure - Nyabirama Deeps cross section 8,350mE (looking mine west) showing recent drill results from infill drilling
[For picture see www.africanbarrickgold.com]
TULAWAKA
East Zone Underground Extensions
A total of 73 underground diamond core holes for 9,251 metres were drilled during H1 2012 from four drill platforms located at Levels 11E (Zone 550), 9E (Zone 250), 10 DD1 and 10 Access (Zone 150) to test the Tulawaka East Zone underground extensions between Level 11 and Level 20 (160m to 400m below the completed pit floor). As a result, we were able to fully replace reserves mined in the first half of 2012 and thereby have been able to extend the life of the mine into 2013. Diamond drilling continues to test depth, plunge and strike extensions of the mineralised lodes between Levels 10 and 12, below current reserves in the East Zone and we remain confident in further extending the mine life. The majority of the holes drilled during the period returned patchy grades which confirm the pinch and swell (boudinage) nature of the Tulawaka orebody. During the early part of the year, three of the holes drilled through Zone 550E returned promising high grades with visible gold in core between levels 11 and 12. This re-emphasises the potential of high grade mineralisation at depth, within the 550 Zone even though holes around them did not show the same concentration of mineralisation.
Significant intersections made during the period include the following:
TUGD00427: 1.1m @ 9.8g/t Au.
TUGD00430: 2.2m @ 13.7g/t Au.
TUGD00437: 1.6m @ 120.0/t Au and 2m @ 34.8g/t Au.
TUGD00443: 0.9m @ 680.0g/t Au.
TUGD00470: 0.6m @ 11.5g/t Au.
TUGD00474: 3.5m @ 13.5g/t Au.
TUGD00511: 1.0m @ 12.0g/t Au.
Figure - Tulawaka long section showing reserve outline, planned drill programmes and recent assay results
[For picture see www.africanbarrickgold.com]
Though results received to date consist of narrow intercepts, they are significant in that they confirm the predicted continuity (at depth) of the orebody, within zones 150 and 250. The intersection of 1.0m @ 12.0g/t Au from TUGD00511 is around Level 19 (850m RL) in zone 150. This, and the fact that historically, close spaced sampling has realised more ounces than the reserve estimates, provides a good indication of the resource potential at depth.
BULYANHULU
Bulyanhulu Upper East
During the first half of 2012, rehabilitation and dewatering work was completed on the decline to the Upper East Zone. The planned eleven geotechnical and metallurgical test holes were completed with associated test work on the drill core underway. Work on detailed execution design and execution procedures has been completed in advance of the commencement of the test stope which is scheduled to take place in Q3 2012. In order to manage the test stope with sufficient expertise, additional experienced mining personnel have been contracted to undertake the initial mining and training of the Bulyanhulu staff. Following completion of the test stope, Board approval will be sought to commence development of the zone. In conjunction with the Reef 1 Upper East Zone feasibility work, we have also been completing drilling to test the Upper East Zone on Reef 2. During H1 2012, 52 reverse circulation (RC) holes were drilled for 4,847 metres targeting gold mineralisation at up to150 metres below surface. This relatively shallow RC drilling intersected gold mineralisation that is consistent with Reef 2 style mineralisation over a strike length of approximately 500 metres. At the end of June 2012 we commenced infill definition drilling on the Reef 2 Upper East Zone between 150m and 600m (vertically below surface) to allow investigation of the potential to access Upper East Zone Reef 2 mineralisation in conjunction with Reef 1. We anticipate completion of the infill definition drill programme during Q3 2012. Selected results from the shallow RC drilling programme include: BGMRC0147: 4m @ 4.3g/t Au from 72m including 1m @ 12.7g/t Au from 97m. BGMRC0148: 3m @ 4.9g/t from 106m including 1m @ 11.6g/t Au from 106m. BGMRC0150: 5m @ 6.8g/t Au from 97m including 2m @ 14.7g/t Au from 97m. BGMRC0151: 7m @ 3.1g/t Au from 110m. BGMRC0157: 5m @ 8.8g/t Au from 86m including 3m @ 14.1g/t Au from 86m.
Figure - Bulyanhulu collar location plan and significant results for shallow reverse circulation drilling programme
[For picture see www.africanbarrickgold.com]
Bulyanhulu CIL Circuit Expansion
As announced in May 2012, we received Board approval to progress with the construction of the expansion of the new CIL circuit. The project will add production in excess of 40Koz Au per annum for the first six years of the project from H1 2014 at a lower cost than the existing underground operations, and further incremental production for the remainder of the life of mine. The pre-production capital costs of US$167 million for the project will be split approximately 30% in 2012 and 70% in 2013 and we continue to assess funding options. We have selected a company to execute the project based on an EPC contract and expect to complete contract negotiations in Q3 2012. Parallel to the detailed design, early works related to site preparation and infrastructure for the construction activities are ongoing.
Golden Ridge
We continue to evaluate the various scenarios for developing the resource at Golden Ridge, including processing the ore at Bulyanhulu. Based on the outcomes from the value engineering programme in 2011 and as a part of the revised feasibility study, we are undertaking further geo-metallurgical test work, which is 50% complete. The work programme is expected to be completed by the end of H2 2012. In parallel to the technical work, conceptual work continues to assess environmental and social requirements for the project.
GREENFIELD PROJECTS
Nyanzaga Project
At the Nyanzaga Project, an initial in-pit resource of 4.1Moz Au, consisting of 3.5Moz at 1.47g/t Au Indicated and 0.6Moz at 2.05g/t Au Inferred was released in January 2012. This represented a fourfold increase on the previously declared resource of 0.3Moz Indicated and 0.6Moz Inferred. Subsequently, in April 2012, we announced the resource had increased by a further 0.5Moz, through the inclusion of Kilimani near surface mineralisation and additional material at depth, and is now in excess of 4.6Moz Au, consisting of 3.75Moz at 1.42g/t Au Indicated and 0.85Moz at 1.81g/t Au Inferred. The updated modelling now confirms the opportunity to exploit the Tusker and Kilimani mineralised zones in a single open pit. The project is expected to move into the pre-feasibility study stage in H2 2012. During the first half of 2012 the main focus on the project was to complete geotechnical, metallurgical and hydrological drilling, sampling and technical studies to assist with modelling of the Nyanzaga ore body and open pit scenarios. A total of 26 reverse circulation and diamond core holes were drilled for 8,802 metres, and all drilling and sampling programmes were completed on schedule, with the technical review of data ongoing at the end of June. Preliminary geotechnical studies are complete and were positive indicating the average pit wall angles can be steepened which will result in a reduction in the strip ratio. Likewise, metallurgical testwork is in line with expectations, indicating recoveries in oxidised and transitional material of greater than 94% and in fresh rock between 86% and 92% with standard CIL processing, and as results are received they are being fed into the geometallurgical model.
At Kilimani, two hydrological holes as part of the scoping study work returned significant results from shallow depths including intersections of:
NYZRCDDHY0006: 2m @ 22.8g/t Au from 23m.
NYZRCDDHY0011: 24m @ 1.3g/t Au from 4m.
In addition to the resource upgrade and ongoing drilling for the technical studies, we continued to receive encouraging assay results for infill and step-out drilling during H1 2012 that show excellent continuity when compared to the broader spaced drilling. A total of 50 reverse circulation and diamond core holes were drilled, totalling 13,931 metres during the first half of 2012. Results from H1 2012 include intersections of:
NYZRCDD0506: 307m @ 1.6g/t Au from 218m, including 3m @ 64.7g/t Au from 441m.
NYZRCDD0509: 345m @ 1.5g/t Au from 329m, including 16m @ 5.4g/t Au from 532m.
NYZRCDD0510: 150m @ 2.7g/t Au from 262m, including 13m @ 20.2g/t Au from 392m and 135m @ 2.6g/t Au from 448m, including 14m @ 9.3g/t Au from 459m.
NYZRCDD0512: 244m @ 1.3g/t Au from 244m and 159m at 2.1g/t Au from 515m, including 9m at 9.0g/t Au from 524m.
NYZRCDD0514: 102m @ 1.8g/t Au from 343m, including 10m @ 4.0g/t Au from 358m.
Additionally, at the Kilimani prospect, infill drilling continued to confirm the width, grade and tenor of gold mineralisation within the near-surface zone from the historical broader-spaced drilling. During H1 2012, drill testing of extensions to the Kilimani Zone in the southeast, outside of the current resource area, identified near-surface gold mineralisation, including selected results:
NYZRC0558: 2m @ 1.9g/t Au from 148m.
NYZRC0559: 9m @ 1.2g/t Au from 73m.
NYZRC0560: 27m @ 1.9g/t Au from 10m.
The principal objectives of the ongoing exploration drill programmes are to expand the global resource through delineating strike and down-dip extensions to the Tusker and Kilimani mineralised zones, as well as identifying new zones of gold mineralisation adjacent to the current resource area and potential satellite deposits within 15km of the Nyanzaga resource. Regional exploration work is focused on the Kasubuya property approximately 12-15km southwest of, and contiguous with, the Nyanzaga property. The current programmes at Kasubuya are mapping and rock chip sampling of several multi-kilometre gold anomalies associated with sulphidised banded iron formations, with the aim of advancing the highest priority targets to drill testing stage during the second half of 2012.
