JOHANNESBURG (Business Day) – South Africa’s biggest gold miner, AngloGold Ashanti [NYSE:AU], had reduced the market value of its hedge-book commitment to $2.78 billion in the September quarter from $3.17 billion at the end of June as a result of a lower gold price and the group’s broad hedge reduction strategy, it said yesterday.
AngloGold is one of the few global gold miners to sell future gold production to smooth price fluctuations, but this has counted against it in the past few years with gold rising sharply. At end-September its net delta hedge position was 9.5 million ounces of gold (10.14-million ounces). The group realised an average price of $584/oz for the quarter, or 6% below the average spot price.
AngloGold chief financial officer Srinivasan Venkatakrishnan said "We gave guidance to the market that we will be continuously delivering into the book and reducing our total ounces hedged - we have been doing that for the last three or four years, where we've reduced it from 18-million ounces to virtually half at 9.5-million ounces."
"We have said to the market that we will have a shortfall as compared to spot of somewhere between 5% to 10% each quarter, and we are well within that range which we gave to the market."
"We will continue to deliver and erode into the hedges in a value-enhancing manner, but again putting it in context that 9.5-million ounces is just one-and-a-half years of our total production, and as a percentage of reserves of over 63-million ounces you're looking at just under a sixth," Venkat said.
Total gold production from the group’s 21 mines was almost flat at 1.41 million ounces compared with the June quarter’s, a result CE Bobby Godsell said was “respectable”. Cash costs were 2% higher at $311/oz, about $5/oz above forecast, because of lower grades at most operations, higher power costs in SA and Ghana and the implementation of South Africa’s annual industry-wide wage increase.
Godsell said December-quarter production was expected to be about 1.48-million ounces at an average cost of $308/oz.
Revenue for the quarter rose to R5.8 billion (US$798 million) (from R4.9 billion ($663 million), making for a bottom-line profit of R1.5 billion ($202 million) (from a R989 million loss ($133 million). Headline earnings, before adjustment for derivatives, rose to 367 cents (334 cents) a share, boosted by income from sales of uranium to Nufcor Uranium. Results from African and international operations were mixed, management said.
In South Africa, production was steady, with good performance at Tau Tona. Last week a seismic fall of ground at Tau Tona killed five mineworkers. Godsell said management was dismayed, and the mine plan and safety procedures were being reviewed.
Management believed it was possible to eliminate fatalities and injuries caused by seismic activity, he said.
"We are still bullish, and we maintain the bullish view largely as a result of the seasonal factor of the gold price - the gold price always rallies between October and February each year. It tends to go to seasonal highs, and we expect the same to happen this year," Venkat said.
AngloGold spent $26 million on exploration. Greenfields exploration focused on Australia, Colombia and the Democratic Republic of Congo. With Classic Business Day.
