All eyes on gold majors’ numbers

[] — THE strong rand is expected to erode the benefit of the rise in gold’s dollar price for Africa’s top three gold producers, which are scheduled to report September-quarter earnings in November.

The price of gold in the three months averaged a record $1,246 per ounce, up $51 per ounce, or 4%, on the previous quarter. South African gold producers sell their gold in dollars and pay their costs in rand.

The average rand gold price improved 1% to R292,800 per kg.

“The benefit of record gold prices should be more than offset by the stronger rand/dollar exchange rate and cash cost inflation,” JP Morgan analyst Allan Cooke said in a note.

The rand has risen nearly 27% since the start of 2009 and making matters worse for Gold Fields, Harmony Gold and AngloGold Ashanti are above-inflation wage and electricity tariff hikes.

Gold’s run to record highs is likely to maintain its current momentum for the rest of 2010, a snap poll of analysts conducted by Reuters earlier this month showed.

Some see it performing well into 2011 as well.

“Our bullish outlook for gold is driven by expected seasonal jewellery demand strength and increased investment demand due to uncertainty in global financial markets,” RBC Capital Markets analyst Leon Esterhuizen said in a research note.

South Africa’s gold production has been dwindling, and fell by 5.8% in 2009, pushing the country to the fourth spot after China, Australia and the United States.

The country was the world’s largest gold producer for most of the last century up until 2006, but output has been hit by dwindling grades and stoppages of mines and shafts for safety-related reasons as companies mine ever deeper.

Some gold mines reach depths of around 3.8 km.

AngloGold, the world’s third biggest and Africa’s top gold producer, has said its third-quarter output would rise to 1.15 million ounces from 1.126 million ounces in the previous quarter, while total cash costs were expected to rise to $645 per ounce from $617.

A poll of seven analysts forecast an adjusted headline loss of 24 US cents per share for the September quarter. AngloGold, which has around 20 operations across four continents, posted adjusted earnings of 35 US cents in the June quarter.

Analysts said AngloGold’s earnings are likely to be hit by payments related to the elimination of its hedge book.

Headline earnings are the key profit measure in South Africa, stripping out some one-off and non-trading items.

Gold Fields, the fourth-biggest producer in the world and Africa’s second biggest, is expected to post adjusted earnings per share of 135 South African cents from 134 cents the previous quarter.

Gold Fields earnings are adjusted to exclude the effects of financial instruments and foreign debt.

Gold Fields said its attributable production during the September quarter is expected to be around 906,000 ounces, up from 898,00 ounces the previous three months, while cash costs were expected to rise to $715 an ounce from $688.

Harmony is expected to report headline earnings per share of 14 cents for the quarter, compared with a loss per share of 6 cents in the previous three months.

The company said production for the quarter is likely to drop 3% compared with the previous three months due to closures of two of its shafts and temporary shutdowns at two others.

Harmony is expected to post results on November 1, Gold Fields on November 4 and AngloGold Ashanti on November 11.