Figure - Nyanzaga (Tusker and Kilimani Zones) drill location plan with the recent 2011 and 2012 holes shown separately
[For picture see www.africanbarrickgold.com]
Figure - Nyanzaga section 2320mN
[For picture see www.africanbarrickgold.com]
Dett
The Dett prospect lies in the western part of the Mara-Musoma Greenstone Belt and is located approximately 65 kilometres north east of North Mara gold mine. During the first half of 2012, a desktop analysis has continued ahead of the planned drill programme in the third quarter which will target further validating and extending the higher grade gold zones and investigating the potential of delineating a large, in excess of 1.0 - 1.5g/t Au, mineable resource.
Financial Update
The following review provides an analysis of our consolidated results for the
six months ended 30 June 2012 and the main factors affecting financial
performance. It should be read in conjunction with the financial statements and
accompanying notes on pages 34 to 48, which have been prepared in accordance
with International Financial Reporting Standards as adopted for use in the
European Union ("IFRS").
Revenue
Revenue for the six months of US$534.5 million was 8% lower than the prior year period of US$578.4 million. The decrease in group gold sales volume of 58,822 ounces was the primary reason for lower revenue and resulted mainly from the lower production base, as well as the higher number of on hand ounces sold in 2011. The lower volume impact was partially offset by the increase in the average realised gold price to US$1,642 per ounce in the first half of 2012 compared to US$1,461 in 2011. Gold revenue amounted to US$510.0 million compared to US$539.5 million in 2011. Co-product revenue is included in total revenue and amounted to US$24.5 million for the first half of the year, a decrease of 37% from the prior year of US$38.9 million. The decrease was primarily driven by reduced copper volumes sold due to a lower production base at Buzwagi and lower grades at Bulyanhulu. Also, negative price variances due to global economic factors resulted in a decrease in the H1 2012 average realised copper price of US$3.53 per pound compared to the prior year of US$4.20.
Cost of sales
Cost of sales was US$387.0 million for the six months ended 30 June 2012, representing an increase of 12% from the prior year period of US$344.6 million. The key aspects that impacted cost of sales during the year were:
- higher energy costs due to increased fuel usage, driven by the requirement to self generate power as well as higher volumes milled, in combination with a high oil price environment during the first half of the year and increased Tanesco (the national Tanzanian electricity supplier) power tariffs;
- the higher inflationary environment that increased the cost of both international and national labour, the higher cost of renewing contractor services and significant increases in commodity inputs for key operating consumables which was partially offset by lower milling and mining activity levels compared to plan; and
- increased maintenance costs due to the change to an ownership model from a maintenance and repair contractors ("MARC") model at North Mara where these costs were previously reflected in contracted services, increased plant maintenance at North Mara, Bulyanhulu plant efficiency focus, the focus on addressing mining equipment availability and plant downtime concerns at Buzwagi, and the effect of power disruptions resulting in plant equipment failure due to wear.
Cost of sales for H1 2012 was negatively impacted by a reduction in capitalised waste stripping costs due to constrained mining resulting in lower strip ratios compared to plan. Royalties included in revenue related costs increased on the prior year despite significantly lower sales volumes driven by the increase in the government royalty (from 3% to 4%) from May 2012 and higher realised prices. This was partially offset by lower third party smelting fees. Depreciation and amortisation was US$70.5 million for the first half of the year representing an increase of 11% from the prior year period (US$63.4 million). This increase was driven by a higher capital investment base employed and depreciated in 2012 partially offset by a lower production base.
The table below provides a breakdown of cost of sales:
Three months ended Six months ended
(US$'000) 30 June 30 June
(Unaudited) 2012 2011 2012 2011
Cost of Sales
Direct mining costs 149,196 128,870 287,423 252,144
Third party smelting and refining fees 5,729 6,014 9,663 11,266
Royalty expense 10,329 9,614 19,423 17,875Depreciation and amortisation 35,905 31,989 70,472
63,354
Total 201,159 176,487 386,981 344,639
The consolidated direct mining expenses totalled US$287.4 million for the six
month period. This represents an increase of 14% from the prior year of
US$252.1 million. The key reasons for the increase can be attributed to an
overall increase in the operating costs of operations. A detailed breakdown of
direct mining expenses is shown in the table below.
Three months
ended Six months ended
30 June 30 June
(US$'000) 2012 2011 2012 2011
Direct mining costs
Labour 41,939 41,625 87,764 81,992
Energy and fuel 33,843 24,942 67,975 47,494
Consumables 25,829 21,535 51,848 46,037
Maintenance 23,498 17,334 49,512 35,602
Contracted services 22,483 23,563 41,785 50,058
General administration costs 21,413 19,632 44,291 34,078
Capitalised mining costs (19,809) (19,761) (55,752) (43,117)
Total direct mining costs 149,196 128,870 287,423 252,144
Individual cost components comprised:
Labour costs were 7% higher than the first half of 2011 driven predominantly by inflationary increases passed on through the Q4 2011 annual salary increase process and increased headcount.
Energy and diesel fuel expenses account for all electricity, diesel fuel and oil/lubricant expenditures. The 43% increase over the first half of 2011 reflects mainly the utilisation of diesel spinning and back-up generated power in order to ensure stable and consistent power supply because of the difficulties in sourcing from the national power grid at Buzwagi in combination with a high oil price environment. Furthermore, Bulyanhulu showed an increase driven by a combination of higher Tanesco tariffs and the requirement to self generate. The cost per barrel of Brent crude oil, the key input of diesel, remained fairly in line at an average of US$111/bbl in H1 2011 to US$114/bbl in H1 2012. Consumable costs increased 13% mainly due to a combination of inflationary pressure and the increased usage of in-process reagents to maintain recoveries throughout our operations. At Buzwagi, a large proportion of talc minerals were processed requiring additional reagents to maintain recovery levels and prevent recovery losses. Processing of coarser crushed material also increased the usage of grinding media.
Maintenance costs rose 39% primarily due to the change to an ownership model at North Mara, increased plant maintenance at North Mara, Bulyanhulu plant efficiency focus, the focus on addressing mining equipment availability and plant downtime at Buzwagi, and the effect of power disruptions resulting in plant equipment failure due to wear.
Contracted services decreased 17%, mainly as a result of decreased MARC costs at North Mara and lower drilling costs at North Mara and Buzwagi due to decreased drilling activity.
General and administrative costs increased by 30%, mainly driven by increased warehousing and logistics costs associated with increased inventory level requirements and freight increases; increased camp costs due to increased headcount and inflationary increases from contractors; increased aviation costs driven by the use of charters; and increased general site maintenance. Capitalised direct mining costs were 29% higher than H1 2011 and can be split primarily between the change in gold inventory and capitalised underground and waste stripping cost. Capitalised underground and waste stripping amounted to US$42.6 million in H1 2012 compared to US$40.6 million in H1 2011. Capitalised waste stripping at North Mara was lower due to a lower strip ratio (strip ratio of 9.1 for H1 2012 compared to 12.1 for H1 2011) which was partially offset by increased stripping at Buzwagi. Capitalised underground development at Bulyanhulu increased due to higher direct mining costs and an increase in the capitalisation ratio. For the first six months of 2012, US$11.2 million was capitalised to gold inventory primarily driven by Buzwagi ore capitalisation as a result of mined tonnes exceeding processed tonnes in combination with a higher average costing allocation caused by the increased cost profile. This was in part offset by the absorption of finished gold on hand sold in excess of production and North Mara lower grade ore stockpiles processed to supplement limited ore mined. In the first half of 2011, 11,141 ounces of finished gold ounces on hand were sold in excess of production resulting in a net capitalisation of US$0.5 million.
Corporate administration costs
Corporate administration expenses totalled US$25.6 million for the six months ended 30 June 2012. This equated to a 25% increase from the prior year period of US$20.5 million. Corporate administration costs comprise the expenses associated with maintaining the corporate company functions located in the Dar es Salaam, Johannesburg and London offices. Costs include salaries, office rent, consulting, legal, audit fees and investor relations expenses. The increase is attributable to a one time adjustment in 2011 that reduced costs relating to an employee share based payment scheme due to forfeitures and the inclusion of US$2.6 million for continuous improvement projects in H1 2012.
In general, inflationary pressures and increased headcount have been offset by the positive impact of a weakened rand at the Johannesburg office.
Exploration and evaluation costs
Exploration and evaluation costs are incurred to advance the exploration at our greenfield projects and also includes exploration overheads and technical evaluation costs. For H1 2012, US$10.4 million was incurred, 35% lower than the US$16.1 million spent in H1 2011. The increased expenditure in the first six months of 2011 was due to attention being focused on the Nyanzaga project which resulted in a fourfold increase of the in-pit resource in January 2012 with a further increase announced during the first quarter of the current year. We continue to advance exploration drilling at Nyanzaga while capitalising costs associated with the existing scoping study in respect of the existing resource. Where it is probable that resources at adjacent reserve areas will be converted into reserves, the expenditure is capitalised prospectively. During the first six months of 2012, an amount of US$9.5 million of exploration costs was capitalised compared to US$8.4 million in the corresponding period in 2011. Capitalised costs predominantly relate to the Gokona and Nyabirama underground drilling projects at North Mara and geotechnical, metallurgical and hydrological drilling as part of the scoping study at Nyanzaga.
