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AngloGold Ashanti Ltd. (NYSE:AU)
Q3 2020 Earnings Call
Nov 4, 2020, 7:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. And welcome to the AngloGold Ashanti Q3 2020 Market Update Conference Call. [Operator Instructions] I would now like to turn the conference over to Stewart Bailey. Please go ahead, sir.

Stewart Bailey -- Executive Vice President-Corporate Affairs & Sustainability

Thank you, Danae. Thanks everybody for joining us for our Q3 Market Update. Before we start, I will ask you please to look at the Safe Harbor statements and -- which is at the front of the presentation. It contains important information, particularly regarding forward-looking statements. I urge you to reference it carefully. And we have a full-fledged team today. And Christine will be talking through high-level view of our performance and strategy. Ian Kramer, our Interim CFO, will be talking to the financial performance. Sicelo Ntuli, our Chief Operating Officer for the Africa region, will be talking to those operations. Ludwig Eybers doing the same for the international operations, before Graham gets us the detailed walk through the Obuasi project performance, and Christine will wrap up.

Without further ado, I'm going to hand over to Christine.

Christine Ramon -- Interim Chief Executive Officer

Thanks, Stewart and good day everyone. Let me start by reiterating AngloGold Ashanti strategic objectives. This remains precisely and responsively deliver the quality production aimed at marketing margins, extending mine life and improving the overall quality of our portfolio, while focusing on disciplined capital allocation. Back in 2014, we committed ourselves to the long-term goal of creating a tough sustaining company, which would offer real exposure to growth and improving returns over time, while not asking shareholders to recapitalize the business every few years.

I'm pleased to say that not only have we consistently delivered on that objective, but to maintain focus the way we do business. COVID-19 does not change that. We've been fortunate enough to navigate the pandemic through a combination of proactive initiatives, quick adaptation when necessary and of course, be supportive gold front. We took none of this for granted. We are mindful that there are men who are struggling, and we continue to remain supportive to our host communities and others to ensure we all come out of this all as fast as possible. We're committed to maintaining our discipline, a trait which has stood us in good place through much leaner time centers. We'll also continue to strengthen our balance sheet capturing wider margins, growing ore reserves and ramping up Obuasi to full production. And the bridge that runs through all of this work is our effort to maintain and strengthen our markets to operate through effective ESG practices.

On the safety front, we tragically recorded one fatality during the third quarter, which we spoke at our H1 results. That took place at Obuasi in July where a security guy passed away after being struck by a private vehicle at the entrance to an employee's housing estate. This is another hard reminder of the essential work and attention required to achieve zero harm at all of our workplaces. We have a firm foundation on which to build those improvements with an all injury frequency rate, which improved by 31% year-on-year to 2.23 injuries per million hours worked, an all-time low for AngloGold Ashanti. We continue to proactively manage the COVID-19 impact across our operations.

Moving on to Slide 6. As we discussed with our Q2 results in August, production and capital remain heavily back in [Indecipherable]. This is especially true for capex this year. Production this year has been resilient, particularly in light of potential disruption from COVID-19. For the first nine months, we produced 2.3 million ounces setting up 75% of the way to the midpoint of full-year guidance. Our Q3 production of 837,000 was 11% higher quarter-on-quarter underpinned by strong performances at most parts. Sunrise Dam and AGA Mineracao were the standouts. Obuasi was another star continuing its ramp-up with the 52% quarter-on-quarter increase in production. COVID-19 cut only around 18,000 ounces of production with most of it again coming from South Africa.

The cost performance was strong. All-in sustaining costs rose 1% year-on-year to $1,044 per ounce. Once you strip out $51 an ounce impact related to COVID-19, the underlying number would have come in below $1,000 an ounce. We generated strong improvement in cash flow on every metric. Free cash flow performance [Indecipherable] year-on-year to $339 million. That's all the more impressive we would consider. It doesn't account for a considerable chunk of cash, which remained in the DRC awaiting repatriation. Ian will talk to that in a little more detail in a moment.

Net debt almost half year-on-year to $875 million. That's the lowest in almost a decade. This was due mainly due to strong cash generation and was helped along by the $200 million initial proceeds from the sale of our producing assets in South Africa. With the falling debt and rapidly increasing cash flow, you can really see our leverage improve. Net debt to EBITDA came in at 0.36 times, which is the lowest level since 2011. Our all-in sustaining cost margin has grown to a healthy 45% during the quarter, helped by our focus on cost control and of course, the strong gold price. The average spot price for Q3 was $1,911 an ounce. Looking at the first nine months of the year, that margin has widened to 45%, up from 25% in the same period last year. This 20 percentage point increase in margin over that period has translated into an almost tenfold increase in free cash flow generation, again demonstrating our strong leverage to the gold price.

Moving onto capital allocation. We have a clearly defined capital allocation framework, which requires actually improved returns to shareholders, while balancing our competing capital priorities and invest in upgrading our capital projects and improving the balance sheet where possible. I'm pleased to announce an increase in our dividend payout ratio from 10% to 20% of free cash flow generated before growth capital. As the slide shows, this shift nicely rebalances our capital allocation and improves the direct reward to shareholders. Based on the last 12 months performance, this formula implies a comprehensive dividend yield of around 1.9% on our current share price.

