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AngloGold Ashanti, the world’s number three producer, swung into profit in the first quarter of this year on the back of a higher gold price, and said it would trim its hedge book even further.AngloGold’s earnings came bang in line with market consensus – it reported adjusted headline earnings of US$150 million, or US$0.42 a share, in the period to end-March compared with a loss of US$17 million, or US$0.05 a share, in the quarter to end-December.
The gold price in the March quarter averaged US$908/oz, up 14% on the December quarter, while the rand/dollar exchange rate average was flat, sending the rand gold price up by 14% to a record high of R290,000/kg.
South African gold producers sell their gold in dollars and received earnings in rand. “The improved earnings are due to higher spot gold prices, a lower hedge discount and weaker local operating currencies,” chief financial officer Srinivasan Venkatakrishnan said.
“We remain committed to reducing the hedge book further and achieving the narrowest possible discount to spot gold prices.” AngloGold shares rose as much as 2%, and traded 1.21% up at R314.03, beating a 0.4% rise in the gold share index.
Mark Cutifani, AngloGold’s chief executive, told a media conference call he expected the gold price to rise, and forecast it would trade between US$850/oz and US$1,000/oz this year, which could boost earnings further if costs were contained. “The price should rise beyond the US$1,000 level next year, driven mainly by investment funds,” he said.
AngloGold, which has one of the biggest forward sales among its peers, cut its hedge book commitments by 154,000oz during the March quarter, and promised even further reductions.
Forward sales have been used by mining companies to fix selling prices for nuggets not yet mined to protect profits, but AngloGold’s hedge book has been limiting the company from benefiting from the strong spot price of gold.
Mr Cutifani said the company – Africa’s largest gold producer, with around 21 operations across four continents – would slash its hedge book by up to 150,000 ounces in the current quarter. Mr Cutifani, who has said before that he is not a fan of the gold hedge, said he wanted to cut the hedge book to below 4Moz by end-2010 from 5.84Moz by the end of March. The company has so far cut its forward sales by almost 50% over the past year.
“Our strategy of reducing the hedge book by almost half over the past year is yielding real results, giving a good kicker to our received gold price,” he said. Mr Cutifani said second-quarter production would be 1.14Moz. First-quarter output fell 13% to 1.103Moz partly due to safety-related closures in South Africa and operational woes at its Geita Gold Mine in Tanzania, although these had now been rectified and output should rise, Mr Cutifani said.
Total cash costs for the group would rise by up to US$485/oz in the second quarter, after rising 5% to $445/oz in the first quarter. Mr Cutifani said AngloGold had formally received a go-ahead from the Colombian government, which awarded the firm exploration permits covering a portion of AngloGold’s vast La Colosa concession, which requires some US$200 million over the next three to four years for initial exploratory work.
- Publishing Date
- 15 May 2009 10:30am GMT
- Author
- Mining Journal