Corporate social responsibility expenses
Corporate social responsibility expenses incurred amounted to US$6.8 million for the year compared to the prior year of US$1.4 million. The increase has been driven by larger contributions to general community projects funded from the ABG Maendeleo Fund (which was launched in September 2011) and general site projects and overheads. Other charges
Other charges amounted to US$4.3 million for the period, 70% down from the H1 2011 amount of US$14.2 million. Other charges comprise mostly one-off costs and include foreign exchange gains and losses, gains and losses on disposals, unrealised gains and losses on derivative contracts, asset write downs and certain provision movements. The main contributors to the net expense were: (i) derivative losses of US$3.0 million (gain of US$2.2 million in 2011); (ii) historical supply writedowns of US$1.7 million (US$0 million in 2011); (iii) legal fees incurred of US$0.8 million (US$0 million in 2011); (iv) disallowed indirect tax claims of US$0.4 million (US$3.2 million in 2011); and (v) bad debt writedowns on supplier backcharge receivables of US$0.5 million (US$0 million in 2011). This was offset by net foreign exchange gains given the strengthening of the Tanzanian shilling of US$2.3 million (loss of US$12.5 million in 2011) and the gain on disposal of property, plant and equipment of US$2.3 million (US$0 million in 2011).
Finance expense and income
The finance expense increased to US$4.7 million for the first half of the year, compared to US$4.1 million in H1 2011. The key drivers were increased accretion expenses relating to the discounting of the environmental rehabilitation liability and interest payable on finance leases. This was offset by finance charges of US$1.5 million (US$2.4 million in 2011) relating to the revolving credit facility agreement which has been extended until 2014 resulting in a lower monthly interest amortisation charge. Currently, ABG has no external debt.
Finance income relates predominantly to interest charged on non-current receivables and interest received on time deposits.
Taxation matters
The taxation expense decreased to US$31.3 million for the period, compared to US$54.0 million in H1 2011. The H1 2012 expense consists of current corporate tax of US$0.7 million and deferred tax of US$30.6 million. The decreased tax expense was driven by lower profits before tax, predominantly due to lower revenue and increased costs. The effective tax rate in H1 2012 increased to 32% from 30% in H1 2011, and is mainly driven by tax losses on which deferred tax assets are not recognised. Consistent with the terms of the Memorandum of Settlement which allows ABG to offset income tax payable against outstanding refunds for VAT and fuel levies, the corporate tax liability relating to Tulawaka of US$0.6 million was offset against amounts owed to ABG, leaving a net discounted receivable of US$77.2 million as part of the settlement.
Net profit for the period
As a result of the factors discussed above, net profit for the six months ended 30 June 2012 was US$65.5 million. This represents a decrease of 47% from the prior year period (US$124.2 million). The key driver was decreased revenue as a result of lower sales ounces partially offset by an increase in realised gold prices. This was further impacted by increases in our cost base, increased corporate administration and corporate social responsibility expenses, in part offset by decreased taxation due to the lower profit before tax, other charges and exploration and evaluation costs.
Key financial performance indicators and reconciliations
Cash Costs
With respect to our cash costs per ounce sold for the year, we saw a 43% increase from the comparable period in 2011 to US$938 per ounce sold from US$655 per ounce sold. Refer to the current operations overview on page 2 and cost of sales explanations as part of the financial review detailing the year on year change.
The table below provides a reconciliation between cost of sales and total cash cost to calculate the cash cost per ounce sold.
Three months ended Six months ended
(US$'000) 30 June 30 June
(Unaudited) 2012 2011 2012 2011
Total cost of sales 201,159 176,487 386,981 344,639
Deduct: depreciation and amortisation (35,905) (31,989) (70,472) (63,354)
Deduct: co-product revenue (12,270) (19,401) (24,501) (38,883)
Total cash cost 152,984 125,097 292,008 242,402
Total ounces sold 160,029 191,830 310,516 369,338Consolidated cash cost per ounce 956 652 940
656
Equity ounce adjustment² (6) 0 (2) (1)Attributable cash cost per ounce 950 652 938
655
1Reflects 100% of ounces sold.
2Reflects the adjustment for non-controlling interests at Tulawaka.
EBITDA
EBITDA for the six months ended 30 June 2012 decreased by 30% to US$170.9
million compared to the prior year period of US$244.9 million as a result of
the lower revenue base. Furthermore, cost of sales increased driven
predominantly by increased direct mining costs across all sites, as well as
increased royalty costs. Note that EBITDA includes the impact of other charges
totalling US$4.3 million which includes one-off expenditures. A reconciliation
between net profit for the period and EBITDA is presented below:
Three months ended Six months ended
(US$000) 30 June 30 June
(Unaudited) 2012 2011 2012 2011
Net profit for the period 29,082 72,419 65,522 124,230
Plus: income tax expense 14,829 33,862 31,335 54,031Plus: depreciation and amortisation 35,905 31,989
70,472 63,354
Plus: finance expense 2,378 2,239 4,689 4,121
Less: finance income (813) (437) (1,079) (809)
EBITDA 81,381 140,072 170,939 244,927
Basic earnings per share
Earnings per share for the six months ended 30 June 2012 amounted to US15.9 cents, a decrease of 46% from the prior year period of US29.3 cents. The decrease was driven by lower net profit for the period and there was no change in the underlying issued shares.
Cash flow
Three months ended Six months
(US'$000) 30 June 30 June
(Unaudited) 2012 2011 2012 2011Cash flow from operating activities 54,783 99,450 110,309
186,134
Cash used in investing activities (77,022) (63,800) (131,093)
(116,108)
Cash used in financing activities (56,273) (13,770) (60,767)
(15,205)
(Decrease)/Increase in cash (78,512) 21,880 (81,551) 54,821Foreign exchange difference on cash 1,170 (620) 1,064
(756)
Opening cash balance 581,009 433,817 584,154 401,012
Closing cash balance 503,667 455,077 503,667 455,077
Cash flow from operating activities was US$110.3 million for the six months
ended 30 June 2012, a decrease of US$75.8 million. The decrease primarily
related to decreased EBITDA of US$74.0 million. Net working capital movements
remained similar to the comparative period and the US$63.0 million outflow
related to: increased investment in supplies inventory of US$38.5 million given
mining constraints, plant downtime and increased general maintenance supplies
given breakdowns; an increase in ore inventory of US$12.2 million which was
primarily driven by higher mining costs; and a decrease in trade and other
payables of US$9.9 million mainly due to timing differences in payments. This
was offset by a reduction in trade receivables (US$6.4 million).
Cash flow used in investing activities was US$131.1 million for the six months
ended 30 June 2012, an increase of 13% from the prior year of US$116.1 million.
Total cash capital expenditure for the year of US$118.7 million remained in
line with the prior year figure of US$117.1 million.
A breakdown of total capital and other investing capital activities is provided
below:
Six months ended
30 June
(US$'000)
(Unaudited) 2012 2011
Sustaining capital 65,510 57,428
Expansionary capital 10,639 19,035
Capitalised development1 42,600 40,608
Total cash capital 118,749 117,071
Rehabilitation asset adjustment 4,534 1,595
Non-cash sustaining capital2 1,623 -
Total capital expenditure 124,906 118,666
Other investing capital
Non-current asset movement3 15,083 643
1 The prior year capital expenditure breakdown has been restated to separately reflect capitalised development.
2 Total non-cash sustaining capital relates to the capital finance lease at Buzwagi for the drill rigs.
3 Non-current asset movement relates to the investment in land acquisitions reflected as prepaid operating leases; village housing project; and other items.
Sustaining capital
Sustaining capital expenditure includes investment in the mining equipment fleet at Buzwagi (US$8.9 million), Bulyanhulu (US$4.5 million) and North Mara (US$2.7 million); investment in continuous improvement systems relating to North Mara, Buzwagi and Bulyanhulu (US$7.4 million); process plant investments at Buzwagi (US$7.9 million) and Bulyanhulu (US$1.2 million); the water treatment plant at North Mara (US$1.6 million); and investment in infrastructure across all sites (US$11.6 million).
Expansionary capital
Expansionary capital expenditure includes capitalised exploration drilling at North Mara (US$4.6 million) and Tulawaka (US$1.9 million); investment in the Tulawaka underground Eastern portal extension (US$1.9 million) and the process plant expansion and redesign project at Bulyanhulu (US$0.9 million).
Capitalised development
Capitalised development include capitalised waste stripping at North Mara (US$8.2 million) and Buzwagi (US$8.7 million); and capitalised underground development expenditure at Bulyanhulu (US$22.1 million) and Tulawaka (US$3.6 million).
Non-cash capital Non-cash capital for the period relates to the rehabilitation asset adjustment reflecting the impact of the change in discount rates relating to the estimated future reclamation liability across all sites (US$4.5 million) and investment in drill rigs under a finance lease at Buzwagi (US$1.6 million).
Other investing capital
Other investing capital for the period includes US$13.4 million relating to land purchases at North Mara which is included in long term prepayments.
