FULL exposure to soaring gold prices and an overall production boost bumped up AngloGold Ashanti’s group earnings during the first six months of this year, despite the setback of flooding and a pit wall failure at its only WA gold mine.
AngloGold is based in South Africa and has a primary listing on the Johannesburg Stock Exchange. It also has listings on the NYSE, LSE, ASX, Euronext Paris and Brussels, and the Ghana Stock Exchange. As Africa’s largest gold producer, AngloGold has more than 20 existing mines across several continents including Africa, South America, the US and Australia, and a portfolio of projects under development.
Record earnings during the June quarter 2011 hit US$342 million after production and costs, a 68.5 per cent surge on the March quarter’s $203 million.
The first half of 2011 brought net operating cash inflow, before costs and after tax, of US$1.148 billion, up from $565 million for the same period in 2010, and $498 million in 2009.
In addition to increasing gold output, AngloGold was, for the first time, exposed to rising gold prices during the first six months of this year: the company having eliminated its only remaining major hedge
book in October last year, giving it open to the market gold price since then. As well its transparency to the soaring gold prices, the company said in its June quarterly report that “…cost performance was bolstered by improved production and efficiencies at key assets, greater by-product credits, and stockpiling of ore during the shutdown and repair of the SAG [semi-autogenous grinding] mill at Geita during the quarter”.
Production AngloGold managed to produce 1.086 million ounces of gold during the three months ending in June this year, with cash costs averaging US$705 per ounce of gold. Output was a 5 per cent rise on the March quarter’s 1.039moz gold and cash costs were down slightly from the March period’s $706/oz. “Production and total cash costs for the three months to 30 June 2011, a period impacted by five public holidays and a local government election in South Africa, were broadly in line with guidance,” the company stated.
“[However,] operations were impacted during the first half of the year by a number of factors, which would, in themselves, have led annual production to the lower end of initial guidance of 4.55moz to 4.75moz.” Despite an overall boost to production during the June quarter, AngloGold’s Australian Sunrise Dam gold mine, 56 kilometres south of Laverton in WA, lagged during the period – largely due to rains in
February and March causing flooding, and the subsequent slippage of a pit wall at the mine.
The heavy rainfall and flooding that occurred earlier this year continued to wreak havoc at Sunrise Dam during the June quarter. Open pit mining halted during the period to enable AngloGold to dewater the underground mine while extra support work required for the switchback to the main access ramp was also carried out, which extended the time needed to repair operations.
A full return to normal activities at the mine wasn’t expected until the December quarter this year.
Sunrise Dam’s output for the June period fell 15 per cent to 61,000oz from 72,000oz in March, while cash costs rocketed more than 30 per cent from US$1153/oz to $1516/oz of gold.
The WA gold mine wasn’t the only AngloGold operation that suffered from production issues during the quarter. A seismic event at the company’s Tau Tona mine in South Africa led to the cessation of mining at the Ventersdorp Contact Reef pillar and a six-day strike stopped production at all of its South African operations for that period. In addition, a drought at its Cripple Creek & Victor Gold Mining Company mine
in the US impacted output from the heap leach pad.
Despite this, the US mine produced 70,000oz gold – up 23 per cent on the three months ending March this year. Unfortunately, total cash costs also rose – up 11 per cent to US$546/oz. Tau Tona managed to post an 11 per cent increase in gold output, extracting 60,000oz of gold, with cash costs falling 1 per cent to US$848/oz.
“As a result of the operational impacts, the year guidance is being revised to around 4.45moz. The lower production, along with higher fuel prices and stronger local operating currencies in Brazil and South Africa, resulted in total cash cost guidance of $725/oz to $740/oz,” AngloGold said in its June report.
The gold estimate for the year is a mild 6 per cent drop to from the higher end of its previous target of 4.75moz, with the downward revision mostly attributable to the production problems at Sunrise Dam.
