[miningmx.com] – SHARES in AngloGold Ashanti jumped as much as 5% in after the miner announced better than expected results for the first quarter.
Production increased 17% to 1.06 million ounces, while total cash costs decreased 22% to $770 an ounce. Both results were ahead of target and helped the company achieve its first quarterly positive free cash flow in two years. Adjusted earnings excluding one-time items jumped 164% to $119m.
The results show the company’s focus on cost cutting to adjust to a lower gold price environment is bearing fruit, CEO Srinivasan Venkatakrishnan (Venkat) said. All-in sustaining costs have declined 22% from $1,275/oz in the first quarter a year ago to $993/oz in the past quarter, while production increased 18% over the same period, boosted mainly by output from Kibali in the Democratic Republic of Congo (DRC).
“We have made much progress, but we will not become arrogant. The headwinds continue to be formidable in our business. We might have quarters again where things do not go as well, but the overall trend is heading in the right direction,’ Venkat said at a presentation in Johannesburg.
Analysts also welcomed AngloGold’s review of its Obuasi mine in Ghana, which has led to impairments of $1bn since the company merged with Ashanti in 2004. Constructive discussions are underway with the Ghanaian government, the Ghana Mineworkers union, local communities and the King of Ashanti around the future of Obuasi, Venkat said.
AngloGold is planning to place underground mining at Obuasi on care and maintenance and refocus its mine plans on the southern ore bodies, where there is potential for large-scale, mechanised underground mining. This will significantly reduce the mine’s footprint, which will make it easier to secure mining operations.
Large-scale retrenchments are planned, with the potential of rehiring some employees on new terms. Obuasi’s workforce is currently paid in US dollars, while annual increases have not been tied to US inflation, leading the unaffordable increases in the wage bill, Venkat said. Retrenchments are expected to cost $220m. The mine currently employs about 6,500 workers and contractors.
“The fundamentals have changed and the gold price environment has had a significant impact on Obuasi. We need to modernise and mechanise this mine; the employment model and the massive footprint has to change. We need to do something radical to fix this problem, and the result will be a very different Obuasi,’ Venkat said.
There is much support and an understanding of the need for change to ensure the mine’s future, Venkat said. The company hopes to provide more detailed information about the future of Obuasi around February next year.
Production in the second quarter will be negatively impacted by a number of public holidays and safety stoppages in South Africa, and some scheduling and operational challenges in its international business.
Its production guidance for the year remains unchanged at 4.2-4.5 million oz, while total cash costs are expected to range between $740 and $790/oz.