Cash used in financing activities
Cash used in financing activities for the six months ended 30 June 2012 of US$60.8 million increased from the prior year of US$15.2 million. The 2011 final dividend totalled US$53.7 million and was paid during the period. Finance lease instalments amounted to US$3.7 million and distributions to non-controlling interests amounted to US$3.3 million.
Financial Position
At 30 June 2012, ABG had cash and cash equivalents of US$503.7 million (US$584.2 million at 31 December 2011). The Group's cash and cash equivalents are with counterparties whom the Group considers to have an appropriate credit rating. Location of credit risk is determined by physical location of the bank branch or counterparty. The maximum allowable term of maturity for any individual security is 12 months. Investment counterparties must have a credit rating of at least Baa2 or better by Moody's Investor Services or BBB by Standard and Poor's. No more than 25% of the aggregate market value of the investment portfolio is maintained in any one country, with the exception of the United States of America, United Kingdom and Barbados, or in any one industry group. Investments are held mainly in United States dollars and cash and cash equivalents in other foreign currencies are maintained for operational requirements. Debt remained at zero, as in 2011. The revolving credit facility of US$150 million remains in place. The facility has been provided to service the general corporate needs of the Group and to fund potential acquisitions. All provisions contained in the credit facility documentation have been negotiated on normal commercial and customary terms for such finance arrangements. The term of the facility has been extended to 2014 and when drawn, the spread over LIBOR will be 350 basis points. At 30 June 2012, none of the funds were drawn under the facility.
Goodwill and intangible assets remained in line with levels as at 31 December 2011.
The net book value of property, plant and equipment increased from US$1.8 billion at the end of 2011 to US$1.9 billion in H1 2012. The main capital expenditure drivers have been explained in the cash flow used in investing activities section above, and have been offset by depreciation charges of US$75.2 million.
Total indirect tax receivables, net of a discount provision applied to the non-current portion, increased from US$85.3 million at the end of 2011 to US$87.4 million in 2012. The increase was mainly due to indirect taxes incurred in the normal course of business, and was impacted by the offset of corporate tax payable at Tulawaka of US$0.6 million for the six month period. The net deferred tax position increased from a net deferred tax liability of US$94.0 million at the end of 2011 to a net deferred tax liability of US$124.6 million in H1 2012. This was driven by the taxable income generated during the first half of 2012.
Net assets attributable to owners of the parent remained in line at US$2.8 billion when compared to 31 December 2011. Profits attributable to owners of the parent of US$65.2 million was offset by the payment of the final 2011 dividend of US$53.7 million to shareholders in May 2012.
Dividend
An interim dividend of US4.0 cents per share has been declared and will be paid to shareholders on 24 September 2012 (refer page 3).
Significant judgements in applying accounting policies and key sources of estimation uncertainty
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2011, with the exception of changes in estimates that are required in determining the provision for income taxes (see Note 4 of the financial statements).
Going concern statement
The ABG Group's business activities, together with factors likely to affect its future development, performance and position are set out in the operational and financial review sections of this report. The financial position of the ABG Group, its cash flows, liquidity position and borrowing facilities are described in the preceding paragraphs of this financial review. In assessing the ABG Group's going concern status the Directors have taken into account the above factors, including the financial position of the ABG Group and in particular its significant cash position, the current gold and copper price and market expectations for the same in the medium term, and the ABG Group's capital expenditure and financing plans. After making appropriate enquiries, the Directors consider that ABG and the ABG Group as a whole has adequate resources to continue in operational existence for the foreseeable future and that it is appropriate to adopt the going concern basis in preparing the financial statements. Non-IFRS Measures ABG has identified certain measures in this report that are not measures defined under IFRS. Non-IFRS financial measures disclosed by management are provided as additional information to investors in order to provide them with an alternative method for assessing ABG's financial condition and operating results. These measures are not in accordance with, or a substitute for, IFRS, and may be different from or inconsistent with non-IFRS financial measures used by other companies. These measures are explained further below.
Average realised gold price per ounce sold is a non-IFRS financial measure which excludes from gold revenue:
Gains and losses on non-hedge derivative contracts;
Unrealised mark to market gains and losses on provisional pricing from copper and gold sales contracts; and
Export duties.
Cash costs per ounce sold is a non-IFRS financial measure. Cash costs include all costs absorbed into inventory, as well as royalties, by-product credits, and production taxes, and exclude capitalised production stripping costs, inventory purchase accounting adjustments, unrealised gains/losses from non-hedge currency and commodity contracts, depreciation and amortisation and social development costs. Cash cost is calculated net of co-product revenue. The presentation of these statistics in this manner allows ABG to monitor and manage those factors that impact production costs on a monthly basis. ABG calculates cash costs based on its equity interest in production from its mines. Cash costs per ounce sold are calculated by dividing the aggregate of these costs by gold ounces sold. Cash costs and cash costs per ounce sold are calculated on a consistent basis for the periods presented. Refer to page 25 as part of the financial review section 10 for a reconciliation of cost of sales to cash costs.
EBITDA is a non-IFRS financial measure. ABG calculates EBITDA as net profit or loss for the period excluding:
Income tax expense; Finance expense; Finance income;
Depreciation and amortisation; and
Goodwill impairment charges.
EBITDA is intended to provide additional information to investors and analysts. It does not have any standardised meaning prescribed by IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. EBITDA excludes the impact of cash costs of financing activities and taxes, and the effects of changes in operating working capital balances, and therefore is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate EBITDA differently. Refer to page 25 as part of the financial review section 10 for a reconciliation of net profit to EBITDA.
EBIT is a non- IFRS financial measure and reflects EBITDA adjusted for depreciation and amortisation and goodwill impairment charges.
Amortisation and other cost per ounce sold is a non-IFRS financial measure. Amortisation and other costs include amortisation and depreciation expenses and the inventory purchase accounting adjustments at ABG's producing mines. ABG calculates amortisation and other costs based on its equity interest in production from its mines. Amortisation and other costs per ounce sold is calculated by dividing the aggregate of these costs by ounces of gold sold. Amortisation and other cost per ounce sold are calculated on a consistent basis for the periods presented. Cash cost per tonne milled is a non-IFRS financial measure. Cash costs include all costs absorbed into inventory, as well as royalties, by-product credits, and production taxes, and exclude capitalised production stripping costs, inventory purchase accounting adjustments, unrealised gains/losses from non-hedge currency and commodity contracts, depreciation and amortisation and social development costs. Cash cost is calculated net of co-product revenue. ABG calculates cash costs based on its equity interest in production from its mines. Cash costs per tonne milled are calculated by dividing the aggregate of these costs by total tonnes milled.
Cash margin is a non-IFRS financial measure. The cash margin is the average realised gold price per ounce sold less the cash cost per ounce sold.
Operating cash flow per share is a non-IFRS financial measure and is calculated by dividing Net cash generated by operating activities by the weighted average number of Ordinary Shares in issue.
Mining statistical information
The following describes certain line items used in the ABG Group's discussion of key performance indicators:
Open pit material mined - measures in tonnes the total amount of open pit ore and waste mined.
Underground ore tonnes hoisted - measures in tonnes the total amount of underground ore mined and hoisted.
Total tonnes mined includes open pit material plus underground ore tonnes hoisted.
Strip ratio - measures the ratio waste-to-ore for open pit material mined.
Ore milled - measures in tonnes the amount of ore material processed through the mill.
Head grade - measures the metal content of mined ore going into a mill for processing.
Milled recovery - measures the proportion of valuable metal physically recovered in the processing of ore. It is generally stated as a percentage of the metal recovered compared to the total metal originally present.
Total production costs - measures the total cost of production and is an aggregate of total cash costs as well as production specific depreciation and amortisation.
Cash operating cost per ounce - measures the total direct cash cost attributable to producing an ounce. It reflects cash costs adjusted to exclude royalties on an ounce basis.
Principal Risks and Uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the ABG Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The Directors do not consider that the principal risks and uncertainties have changed significantly since the publication of the annual report for the year ended 31 December 2011. As such these risks continue to apply to the Group for the remaining six months of the financial year.
The principal risks and uncertainties disclosed in the 2011 annual report were categorised as:
- Single country risk: In order to ensure continued growth, we need to identify new resources and development opportunities through exploration and acquisition targets outside of Tanzania.
- Reserves and resources estimates: Our stated mineral reserves and resources are estimates based on a range of assumptions, including geological, metallurgical and technical factors; there can be no assurance that the anticipated tonnages or grades will be achieved.
- Commodity prices: Our financial performance is highly dependent upon the price of gold and, to a lesser extent, the price of copper and silver. The prices of these commodities are affected by a number of factors beyond our control. Rapid fluctuations in pricing of these commodities will have a corresponding impact on our financial position.
- Cost and capital expenditure: We operate a cyclical business where fluctuations in operating cash flow and capital expenditure may adversely affect our financial position. In addition, industry cost pressures, notably as regards labour, capital equipment and energy may affect our cash flow and capital expenditure.
- Political, legal and regulatory developments: Changes to existing law and regulations in jurisdictions where we operate, or more stringent application or interpretation of current laws and regulations by relevant government authorities, could adversely affect our operations and development projects. In particular, our operations and financial condition may be adversely affected by legal and regulatory changes and developments in Tanzania, or if our mineral development agreements (MDAs) are not honoured by the Tanzanian government. We may also be adversely affected by changes in global economic conditions, political and/or economic instability in Tanzania or any of its surrounding countries. - Taxation reviews: Our financial condition may be adversely affected in the event of the introduction of revised royalty or corporate tax regimes in Tanzania that go beyond agreements contained in our MDAs. Our financial condition may also be adversely affected if we are unsuccessful in our current appeals and/or discussions with the TRA regarding outstanding tax assessments and unresolved tax disputes.