We remain focused on improving the policy of our production over the long term. We've traded out relatively higher costs, shorter life ounces in South Africa, including Mali, while simultaneously ramping up lower cost and very long life production at Obuasi. While we [Indecipherable] are marching Obuasi safely toward commercial production, we're making excellent headway in increasing development in Brownfields exploration, both aimed at improving operating flexibility and increasing reserves. Balance sheet strength remains essential plank in our approach, supporting feasibility studies at Gramalote JV and Quebradona and greenfields closed to realizing value from two top-tier projects in Colombia.

With that, I'll hand over to Ian Kramer to cover the financial performance over the quarter.

Ian Kramer -- Interim Chief Financial Officer

Thanks, Christine, and good day everybody. We have delivered a solid operational and financial performance for the third quarter of the year. We saw the last quarter the retail South African operating assets contribute to the group performance before the sale thereof to Harmony Gold. The sale was concluded at the end of the quarter taking -- with Harmony Gold taking control of these assets from October 1. Despite the accounting treatment of South African assets of discontinued operations, I will discuss the performance of the group as a whole to make comparisons against last year's performance easier.

Production for the quarter increased by 1% to 837,000 ounces compared to the same quarter last year. The solid production result was underpinned by strong performances at most sites with standout performances at Sunrise Dam and AGA Mineracao. Obuasi Redevelopment Project continued its ramp-up, delivering a 52%

Quarter-on-quarter increase in pre-production ounces. These performances assisted to support the impact of reduced performances at Tropicana and Cerro Vanguardia. All-in sustaining costs rose by only 1% or $13 per ounce to $1,044 per ounce in the third quarter of 2020 as compared to the first quarter of 2019. This mainly reflected higher cash costs.

Adjusted earnings before interest, tax, depreciation and amortization or adjusted EBITDA increased by 72% to $803 million from $468 million in the third quarter of 2019.

Cash flow was robust demonstrating significant support from the rising gold price. Free cash flow generated was $339 million in the third quarter of 2020. This was a near fourfold increase from $86 million generated in the comparable quarter of last year, as a result of the 30% higher gold price received, lower costs from continuing operations, lower capital expenditure, which was partially offset by higher tax paid. This is the highest free cash flow generation for the group since the third quarter of 2011. Free cash flow before growth capital, the metric on which dividends are calculated, increased by 104% to $361 million during the quarter compared to $177 million in the third quarter of 2019. It should be noted that the $200 million proceeds received on the SA asset sales are excluded from free cash flow. As mentioned by Christine, free cash flow does not include the cash flows from Kibali, which remain in joint venture bank account in the DRC. Cash receipts from Kibali for the third quarter totaled $38 million, taking total cash receipts received for the year-to-date to $92 million.

The company's attributable share of the outstanding cash balance that has not yet been repatriated from the DRC grew by $66 million in the third quarter to $359 million. Barrick, the operator of the Kibali joint venture, continues to engage with the DRC government regarding remittance of the cash balance. Cash flows were further impacted by VAT receivables that continue to be locked up at Geita and Kibali as well as by an

Increase in lock-up of recoverable export duties at Cerro Vanguardia. The 2020 Finance Act became effective on 1 July, 2020

In Tanzania, amending the 2014 Value Added Tax Act without retrospective effect, thereby allowing for recovery of VAT refunds

For mineral exporters from July 2020 onwards. The administrative VAT verification proceed has not yet received at Geita. However, this is viewed by just the timing issue. In Argentina, legislation was adopted to decrease the export duty rate from 12% to 8%

Effective from the end of September 2020.

The total capital expenditure decreased by 31% year-on-year to $161 million in the third quarter of 2020 compared to $234 million in the third quarter of 2019. This decrease was largely due to the lower project spend at the Obuasi, due to the impact of the pandemic on delivery of supplies and restrictions on contractor movements as well as capitalized pre-production revenue offsetting a portion of the

Growth capital spend during the quarter. As a result, growth capital expenditure has declined to $22 million in the quarter, compared to $90 million in the third quarter of 2019. Total sustaining capital expenditure marginally declined by 3% to $139 million in the third quarter, compared to last year. Our strategy of improving operating flexibility through investments in ore reserve development and reserve conversion at site with high geological potential over the next two to three years remains firmly on track.

Moving to Slide 12, our total cash costs for the quarter increased marginally by 2% to $801 per ounce compared to $786 per ounce last year. Favorable exchange rate movements and improved grades were partly offset by inflationary pressures, reduced throughput volumes and higher royalty payments. Average recovered grade improved by 4% when compared to last year with the most significant improvements coming from Sunrise Dam, Iduapriem, Geita and Siguiri. Throughput volumes increased on average by 6% with the biggest impact from South African region and Iduapriem. Excluding South Africa, throughput volumes decreased by less than 2%. As mentioned before, a 1% increase in all-in sustaining costs for this quarter compared to last year is a result of higher cash costs.

COVID-19-related impact resulted in the all-in sustaining costs being approximately $51 per ounce higher for Q3 2020, due to $22 million COVID-19-related costs incurred and approximately 18,000 ounces from lost production at the South African operation.

