[miningmx.com] – ANGLOGOLD Ashanti is the latest gold producer to write down assets, saying it would book a post-tax impairment of up to $2.6bn for the second quarter as the full weight of gold’s spectacular $220/oz price drop earlier this year took its toll.
It also said it would seek joint ventures to help it finance projects, stop lower margin projects, cut back or stop capital spend on low margin mines, and scythe further into operating and indirect costs.
Clearly, the recent rationalisation of its head office in downtown Johannesburg, speculated to have seen the office emptied by 40% of its people, was just the tip of the iceberg as South Africa’s largest gold producer strips down to its bare knuckles.
The cut-back, probably among the most austere seen so far in the South African gold industry in recent times, comes on a day when the Chamber of Mines offered the firm’s South African employees a 4% across-the-board wage and benefits increase – far below the 60% to 100% wage increase demands made by unions.
“Details of progress made on these cost saving and efficiency improvement programmes will be provided along with second quarter financial results next month,” the group said in a statement.
The outcome is a 300,000 ounce reduction in gold output for its 2013/14 financial year to no more than 4.1 million oz compared to previous guidance of up to 4.4 million oz.
Newcrest announced early this year a record gold industry write-down of $5.5bn and many analysts think more gold companies will follow suit. Commenting on local gold producers, Gold Fields CEO, Nick Holland, said this would be a watershed year of resource write-downs as the sector re-modelled itself.
Amid drastic operational changes, AngloGold Ashanti said it would access the capital markets later in the year to shore up the balance sheet using US dollar senior notes.
It would first embark on a US and Europe roadshow to calm investor fears about its liquidity and had mandated Citigroup, Deutsche Bank and Goldman Sachs to organise a series of fixed income investor meetings, it said.
Shares in AngloGold Ashanti fell just under 3% in New York following the announcement.
“In light of the $220/oz drop in the average quarterly gold price which will negatively impact our second quarter results, we’ve moved decisively on all fronts to sharpen our focus on efficiency and to tighten up on costs, overheads and capital,” said CEO Srinivasan Venkatakrishnan in a statement.
This is the second time in a year AngloGold Ashanti has sought to tighten the belt after former CEO, Mark Cutifani, announced in November plans to slash AngloGold’s capital expenditure bill $200m as well as review projects.
Cutifani said at the time that the project review extended to all its South African projects such as the $416m expansion at Mponeng and the $395m Zaaiplaats second phase expansion. Mongbwalu, in the Democratic Republic of Congo, and the Sadiola Deep development project were also being slowed.
Venkat’s restructuring is no shock with Standard Bank Group Securites and Bank of America Merrill Lynch, among others, forecasting it. But the full extent of his plans may have been prefigured in comments he made in his first presentation of quarterly results as CEO in May when he said the group would not tolerate any losses.
“We have got 500,000 of profitable ounces [coming into the group] and we will not hesitate to remove 500,000 of unprofitable ounces,” he said on May 13.
AngloGold Ashanti will have new production from Tropicana in Australia and Kibali, a project due to be commissioned in the Democratic Republic of Congo (DRC) later this year, slightly earlier than planned.
AngloGold Ashanti also announced the retirement of Tony O’Neill who acted as joint CEO of the group whilst its board sought a replacement for Cutifani.
After the appointment of Venkat, O’Neill was moved to executive vice president: business and technical development. He leaves the company on July 16.
Commenting on the second quarter performance, Venkat said production would come in at about 935,000 ounces at a total cash cost of between $900 and $920/oz – roughly in line with guidance of 900,000 to 950,000 ounces at $900 to $950/oz.
“It’s been a strong performance in a challenging environment from our operations and from the teams developing our two new, high-quality projects,” said Venkat.