- Utilities supply: Power stoppages, fluctuations and disruptions in electrical power supply or other utilities could adversely affect our operations and financial condition. In addition, increases in power costs would make production more costly and alternative power sources may not be available.
- Community relations: A failure to adequately engage or manage relations with local communities and stakeholders could have a direct impact on our ability to operate. - Variations to production and cost estimates: Our actual production and costs may vary from estimates of future production, cash costs and capital costs for a variety of reasons, including actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; short-term operating factors relating to ore reserves; revisions to mine plans; risks and hazards associated with mining; natural phenomena; unexpected labour shortages or strikes; delays in permitting and licensing processes; and the timely completion of expansion projects, including land acquisitions required for the expansion of our operations from time to time. Costs of production may also be affected by a variety of factors, including: changing waste-to-ore ratios; ore grade metallurgy; labour costs; the cost of commodities; general inflationary pressures; and currency exchange rates. Failure to achieve production or cost estimates or material increases in costs could have an adverse impact on our future business, cash flows, profitability, results of operations and financial condition. - Loss of critical processes: Our mining, processing, development and exploration activities depend on the continuous availability of our operational infrastructure, in addition to reliable utilities and water supplies and access to roads. Any failure or unavailability of operational infrastructure, for example through equipment failure or disruption, could adversely affect production output and/or impact exploration and development activities. Deficiencies in core supply chain availability could also adversely affect our operations. - Environmental hazards and rehabilitation: Our activities are subject to environmental hazards as a result of processes and chemicals used in extraction and production methods and we may be liable for losses and costs associated with environmental hazards at our operations. We may also have our licences and permits withdrawn or suspended as a result of such hazards, or may be forced to undertake extensive clean-up and remediation action. Any such action could have a material adverse effect on our business, operations and financial condition. - Employees, contractors and industrial relations: Our business significantly depends upon our ability to recruit and retain qualified personnel, the loss of which may negatively impact our ability to operate. Our business also depends on good relations generally with our employees and employee representative groups, such as trade unions. A breakdown in these relations could result in a decrease in production levels and/or increased costs, which in turn could have a material adverse effect on our business. In addition to employees, ABG depends on certain key contractors. Interruptions in contracted services could result in production slowdowns and/or stoppages.
- Security, trespass and vandalism: We face certain risks in dealing with trespass, theft, corruption and vandalism at our mines and unauthorised small-scale mining in proximity to and on specific areas covered by our exploration and mining licences may have an adverse effect upon our operations and financial condition.
- Health and safety, infectious diseases: A wide range of occupational health diseases, such as noise-induced hearing loss and lung diseases, pose a risk to our workforce. In addition, tropical and infectious diseases, such as malaria and HIV/AIDS, pose significant health risks to our employees, due to the epidemic proportions that such diseases may have in areas in which we operate. The potential liabilities related to such diseases and the impact that these diseases may have on our workforce may have an adverse effect on our operations and financial condition.
Further information regarding these risks and uncertainties can be found on pages 74 to 77 of the 2011 Annual Report which is available at www.africanbarrickgold.com.
Statement of Directors' Responsibility
The Directors confirm that, to the best of their knowledge, the condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union. The half-year management report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R and Disclosure and Transparency Rule 4.2.8R, namely:
§ an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated interim financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
§ material related-party transactions in the first six months of the financial year and any material changes in the related party transactions described in the last Annual Report.
A list of current Directors is maintained on the African Barrick Gold plc Group website: www.africanbarrickgold.com.
By order of the Board
Greg Hawkins Kevin Jennings
Chief Executive Officer Chief Financial Officer
23 July 2012
Auditor's Review Report
Independent review report to African Barrick Gold plc
Introduction
We have been engaged by the company to review the condensed consolidated interim financial information in the half-yearly financial report for the six months ended 30 June 2012, which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial information.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated interim financial information included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial information in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants, London 23 July 2012
Notes:
The maintenance and integrity of the African Barrick Gold website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
FINANCIAL STATEMENTS
Consolidated Income Statement
For the
year
ended
For the six months 31
Notes ended 30 June December
(Unaudited) (Unaudited) (Audited)
(in thousands of United States dollars) 2012 2011 2011
Revenue 534,467 578,387 1,217,915
Cost of sales (386,981) (344,639) (704,114)
Gross profit 147,486 233,748 513,801
Corporate administration (25,609) (20,525) (50,505)
Exploration and evaluation costs (10,385)(16,078) (30,339)
Corporate social responsibility expenses (6,750) (1,372) (7,376)
Other charges 6 (4,275) (14,200) (15,639)
Profit before net finance expense and taxation 100,467 181,573 409,942
Finance income 7 1,079 809 1,484
Finance expense 7 (4,689) (4,121) (8,725)
(3,610) (3,312) (7,241)
Profit before taxation 96,857 178,261 402,701
Tax expense 8 (31,335) (54,031) (117,924)
Net profit for the period 65,522 124,230 284,777
Profit attributable to:
- Non-controlling interests 370 4,096 9,882
- Owners of the parent 65,152 120,134 274,895
Earnings per share:- Basic earnings per share (cents) 9 15.9
29.3 67.0
- Diluted earnings per share (cents) 9 15.9
29.3 67.0
Consolidated Statement of Comprehensive Income
For the year
For the six months ended 31
ended 30 June December
(Unaudited) (Unaudited) (Audited)(in thousands of United States dollars) 2012 2011
2011
Net profit for the period 65,522 124,230 284,777Other comprehensive expenses for the period (222) -
-
Total comprehensive income for the period 65,300 124,230
284,777
Attributed to:- Non-controlling interests 370 4,096
9,882
- Owners of the parent 64,930 120,134 274,895
The notes on pages 38-48 form an integral part of this financial information.
Consolidated Balance Sheet
As at As at
Notes 30 June 31 December
(Unaudited) (Unaudited) (Audited)(in thousands of United States dollars) 2012 2011 2011
ASSETS
Non-current assets
Goodwill and intangible assets 258,513 258,513 258,513
Property, plant and equipment 11 1,871,524 1,673,481 1,823,247
Deferred tax assets 23,186 89,908 55,529
Non-current portion of inventory 97,152 69,122 78,022
Derivative financial instruments 254 - 213
Other assets 124,626 106,969 110,658
2,375,255 2,197,993 2,326,182Current assets
Inventories 352,218 274,966 316,947
Trade and other receivables 23,443 59,242 29,858
Derivative financial instruments 1,723 - 4,050
Other current assets 38,276 62,697 33,271
Cash and cash equivalents 503,667 455,077 584,154
919,327 851,982 968,280Total assets 3,294,582 3,049,975
3,294,462
EQUITY AND LIABILITIES
Share capital and share premium 929,199 929,199 929,199
Other reserves 1,844,017 1,689,745 1,832,032
Total owners' equity 2,773,216 2,618,944 2,761,231
Non-controlling interests 34,545 32,627 37,473
Total equity 2,807,761 2,651,571 2,798,704Non-current liabilities
Deferred tax liabilities 147,800 158,606 149,544
Derivative financial instruments 938 476 56
Provisions 164,172 112,592 157,582
Other non-current liabilities 17,561 3,871 18,988
330,471 275,545 326,170Current liabilities
Trade and other payables 150,340 115,730 161,916
Derivative financial instruments 839 989 58
Provisions 1,042 4,000 1,034
Other current liabilities 4,129 2,140 6,580
156,350 122,859 169,588Total liabilities 486,821 398,404 495,758
Total equity and liabilities 3,294,582 3,049,9753,294,462
The notes on pages 38-48 form an integral part of this financial information
Consolidated Statement of Changes in Equity
Contributed Cash
surplus/ flow Stock
Share Share Other hedging option (in thousands of United States dollars) Notes capital premium reserve
reserve reserve
Balance at 31 December 2010 (Audited) 62,097 867,102
1,368,774 - 640
Total comprehensive income for the period - -
- - -
Conversion to contributed surplus - -
