Mark Cutifani, incoming CEO, AngloGold Ashanti
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AngloGold raises R12bn to combat hedgebook
Allan Seccombe
Posted: Tue, 06 May 2008

[miningmx.com] -- ANGLOGOLD Ashanti will issue nearly 70 million shares to raise R11.9bn and asset sales towards reducing its hedge book that knocked a fifth out of its received price in the March quarter, as well as fund its growth plans. If all goes to plan, the hedge could be reduced to 6.25 million oz.

AngloGold reduced its hedge position by more than in a million ounces in the quarter in which it exceeded its production forecast that had been revised downwards to account for the South African power crisis.

"In particular, the net proceeds from the rights offer will allow AngloGold Ashanti both to significantly restructure and reduce its existing gold hedging position, which has adversely affected its financial performance in recent years, while also being able to continue to fund its principal development projects and exploration growth initiatives," the company said.
reduce the hedge book to 6.25 million oz
"If the restructuring is executed as currently anticipated the overall impact would be to reduce the hedge book to approximately 6.25 million ounces, which would represent 8.6% of AngloGold Ashanti`s ore reserves as at 31 December 2007," it said.

"As a result of this reduction the discount to the spot gold price realised during 2009 is estimated to be approximately 6% and at a similar level thereafter assuming a gold price of US$900 per ounce."

AngloGold will also sell mines no longer seen fitting the company's profile over the next 15 months to raise further capital towards reducing the hedge book, which it sees as having curtailed its share price performance.

AngloGold Ashanti will try to settle contracts due to mature in 2009 and 2010 as well as those falling due this year. "Given the low committed prices of these contracts, AngloGold Ashanti expects that if these measures were implemented it would result in a realisation of previously recognised losses measured by the difference between the committed price of the contracts and the prevailing gold price at the time that these contracts are settled," it said.

"If the restructuring is implemented as anticipated, the received price for the remainder of 2008 should be approximately US$475 per ounce assuming a gold price of US$900 per ounce and gold production for the remainder of 2008 of 3.8 million ounces."

Power levels to the world’s third-largest gold producer have been restored to just above 96% and if those levels are maintained, AngloGold anticipates second quarter production of 1.22 million oz at a total cash cost of $464/oz.

"Power is not an issue for AngloGold in South Africa," said CEO Mark Cutifani, pointing out measures were in place to ease any restrictions on electricity and were working well.

Based on those power supply levels, AngloGold forecast full-year production to be between 4.9 million and 5.1 million ounces at a total cash cost of between $440 and $460/oz.

Capital expenditure for the year is estimated at $1,26bn.

“Despite a higher gold price, the total net delta hedge was reduced by 1.13 million oz to 9. 26 million oz at 31 March 2008, and total commitments reduced from 11. 28Moz to 10.03 Moz,” AngloGold said.

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“The reductions were due to delivery into maturing contracts and additional hedge buy-backs that were effected during the quarter.”

The marked-to-market value of the hedge book was a negative $4.78bn at the end of March 2008.

AngloGold received a price 18% below the average spot price of $925/oz for the March quarter because of the hedge book. Looking ahead, the company said it would receive 20-22% less than the spot price if gold trades between $900 and $950/oz.

Gold production in the first quarter of 2008, was 13% lower at 1.2 million oz against a February forecast of 1.19 million oz, which was made after mines were effectively shut for a week when power utility Eskom declared force majeure on its power supply in January. In February, mines were obliged to reduce power consumption by 10%.

In March, Eskom agreed it would increase power supplies to the mines in an attempt to stave off large job losses threatened by some companies.

“Total cash costs at $430/oz, was 6% higher than the previous quarter, which was primarily impacted by the reduced production and inflation, partially mitigated by weaker local currencies and an improved by-products contribution.”