In accordance with provision C.2.2 of the UK Corporate Governance Code published in April 2016 (the Code), the directors have assessed the viability of the group and have selected a period of five years for this assessment. While the group maintains a full business model based predominantly on the life of mine plans for each of its significant business units, the group also operates a detailed rolling five year plan which is scrutinised by the board on a quarterly basis.
The output of this plan is used to perform the viability assessment on an annual basis. The assessment conducted considered the group’s operating profit, revenue, EBITDA, cash flows, capital investment requirements, dividend cover and other key financial assumptions over the five year period. These metrics were subject to downside stress and sensitivity analysis over the assessment period, taking account of the group’s current position, the group’s experience of managing adverse conditions in the past and the impact of a number of severe yet plausible scenarios, based on the principal risk and uncertainties set out on pages 218 to 222 of this annual report. While the review has considered all the principal risks identified by the group, the following were focused on for enhanced stress testing fluctuations: gold price, production profile, recovered grade, capital investment, exchange rate, oil price and other mining costs. The stress testing considered the principal risks assessed both individually and in combination.
The chairman’s statement on page 8, the chief executive’s review on page 12 and the financial review on page 22 of this annual report, along with the five year performance indicators on page 3 set out details of the group’s financial performance, operational performance, capital management, business environment and outlook.
The group’s business model has proven to be robust over the long term and the group has consistently demonstrated its ability to manage costs while retaining solid capital investment in future operations during challenging market conditions. During 2017 cash generated from operations was $547.8 million and for the past five years the cash generated from operations has never been less than $317.6 million per annum and has averaged about $449.6 million, peaking in 2017. Cash and cash equivalents at 31 December 2017 were $719.8 million and the group has access to an unsecured revolving credit facility of $400.0 million which matures in December 2022 and is at present undrawn.
During 2017 the cash cost per ounce was $620/oz and from 2013 the cash cost per ounce has never been more than $715/oz and has averaged $670/oz being at its lowest in 2017, while the average gold price received was $1 258/oz in 2017.
The group operates in volatile markets and derives all of its revenues from the production and sale of gold and therefore is subject to the risks associated with commodity price fluctuations. The group’s viability depends on the global economy and markets continuing to function. The group would remain viable in the event that the current gold price was sustained as it would be able to continue to operate based on its current business model which is predominately based on a gold price of $1 000/oz. However, long term significant devaluation of the gold price and long term cost inflation would cause a threat to the group.
In order to maintain viability, the group has a robust risk control framework which has the objectives of reducing the likelihood and impact of: poor judgement in decision making; risk-taking that exceeds the levels agreed by the board; human error; or control processes being deliberately circumvented.