(62) - -
Dividends to equity holders of the Company - -
- - -
Distributions from non-controlling interests - -
- - -
Stock option grants - - - - 753
Balance at 30 June 2011 (Unaudited) 62,097 867,1021,368,712 - 1,393
Total comprehensive income for the period - -
- - -
Conversion to contributed surplus - -
1 - -
Dividends to equity holders of the Company - -
- - -
Distributions from non-controlling interests - -
- - -
Stock option grants - - - - 648
Balance at 31 December 2011 (Audited) 62,097 867,1021,368,713 - 2,041
Total comprehensive income for the period - -
- (222) -
Dividends to equity holders of the Company 10 - -
- - -
Distributions from non-controlling interests - -
- - -
Stock option grants - - - - 776
Balance at 30 June 2012 (Unaudited) 62,097 867,102 1,368,713 (222) 2,817
Total Total non-
Retained owners' controlling Total (in thousands of United States dollars) Notes earnings equity interests equity
Balance at 31 December 2010 (Audited) 214,711 2,513,324
29,761 2,543,085
Total comprehensive income for the period 120,134 120,134
4,096 124,230
Conversion to contributed surplus - (62)
- (62)
Dividends to equity holders of the Company (15,205) (15,205)
- (15,205)
Distributions from non-controlling interests - - (1,230) (1,230)
Stock option grants - 753 - 753Balance at 30 June 2011 (Unaudited) 319,640 2,618,944
32,627 2,651,571
Total comprehensive income for the period 154,761 154,761
5,786 160,547
Conversion to contributed surplus - 1
- 1
Dividends to equity holders of the Company (13,123) (13,123)
- (13,123)
Distributions from non-controlling interests - -
(940) (940)
Stock option grants - 648 - 648Balance at 31 December 2011 (Audited) 461,278 2,761,231
37,473 2,798,704
Total comprehensive income for the period 65,152 64,930
370 65,300
Dividends to equity holders of the Company 10 (53,721) (53,721)
- (53,721)
Distributions from non-controlling interests - - (3,298) (3,298)
Stock option grants - 776 - 776Balance at 30 June 2012 (Unaudited) 472,709 2,773,216
34,545 2,807,761
The notes on pages 38-48 form an integral part of this financial information
Consolidated Statement of Cash Flows
For the
year
For the six months ended
ended 31
Notes 30 June December
(Unaudited) (Unaudited) (Audited)(in thousands of United States dollars) 2012
2011 2011
Cash flows from operating activities
Net profit for the period 65,522 124,230 284,777
Adjustments for:
Taxation 31,335 54,031 117,924
Depreciation and amortisation 75,235 60,099 135,683
Finance items 7 3,610 3,312 7,241(Gain)/Loss on disposal of property, plant and equipment 6 (2,250)
- 179
Working capital adjustments (62,985) (64,730) (42,880)
Other non-cash items 1,397 10,961 (704)Cash generated from operations before interest and tax 111,864
187,903 502,220
Finance income 7 1,079 809 1,484
Finance expenses 7 (2,634) (2,578) (5,381)
Income tax paid 8 - - -Net cash generated by operating activities 110,309
186,134 498,323
Cash flows from investing activities
Purchase of property, plant and equipment (118,749) (117,071) (273,207)
Investments in other assets (15,083) (643) (8,645)
Other investing activities 2,739 1,606 320Net cash used in investing activities (131,093)
(116,108) (281,532)
(20,784)Cash flows from financing activities
Dividends paid 10 (53,721) (15,205) (28,328)Distributions to non-controlling interest holders (3,298)
- (2,170)
Finance lease instalments (3,748) - (2,184)Net cash used in financing activities (60,767)
(15,205) (32,682)
Net (decrease)/increase in cash and equivalents (81,551)
54,821 184,109
Net foreign exchange difference 1,064
(756) (967)
Cash and cash equivalents at 1 January 584,154
401,012 401,012
Cash and cash equivalents at period end 503,667
455,077 584,154
The notes on pages 38-48 form an integral part of this financial information.
Notes to the Consolidated Interim Financial Information
GENERAL INFORMATION
African Barrick Gold plc (the "Company") is a public limited company, which is listed on the London Stock Exchange and incorporated and domiciled in the UK. The Company's shares are also listed on the official list of the Dar Es Salaam Stock Exchange in Tanzania. It is registered in England and Wales with registered number 7123187. The address of its registered office is 6 St James's Place, London, SW1A 2NP, United Kingdom.
Barrick Gold Corporation ('BGC') currently owns 73.9% percent of the shares of the company and is the ultimate controlling party of the Group.
This condensed consolidated interim financial information for the six months ended 30 June 2012 were approved for issue by the Board of Directors of the company on 20 July 2012. The condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2011 were approved by the board of directors on 7 March 2012 and delivered to the Registrar of Companies. The report of the auditors' on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The condensed consolidated interim financial information has been reviewed, not audited.
The Group's primary business is the mining, processing and sale of gold. The Group has four operating mines located in Tanzania. The Group also has a portfolio of exploration projects located across Africa.
BASIS OF PREPARATION OF the condensed annual financial statements
The condensed consolidated interim financial information for the six months ended 30 June 2012 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2011, which have been prepared in accordance with IFRS's as adopted by the European Union.
The condensed consolidated interim financial information has been prepared under the historical cost basis, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
The financial information is presented in US dollars ($) and all monetary results are rounded to the nearest thousand ($'000) except when otherwise indicated.
Changes in the presentational format between the 2011 and 2010 annual reports have been reflected in this interim financial information, with 30 June 2011 comparative figures being restated accordingly. This includes the following presentational changes:
Corporate social responsibility expenses previously included in other charges have been separately disclosed on the face of the consolidated income statement.
The movement in the rehabilitation liability previously included in the investing cash flows of the cash flow statement has been reclassified. The movement and the corresponding increase in property, plant and equipment has been excluded from the cash flow statement due to the fact that it is a non-cash movement. The nature of the change is reclassification and does not affect the net cash used in investing activities.
The segment capital expenditure has been expanded in the current period and restated in the prior period to include expenditure on capitalised development as a separate category. (Note 5)
The impact of the seasonality on operations is not considered significant on the condensed consolidated interim financial information.
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing the consolidated interim financial information.
ACCOUNTING POLICIES
The accounting policies adopted are consistent with those used in the African Barrick Gold plc annual financial statements for the year ended 31 December 2011 except as described below.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
The following exchange rates to the US dollar have been applied:
Average
Average Average year
As at six months As at six months As at ended
30 ended 30 ended 31 31
June 30 June June 30 June December December
2012 2012 2011 2011 2011 2011South African Rand (US$:ZAR) 8.18 7.93 6.76 6.89 8.08
7.23
Tanzanian Shilling (US$:TZS) 1,569 1,572 1,580 1,500 1,582
1,558
Australian Dollars (US$:AUD) 0.98 0.97 0.93 0.97 0.98
0.97
UK Pound (US$:GBP) 0.64 0.63 0.62 0.62 0.64 0.62
There are no new standards, interpretations or amendments to standards issued and effective for the period which materially impacted on the Group.
ESTIMATES
The preparation of condensed consolidated interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing this condensed consolidated interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2011, with the exception of changes in estimates that are required in determining the provision for income taxes (see Note 3).
Segment Reporting
The Group has only one primary product produced in a single geographic
location, being gold produced in Tanzania. In addition the Group produces
copper and silver as a co-product. Reportable operating segments are based on
the internal reports provided to the Chief Operating Decision Maker ("CODM") to
evaluate segment performance, decide how to allocate resources and make other
operating decisions. After applying the aggregation criteria and quantitative
thresholds contained in IFRS 8, the Group's reportable operating segments were
determined to be: North Mara gold mine; Tulawaka gold mine; Bulyanhulu gold
mine; Buzwagi gold mine; and a separate Corporate and Exploration segment,
which primarily consist of costs related to corporate administration and
exploration and evaluation activities ("Other").
Segment results and assets include items directly attributable to the segment
as well as those that can be allocated on a reasonable basis. Segment assets
consist primarily of property, plant and equipment, inventories, other assets
and receivables. Capital expenditures comprise additions to property, plant and
equipment. Segment liabilities are not reported since they are not considered
by the CODM as material to segment performance. The Group has also included
segment cash costs.