Turning to the balance sheet. We remain committed to maintaining a flexible balance sheet with an adjusted net debt-to-adjusted EBITDA target ratio 1 times through the cycle. Adjusted net debt decreased to $875 million at the end of September 2020, a 39% decline from the end of the previous quarter and a 47% reduction compared to the same quarter last year. This is the lowest level of net debt since 2011 and 72% of its peak in 2014, at the time when the company was self-funding its share of the development cost of Kibali and Tropicana. The ratio of adjusted net debt to adjusted EBITDA at 30 September, 2020 was 0.36 times, compared with 1.86 times a year ago. Again, this is the lowest point for this ratio since 2011, reflecting disciplined reduction in debt and robust cash generation from the business. We managed to achieve the significant long-term balance sheet improvement through our disciplined capital allocation strategy without issuing equity during the whole period.

The balance sheet remains robust with strong liquidity comprising the $1.4 billion RCF, of which approximately $700 million was undrawn. The undrawn ZAR4 billion South African RCF and cash and cash equivalents of approximately $1 billion at 30 September, 2020, excluding any cash balances at Kibali and Sadiola. Our new 10-year $700 million bond offering at the end of the quarter was more than 6.5 times oversubscribed and priced at 3.75% per annum, the lowest achieved by the company for a bond offering. The net proceeds were directed to repay a portion of the outstanding borrowings under the $1.4 billion multicurrency RCF at the beginning of the fourth quarter. The new bond will reduce annual finance costs by $11 million balance when compared to the 2020 bond that was redeemed in April 2020. The initial proceeds of $200 million received from the sale of the South African producing assets were utilized to further reduce net debt.

On 19 October, 2020, we voluntarily canceled our ZAR2.5 billion RCF in South Africa, leaving us with ZAR1.5 billion of facility undrawn in South Africa. The undrawn $1 billion syndicated bridge loan facility originally entered into April 2020 to provide additional financial flexibility, amid the uncertainty of the COVID-19 pandemic was fully canceled in early October. Our credit ratings are unchanged. We have investment-grade ratings from Moody's and Fitch and the sub-investment-grade rating from S&P.

Turning to my last slide on the reinstated guidance. We expect a strong finish to the year, especially at Geita as well as the operation in Australia and Brazil. As we previously flagged during the year, COVID-19 has resulted in some capital expenditure deferrals across the portfolio. The most notable thereof is at Obuasi where we expect $17 million to $19 million of Phase 2 project capital being rolled over into 2021. We expect a significant step-up in sustaining capital expenditure in the fourth quarter of 2020 as we invest in waste stripping in Iduapriem and Tropicana and commence the planned development portion of the third underground mining area at the Geita Hill ore body. These investments will be made in parallel with the ongoing investments in ore reserve development and exploration.

For the year-end -- sorry, for the year-end reserves declaration, our ore reserve pricing will increase by $100 per ounce to $1,200 per ounce, reflecting the impact of increased gold price. On 21 September, 2020, the company reinstated its annual guidance given improved operating certainty amid the COVID-19 pandemic and

In anticipation of the conclusion of the sale of its South African assets, which occurred at the end of September. The group is expected to produce between 3.03 million ounces and 3.1 million ounces, including nine months of production from the South African producing assets. All-in sustaining cost is expected to be between $1,060 per ounce and a $1,120 per ounce, again including contributions from the South African assets up to the end of September.

Sustaining capital expenditure is forecast between $610 million and $650 million and non-sustaining growth capital expenditure between $218 million and $300 million resulting in total capital expenditure of between $809 million [Phonetic] and $950 million. We remind -- sorry, we remain mindful that the COVID-19 pandemic, its impact on communities and economy, any actions authorities may take in response to are largely unpredictable.

With that, I'll hand over to Sicelo.

Sicelo Ntuli -- Chief Operating Officer-Africa

Thanks, Ian. And greetings to everyone. I'm now on Slide number 16. Let's take a high level look at the Africa operations. Starting this time with South Africa. The region produced 96,000 ounces during the quarter at an all-in sustaining costs of $1,322 an ounce with production 15% down compared to the previous year, largely affected by the mobilization of personnel after the COVID-19 lockdown and cost impact as a result of the lower production. Despite the impact, the region generated $50 million in free cash flow during the quarter. The sale of the South Africa region was successfully completed on the 30th of September and marks the end of an era for AngloGold Ashanti in the region.

Now moving on to Continental Africa. The region produced 411,000 ounces at an all-in sustaining cost of $903 an ounce compared to 387,000 ounces at an all-in sustaining cost of $900 an ounce in Q3 of 2019. The region continued to perform exceptionally well assisted by operational excellence drive and efficiency improvements as is evident in the quarterly results. The region generated free cash flow of $218 million during the period, compared to $94 million during the same period of last year. We have delivered solid production, cost and cash flow performance for the first nine months of the year with the year outlook indicating continued performance in quarter four. We continue to see encouraging results from Siguiri with substantial improvement in recovery, while the Obuasi Redevelopment Project continues to ramp up, delivering a 52% increase quarter-on-quarter in production in Phase 1 commissioning completed at the end of September.

At Geita, the production performance was aligned to the same period in 2019. During Q3, Geita achieved an all-in sustaining cost of $832 an ounce, 6% lower than the same period in 2019. Post the approval of the mining permit for Geita Hill, mobilization has commenced and ground support for the new portal is under way. Kibali recorded another solid performance during the quarter, maintaining attributable production at 91,000 ounces coming in at an all-in sustaining cost of $765 an ounce.

