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AngloGold Ashanti under reserves pressure Posted: Fri, 10 Feb 2006 [miningmx.com] -- Like Harmony and Gold Fields before it, AngloGold Ashanti has reported a drop in its ore reserves which have fallen 19,8% to 63,3Moz at the end of December from 78,9Moz a year previously. The development underscores the continuing pressure on the world’s gold majors to find the ounces necessary to replace the huge volumes of gold they are mining out annually which amounted to 6,2Moz for AngloGold Ashanti during 2005. AngloGold Ashanti CEO Bobby Godsell is predicting a drop in annual production to between 5,8Moz and 6M0z for 2006 after which he expects the group’s output to recover to between 6,3Moz and 6,5Moz during 2007. The revision to the reserves was the only really sour note in a good operating set of results although the financial numbers have been complicated by, yet again, a number of accounting changes. The reserve calculation as required by SEC regulations is based on the estimated average of gold price and exchange rates for the three years ended December 31, 2005. That throws up gold prices of around US$400/oz, A$556/oz and R86,808/kg. Breaking the 15,6Moz decline in reserves down shows that 7Moz were lost through depletion by mining operations, 6,4Moz were lost because of the lower rand gold price (the price used at the end of 2004 was R94,765/kg) and 2,2Moz were lost because of "geological model and scope changes." Current gold prices are, of course, much higher than the ones used to meet SEC requirements. Godsell points out that using prices closer to current levels - US$530/oz, A$700/oz and R105,000/kg - and then adding in the reserve ounces that should be generated by exploration programmes during 2006 would add some 9Moz back to the current ore reserve position. That, importantly, would more than replace the 7Moz lost through depletion during 2005. AngloGold Ashanti plans to spend US$91m on exploration during 2006 of which US$55m will go on 'brownfields' projects and the rest on 'greenfields' projects. The key target areas are in the Democratic Republic of Congo, Colombia, Western Australia and Alaska. Godsell remained tight-lipped on the crucial subject of what controlling shareholder Anglo American intends doing to meet its stated objective of reducing its equity exposure to AngloGold Ashanti which it controls holding 51%. That intention was announced by Anglo American CEO Tony Trahar late in October. He refused to provide any specifics at the time and neither did Godsell. Asked at today’s conference call whether he had received any clarification on Anglo American’s plans for its equity holding in AngloGold Ashanti, Godsell replied with a curt "no." Asked whether he thought Anglo American was wise to want to sell down its holding at a time when the gold price was taking off Godsell referred back to the precise wording of Trahar’s October statement. This said Anglo American recognised that AngloGold Ashanti was valued differently from other mining assets by the equity capital markets and tended to be followed by quite distinct investors. Anglo American intended to "give AngloGold Ashanti greater strategic flexibility by no longer seeking to retain it as a subsidiary. Although Anglo American's holding in AGA will be reduced, Anglo American currently intends to remain a significant shareholder in AngloGold Ashanti in the medium-term." Oh well. Somebody had to ask.
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