ANGLOGOLD Ashanti is to review its South African operations after they had a troubled start to the 2017 financial year in which the group also suffered a March quarter net cash outflow of $119m.
The South African mines continued their strong safety record of late recording no fatalities for the quarter – the first time ever for this period of the year – but problems related to fractured ground, a slower seasonal ramp-up, and the “unwarranted” deviation from mining plans hit the mines hard.
“On the back of the strong safety result, we are reviewing our South African operations to restore their margin and ensure they recover from a difficult start to the year,” said Srinivasan Venkatakrishnan, CEO of AngloGold Ashanti in a statement to the Johannesburg Stock Exchange.
“Our international operations have again delivered a strong result with our brownfields investments proceeding to plan,” he added.
The South African mines posted a decline in production to 198,000 ounces compared to 236,000 oz in the first quarter of the 2016 financial year and a significant leap in all-in sustaining costs (AISC) to $1,158oz compared to $919/oz last year.
Overall, AngloGold produced 830,000 ounces of gold in the quarter at an AISC of $1,060/oz (2016: $860/oz). The cash outflow meant an increase in net debt to $2.05bn from $1.92bn as of December 31.
It was the first time the mines had made a loss since the fourth quarter of 2012, but Venkatakrishnan said in a press call today that it was too early to “… write the mines off”.
“We are looking to remove bottlenecks, especially at Moab Khotsong which is already starting to come through. At the others – Tau Tona and Kopanang – were are looking to get improvements given the constraints under which they operate,” he said.
Job losses would be “the last resort”, he said. Venkatakrishnan also said that AngloGold’s production profile was stronger in the second half of its financial year.
Other mitigating circumstances for the poor performance of its South African mines was the 16% improvement in the value of the rand against the dollar during the period while group wise there was a $100m increase in capital expenditure which saw group AISC outstrip the increase in cash costs.
The average rand price received for gold produced from the South African mines was R517,519 per kilogram compared to R604,395/kg in the March quarter of 2016. The spot rand gold price is currently R530,987/kg.
Production from South Africa accounts for about a quarter of AngloGold’s total production. In 2014, Venkatakrishnan hatched a plan to demerge the South African mines and raise $2.1bn in a rights issue. The proposal was opposed by shareholders.
“We have our work cut out for the underground assets in South Africa, but we are starting to see some improvement. We continue to draw inspiration from the safety record especially in the March quarter which is the most vulnerable period following the year-end break,” said Venkatakrishnan.
“We are now looking to improve safety and profitability,” he said.
Venkatakrishnan said the group would stick to annual production guidance of between 3.6 to 3.75 million ounces at an AISC of $1,050 to $1,100/oz.
“AngloGold’s international business remains the attractive component of the company, in our view, with AISC below $1,000/oz and growth potential,” said Patrick Mann, an analyst for Deutsche Bank.
“The South African operations were a significant drag on [the first quarter] with production down 16% year-on-year and AISC increasing 44% in US dollars,” he said.
