AngloGold to end hedgebook, cuts 2009 output view
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AngloGold to end hedgebook, cuts 2009 output view UPDATED 31 Jul 2009 | 11:47  
AngloGold to end hedgebook, cuts 2009 output view

By James Macharia

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

AngloGold beat market consensus with an 11 percent jump in second-quarter earnings after output rose and the gold price gained.

It announced an interim dividend of 60 South African cents per share versus 50 cents last year.

Chief Executive Officer Mark Cutifani told a media teleconference that he was optimistic of an even stronger gold price, which he expected to trade between $900 and $950 for the rest of the year, and rise to $1,000 next year.

"We think it will most probably be stronger next year," Cutifani said, citing the likelihood of a weaker dollar, which benefits gold by making it cheaper for other currency holders.

Shares in the company were flat, in line with the gold mining index and the blue chip index.

Analysts welcomed the hedge book cuts and improved output.

"Obviously winding down the hedge book and turning operations around in Ghana and Tanzania is a big plus, it has helped cashflow to come through," said Mandla Mapondera, a gold analyst at Old Mutual Investment Group in Cape Town.

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

An average forecast by five analysts had forecast adjusted earnings per share (EPS) of 37 cents, citing weaker profits on a stronger rand.

The South African company said its received gold price rose 5 percent to $897 per ounce on the back of a firmer spot price, achieving a 3 percent discount to the spot price. The discount to spot is the difference between AngloGold's hedged price and bullion's spot price.

Mapondera said the analysts's forecasts were off because they factored in a discount of 6 percent to the spot price of gold as per AngloGold's guidance.

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


CEO Cutifani said the group's mines had improved steadily.

"We saw a strong operating performance across the operations and a nice sweetener from our received gold price," he said.

Cutifani, who has previously said he is not a fan of the hedge book, said he had whittled the company's hedge book -- one of the biggest among its peers -- down by a further 1.4 million ounces, reducing the overall hedge commitment to 4.47 million ounces by the end of July. That figure is less than one year's production.

"The market fundamentals are extremely robust for gold, which supported our decision to move aggressively sooner rather than later, to ensure we maximize our exposure to spot prices," Cutifani said.

He plans to slash forward sales by about 800,000 ounces a year, and wind up the hedge book by the end of 2014.

The group, which has about 20 operations in four continents, said safety stoppages and mill repairs had forced it to lower its full-year guidance to between 4.7 million and 4.8 million ounces from its original target of 4.9 million to 5 million ounces.

In 2008, AngloGold produced 4.98 million ounces of gold.

AngloGold said output rose in the second quarter due to successful efforts to revive its Obuasi mine in Ghana and its Geita mine in Tanzania. Output rose to 1.127 million ounces, while total cash costs came in at $472 per ounce, against production of 1.103 million ounces at $445 per ounce in the prior quarter.

AngloGold estimated that production would rise to 1.2 million ounces in the third quarter, while total cash costs would be about $530 per ounce at an exchange rate of 8.10 rand a dollar.


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