POLITICAL ECONOMY

South Africa expected to reject Eskom tariff hike plan - AngloGold

CEO, Mark Cutifani said the decision was partly because of the impact such hikes would have on the gold sector where up to 1m people would likely suffer as a result

Posted: Thursday , 12 Nov 2009

LONDON (Reuters)  - 

The South African government is expected to reject a proposal by utility Eskom to triple tariffs partly because of the impact they would have on the gold sector, the chief of AngloGold Ashanti (ANGJ.J: Quote) said on Wednesday.

Chief Executive Mark Cutifani also told the RBC gold conference in London that an efficiency and restructuring drive was due to cut the AngloGold workforce in South Africa by 5,000 to 10,000 people over the next five years from 30,000, but forced layoffs would be avoided.

Up to 1 million people, including workers in the sector and dependents, would likely suffer if a proposal was implemented by Eskom to hike tariffs by 45% a year over the next three years, he said.

"As a consequence I do not believe the Eskom 45-45-45% proposal will fly," Cutifani said.

"Certainly the indications we've had from within government is that they understand the problem."

Power rates would likely double over three years instead of triple as under the Eskom proposals, he added, and the rand was strengthening, meaning it was all the more important to boost efficiency in South Africa by about 30% over three years.

He said a doubling of rates would lead to a 10% hike in cash costs for AngloGold (AU.N: Quote) -- the world's third biggest gold producer and Africa's largest.

Cutifani also said a drive to cut costs and boost output in Ghana and Tanzania was bearing fruit.

Cash costs at Obuasi in Ghana have already been shaved by $150 per ounce and $100 more is due to come off over the next six months, he said.

The mine produced 92,000 ounces during the three months to end September at cash costs of $671 per ounce.

"Within three years we would expect to be producing 500,000 ounces (a year) (at Obuasi) at equivalent $500 cash operating cost.".

AngloGold, which has 19 operations in 10 countries, acquired Obuasi when it bought Ghana's Ashanti Goldfields in 2004 for $1.44 billion.

The group lowered its full-year guidance on Nov. 2 to between 4.7 million and 4.8 million ounces from its original target of 4.9 million to 5 million. [ID:nL2266048]

(Reporting by Eric Onstad; Editing by David Cowell)

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