[miningmx.com] – The gold price could drop below $1,000/oz in the near-term but not for long according to AngloGold Ashanti CEO Srinivasan Venkatakrishnan who added the group would “harvest’ certain of its mines should that happen.
The mines that could be affected are the short-life Sadiola, Yatela and Morila operations in Mali. AngloGold had previously agreed to sell its 41% stake in two of these operations – Sadiola and Yatela – to Iamgold but Venkatakrishnan reported these negotiations had been suspended because Iamgold was reviewing its capital expenditure commitments.
He commented, “you are looking at end-of-life mines where we will start harvesting those assets for cash instead of continuing to invest in the mines. We will mine them out but keep the long-term optionality intact.’
Venkatakrishnan said he remained optimistic on gold’s longer-term prospects but commented that, “in the near-term, everything hinges on what the US Federal Reserve is going to do in terms of raising interest rates.
“There’s been some good jewellery demand coming through and the recent devaluation of the Chinese currency has helped but it’s going to be volatile, potentially testing the down-side. We are looking at price range of between about $1,050 and $1,300.
“You cannot rule out a drop below $1,000/oz but, should that take place, three things will start to happen. Currencies will start to fall off a cliff and we will start to see the benefits of that. The same will happen in respect of oil.
“We will certainly be in a deflationary environment and that gives advantages in terms of pulling down costs further. Also if the gold price tests below $1,000 I think there will be a huge push in jewellery demand so it’s unlikely to stay there for a protracted period of time.’
According to CFO Christine Ramon a $10/barrel drop in the oil price translates into an $8/oz drop in AngloGold’s cash costs while a 1% depreciation in the group’s basket of producer currencies translates into a $6/oz fall in cash costs.
According to a research note from JP Morgan Cazenove analysts Allan Cooke and Abhishek Tiwari, “while bottom line earnings are below expectation we highlight that the group’s AISC (all-in sustaining cost) remains below $1,000/oz at $928/oz in the second quarter of 2015.’
AngloGold has revised its guidance for the year to end-December to production of between 3.8 million ounces and 4.1 million ounces at total cash costs of between $770/oz and $820/oz and AISC of between $1,000/oz and $1,050/oz.
According to the JP Morgan analysts, “this guidance looks conservative to us with weaker commodity currencies, a lower oil price and lower capex likely to benefit the group in the second half of 2015.’
AngloGold shares closed more than 4% higher in trading on the JSE on Monday after being nearly 10% up at one stage through positive investor response to the results.
