AngloGold cuts 2009 output view, to end hedgebook
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AngloGold cuts 2009 output view, to end hedgebook UPDATED 31 Jul 2009 | 08:45  
AngloGold cuts 2009 output view, to end hedgebook

By James Macharia

JOHANNESBURG (Reuters) - AngloGold Ashanti, the world's No. 3 and Africa's top gold producer, said on Friday it would miss its own production target for the year due to stoppages, and plans to wind up its hedge book by 2014.

AngloGold reported on Friday an 11 percent jump in earnings for the second quarter due to an uptick in output, beating market forecasts, and declared an interim dividend of 60 South African cents per share compared with 50 cents last year.

Shares in the company were down 1.56 percent, in line with the gold mining index, which was down 1.5 percent.

AngloGold's adjusted headline earnings rose to a record $167 million or 47 U.S. cents a share in the quarter to the end of June, versus $150 million or 42 U.S. cents in the first quarter.

An average forecast by five analysts had forecast AngloGold would report adjusted EPS of 37 U.S. cents, citing erosion of profits by a stronger rand.

AngloGold rivals Gold Fields, the No. 4 producer in the world, and Harmony Gold Mining Co., the fifth biggest, are expected to see a big drop in earnings for their quarters to June.

The group, which has around 20 operations in four continents, said output rose in the second quarter mainly thanks to successful efforts to revive its Obuasi mine in Ghana and its Tanzanian mine. The company also said costs fell in South America and the rest of Africa, outside of South Africa.

AngloGold said its received gold price rose 5 percent to $897 per ounce on the back of a firmer spot price.

"We saw a strong operating performance across most of the operations and a nice sweetener from our received gold price," Chief Executive Officer Mark Cutifani said in a statement.

Output in the second quarter rose to 1.127 million ounces at a total cash cost of $472/ounce, against 1.103 million ounces at $445/ounce in the prior quarter.

For the third quarter, AngloGold estimated production at 1.2 million ounces at a total cash cost of about $530 per ounce, assuming an average rand exchange rate of 8.10 rand per dollar.

Cutifani told a media teleconference he was optimistic on the gold price, and expected gold to trade between $900 and $950 for the rest of the year, and rise to $1,000 next year.


Safety stoppages, combined with mill repairs in the first quarter at Geita and lower-than-anticipated output from its Cripple Creek & Victor operation in the U.S., forced the group to lower its full-year guidance to 4.7-4.8 million ounces from its original target of 4.9-5 million ounces.

On a brighter note, the company said it had whittled its hedge book down by a further 1.4 million ounces, reducing its overall hedge commitment by the end of July to 4.47 million ounces, less than a year's production, in a bid to be more exposed to the spot price of gold.

Cutifani, who has previously said he is not a fan of the hedge book, said his company would slash forward sales by about 800,000 ounces a year, and wind it up by the end of 2014.

Forward sales have been used routinely by gold mining companies to fix selling prices for nuggets not yet mined to protect profits, but its hedge book has been clouding AngloGold's performance, analysts have said.

Cutifani said the third quarter would see costs rising owing to higher winter power tariffs in South Africa and wage increases agreed on Tuesday with workers at its South African mines. The wages alone would lead to an increase of about 1.5 percent to the company's global cost base, Cutifani said.


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