AngloGold’s Mponeng impairment hits basic earnings, but gold price buoys headline numbers

ANGLOGOLD Ashanti said it would write-down its Mponeng and Mine Waste Solutions (MWS) by some $385m or 92 cents per share following the proposed sale of the assets to Harmony Gold for some $300m (R4.44bn).

The transaction was announced today.

The impact was that basic earnings for AngloGold’s 2019 financial year would be between $26m and $0m – equal to a loss per share of between six cents and 0 cents – compared to a profit of $133m or some 32 cents/share in the previous year.

Excluding this non-cash item, however, AngloGold was due to report headline earnings of between $357m and $401m whilst headline share earnings would range between 86 and 96 cents for the year ended December 31. This is a significant improvement on the $220m headline earnings reported in AngloGold’s 2018 financial year, equal to 53c/share.

The group said today in a trading statement that the year-on-year improvement was born of the higher gold price coupled with weaker local currencies. This more than negated the lower gold output, higher operating costs mainly due to inflation and lower grades.

AngloGold said it also paid higher royalties and taxes whilst on the positive side income  from equity investments, including the Congo’s Kibali mine which it shares in joint venture with Barrick Gold, increased by $46m, equal to 11 cents per share.

The sale of Mponeng to Harmony consists of $200m on deal closure – expected in June – with the balance payable by means of a royalty of $260 per ounce on underground gold mined in excess of 250,000 ounces a year for six years starting January 1, 2021.

In addition, $20 per oz is payable on underground production located at deeper levels of Mponeng but which requires billions of rands in additional development capital. If some 8.53 million oz in reserves located in the deeper areas were mined, it would yield $170m to AngloGold at the stated royalty.