Iduapriem had another strong quarter with on-target production with cost impacted by higher royalties and exploration costs as we drill to find better incremental opportunities compared to the same quarter in 2019. It is important to note that Iduapriem is entering an investment stage over the next three years in cutbacks and TSF. Accelerated waste stripping in Block 7 and 8 Cut 2 will continue using a split shelf design, which will result in accessing over 2 million tonnes of ore at a grade of 1.75 grams per tonne by the middle of 2021. All of these initiatives are expected to extend the life of mine to 2081. The Block 1 drilling has returned very positive results with an updated model also expected in the fourth quarter.

Now, looking at Siguiri in more detail on Slide number 17. We continue to progress the turnaround initiative despite some material supply challenges arising from COVID-19. We saw a 7% improvement in recovery quarter-on-quarter as a result of recovery improvement initiative. Encouragingly, the September recovery on average exceeded 82% with peaks of up to 86% realized. This was largely as a result of completing improvement in gravity, milling and classification circuits. The crushing plant has performed well through the rainy season and continues to meet the 50/50 blend design target, confirming that is the worst season modification and stockpile strategy, has mitigated the challenging experience in 2019. We reported in the first half about the presence of carbonaceous material with the associated effects on metallurgical recovery. We have completed the design and manufacture of CIL conversion for three additional tanks to improve the plant resilient to [Indecipherable].

Conventional [Indecipherable] are currently in progress and commissioning is planned for the end of the year. We are also happy to report that we have received the mining and the road construction permits from the government to access the Block 2 mining area. We are planning to declare a new reserve in Block 2 by the end of the year. We are also working to finalize the social partnership with the host community as part of our company beliefs. Block 2 will displace the marginal ore plant feed material with higher grade oxide feed.

Now turning to Geita on Slide 18. We continue our strong exploration forecast to increase ore reserve with significant increased underground resources and reserves from 2015 since entering underground mining for the first time. This strong forecast is continuing into the future, supported by significant progress of reserve contingent training. As reported, all key regulatory approvals have been obtained for Geita Hill underground. The opening up of Geita Hill underground mineral resource and ore reserves has commenced with total establishment. The sequence of mining in stack in Block 1 and Block 2 and proceed that long stride toward the eastern side of Block 5 and Block 6. Geita Hill opens up a new pit underground high-grade mining stock [Phonetic] for Geita mine. As can be seen from the picture, there is potential for a large reserve along strike and we will begin to declare a new reserve starting in 2021.

Now looking at open pit potential at Geita on Slide 18. As discussed briefly in the last quarter earnings results, we will be declaring a significant reserve in Nyamulilima district by the end of the year. This area replaces maintained open pit as it was depleted in the current quarter and to ensure that we continue to fill the mill at 5 million tonnes per annum fresh ore over the long term. Subject to government approval, we expect to be mining in Nyamulilima in the second half of 2021. This area gives Geita the opportunity to gain an open pit reserve. I look forward to updating you at our next quarterly results with reserve addition, which we're expecting to exceed current efficiency.

In conclusion, our focus, as we go into the final quarter of the year, is to maintain the strong performance of all of our assets. At Siguiri, the team continues to work on improving the recovery rate as it continues to move in the right direction. Our exploration projects continue to yield positive results and we will update the market with our Q4 results -- quarter results primarily in Geita and Siguiri.

Thank you. I'll now hand over to Ludwig.

Ludwig Eybers -- Chief Operating Officer-International

Thank you, Sicelo, and good day everyone. The international operations completed a solid third quarter with noticeable improvement across all key operating and financial metrics. I'm particularly pleased to report that our safety metrics are continuing to improve with our all-in frequency rate reducing by over 30% year-on-year.

Starting with Americas, the region produced 181,000 ounces of gold in the quarter, slightly above 179,000 ounces delivered in the same quarter last year with the corresponding all-in sustaining costs, which was markedly lower at $963 per ounce. This is $155 per ounce lower than the corresponding period last year. This reflects a strong operating performance from the Brazil assets, which delivered 32,000 ounces more than the previous quarter and 12,000 ounces more year-on-year. This is despite the continued increase in positive COVID-19 cases reported at our operations. This performance was largely due to AGA Mineracao achieving 103,000 ounces in the quarter showing that the mine has successfully adapted additional ground support requirements.

Starting in Brazil, Serra Grande's performance was steady at 31,000 ounces at an all-in sustaining cost of $912 per ounce, helped by a record [Phonetic] tranche of 150,000 tonnes in August. Moving to Argentina, Cerro Vanguardia delivered a consistent quarter-on-quarter production of 47,000 ounces during an extended national lockdown, which started in March. CVSA has advanced their 2020 drill program, which includes 25 kilometers of diamond drilling to test the expenses of known veins and explore new targets in the district. Shifting to Australia, the region produced the 149,000 ounces in the quarter, which was above the 146,000 ounces reported in the same quarter in 2019 and a significant 19,000 ounces higher than what was delivered in Q2 this year. The quarter-on-quarter improvement can be largely attributed to the new management team at Sunrise Dam, will increase production by 25% and lower total cash cost per ounce by 10%.

