THE strategy behind the proposed demerger of AngloGold Ashanti’s South African gold mines was to give special focus to the ageing mines as well as helping improve the overall investment appeal of the demerged company by diversifying into other minerals – a strategy quite similar to the one taken by Sibanye Gold.
As it turned out, the plan was scuppered by shareholders in 2014 who thought that raising over R2bn worth of cash ahead of the demerger was too expensive a price to pay for the larger group to be rid of the South African mines.
‘Rid’ is not a word AngloGold has ever used in respect of its involvement in South Africa, but the coming months and years may underline why the mines don’t figure highly in its growth plans, especially as AngloGold progresses under the sure and steady hand of its CEO, Srinivasan Venkatakrishnan.
All of the company’s growth projects outlined by Venkatakrishnan earlier this month are outside South Africa, including some $115m (R1.5bn) which would be spent expanding its Siguiri mine in Guinea extending the life of mine four years to 2023.
There are also greenfields project studies in Colombia at AngloGold’s La Colosa, Gramalote and Quebradona prospects which were described by Ron Largent, head of AngloGold’s international division, as “moving the needle” in terms of reserves.
The approach to the South African mines appears to be a process of harvesting. This is sometimes a dirty word in the mining world because ‘high grading’ a mineral resource can be interpreted a bit like a slash and burn retreat. However, the operating statistics tend to show AngloGold has been driving higher grades on lower tonnages in the past 18 months.
Since the half-year point in its 2014 financial year, when the company was recording an average grade from its South African mines of about six grams per tonne (g/t), the average grade has increased to between 7g/t and 8g/t while tonnes mined has fallen to about 1.5 million tonnes per quarter from about two million tonnes previously.
This has had the desired effect.
In addition to cost control improvements, and a large degree of restructuring, AngloGold’s South African mines have achieved an all-in sustaining cash margin of about 20% when it was only just about breaking even in the first half of 2014. As a whole, the South African mines provided 28% of AngloGold’s gold production in the six months to June and a respectable 24% of pretax earnings.
But there may be more of the restructuring to come.
The group’s Kopanang mine produced a negative AISC margin in the half-year ended June even though the dollar gold price and the rand weakness against the dollar (for most of the period) were in its favour. Now that currencies, including the rand, have strengthened against the dollar, the mine can no longer expect the same degree of assistance.
SECTION 54s
The upshot of this is that the widely documented Section 54 work stoppages which cost AngloGold’s South African mines some 44,000 ounces in gold production are only working to hasten the inevitable decline of the mines, and speedier loss of jobs.
Section 54 notices, issued in terms of the Mine Healthy & Safety Act enable the South African government to shut an entire operating shaft whilst in investigates an accident and recommends a suitable round of mediation before re-opening.
The Department of Mineral Resources rightly points to the need for safety related interruptions in order to manage and decrease the number of fatalities on South Africa’s mines which have increased 18% this year compared to last year at the half-year stage. But AngloGold argues that the DMR’s heavy-handed manner is unnecessary and indiscriminate.
There’s no arguing with the facts. AngloGold’s South Africa mines are assets in decline in the absence of technology good enough to mine the very deep recesses of its orebodies, some four kilometres underground.
Gold production has fallen to about 500,000 ounces this year from some 1.3 million ounces at the same stage in the group’s 2006 financial year.
Of course the future of Anglogold (and all other mining companies) lie outside of South Africa. That is the agenda that the ANC government have been pursuing for the past 20 years. It used to be that mining companies coveted the South African gold reserves, but no more. Mines are getting deeper and therefore more expensive, the regulatory environment is what the president decides on the day would enrich him and his cronies most and the labour situation is just untenable.
In 5 years the industry will be 50% of what it is today and in 10 years will be non-existent. When someone discovers the next big platinum deposits in the vast unexplored regions of Asia or the Americas, the SA platinum mines will follow suit.
South Africa Inc. is about to run out of hostages to fleece in order to keep a corrupt political elite class in wealth and luxury…
All of this I bet you hope and clamour for! Smh
No Dannyboy, actually what I hope for is that we get a president who will be prepared to work for the country and not to enrich himself… I know this is a pipe dream, but still, this is my hope…
Mining is really capital intensive and needs a lot of investment. Mining in South Africa can only become more difficult as the high grade reserves are depleted, the mining gets ever deeper and more hazardous, less profitable etc. We should not make it even more difficult for ourselves thereby sacrificing billions of dollars in foreign exchange revenues and hundreds of thousands of jobs. People invest for one reason only, whether you and I like it or not, and that is to make profit on their investment. There is NO other reason for a private individual to invest his or her money.
Thank goodness for the shareholders, scuppering a huge equity issue right at the bottom of the market.