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Dollar weakness may trim Cuiabá expansion Posted: Thu, 16 Aug 2007 [miningmx.com] -- THE appreciation of the Brazilian real against the dollar may wipe out the benefit of expanded production from Cuiabá, AngloGold Ashanti’s Brazil mine, in the 2007 financial year, the company said. “We are trying to hold back costs as much as possible,” said José Vago, production director of AngloGold Ashanti Brasil Mineração, a subsidiary of AngloGold Ashanti which owns 100% of Cuiabá. “Gross profit in 2007 will be about the same as the 2006 financial year,” he said in an interview. This is notwithstanding first production from Cuiabá’s expansion in the last two quarters of 2007, expected to be about 80,000 oz/quarter. AngloGold Ashanti Brasil Mineração recorded a 2007 interim profit, adjusted for derivatives and other instruments, of $40m. Gross adjusted profit in the 2006 financial year was $86m, a 79% increase year-on-year. However, the group said the expansion of Cuiabá’s underground workings, the capital cost of which as been upgraded 16% to $210m, would pay dividends in the long-term. The expansion aims to lift average annual output from the mine to 260,000 oz from 190,000 oz. Cuiabá is about 44km from Belo Horizonte in Brazil’s south eastern region. "You can't expect the gold price to go up and for costs not to also increase," said Roberto Carvalho Silva, COO of AngloGold Ashanti's South American operations. "We also had a very good year in 2006 and our cash margins have been remarkably strong," he said. "The bottom line here is that we control costs." AngloGold Ashanti Brasil Mineração also gave further evidence of further production increases if the Lamego prospect, near Cuiabá, was proved feasible. The Brazilian real has gained 5% this year following an 11% strengthening during 2006. The appreciation had put pressure on cash costs, said Vago who added that some of the start-up costs associated with the expansion of Cuiabá were non-recurring. He also raised the prospect of reducing some the project-related labour of AngloGold Ashanti Brasil Mineração’s total 3,611 staff compliment. Cost improvements and steady-state production at the new level were expected to have an impact in the 2008 financial year. “It’s a long-term investment,” said Vago. Total cash costs in 2007 were expected to come in at about $220/oz, a 12.8% increase year-on-year. There’s also evidence that the real’s advance against the dollar was being curtailed. Bloomberg News reported earlier this week that the Brazilian real lost about 2.2% against the dollar and was now trading at about 2.0295 per dollar. This follows a 2.2% slide on August 15. Expansions AngloGold Ashanti Brasil Mineração said it would spend between $8m and $10m aggressively exploring the Lamego deposit, near Cuiabá. This follows statements in AngloGold’s 2006 annual report that it could yield 500,000 oz of gold and even expanded into a mine similar in size to Cuiabá. Click Here to subscribe to our daily newsletter
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