AngloGold coy on 2014 dividend resumption

[miningmx.com] – ANGLOGOLD Ashanti played down the prospect of an immediate return to dividend payments saying investors may have to wait until the second half of the group’s 2014 financial year. It would, however, assess conditions for returning cash at the interim stage.

Commenting on the group’s fourth quarter and full-year operating and financial results, AngloGold Ashanti CEO, Srinivasan Venkatakrishnan, said it didn’t make sense to borrow from the banks in order to pay dividends.

“Yes it’s improving,” he said of the net cash outflow at AngloGold Ashanti in the fourth quarter, “… but it’s not a smart move to borrow from banks to pay a dividend. Also, the gold price is volatile and Kibali [AngloGold’s newly commissionined Congo gold mine] is still calling for cash”. Venkatakrishnan added, however: “The dividend prospects for 2014 are still intact”.

The company suspended the dividend in mid-2013 amid a $482m savings drive. This was in response to a 16% decline in the average price of gold which drove a 39% decline in 2013 adjusted headline earnings to $599m.

However, the performance of the group in the latter stages of the financial year was vastly improved. It expected to pare back corporate and operating expenses by $60m to $80m in the 2014 financial year, and lower all-in sustaining costs by $100/oz to $1,025 to $1,075/oz.

Capital expenditure pressure from AngloGold’s projects Tropicana in Australia and the Congo mine Kibali was also on the decline. Free cash outflow fell to about $80m in the fourth quarter compared to a $705m outflow in the previous three quarters as spending declined.

However, Venkatakrishnan remained cautious. Commenting on the fourth quarter performance in which adjusted headline earnings were $164m from $110m in the third quarter, he said: “One quarter doesn’t make a summer”.

He added: “But at least we have demonstrated we can increase output growth for four quarters in a row. We are bound to hit bumps, but the important thing is the trend remains positive”.

There was an increase in the loss attributable to ordinary shareholders of $276m in the December against a $18m loss in the previous quarter, but the difference was largely attributable to non-cash items such as $54m on the write-down of inventories as well as a $57m loan to a non-wholly owned subsidiary. A cost of $17m in retrenchements was also incurred during the period.
AngloGold’s production target has been set at between 4.1 million to 4.5 million oz for 2014 following production of 4.1 million oz for the 2013 financial year – the group’s first increase in annual production for a decade.

The rising production profile was by dint of new output from Kibali and Tropicana which will contribute 600,000 oz of new attributable production. The production forecast also doesn’t take into account some 200,000 oz from its Cripple Creek expansion allowing room to retire unprofitable gold ounces.

Venkatakrishnan didn’t specify on where additional ounces might be cut from the group but its Obuasi gold mine in Ghana remains a concern. It was the worst performing mine in the quarter posting a 17% decline in production quarter-on-quarter. “We continue to look at the group all the way through; some assets will be identified as a fix or sell,” he said. The Yatela gold mine in Mali would be closed whilst Navachab, its Namibian gold mine, was being sold to private equity firm, QKR.

“AngloGold is a big ship to turn, but once it has turned you will see results,” said Venkatakrishnan in his results presentation. Of some $500m in savings that would be made, there was still 75% that had to be ‘banked’, he said. “We would like to do more, but we are not sure if we can bank it at this stage.”

Commenting on whether AngloGold would meet its empowerment credentials this year, Venkatakrishnan said: “We have absolutely no concern in that regard. The dialogue [with the Department of Minerals Resources] has been progressing.”

At the end of this year, South African mining companies must comply with conditions set down in the country’s mining charter, written almost a decade ago, which included a requirement for 26% black economic empowerment.

An auditing firm had been appointed to check compliance among the companies with Venkatakrishnan saying it had been to visit the company at its mine and corporate premises for a two-day period. “The feedback [from the DMR] has been positive,” he said. “We are in pretty good compliance.”