Although AngloGold managed to maintain an overall rise in output, the delinquent mines have influenced projected cash costs, which have increased to sit between US$725/ oz and $740/oz for gold, up from the previous projection range of $660/oz to $685/oz. “We did a good job of containing costs and
growing production, despite some difficult production issues,” AngloGold chief executive officer Mark Cutifani said. The mine that recorded the lowest cash costs during the June quarter was Cerro Vanguardia in Argentina, which posted a 7 per cent increase in production to 48,000oz of gold and a total cash cost decrease of 39 per cent to US$264/oz. Exploration and reserves In the six months to June 2011, total reserves rose 4 per cent from 71.2moz to 74moz, and resources grew from 220moz to 232.6moz. Reserves were mainly boosted by Cripple Creek, Geita in Tanzania and Obuasi in Ghana. AngloGold spent US$346 million on exploration and development during the June quarter. Of that, $126 million was spent on growth projects. Exploration expenditure totalled $61 million in the Americas, $30 million in continental Africa, $19 million in South Africa and $16 million in Australasia. In late July this year, Anglo announced a 540,000oz increase in the gold ore reserve estimate at its Tropicana gold project, 330km east-northeast of Kalgoorlie. Tropicana is a joint venture between AngloGold and Independence Group. AngloGold holds a 70 per cent stake and Independence Group owns the remaining 30 per cent.
At the time of writing, total reserves for Tropicana were 56.4mt at 2.16 grams per tonne of gold for 3.91moz of gold. The increased reserve estimate was largely due to the inclusion of the Boston Shaker deposit, which added 243,000oz of gold.
Tropicana is the biggest gold discovery inAustralia in more than a decade. The deposit was identified in 2005, and by the end of 2009, the project had a measured, indicated and inferred resource of 5.01moz gold. After a bankable feasibility study, project development began in November last year for open cut mining of the Tropicana and nearby Havana deposits. The project is initially expected to produce
about 3.45moz of gold for 10 years. Cash costs are anticipated to sit between A$710 and $730/oz. However, the first three years of mining at Tropicana are expected to be more economical, with projected gold production of about 490,000ozpa and cash costs sitting between A$580 and $600/oz. Total capital outlay for the project is estimated to be around A$740 million and first gold is anticipated by the end of 2013. AngloGold said the deposits would be open pit and that a mining contractor would extract ore using conventional drill and blast methods, and truck it to a processing facility. Uranium and silver operational side kickers
As a by-product of its gold production, AngloGold also produces small amounts of uranium and silver. “In addition to being Africa’s largest gold producer, AngloGold is also South Africa’s largest uranium producer,” the company said. AngloGold’s total uranium production for 2010 was about 1.46 million pounds. Uranium production for the June quarter was 338,000lb and silver was 642,000oz. The company’s foot in the uranium industry’s door got bigger in July this year, when it acquired a 19.79 per cent stake in Canadian company First Uranium for US$30 million.
“First Uranium is incorporated in Canada, with a primary listing on the Toronto Stock Exchange and a secondary listing on the JSE,” AngloGold said. “First Uranium is a gold and uranium producer with two primary assets, both located in South Africa: the Ezulwini mine outside Westonaria, Gauteng; and the Mine Waste Solutions tailings recovery operation adjacent to AngloGold’s existing Vaal River operations.”Near-term future of gold “During April, the gold price continued to benefit from ongoing economic uncertainty in Europe and the US, receiving an additional boost from the threat to the triple A credit rating of the US,” AngloGold said.
“[Gold] bullion traded to an intraday high of $1575/oz at the start of May. “However, this momentum was not sustained and after a brief correction, the price traded sideways for the balance of the [June] quarter.” Overall, despite some volatility, the average gold price rose 4.5 per cent during the June period, making it gold’s 10th consecutive quarter of growth. “[This] represents gold’s longest winning streak since the 1920s.” The gold major said it believed the ongoing volatility of European markets would continue to drive the growth of the precious metal’s price.
By Lorna Seatter