Segment information for the reportable operating segments of the Group for the
six months ended 30 June 2012 and 30 June 2011, and year ended 31 December2011 is set out below. (Unaudited) For the six months ended 30 June 2012
(in thousands of United States dollars except references to
ounces) North Mara Tulawaka Bulyanhulu Buzwagi Other Total
Gold revenue 130,911 43,499 218,581 116,975 - 509,966
Co-product revenue 292 87 13,362 10,760 - 24,501
Total segment revenue 131,203 43,586 231,943 127,735 - 534,467
Segment cash operating cost (89,370) (27,537) (106,766) (92,836) (35,994) (352,503)
Other charges and corporate
social responsibility expenses (3,460) (717) 551 (2,220) (5,179) (11,025)
EBITDA² 38,373 15,332 125,728 32,679 (41,173) 170,939
Depreciation and amortisation (21,718) (11,113) (16,473) (19,615) (1,553) (70,472)
EBIT² 16,655 4,219 109,255 13,064 (42,726) 100,467Total segment finance income 1,079
Total segment finance expense (4,689)
Profit before taxation 96,857
Tax expense (31,335)
Net profit for the period 65,522
Capital expenditure:
Sustaining 21,178 4,700 15,059 21,832 4,364 67,133
Expansionary 4,557 1,861 1,168 - 3,053 10,639
Capitalised development 8,213 3,605 22,126 8,656 - 42,600Rehabilitation asset adjustment 1,253 (602) 1,886 1,997
- 4,534
Total capital expenditure 35,201 9,564 40,239 32,485 7,417 124,906
Cash costs:
Segment cash operating cost1 89,370 27,537 106,766 92,836 - 316,509
Deduct: Co-product revenue (292) (87) (13,362) (10,760) - (24,501)
Total cash costs 89,078 27,450 93,404 82,076 - 292,008
Sold ounces3 79,600 26,250 133,417 71,249 - 310,516
Cash cost per ounce sold2 1,119 1,046 700 1,152 - 940
Equity ounce adjustment4 (2)Attributable cash cost per ounce
sold2 938
(Unaudited) For the six months ended 30 June 2011(in thousands of United States dollars except references to
ounces) North Mara Tulawaka Bulyanhulu Buzwagi Other Total
Gold revenue 125,209 59,670 206,695 147,930 - 539,504
Co-product revenue 470 147 20,895 17,371 - 38,883
Total segment revenue 125,679 59,817 227,590 165,301 - 578,387
Segment cash operating cost (70,193) (28,190) (102,869) (80,033) (36,603) (317,888)
Other charges and corporate
social responsibility expenses (5,752) (3,424) (4,520) (5,465) 3,589 (15,572)
EBITDA² 49,734 28,203 120,201 79,803 (33,014) 244,927
Depreciation and amortisation (16,944) (6,533) (16,172) (21,833) (1,872) (63,354)
EBIT² 32,790 21,670 104,029 57,970 (34,886) 181,573Total segment finance income 809
Total segment finance expense (4,121)
Profit before taxation 178,261
Tax expense (54,031)
Net profit for the period 124,230
Capital expenditure:
Sustaining 24,593 4,055 12,657 14,548 1,575 57,428
Expansionary5 10,319 2,331 5,799 586 - 19,035
Capitalised development5 16,638 2,880 15,695 5,395 - 40,608Rehabilitation asset adjustment 593 13 618 371
- 1,595
Total capital expenditure 52,143 9,279 34,769 20,900 1,575 118,666
Cash costs:
Segment cash operating cost1 70,193 28,190 102,869 80,033 - 281,285
Deduct: Co-product revenue (470) (147) (20,895) (17,371) - (38,883)
Total cash costs 69,723 28,043 81,974 62,662 - 242,402
Sold ounces3 85,650 40,850 141,805 101,033 - 369,338
Cash cost per ounce sold2 814 686 578 620 - 656
Equity ounce adjustment4 (1)Attributable cash cost per ounce
sold2 655
(Audited) For the year ended 31 December 2011(in thousands of United States dollars except references to
ounces) North Mara Tulawaka Bulyanhulu Buzwagi Other Total
Gold revenue 272,026 131,435 429,528 317,036 - 1,150,025
Co-product revenue 917 316 35,509 31,148 - 67,890
Total segment revenue 272,943 131,751 465,037 348,184 - 1,217,915
Segment cash operating cost (139,204) (60,952) (200,072) (169,737) (80,844) (650,809)
Other charges and corporate
social responsibility expenses (5,112) (2,826) (8,461) (12,334) 5,718 (23,015)
EBITDA² 128,627 67,973 256,504 166,113 (75,126) 544,091
Depreciation and amortisation (34,724) (17,251) (32,320) (46,029) (3,825) (134,149)
EBIT² 93,903 50,722 224,184 120,084 (78,951) 409,942Total segment finance income
1,484
Total segment finance expense
(8,725)
Profit before taxation 402,701
Tax expense (117,924)
Net profit for the period 284,777
Capital expenditure:
Sustaining 30,567 3,101 42,749 56,992 11,802 145,211
Expansionary 47,381 8,346 6,626 920 - 63,273
Capitalised development 26,407 9,252 32,748 15,583 - 83,990Rehabilitation asset adjustment 18,791 10,953 13,309 9,708
- 52,761
Total capital expenditure 123,146 31,652 95,432 83,203 11,802 345,235
Cash costs:
Segment cash operating cost 139,204 60,952 200,072 169,737 - 569,965
Deduct: Co-product revenue (917) (316) (35,509) (31,148) - (67,890)
Total cash costs 138,287 60,636 164,563 138,589 - 502,075
Sold ounces³ 170,625 83,450 269,981 200,518 - 724,574
Cash cost per ounce sold² 810 727 610 691 - 693
Equity ounce adjustmentâ' (1)
Attributable cash cost per
ounce sold² 692
1 The Chief Operating Decision Maker reviews cash operating costs for the
four operating mine sites separately from corporate administration costs and
exploration costs. Consequently, the Group has reported these costs in this
manner.
2 These are non-IFRS financial performance measures with no standard meaning under IFRS. Refer to "Non-IFRS measures" on page 29 for definitions.
3 Reflects 100% of ounces sold. 4 Reflects the adjustment for non-controlling interests at Tulawaka.
5 The prior year segment capital expenditure has been restated to separately reflect capitalised development.
As at
As at 31
30 June December
(Unaudited) (Unaudited) (Audited)
(in thousands of United States
dollars) 2012 2011 2011
Segment assets
North Mara 745,484 643,851 727,552
Tulawaka 104,957 111,589 131,193
Bulyanhulu 1,138,681 1,112,766 1,128,992
Buzwagi 870,029 774,388 830,790
Other 435,431 407,381 475,935
Total segment assets 3,294,582 3,049,975 3,294,462
OTHER CHARGES
For the
year
For the six months ended
ended 31
30 June December
(Unaudited) (Unaudited) (Audited)(in thousands of United States dollars) 2012 2011
2011
Other expensesLoss on disposal of property, plant and equipment - -
179
Severance payments - 874 1,646Foreign exchange losses (net) - 12,509
6,001
Unrealised non-hedge derivative losses 2,956 -
-
Construction and consumable inventory write-down 1,667 -
4,684
Bad debt expense 527 - 1,098
Disallowed indirect taxes 358 3,195 7,123
Asset write-downs - - 1,252
Legal fees 789 - -
Other 2,573 (185) 1,696
Total 8,870 16,393 23,679
Other incomeGain on disposal of property, plant and equipment (2,250) -
-
Unrealised non-hedge derivative gains - (2,193)
(7,901)
Foreign exchange gains (net) (2,345) - -
Other - - (139)
Total (4,595) (2,193) (8,040)
Total other charges 4,275 14,200 15,639
1 Corporate social responsibility expenses previously included in other charges have been disclosed separately on the face of the consolidated income statement.
FINANCE INCOME AND FINANCE EXPENSE
Finance income
For the six months
ended For the year ended
30 June 31 December
(Unaudited) (Unaudited) (Audited)(in thousands of United States dollars) 2012 2011 2011
Interest on time deposits 618 571 1,030
Other 461 238 454
Total 1,079 809 1,484
Finance expense
For the six months
ended For the year ended
30 June 31 December
(Unaudited) (Unaudited) (Audited)(in thousands of United States dollars) 2,012 2,011 2,011
Unwinding of discount 2,055 1,543 3,344
Interest on bank overdraft 7 204 199Revolving credit facility charges² 1,499 2,374
4,570
Interest on finance lease liability 459 -
247
Other 669 - 365
Total³ 4,689 4,121 8,725
1 The unwinding of discount is calculated on the environmental rehabilitation provision.
2 Included in credit facility charges are the amortisation of the fees related to the revolving credit facility as well as the monthly interest and facility fees.
3 For cash flow purposes unwinding of discount is excluded from the finance
expense movement.
TAX EXPENSE
For the
year
For the six months ended
ended 31
30 June December
(Unaudited) (Unaudited) (Audited)(in thousands of United States dollars) 2012 2011
2011
Current tax:Current tax on profits for the period 737 249
10,162
Adjustments in respect of prior years - -
28,663
Total current tax 737 249 38,825
Deferred tax:Origination and reversal of temporary differences 30,598 53,782
79,099
Total deferred tax 30,598 53,782 79,099
Income tax expense 31,335 54,031 117,924
1 During 2011, a binding Memorandum of Settlement with the Tanzanian Revenue
Authority (TRA) was executed to address the treatment of certain outstanding
indirect tax refunds in respect of fuel levies and value added taxation. The
terms of the Memorandum of Settlement allow the Group to offset income tax
payable against outstanding refunds for VAT and fuel levies. As a result of
these changes, PML, which is the taxpaying entity holding Tulawaka and Buzwagi,
has agreed to treat both mines as separate tax entities and in the absence of
the capital expenditure deduction in Buzwagi, the Tulawaka mine has prior year
taxable profits which can be immediately paid by offsetting against the
indirect tax receivable balance owing to the Group.The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the profits of the consolidated entities as follows:
For the
year
For the six months ended
ended 31
30 June December
(Unaudited) (Unaudited) (Audited)(in thousands of United States dollars) 2012 2011
2011
Profit before taxation 96,857 178,261 402,701Tax on profit on ordinary activities at the
Tanzanian tax rate of 30% 29,057 53,478 114,199
Tax effects of:
Non-taxable income - - (1,219)Tax losses for which no deferred income tax asset
was recognised 3,357 4,157 7,302
Prior year adjustments - - (2,391)Effect of tax rates in foreign jurisdictions (1,079) (3,604)
33
Tax charge 31,335 54,031 117,924The tax rate in Tanzania is 30% (2011: 30%) and in South Africa 28% (2011:
28%). The effective forecast tax rate for the period of 32% (six months ended 30 June 2011: 30%; year ended 31 December 2011: 28%) is in line with the
applicable standard tax rate of corporation tax in Tanzania (30%).
