Gold miner AngloGold incurs a headline loss of $93 million in last six months

ANGLOGOLD Ashanti, the world’s third biggest gold producer, yesterday reported that it had plunged to a $93 million (R1.22 billion) headline loss in the half year to June on currency volatility, inflation, the provision for the silicosis claim and retrenchments at its South African operations.

AngloGold said it was also weighed down by lower grades in South Africa, rising input costs and the new pieces of legislation in Tanzania, which included that the government acquire a 50 percent stake in any mining asset.

The company said the only positive during the period was the recording of the third successive quarter free of fatalities for the first time in its history, including 339 days in ultra deep South African gold mines.

AngloGold said that the headline loss included a $47m provision for the retrenchments of 8 500 employees at its operations in South Africa, and $46m for those who contracted silicosis from its domestic underground operations in the class action lawsuit that the company is facing alongside its peers in Sibanye Gold and Harmony Gold.

The company reported that it had impaired $86m for certain of its operations in South Africa and said the strengthening of the Brazilian real and rand had resulted in a free cash outflow of $161m compared to positive free cash flow of $108m for the first half of 2016.

Confident

Debt levels have climbed marginally by 3 percent in the half year to June to $2.151bn from $2.09bn at the same time last year.

Chief executive Srinivasan Venkatakrishnan said that he was confident of the company’s ability to meet its full year guidance despite the currency headwinds.

“Mining is indeed a longterm game, and as managers of the world’s largest emerging market gold producer, we need to take the long-term view in managing some of the volatility that we see, whilst keeping a tight rein on capital,” Venkatakrishnan said.

AngloGold said production for the period came in marginally lower at 1.748 million ounces at a total cash cost of $796 an ounce, compared to 1.745 million ounces at $706 an ounce in the first six months to June 2016.

The company said that all-in sustaining costs were up 18 percent to $1 071 an ounce, and that it was working on plans to cut costs across the group.

Despite lower grades in South Africa, AngloGold reported robust production at international operations with 25 percent improvement at the Siguiri Gold Mine in Guinea and an 11 percent improvement at the Kibali gold mine in the Democratic Republic of Congo.

Production at the Tropicana Mine in Australia was 8 percent higher, while production at Tanzania’s Geita mine was flat.

AngloGold said it was concerned after the Tanzanian government included a new legislation which also included an increase in the royalty rate and the imposition of a clearing fee for the export of gold.

Rene Hochreither, a mining analyst at Noah Capital Markets, said the results were a “bit of a shocker”.

“They have reported a $93m headline loss, this is a massive swing, it is 260 percent lower that the $159m headline earnings reported in the first half of 2016,” Hochreither said.