Gold production at Tropicana mine was 75,000 ounces, which reflects the planned 30% year-on-year drop in grades as we progress stockpiles and begin waste stripping in Havana Stage 1 cutback. The impact at treating stockpiles has increased the year-on-year all-in sustaining cost of $1,094 per ounce. Although this was partly mitigated for operating improvements, including higher mill throughput and bringing the new Boston Shaker underground mine into commercial production.

Moving to Slide 23. Staying with Tropicana, I'm pleased to report that the Boston Shaker underground mine was delivered on schedule and on budget. Production was successfully ramped up to 65,000 tonnes during the quarter and will reach steady state production by the second half of 2021. The new underground mine will contribute around about 100,000 ounces of gold production per year over the next seven years on a 100% basis. The decision was taken in June 2020 to progress Havana Stage 2 cutback, which will allow access to deeper Havana ore body from 2022. While a cutback is in progress, more feed will be sourced from Boston Shaker open pit and underground mine, supplemented by lower grade stockpile, which will result in near-term drop in grades.

Looking ahead, Tropicana will continue to deliver between 400,000 and 450,000 ounces of gold production at 100% in 2020 and 2021 and will increase to between 450,000 and 500,000 ounces from 2022 as the low-grade stockpile is displaced by a higher grade ore sourced from the Boston Shaker underground and Havana cutback.

Moving to Slide 24, it's exciting to report that Boston Shaker and Tropicana ore bodies are [Technical Issues] positioned to take full advantage of the potential for extensions in ore bodies. In addition, an underground drill drive is currently being developed from the Boston Shaker decline to create drill platforms to explore the Tropicana ore body. The first diamond drill rig has commenced drilling. And if successful, we expect to be in a position to access ore as early as second half of 2021. We will also continue to drilling down at Boston Shaker and complete the trade-off study between open pit and underground mining at Havana pit and Havana South. Tropicana's remaining open pit resource of around 3 million will be mined over the life of mine in addition to the underground resource, which is about 2.9 million ounces.

Moving to Slide 25 and returning to Sunrise Dam, the site team is focused to accelerate the development needed to create new drill platforms, which will allow us to identify additional ore bodies. The primary ore source in Sunrise Dam is a large bulk ore body, which can deliver maximum of around 2.5 million tonnes per annum at a grade of around 2.7 grams per tonne. The remaining mold capacity is currently full with 0.09 grams per tonne modules stockpiles, and the immediate goal is to displace this modules stockpile material with full grade ore from other ore sources. Typical ore sources include open pit Golden Delicious satellite deposit and approval has been given to begin first shipping this deposits. Golden Delicious is situated about 12 kilometers from Sunrise Dam plant and expected to deliver about 136,000 ounces of gold production over the next three years. The first gold is expected in Q2 2021. We are also currently assessing the feasibility of various other prospects of satellite deposits. In addition, early underground drilling results have been extremely encouraging, which has led to an increase in the ore body envelop. This includes the recently discovered Frankie ore body within the Western Ramps and extensions to the Vogue and the Carey Shear ore bodies.

Moving to Slide 26 and looking ahead, it's imperative that we continue to drive our operational excellence programs to get the most out of our assets. As I've noted before, this includes increasing investments in ore reserve development and exploration drilling to identify additional ore sources across our operations. By way of example, the exploration program at Cuiaba has delivered encouraging intercepts, particularly ore bodies parallel to the main ore body, and identified a new ore body called [Indecipherable] near the existing mine. We have accelerated exploration activities and mobilized additional surface drill rigs. The additional drilling at CDS has confirmed the potential to scale up the Rosalina open pit, expand the Cristina mine and has identified a new ore body called Pneu. At Serra Grande, we have seen encouraging intercepts near existing infrastructure, including the additional high-grade ore bodies at zero [Phonetic] and extensions to other ore bodies and continue to sit at the Palmeiras Sul elements. As I mentioned earlier, the drilling program at CVSA is also well under way and will increase to about 100 kilometers of drilling over the next three years. This has the potential to add 1 million ounces of gold and about 7 million ounces of silver resources.

We have a clear path to create value by optimizing our existing operations and continuing to develop new growth projects to add new low-cost ounces to the portfolio. In closing, the focus for 2020 remains unchanged: prioritizing spend on development and exploration to improve resource confidence and identify new ore sources; growing near-term reserves and creating flexibility; driving operational excellence to improve costs and efficiencies; and developing new low-cost projects that add to the portfolio.

With that, I'll hand over to Graham, who will talk to Obuasi.

Graham Ehm -- Executive Vice President-Group Planning and Technical

Thanks very much, Ludwig. Hello, everybody. And this time, greetings from Obuasi. I've tried to find a quiet location, but with a bit of luck, you'll hear a truck run by from time to time.

The outlook for Obuasi has not changed from what I reported previously. We remain on track. This year, we are operating Phase 1 at 2,000 tonnes per day, and for Phase 2, which provides capacity to 4,000 tonne a day, we are targeting commissioning in quarter one next year and ramp up to 4,000 tonnes a day in quarter two next year.

Now, despite the challenges, we have made good progress. The team has done an incredible job navigating the impacts of manufacturing and logistics delays and travel restrictions, and their commitment and dedication over this period has been quite inspiring.

