First-quarter underlying earnings almost halved at AngloGold Ashanti, as the world’s second-largest gold producer suffered lower production volumes and rising costs.

The group said on Friday that adjusted headline earnings had fallen to $77m in the three months to March 31, from $135m the previous time.

AngloGold said its move to reduce and improve its hedge position in January had lifted the price of gold it received in the first quarter by 7 per cent to $424/oz, even though actual gold prices were down slightly in the quarter. This improvement was, however, offset by a 5 per cent fall in production to 1.57m oz and a 5 per cent rise in production costs.

Bobby Godsell, chief executive, recognised that it was “a great frustration for investors that as the gold price had risen over the past year, margins had shrunk”.

He said one of the drivers for this was the weaker US dollar, which had triggered stronger operating currencies in the group’s producing regions, including Australia, Argentina, Brazil, Namibia and South Africa. Pressure had also come from price inflation in the group’s core materials, such as cement, tyres and steel.

Mr Godsell added that the group had budgeted an additional $50m in cost savings this year.

AngloGold said production had declined at the majority of its operations. In South Africa production fell 7 per cent, while after strong fourth quarters last year, production fell at its Morila mine in Mali and Cerro Vanguardia mine in Argentina.

But after five quarters of decline, the group’s largest Ghanaian mine, Obuasi, which was acquired in last year’s merger, showed signs of improvement. Production rose 2 per cent to 92,000oz and the group said it would hit the 100,000oz mark next quarter. Earlier this year, AngloGSold laid out a strategy to turn round Obuasi, including the acquisition of new drilling equipment, improved employee training and workshop facilities, and centralised and improved mineral resource management.

The group said it expected relatively flat production of 1.6m oz in the second quarter, at an average cost of $276/oz.

Total revenues were $667m in the quarter, up from $493m in the same period the previous year but a 5.5 per cent decline on the previous three months.

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