Despite the gold price hitting a three-year low, Anglogold chair Bobby Godsell tells Max Gebhardt that he is upbeat about the mining industry
At a time when negative sentiment is ruling the market, there is a strange, yet welcome sense of optimism at Anglo American’s gold and uranium division in its Main Street headquarters in Johannesburg.
Gold might be hitting three-year lows, at one stage trading at $358 this week – its lowest level since October 1993 – but says Anglogold chair Bobby Godsell with a laugh, his tenure of 18 months has been fun.
Godsell says he isn’t full of gloom and doom for 1997, though Anglogold did adopt what he calls rather conservative figures for its 1997 gold price projections. This latest slump hasn’t even reached the bottom end of its figures.
“I don’t think people should overact, this is seasonally a bad time for physical demand for gold, particularly Asian demand,” he says.
According to Godsell, Anglogold had been expecting the gold price to trade around the $360 level, but he is not willing to be drawn into the game of predicting the price.
“We will run our mines profitably pretty much whatever the gold price is – the variation will be how much we produce.”
At the time of Godsell’s appointment in late 1995, analysts and some press reports maintained the gold industry – and Anglogold in particular – were on the “skids”. The industry had been facing spiralling costs that saw South African gold mines collectively move in the mid- 1980s from the lowest to highest cost producers internationally. The mines have also been facing a two-headed monster as production and productivity started falling.
In response, the mines underwent a major cost-cutting drive in the early 1990s, which gave them some respite, according to Godsell. But this was to be short-lived as margins have come under increased pressure once again and the margin squeeze hit a century low in 1995.
In an attempt to tackle some of these problems, Anglogold decided to focus on three core strategies to lead into the next century. These included becoming globally competitive, developing the potential “blue skies” (new operations) of the mines and to ensure wealth creation by continued gold mining operations.
The gold grade and the price are rightly, as Godsell points out, in the hands of God on the one hand and the market on the other.
“What we can control is the cost per kilogram and we can change that through good management, new technologies and increased productivity.”
Since labour costs account for roughly 50% of working costs, the major challenge for 1997, Godsell believes, will be to make real breakthroughs on the labour productivity front.
“We have made a start by signing an important agreement with the National Union of Mineworkers and other unions, which concluded that productivity increases are vital to the industry and all aspects of the work practices needed to be reviewed.”
Both parties recognised that unless operational inefficiencies can be addressed, closing margins between costs and revenue would remain a constant threat to employment in the mines. They therefore gave themselves a six-month timeframe in which to operate.
Already Vaalreefs is seeing the benefits of these agreements and has reached a working calendar for 1997 that will see a further 25 shifts come into play.
‘Our goal in 1997 is to reduce unit labour costs; in fact, we have active plans in our 1997 budget to reduce unit labour costs,” says Godsell.
“If we can’t control our revenue we have to control our costs; otherwise we will have to close mines.”
As the mining houses attempt to bring these costs under control, many have begun unbundling and cancelling their management contracts with the mines. Anglogold has been reluctant to follow this route, even under criticism from industry analysts. Godsell says Anglogold remains committed to the belief in the mining finance house because of its historical and economic advantages.
“We are reviewing the relationship between the mines and the mining finance house to make sure that it is an appropriate and fair relationship and collective services are paid for at market value,” he said.
This review should be completed fairly soon, he adds, and Anglogold is committed to informing its shareholders if there is any change in policy. But Godsell says he can’t see anything magical in any unbundling exercise.