GOLD ANALYSIS

AngloGold's diversity pays off

AngloGold's South African gold mining operations' problems fail to dent enthusiasm as gold production in the rest of Africa and elsewhere overtakes that at the tip of the continent.

Author: Christy Filen
Posted: Thursday , 10 May 2012

JOHANNESBURG (Mineweb) - 

In the current gold reporting season, South African domiciled producers are showing signs of strain and AngloGold's local operations were no different but the diversity and shift in size of the miner's offshore portfolio has provided the lift to produce a good set of results.

Confirming the benefits of the company's scattered portfolio, CEO, Mark Cutifani had the following to say:

"Some would say that the portfolio is a little more complex than most, the answer is yes, our operations are a little bit smaller, but that gives us diversity. We're managing that diversity with these programmes that we've got in place and it's starting to turn out to be a real winner in terms of the market place. If you look at the red ink splashed all over the place as operations struggle, we're doing generally pretty well, our projects are looking good, they are relatively low cost and we're finding new resources".

The doing away of the miner's financial reports in rands to solely US dollars only served to further emphasise the global nature of the business when it presented its quarter one results in Johannesburg today.

Adjusted headline earnings* per share increased 46% to US$429m from the December quarter and was more than double that for the same period last year.

CFO, Srinivasan Venkatakrishnan, explained the quarter on quarter increase was primarily due to three items:

·         The previous quarter's results were reduced by a US$105m increase in environmental rehabilitation provisions;

·         The current quarter's weak seasonal performance and safety stoppages had a negative impact of US$61m; and

·         The deferred tax windfall in South Africa, as a result of the implementation of the dividends withholding tax, has seen the gold mining tax rate formula fall away and gave the current quarter's earnings a US$131m boost but this was partly offset by an increase in taxes in Ghana of US$41m.

Overall gross profit of US$717m for the group climbed 5% when compared to the previous quarter with South Africa's gross profit worst hit, declining 43% to US$182m which was also 13% below the March 2011 quarter.

The star on the continent was the miner's Geita operation in Tanzania that improved gross profits by 33% on relatively flat production quarter on quarter.

Remarkably, the increase in results was achieved on the back of a 12% drop in overall production, when compared to the previous quarter, with South Africa the worst hit with a 23% decrease or 92 000oz mainly as a result of safety stoppages and a slow post-festive season start-up. The miner reported 3 fatalities in South Africa and one in Argentina for the period under review.

Total cash costs for the group of US$794/oz came in under guidance given with the Americas region, comprising operations in Argentina, Brazil and the US, the best performer at US$534/oz. Venkatakrishnan attributed this to favourable exchange rates and timing differences on spending.

Cutifani was gushing on the company's exploration pipeline, highlighting a 48% increase at its La Colosa project in Colombia to 24moz and two new discoveries in Guinea that have the potential to double the size of Guinea's resource in the next five to seven years.

In Egypt the miner is chasing 3 to 5moz but is extremely excited regarding a new discovery in Djibouti near Ethiopia. Although early days yet, admitted Cutifani, the exploration efforts have hit a 1.7km strike length at a one to three metre width. Grades on average are approximately three to five grams per ton and consistent at surface said the CEO.

Last but not least, Cutifani highlighted a significant intercept at its copper-gold porphyry project in Colombia called Quebradona that is still open at depth. The drill result showed 580m@0.18g/t Au, 0.48% Cu and 175ppm Mo. This included 244m@0.25g/t Au, 0.68% Cu and 179ppm Mo.

A quarterly dividend of 100 South African cents was declared with Cutifani aiming to exceed the 400 South African cents for the coming year bearing in mind the large project spend planned. The guidance for the coming year, of between 4.3 to 4.4moz, remained unchanged.

In steps to achieve the stated target of 5.5moz production per year by 2014, the AngloGold board has approved US$1.9bn to expand operations at its US operation, Cripple Creek (US$557m) and construct two new projects in the Democratic Republic of the Congo, namely Kibali (US$982m) and Mongbwalu (US$345m).

With gold equities performing poorly over the last six months, today saw the AngloGold share price perform well, increasing 3.6% to trade at R272.00 well below its 52 week high of R390.00 achieved in December last year.

*Adjusted headline earnings refers to headline earnings adjusted for fair value changes of convertible bonds and gains or losses on unrealised non-hedge derivatives.

iPad Version: Picture - AngloGold Ashanti CEO Mark Cutifani: Desiree Swart/Moneyweb