AngloGold fortunes lifted by rich seams outside SA

ANGLOGOLD Ashanti’s drive to reduce costs has received a shot in the arm with the start of production at two new mines which will contribute more than 600,000oz of annual gold production for the group at costs well below the group’s current average.

Both new mines are located outside SA so there is no local economic benefit, but AngloGold CEO Srinivasan Venkatakrishnan is hopeful that new mining technology could transform the group’s deep-level South African operations.

AngloGold mines about 3.9-million ounces of gold a year but is aiming to remove “unprofitable ounces” from existing production through asset sales and the reassessment of mining plans.

The new mines are Kibali in the Democratic Republic of Congo and Tropicana in Western Australia. Both have been brought into pro- duction ahead of schedule and within budget and — at full output — will account for about 15% of total present group production.

Kibali is a joint venture with Randgold Resources, which acquired the mine in 2009 in the takeover of the former Moto Gold Mines. Both groups own a 45% stake in Kibali, with 10% owned by Congo parastatal Sokimo.

AngloGold owns 70% of Tropicana, which it found in 2005 after striking an alliance with Australian junior Independence, which owns the other 30%. Both mines will be major producers with the potential to become even larger as the mining groups explore the surrounding regions looking for extensions to the known ore bodies.

Mr Venkatakrishnan said Tropicana was a “tier one asset”, meaning it is a low-cost, quality operation which “only scratches the surface” of a new gold district.

He said the initial focus was find- ing additional ore close to the plant.

Tropicana has an estimated life of more than 10 years and the mine’s total average annual production will be between 470,000oz and 490,000oz during the first three years of operation

Total cash costs for the first three years of production are estimated at A$590/oz to A$630/oz ( $554/oz to $592/oz). AngloGold’s average

cash cost of production for the June quarter was $898/oz.

Kibali is larger and will produce about 600,000oz of gold a year in total at total cash costs below $700/oz for the first three years.

Cash costs tell only part of the story because they exclude the capital expenditure and development costs.

Mr Venkatakrishnan said in his presentation to the Denver Gold Forum this week that AngloGold’s capital expenditure would fall sharply next year now that the Tropicana and Kibali mines were operational while he intended making major savings through direct cost reductions, corporate cost savings and exploration rationalisation.

JP Morgan Cazenove analysts Steve Shepherd and Allan Cooke said AngloGold’s plan was to save about $100/oz through cuts in exploration and corporate costs and $100/oz through savings in direct operating costs.

Numis Securities said there were “signs that things are improving for AngloGold”.

“The Tropicana and Kibali projects lift free cash flow significantly and lower group costs.”