I'll talk to Phase 1 operational readiness first. And here, we targeted the 2,000 tonne a day. And in parallel, we are building Phase 2. Mining rights were constrained by still labor shortages caused by international travel restrictions, especially from Australia, though the focus on in-country recruitment and training has helped bridge the gap. The mine plan has been revised to account for the COVID limitations of the past six months, and this plan achieved the required ramp-up in production in parallel with the construction schedule.

Good progress is being made in the second mine production area at Block 8-Lower. The mill is performing well and is achieving the planned efficiencies. And importantly, resource reconciliations continue to show a good trend. The drilling programs remain on track, and we have now grade-controlled or proven ore reserves out for two years and probable reserves out for 10.

Our Q3 gold production was just over 46,000 ounces and total gold production so far is 95,000 ounces. We are tracking operating costs carefully. And apart from volume-related variances, unit costs are tracking well to the feasibility study estimates.

Now, on Slide 29, and for the Phase 2 construction, the photographs in this slide tell the story. In the process plant, concrete, structural steel, mechanical equipment installation has largely been completed. Piping, electrics and instrumentation works are well advanced. A pre-commissioning has commenced on the mills in the regrind mill and in the gold room. Earthworks for the BIOX TSF and for the water dams is now well advanced. The KRS shaft and the materials handling system rebuild has progressed well. The rebuilt winder has now been certified by the regulator. Regarding the new ventilation shaft for GCVS ventilation shaft, construction of the fans and the substation is close to completion. However geotechnical issues have delayed the commencement of reaming of the shaft, which is expected to be completed in late quarter one next year.

From a cost perspective, the project remains on budget. As we move into 2021, there will be continuation of Phase 2, and that capital would be about $40 million in 2021. As I've mentioned previously, there is a third phase of Obuasi's redevelopment, and this involves the upgrade of the KMS [Phonetic] and the BSVS shafts and a new ventilation shaft and underground dewatering systems. The total capital for that is $95 million and is spread over three years, $73 million of which will be in 2021.

I think the last point that I would like to make is that we are landing the project into a good gold price. When we announced the project in 2018, the IRR was 23% at $1,240 an ounce with a payback of around 6.5 years. In the current environment and allowing for COVID-related issues that I've discussed, the IRR is 37% at $1,700 with a payback of around six years. And at $2,000 an ounce, the IRR ramps up to something like 46%.

With that, I'll hand back to Christine. Thank you.

Christine Ramon -- Interim Chief Executive Officer

Thanks Graham. And the team and I look forward to joining you at Obuasi soon. So just in conclusion, 2020 has presented us with a unique set of challenges. It has nevertheless been gratifying to see strong cohesion across the business with our global team working together seamlessly to ensure the business will end the year in a good shape, in fact, even better than 12 months ago.

We had a difficult start to the year from a safety perspective, and we will be looking to continue the strong recovery we've seen in the subsequent months. We're also in a good rhythm with respect to COVID-19 with our plants embracing the protocols designed to maintain business continuity and keep people safe. As we progress in Q4, we're well positioned to deliver on our operational priorities. Cash conversion, especially from DRC, will continue to be a priority for us even as we see the very strong cash flows coming from the remainder of our portfolio. [Indecipherable] the recovery of the historical VAT receivable in Tanzania remains a focus. As we outlined, our cash on hand, complemented by the strong cash flow generated across the business, will translate into enhanced returns to shareholders.

The operational and exploration team continues to [Indecipherable] our ore grade conversion initiatives where we've seen progressive returns from our investments. And at Obuasi, despite the hurdles during the year, we remain laser focused on completion of Phase 2 construction at the end of Q1 2021. Likewise, we aim to progress our Colombian projects within the first half of 2021 with the aim of adding new gold ounces to our portfolio. And we will not for a moment relax on discipline in managing costs and capital expense, ensuring we capitalize on the strong gold cost environment.

Our fundamentals are fast improving, and we have a suite of catalysts in the short, medium and long term. Our aims remain very clearly to build a solid predictable business that delivers value through the pipeline [Phonetic].

Thank you. And with that, we'll open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] The first question we have is from Shilan Modi from UBS.

Shilan Modi -- UBS -- Analyst

Afternoon, team. A couple of questions from my side. I think that you guys have done well for the -- during this year, during a difficult time. You've improve the cash position in the business. And I think that's partially what's driving the change to the dividend policy. Maybe give us some more color on the thought process you guys went through as a team and with the Board when changing the dividend policy. The reason I ask this question is because of the potential projects that you have on the cards coming next year and how does that play into your thinking. In case, the gold price have to pull back, you'd effectively be leveraging up while paying dividends -- higher dividends than otherwise. So that's where the question is coming from.

The second part of the -- a second question from me is, just what's your thinking and position on the cash lock-ups that we have currently? So there's the VAT lockup in Tanzania and then there's the -- there's a VAT lockup and a cash restriction or lockup in the DRC. Just provide some additional color on that. And then, if you can -- I mean, you mentioned that you are going to be increasing your exploration expenditure or converting more resources to reserves than getting more resources as well. Maybe just give us an idea of what you think the cost of that would be per year, so like in dollar million terms. Thanks.

