[miningmx.com] — SOUTH Africa’s major gold groups – AngloGold Ashanti, Gold Fields and Harmony – will all report lower quarterly core earnings for the September quarter, according to JP Morgan Cazenove analysts Steve Shepherd and Allan Cooke.
This is owing to the stronger rand/dollar exchange rate and higher working costs, which will more than offset the record gold price in dollar terms reached during the September quarter.
The analysts said the gold price averaged a record $1,246 per ounce for the quarter – $51/oz or 4% up on the June quarter average of $1,195.
But the average rand/dollar rate exchange rate for the quarter rose 3% to R7.31 (June quarter – R7.53) with the result that the average rand gold price received only improved 1% to R292,800/kg (R289,300/kg).
The analysts said: “Anglogold Ashanti and Gold Fields have guided slightly higher gold production, while Harmony has guided lower production quarter-on-quarter (q/q).
“The benefit of record gold prices should be more than offset by the stronger rand/dollar exchange rate and cash cost inflation (wages and electricity).’
The JP Morgan Cazenove analysts forecast September quarter headline earnings for AngloGold Ashanti at 177 cents per share, 34% down on the 267c earned in the June quarter.
They noted that their forecast excluded hedge restructuring costs of about $2.63bn, representing an average buy-back price of $1,300/oz for the final tranche of removing AngloGold Ashanti’s hedge book.
“This cost will be reflected in adjusted headline earnings for the last two quarters of 2010. Since we do not know the timing of this cost – specifically the split between quarter three and quarter four – we have excluded it from our forecast.’
The analysts forecast that Gold Fields’ September quarter earnings “ex items’ will drop 16% to 113c/share (134c) .
Turning to Harmony, the analysts estimated gold production by the group fell 3% to 336,000oz (347,000oz). This was because of the closure of the Harmony No 2 and Merriespruit 3 shafts, as well as lower production from Joel and a 13-day stoppage at the Phakisa mine following an accident.
They said: “Cash costs will be impacted by retrenchment costs of around R60m (R10m at Evander and R50m at Virginia) as well as higher electricity costs (up R140m q/q) and wages (up R50m q/q).
The analysts forecast Harmony’s cash costs would rise 12% to R226,400/kg and the group would report a headline loss for the September quarter of 10c/share (6c headline loss).
Reviewing DRDGOLD’s results released on Thursday, the analysts said: “The September headline earnings per share of -0,8c (23.9c) came in below our 7c forecast, with higher costs and a lower received gold price more than negating higher gold sales.’
They highlighted that marginal underground mine Blyvooruitzicht (Blyvoor) continued to burn cash with underground production costs at R324,898/kg (R333,986/kg).
The analysts said: “In theory, the mine has a life of around 20 years. In practice, another poor quarter or two may see it on care and maintenance, in our opinion.
“DRDGOLD remains highly geared to the rand gold price. Cash flow remains under pressure while management persists with subsidising the loss-making Blyvoor underground mine.
“The Crown/Ergo pipeline and expanded processing capacity at Ergo should see surface production continue to grow in time, but we reiterate our concern that the Blyvoor mine will burn much-needed cash.’
