Stewart Bailey
The numbers were in line with expectations, but the real story at AngloGold’s results presentation earlier this week for the March quarter was the company’s new look.
For the first time, Anglo’s tried-and-tested troika of CEO Bobby Godsell, marketing director Kelvin Williams and financial director Jonathan Best was joined at the main table by the group’s South African head of operations, Dave Hodgson.
There was also an air of confidence about the directors, with Williams espousing the merits of the group’s much-maligned “responsible hedging” policy and Godsell blowing the “industry consolidation” trumpet with more gusto than usual.
But the real kudos rolled in for management’s decision to include Hodgson in the starting line up, a move that brought the company back to its roots as a gold mining group. Past quarters have seen much focus on Anglo’s innovative gold marketing initiatives and the absence of the operations expert had become a convenient stick for investors to beat the company with each time it posted poor operational results.
Whether by design or not, Hodgson’s presence signaled a turnaround at the group’s beleaguered South African operations. Bambanani was the stellar performer, with its total cash costs falling from $273 to $245 an ounce and Tshepong from $258 to $200.
The improved performances of the operations helped the cost profile for the South African mines down to $202, from $208 an ounce for the December quarter, despite the continued slump at Joel, Mponeng and Savuka, which racked up further losses.
But Anglo will have to take a good look at improving the fortunes of its North American operations, which would look in worse shape were it not for the group’s hedge book. Total production costs in the region came down from $301 to $290 an ounce still way out of the money at the prevailing gold spot price.
The group’s strategy to rescue the bottom line of its United States operations involves the investment of $194-million in its Cripple Creek and Victor mine in Colorado. The move will produce three times more gold than the current 248 000 ounces a year for the remaining 12-year life of the mine, at a proposed cash cost of $174 an ounce.
Best says after the expansion Cripple Creek will yield a total production of 4,13-million ounces over its 12-year life. But, he says, there is considerable scope for further expansion if Anglo manages to convert even a small portion of its resource of 5-million ounces into reserve category. The project is to be funded entirely from internal sources.
In a break from the code of silence that usually characterises the group’s hedging policy, Williams came strongly to the defence of AngloGold’s forward-selling programme.
The popular view which Williams says borders on religious is that forward selling is responsible for the current low gold price climate.
That said though, the company’s forward-selling policy helped it realise a 5% higher gold price than the prevailing spot over the three months, showing its reliance on the forward curve to realise yields for shareholders in the marginal price environment.
AngloGold, however, said it had unwound 800 000 ounces of its forward position during the quarter. Williams said the company “had delivered into its contracts” to close the positions and had made a profit from the restructuring.
But the restructuring will have little effect on the overall hedged position, with AngloGold still having a staggering 17-million ounces sold forward, representing about 22% of its total reserves.
AngloGold felt the effects of lower production, with the revenue line for the quarter falling by $40,3-million to $524,3-million. The bulk of the lower figure came from 10% lower gold production, which the company said was ” due to the sale of unprofitable assets and continued downsizing”.
Cost of sales stepped in the right direction, coming in at $395-million compared to $426,4-million in December. Operating profit was marginally up at $114-million.
The bottom-line earnings for the quarter were $42,7-million, a big swing from the $17,6-million loss in December when the group wrote off a large chunk of its reserves in the face of a slack gold price. Earnings came in at 40c a share, with the headline figure at 52c a share.
A dividend of 196c a share (1,2 times cover) was declared for the year ended December.