AngloGold plans to cut hedge book to less than 4m oz

Allan Seccombe | Fri, 15 May 2009 10:38

[miningmx.com] -- ANGLOGOLD Ashanti aims to bring its hedge book down to four million ounces by the end of 2010, a strategy which has already shown rewards with adjusted earnings vaulting to $150m in the March quarter from a $14m loss in the previous three months.

AngloGold has cut its forward sales of gold -- otherwise known as its hedge book -- by half and in the March quarter it reduced it by another 154,000 oz, bringing it to 5.84 million oz.

AngloGold CEO Mark Cutifani said that during the normal course of operations the company reduced its hedge book by between 100,000 and 150,000 oz per quarter, but that it would be reduced by more if the opportunity arose.

“I’d like to see it (the hedge book) reduced to less than four million ounces by the end of next year, so we’ll continue to look for opportunities to restructure and improve our position,” Cutifani said.

If the company continues to deliver around 150,000 oz a quarter into its hedge book during the normal course of operations, it will have reduced its position by 1.2 million oz by end-2010 and so would need to shed another 600,000 oz or more by other means.

AngloGold’s production in the first quarter came in at 1.1 million oz, below the original guidance of 1.13 million oz because of the temporary suspension of some South African underground operations for safety reasons, the slow restart of mines after the year-end break in that country as well as lower production in Africa.

Looking ahead, Anglo Gold expects to produce 1.14 million oz of gold in the June quarter at a total cash cost of $465/oz if the rand averages R9.25 to the dollar or $485 if the rand is at R8.60. South Africa had a spate of public holidays in April, which crimped production.

“We’re seeing very good signs at Obuasi and our other high cost operations, so we remain confident we will nail our cost objectives subject to the exchange rate,” Cutifani said.

The problematic Geita mine in Tanzania is receiving special attention from AngloGold and Graham Ehm, the executive vice president (VP) at the company’s Australian operations, has been seconded to the mine to work with Richard Duffy, the executive VP of African operations.

Geita has produced 22,000 oz in April, half the first quarter’s 44,000 oz, a figure that was 15% lower than the December quarter when a lot of maintenance work was undertaken. Total cash costs at the mine blew out to $1,018/oz.

“We’ve still got some more work to do in the June quarter… we expect to do much better in the second quarter,” Cutifani said, adding drilling had been handed over to a contractor, which should improve drilling productivity by up to 40%.

With Ehm taking leadership at Geita from 1 June and bringing with him his Australian opencast mining experience, Cutifani expects the operation to stabilise and to continue improving during the remainder of the year.

At the La Colosa prospect in Colombia, the government has decided to award exploration permits for part of the concession after a dispute arose about environmental issues. Work is expected to resume in June.

AngloGold estimates it will take $200m to explore the concession over the next four years. AngloGold management appears to be placing a lot of emphasis on this project as one of its future growth nodes. It has an estimated 12 million oz of gold resources.

“The La Colosa development could ultimately be a game-changer for not only AngloGold Ashanti, but also for Colombia’s mining industry,” Cutifani said.