AngloGold counts cost of strikes, Obuasi troubles

[] – ABOUT 12,000 workers had returned to work at
AngloGold Ashanti’s Vaal Reefs mines – which contribute 40% of its South African
production – but the likelihood the group would see annual production fall well below
target was high.

“Workers at the Kopanang, Great Noligwa and Surface Operations returned to work on
Monday 22 October 2012, and those at Moab Khotsong ended their unprotected work
stoppage on Tuesday 23 October 2012,’ the group said in an announcement today.
Shares in AngloGold closed 0.26% higher on the JSE.

Already, third quarter production would come in at 1.03 million ounces (m oz), below
the 1,07 to 1.10 m oz forecast. Cash costs were guided at between $835 to $865/oz,
up to 10.4% higher quarter-on-quarter even without factoring in possible effects of
the strike action.

Even if a wage agreement could be forged at the West Wits mines, where a further
12,000 miners remain on illegal strike, the group’s full-year output target of 4.3m oz
to 4.4m oz seems imperiled as the ramp up of production at mines affected by illegal
strike action will be gradual. The West Wits mines comprised Mponeng, TauTona and
Savuka mines.

South African production totalled 362,000 oz in the second quarter.

AngloGold said lines of communication remained open with West Wits labour despite
serving an ultimatum that expired at midday. The ultimatum is nuanced by the fact
AngloGold said the dismissal “process’ had begun.

In terms of the wage offer accepted by Vaal Reefs workers, category three and
category four levels would be merged and a fresh category for machine operators had
been installed, as well as increments to certain levels.

The impact, however, would be a 2.5% across-the-board increase to AngloGold’s wage
bill. Coupled with lost production, cash costs were expected to come in considerably
higher for the group and may affect its ability to rank as an attractive dividend yield

Third quarter production was also affected by lower-than-expected performance from
AngloGold’s Obuasi, a mine in Ghana.

However, AngloGold said it would move to an owner/operator model for the
development of Obuasi, having served Mining and Building Contractors with a
mandatory 28-day notice period.

“This is the initial stage of a larger restructuring programme that aims to build a
profitable and sustainable long-term future for this operation, where sub-par
underground development has been identified as a key reason for under-performance
and declining production in recent years,’ AngloGold said.

Details of a restructuring of the mine – which AngloGold has struggled to call to heel
for years – would be unveiled at its third quarter operating and financial results
presentation which has been scheduled for November 8.