Christine Ramon -- Interim Chief Executive Officer

Thanks for those questions, Shilan. And I'll ask Tim the last question. I'll deal with the first two questions. So I think that when we talk about our dividend policy, it certainly within our -- this is how we look at our capital allocation framework to ensure balance across the three pillars within that framework. I think firstly -- the first pillar is about reinvesting in our ore bodies to increase reserve confidence and self-funding our capital requirements, be it brownfield projects or greenfield projects through the cycle. Secondly, it is about our balance sheet and product [Indecipherable] which we've done. And that's actually positioned us at a very peak [Phonetic] level in -- over the 10-year period. And then, thirdly, it is about the dividend payout to shareholders, which [Indecipherable] 20% of free cash flow before growth capital. But I think that when we look at it in the discussion with the Board, we do plan prudently over the long term. Our reserves planning price is at $1,200 as we speak. And so, that is what's being captured in our play. We do have a revenue planning price assumption, which is just about $1,400 an ounce. And what we assume is -- clearly, we're happy with the [Indecipherable]. And clearly, with improved cash flow, we do see debt reducing further, and we will be self-funding our capital requirements. And we're quite comfortable that the dividend payout can be sustained through the cycle. So, I hope that gets you comfort regarding the dividend.

I think specifically regarding the cash lockup in the DRC, I think the amount has increased by $66 million in the quarter to $359 million, and that's [Indecipherable]. This would have been 60% of the free cash flow generated by the body since the changes in the mining code in late 2018. I think bear in mind that cash is available for Kibali's use and it does fit in the dollar account in the name of the JV. So, Barrick, who is our JV partner, who is also the operator, does continue to engage with the DRC government both regarding the 2018 mining code and the cash repatriation. And we do remain in close discussions with Barrick in that regard. We certainly had acknowledgment by the government that they need to allow for cash repatriation to encourage investment in the country. And Barrick released a brief statement that the CEO, Mark Bristow, has recently had a meeting with the President of the DRC in the country. But definitely, we are seeing very positive development, and we believe that it is a matter of time before we receive the cash.

I think specifically relating to the VAT in the DRC, it does not sit in our working capital on the balance sheet. But there also we've seen the reduction of [Indecipherable] corporate taxes and the [Indecipherable] agreement that was reached with the government in late 2018.

As regards to Tanzania, there is a historical VAT balance of $131 million, and that we are engaging with the tax authorities in regards to the recovery mechanism. And we've had similar recovery mechanism in Tanzania in the past. And so, we'll certainly keep you posted on that. I think specifically, there were changes in the finance act in Tanzania from July -- in July 2020. And hence, we're not expecting any further VAT lockup going forward because what the finance act allows for is after -- following an administrative policy that we've been able to automatically offset the VAT against corporate taxes.

Tim, I'll now hand over to you with regards to the things relating to reserve conversion.

Tim Thompson -- Global Senior Vice President, Growth and Exploration

Yes. And when you look at the spend that's related to reserve conversion, strictly on the spending for resource to reserve conversion, it ends up being about $60 million to $70 million, in that range. And when you look at the entire exploration investment portfolio from both brownfields and greenfields investments, that will be in the range of about $170 million.

Shilan Modi -- UBS -- Analyst

Thanks very much. So if you put them together, you're going to be looking at just under $250 million?

Christine Ramon -- Interim Chief Executive Officer

Yeah, sounds about right.

Operator

Thank you. The next question we have is from Liam Fitzpatrick from Deutsche Bank.

Liam Fitzpatrick -- Deutsche Bank -- Analyst

On the Colombian projects, a couple of questions on those. So it seems like we're getting closer to a decision there. Given the feasibility study results are expected in H1, when do you anticipate the projects could go forward for Board approval? And then, in terms of the development strategy, are you still planning to bring in an additional partner? And is the likely path that you'll developed both of these projects simultaneously?

And then on the capex side, I know we'll get detailed guidance early next year. But can you give us a rough kind of feel and range for sustaining capex next year compared to 2020? Thank you.

Christine Ramon -- Interim Chief Executive Officer

Okay. Thanks for the questions, Liam. I think specifically, I'll ask Ian to address the sustaining capex guidance on a dollar per ounce base for this year. I think specifically, on the Colombian project and certainly in terms of our sales strategy, so if [Indecipherable] we're projecting the completion of the feasibility study of these projects in the first half. We see Gramalote slightly ahead of Quebradona, just bearing in mind that there, we do have a partner, who is also now the operator, B2Gold. It's a 50-50 partnership. And certainly, the feasibility study is targeting completion by the end of March 2021. And so, also bear in mind that these projects are already permitted. And so, that can proceed quite soon after Board approval.

I think specifically relating to Quebradona, yes, we are targeting the feasibility to be completed by the middle of this next year, and in particular, also targeting to receiving the environmental permits in that time frame as well. As regards -- we are looking at building that project on our own. But I think as regards to financing or risk mitigation options, I think that we're still exploring. And I think in particular, in [Indecipherable] agreement or supplier-based financing and project financing, these are all part of what we are seeing [Phonetic] in the feasibility today. I think as I referred to, the affordability on our balance sheet, I think definitely we are able to self-fund our share in Gramalote as well as the Quebradona project. But we're certainly not closed to looking at other forms of financing as well.