Tax periods remain open to review by the Tanzanian Revenue Authority ("TRA") in
respect of income taxes for five years following the date of the filing of the
corporate tax return, during which time the authorities have the right to raise
additional tax assessments including penalties and interest. Under certain
circumstances the reviews may cover longer periods. Because a number of tax
periods remain open to review by tax authorities, there is a risk that
transactions that have not been challenged in the past by the authorities may
be challenged by them in the future, and this may result in the raising of
additional tax assessments plus penalties and interest.
Earnings per share
Basic earnings per share ("EPS") is calculated by dividing the net profit for
the period attributable to owners of the Company by the weighted average number
of Ordinary Shares in issue during the period.
Diluted earnings per share is calculated by adjusting the weighted average
number of Ordinary Shares outstanding to assume conversion of all dilutive
potential Ordinary Shares. The Company has dilutive potential Ordinary Shares
in the form of stock options. The weighted average number of shares is adjusted
for the number of shares granted assuming the exercise of stock options.
At 30 June 2012, 30 June 2011 and 31 December 2011, earnings per share have
been calculated as follows:
For the six months For the
ended year ended
30 June 31 December
(Unaudited) (Unaudited) (Audited)(in thousands of United States dollars) 2012
2011 2011
EarningsProfit from continuing operations attributable to owners of
the parent 65,152 120,134 274,895
Weighted average number of Ordinary Shares in issue 410,085,499
410,085,499 410,085,499
Adjusted for dilutive effect of:
- Stock options - 13,384 10,606Weighted average number of Ordinary Shares for diluted
earnings per share 410,085,499 410,098,883 410,096,105
Earnings per shareBasic earnings per share from continuing operations (cents) 15.9
29.3 67.0
Dilutive earnings per share from continuing operations (cents) 15.9
29.3 67.0
DIVIDENDS
The final dividend declared in respect of the year ended 31 December 2011 of
US$53.7 million (US13.1 cents per share) was paid during 2012 and recognised in
the financial statements.
Property plant and equipment
(Unaudited) (in thousands of United Plant and Mineral properties and Assets under States dollars) equipment mine development costs construction Total
For the six months ended 30
June 2012
At 1 January 2012, net of
accumulated depreciation 894,869 765,519 162,859 1,823,247
Additions - - 124,906 124,906
Disposals/write-downs (1,394) - - (1,394)
Depreciation (54,148) (21,087) - (75,235)
Transfers between categories 50,509 51,475 (101,984) -
At 30 June 2012 889,836 795,907 185,781 1,871,524
At 1 January 2012
Cost 1,316,602 1,117,311 162,859 2,596,772
Accumulated depreciation (421,733) (351,792) - (773,525)
Net carrying amount 894,869 765,519 162,859 1,823,247
At 30 June 2012
Cost 1,361,372 1,168,786 185,781 2,715,939
Accumulated depreciation (471,536) (372,879) - (844,415)
Net carrying amount 889,836 795,907 185,781 1,871,524For the six months ended 30
June 2011
At 1 January 2011, net of
accumulated depreciation 796,999 693,834 124,285 1,615,118
Additions - - 118,666 118,666
Disposals/write-downs (204) - - (204)
Depreciation (22,632) (37,467) - (60,099)
Transfers between categories 25,507 48,860 (74,367) -
At 30 June 2011 799,670 705,227 168,584 1,673,481
At 1 January 2011
Cost 1,125,072 1,005,279 124,285 2,254,636
Accumulated depreciation (328,073) (311,445) - (639,518)
Net carrying amount 796,999 693,834 124,285 1,615,118
At 30 June 2011
Cost 1,148,965 1,054,139 168,584 2,371,688
Accumulated depreciation (349,295) (348,912) - (698,207)
Net carrying amount 799,670 705,227 168,584 1,673,481
(Audited)
(in thousands of United Plant and Mineral properties and Assets under
States dollars) equipment mine development costs construction Total
For the year ended 31
December 2011
At 1 January 2011, net of
accumulated depreciation 796,999 693,834 124,285 1,615,118
Additions - - 345,235 345,235
Disposals/write-downs (1,423) - - (1,423)
Depreciation (95,336) (40,347) - (135,683)
Transfers between categories 194,629 112,032 (306,661) -
At 31 December 2011 894,869 765,519 162,859 1,823,247
At 1 January 2011
Cost 1,125,072 1,005,279 124,285 2,254,636
Accumulated depreciation (328,073) (311,445) - (639,518)
Net carrying amount 796,999 693,834 124,285 1,615,118
At 31 December 2011
Cost 1,316,602 1,117,311 162,859 2,596,772
Accumulated depreciation (421,733) (351,792) - (773,525)
Net carrying amount 894,869 765,519 162,859 1,823,247
1 Assets under construction represents (a) sustaining capital expenditures
incurred constructing tangible fixed assets related to operating mines and
advance deposits made towards the purchase of tangible fixed assets; and (b)
expansionary expenditure allocated to a project on a business combination or
asset acquisition, and the subsequent costs incurred to develop the mine. Once
these assets are ready for their intended use, the balance is transferred to
plant and equipment, and/ or mineral properties and mine development costs.Leases
Property, plant and equipment includes assets relating to the design and construction costs of power transmission lines and related infrastructure. At completion, ownership was transferred to Tanesco in exchange for amortised repayment in the form of reduced electricity supply charges. No future lease payment obligations are payable under these finance leases.
Property, plant and equipment also includes emergency back-up and spinning power generators leased at Buzwagi mine under a three year lease agreement, with an option to purchase the equipment at the end of the lease term. The lease has been classified as a finance lease.
Property, plant and equipment further includes drill rigs leased at Buzwagi mine under a one year rent to own lease agreement. The lease has been classified as a finance lease.
The following amounts were included in property, plant and equipment where the Group is a lessee under a finance lease:
For the six months ended For the year ended
30 June 31 December
(Unaudited) (Unaudited) (Audited)(in thousands of United States dollars) 2012 2011
2011
Cost - capitalised finance leases 69,812 48,661
67,223
Accumulated depreciation (10,865) (6,236) (7,582)
Net carrying amount 58,947 42,425 59,641
Commitments and Contingencies
The Group is subject to various laws and regulations which, if not observed,
could give rise to penalties. As at 30 June 2012, the Group has the following
commitments and/or contingencies:
a) Legal contingencies
As at 30 June 2012, the Group was a defendant in approximately 201 lawsuits.
The plaintiffs are claiming damages and interest thereon for the loss caused by
the Group due to one or more of the following: unlawful eviction, termination
of services, wrongful termination of contracts of service, non-payment for
services, defamation, negligence by act or omission in failing to provide a
safe working environment, unpaid overtime and public holidays compensation.
The total amounts claimed from lawsuits in which specific monetary damages are
sought amounted to US$31.5 million. The Group's Legal Counsel is defending the
Group's current position, and the outcome of the lawsuits cannot presently be
determined. However, in the opinion of the Directors and Group's Legal Counsel,
no material liabilities are expected to materialise from these lawsuits.
Consequently no provision has been set aside against the claims in the books of
account.
A claim by the TRA in respect of a tax assessment of US$21.3 million for the
acquisition of Tusker was heard during the current year and ruled in the favour
of ABG.
Also included in the total amounts claimed of US$31.5 million is a claim of
US$2.8 million against North Mara Gold Mine being compensation for uncaused
improvements, disturbance and accommodation allowance, rich gold land current
value, interest and costs. Management are of the opinion that the defence is
likely to succeed.
b) Tax-related contingencies
i. On 26 October 2009, the TRA issued a demand notice against the Group for
an amount relating to withholding tax on technical services provided to
Bulyanhulu Gold Mine Ltd. The claim amounts to US$5.4 million. Management is of
the opinion that the Group complied with all of the withholding tax
requirements, and that there will be no amount payable. Therefore no provision
has been raised.
ii. The TRA has issued a number of tax assessments to the Group relating to
past taxation years from 2002 onwards. The Group believes that these
assessments are incorrect and has filed objections to each of them. The Group
is attempting to resolve these matters by means of discussions with the TRA.
Management is of the opinion that this will not result in any material
liabilities to the Group.
RELATED PARTY BALANCES AND TRANSACTIONS
The Group has related party relationships with entities owned or controlled by Barrick Gold Corporation, which is the ultimate controlling party of the Group.
The Company and its subsidiaries, in the ordinary course of business, enter into various sales, purchase and service transactions with others in the Group. These transactions are under terms that are on normal commercial terms and conditions. These transactions are not considered to be significant.
At 30 June 2012 the Group had no loans of a funding nature due to or from related parties (30 June 2011: zero; 31 December 2011: zero).
subsequent events
The Board of the Company has approved an interim dividend of US4.0 cents per
share for this financial year to be paid on 24 September 2012 to shareholders
on the register on 31 August 2012.
On 23 July 2012, ABG entered into an agreement with Aviva Corporation Limited
("Aviva", ASX:AVA) to acquire all of the outstanding share capital of Aviva
Mining (Kenya) Limited ("AMKL"), the assets of which include interests in a
number of Licences in West Kenya, for initial cash consideration of
A$20 million. The acquisition is subject to the approval of Aviva's
shareholders, which is expected to be sought at a general meeting in lateAugust
or early September; and the consent of the Kenyan Competition Authority, with
completion expected shortly thereafter.
