JOHANNESBURG (Business Day) -- The 2% improvement in the gold price to $876/oz yesterday from Monday's lows was ascribed partly to news AngloGold Ashanti [NYSE:AU; JSE:ANG] would substantially reduce its large gold hedge book, but also to higher oil prices.
CEO Mark Cutifani, who has said since his appointment last year that he was not a fan of gold hedging, announced that the group would raise $1.6 billion by issuing 69.4 million ordinary shares at a minimum of R172 each.
The funds would be used partly to reduce the hedge book to 6.25 million ounces and partly to finance the group's development projects in South Africa, Australia and Ghana. The prospect of substantial gold buying buoyed the gold price.
Although rights issues are normally negative for companies' share prices in the short term because they dilute shareholders, AngloGold's shares had gained 2.7% by midday to R269 on the announcement, as well as on its report of a major gold find in Colombia and first-quarter production which beat forecasts.
John Meyer, an analyst at London-based investment house Fairfax, said in a note to clients that the announcement on the hedge book came as no surprise - it had weighed on AngloGold's profit as the gold price rose.
"Closing out the hedge book should help gold prices to recover recent lost ground. However, we are cautious on gold prices over the next two to three months," Meyer said.
AngloGold's total commitment to sell gold at prices set several years ago, which are now well below the spot price, stood at 10.03 million ounces at the end of March. In the March quarter, the group realised an average price for its gold sales 18% below the spot price.
The group announced it had defined a substantial inferred mineral resource of 12.9 million ounces at its La Colosa property. AngloGold's minimum target needed to set a Colombian mine up is a 2 million ounce deposit.
Executive vice-president for business development Richard Duffy said the project would move to prefeasibility study stage in the third quarter of this year. This was AngloGold's second major discovery in Colombia, after announcing earlier this year it had defined an inferred resource of 2.12 million ounces of gold at Gramalote.
In the March quarter, AngloGold produced 1.2 million ounces of gold, 9% above its forecast, at a cash cost of $430/oz - 8% better than expected.
Production in South Africa dropped 11% compared with the December quarter because of power shortages and the slow start-up after Christmas. However, improved production was reported by both Geita in Tanzania and Obuasi in Ghana. Gold output from North and South America dropped.
At a time when mining deaths have hit the headlines, AngloGold reported reduction of fatalities in South Africa had improved by 80% since the launch of its "safety is our first value" campaign in early November. Deaths in the March quarter as a proportion of total miners employed were the lowest yet recorded.
Cutifani said he believed it was possible to mine at great depths without injury, but the question was how quickly this goal could be reached.
He said South African operations were working at full capacity but on 96.5% of their previous power usage as a result of various energy-saving steps.
AngloGold expected to claw back a substantial portion of the output it had warned it could lose because of power loss. It should produce between 4.9 and 5.1 million ounces for the full year.