And Ian, on the sustainability?

Ian Kramer -- Interim Chief Financial Officer

So, Liam, on the sustaining capital number, obviously this year, we flagged to the market, we're looking at a range somewhere between $200 and $250 per ounce with the additional $30 per ounce playing for the resources and reserve conversion. That process will continue. We think that it's a multiple-year investment in order to convert that. On top of that, you need to consider the new compliance requirements that's coming out, especially from Brazil on the tailing side, and we put that in the market update, the expectation of what that spend would be for us, in the region of between $70 million to $85 million. It's quite a from 2020's levels of around $25 million to $30 million. And it's a one-off step-up in order to ensure compliance to the legislation that was promulgated in Q3 in Brazil. And I think, in addition to that, just bear in mind that there's also the continuing the waste stripping drive that's carrying on at the Iduapriem and Tropicana, as well as the Obuasi [Phonetic] development. Obuasi will also start to play in on the sustaining capex numbers because it would be the first full year where we will see sustaining capex coming through, shifting from growth capital to sustaining capex. Hopefully, that gives you sense of what's happening on the sustaining capital side.

Christine Ramon -- Interim Chief Executive Officer

Thanks Ian. We will be in a position in February next year to give you more definition around -- we're aiming for longer than [Indecipherable] next year February, and we'll give you more flavor regarding both sustaining and growth capital.

Liam Fitzpatrick -- Deutsche Bank -- Analyst

Okay, great. Thank you.

Operator

Thank you, sir. Ma'am, we have one final question. Are you able to take it?

Ian Kramer -- Interim Chief Financial Officer

Yes.

Operator

Thank you. The last question we have is from Patrick Mann from Bank of America.

Patrick Mann -- Bank of America -- Analyst

Hi, good day, guys. Thank you for the call. I wanted to follow up just on Geita and the longer-term outlook. From what Sicelo was saying, it sounded like there's going to be a gap in open pit ore that's available until the new areas being stripped. Can you just kind of give us an idea of what it looks like? Is it only underground ore from now? And when will you be able to call them all again? And then the second question is, you've seen very, very good improvements at Sunrise Dam and Mineracao, as you guys pointed out. How sustainable are those from here? Thanks.

Christine Ramon -- Interim Chief Executive Officer

Thanks Patrick. Sicelo will handle Geita and Ludwig will talk to Sunrise Dam and Mineracao.

Sicelo Ntuli -- Chief Operating Officer-Africa

Thanks Patrick. I think the way to look at Geita is that the -- the ore sources for this year has been Nyankanga open pit, which depleted during the course of this quarter, Nyankanga underground ore plus the Star and Comet also. So those are the three predominant ore sources for now. And then, on a go forward basis, we've built a lot of stockpiles -- high-grade stockpiles from Nyankanga where we finished [Indecipherable] really at the bottom of the pit, hardly any waste mining. So we've built up stockpiles for about 12 to 14 months, and those are the stockpiles that we'll carry out into 2021. So going into next year, expect the stockpiles to be coming in. Then we have [Indecipherable] Nyankanga. And at the same time, we're opening up the two new mines of Geita Hill underground as well as the [Indecipherable] open pit. Production-wise, in terms of profile, this year certainly will be a record. I think this year will be if not the highest in the history of the mine, very strong production. Next year, we'll see a slight pullback as we sort of set up the mine. And then 2022, then we should be back in the 500 ounce, 600 ounce range of the production level.

Ludwig Eybers -- Chief Operating Officer-International

Patrick, it's Ludwig. Just to comment on your question around Sunrise Dam and the Brazil operations, the focus for the last year and continuing going forward is focusing on the ORD, and that should create the flexibility and also on the infill drilling to create that confidence in the ore body. And that's going to continue as we go into 2021. And what you've seen recently is actually the result of that extra flexibility that we've created in both these operations and also the confidence we have got -- we are gaining every month almost on the ore confidence. So going forward, you will see short-term fluctuations, maybe. But we will continue with this progress in drilling and the flexibility, and we're confident that we actually can maintain this -- what we've seen in the last quarter.

Patrick Mann -- Bank of America -- Analyst

Thank you, both. Thanks very much.

Christine Ramon -- Interim Chief Executive Officer

Thanks Patrick. All right. So, finally, I would like to thank you for joining our call today. And I'd also like to thank you for the support that you've given us during the past year. I think certainly it's quickly approaching, but I'd like to wish everybody a safe holiday season, and we look forward to engaging with you at our year-end results in February next year. Thank you, and goodbye.

Duration: 66 minutes

Call participants:

Stewart Bailey -- Executive Vice President-Corporate Affairs & Sustainability

Christine Ramon -- Interim Chief Executive Officer

Ian Kramer -- Interim Chief Financial Officer

Sicelo Ntuli -- Chief Operating Officer-Africa

Ludwig Eybers -- Chief Operating Officer-International

Graham Ehm -- Executive Vice President-Group Planning and Technical

Tim Thompson -- Global Senior Vice President, Growth and Exploration

Shilan Modi -- UBS -- Analyst

Liam Fitzpatrick -- Deutsche Bank -- Analyst

Patrick Mann -- Bank of America -- Analyst

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