AngloGold bleeds as hedging cuts profit
January 28, 2005
By Eric Onstad
Johannesburg - The world's second-largest gold producer, AngloGold Ashanti, yesterday posted a 7 percent fall in adjusted fourth-quarter operating profit as costs climbed and hedging dampened its exposure to a higher gold price.
But the group said it had slashed 2.2 million ounces from its hedging programme - whereby gold is sold in advance at fixed prices - because it was bullish on the outlook for gold prices.
"Their earnings would have looked much better if it hadn't been for the hedge book," said Stephen Roelofse, fund manager at Sanlam Investment Management.
In the first quarter, the firm should reap the benefits of revamping its hedging book and see higher profits if gold is steady or higher than the current level of around $425 per ounce.
The company injected $159 million (about R948 million) into the restructuring, but most of those costs are reflected in the average price of $396 per ounce AngloGold received for selling its gold in the quarter, $38 less than the average spot price.
AngloGold is seen as a conservative investment because of its geographic spread and its hedging programme, which smoothes out fluctuations in the volatile gold price.
Its shares, which fell 37 percent last year as a buoyant rand hit profits, fell R4.89 in Johannesburg to R187.11. The gold mining sector was down 2.26 percent.
Operating profit, adjusted to strip out hedging that was not realised in the quarter, fell to R586 million from R631 million the previous quarter.
Adjusted headline earnings per share (EPS) soared 129 percent to R2.43, mainly because the firm took a deferred tax credit of $59 million. Headline EPS is adjusted to exclude capital and non-trading items and non-realised derivatives.
"I think they took advantage of that tax credit and got a huge lift-up from that and could afford to restructure their hedge book this quarter without influencing their adjusted earnings," Roelofse said.
Overall gold output for the quarter rose 4 percent to 1.7 million ounces, but strong performances at some mines masked continued underperformance at Ghanaian operations, which were acquired last April when it took over Ashanti Goldfields.
The huge Obuasi mine slipped into the red, posting a cash operating loss of $4 million.
Chief executive Bobby Godsell said he had warned that restructuring would take four to six quarters and pledged that improvements would be seen this year.
"The operational integrity of the company is now hugely driven by achieving the Obuasi turnaround ... We're absolutely tying ourselves to improved performance during 2005."
Output at Obuasi this year is expected to surge to between 450 000 and 500 000 ounces, from 255 000 in 2004.
Total output in 2005 is seen rising to 6.5 million ounces from 6.06 million last year, AngloGold forecast.
The group, in the midst of a cost cutting campaign, said total production costs rose by 4 percent to $354 per ounce, partly due to stronger operating currencies.
AngloGold Ashanti, majority owned by diversified miner Anglo American, also said it had approved a $121 million deepening project at its Cuiaba mine in Brazil. It is due to boost output there by around a third to 250 000 ounces.
The company said in London it had signed a new three-year, $700 million revolving credit facility to replace a $600 million facility that matured next month.
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