August 6, 2012 5:52 pm

AngloGold profit tumbles on lower prices

Rising costs, higher capital expenditure and a lower gold price caused a drop in AngloGold Ashanti’s second-quarter earnings, but the world’s third-largest gold producer said its production targets for the year remained on track.

The group’s adjusted headline earnings in the three months to the end of June were $253m compared with $342m in the same period of 2011, and were 41 per cent down on the previous quarter, it reported on Monday.

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Production, however, was higher than expected for the quarter at 1.07m ounces, driven by strong performances in AngloGold’s operations in Africa and the Americas, as well as a recovery in its South Africa production, the group said.

The company said it expects to meet its full-year production target of 4.3m ounces to 4.4m ounces, and is moving ahead with the expansion of its Cripple Creek and Victor mine in Colorado, as well as the development of two mines in the Democratic Republic of Congo and a new mine in Western Australia. The latter three are scheduled to come on line in 2013, which would lift AngloGold’s production towards 5m ounces, with the group’s capital expenditure forecast at about $2.2bn for this year.

“It’s about building the international breadth of the business ... and we are trying to focus on getting our ebitda – currently around $3bn – to see it at $4bn within three years,” Mark Cutifani, AngloGold’s chief executive, told the Financial Times.

South Africa accounts for about a third of AngloGold’s revenue, but the sector there has been in decline for years as the country’s mature mines become deeper and more challenging to operate.

Mr Cutifani is forecasting a pick-up in gold prices in the second half of the year towards $1,700 an ounce. Gold is currently trading about $1,610 an ounce.

“We are cautiously optimistic on the gold price,” Mr Cutifani said. “Europe is a mess … China is still buying gold; some of the other countries are, including Russia, for what we can see, so I think in that environment gold stands up reasonably well and the second half is usually historically better for gold.”

FT Comment

South Africa’s mining industry was outperformed by its peers throughout the commodities boom of the past decade, with the blame heaped on numerous reasons ranging from infrastructure bottlenecks to rising costs and policy uncertainty. In the gold sector the problems were exacerbated by the ageing nature of its mines, which are becoming increasingly costly and technically challenging to operate as they get ever deeper. Mr Cutifani believes the solution lies in developing new technologies that would see a shift to more automated mining. But that concept still has to be proven, so focusing on developing new mines outside of South Africa would appear to be logical path to offsetting declines in AngloGold’s home market.

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