Strong rand clips AngloGold’s profits

Most export-oriented South African gold companies saw their 2003 earnings hampered by a strong rand, and AngloGold (AU-N) was no exception.

Higher currencies in most other operating regions also affected the company’s bottom line, as did lower grades at several mines.

AngloGold reported an operating profit (adjusted to exclude non-hedge derivatives) of US$559 million last year, down 12% from 2002. Adjusted headline earnings (before non-hedge derivatives and marked-to-market of debt financial instruments) were US$282 million, down 23% from the previous year.

Gold production last year totalled 5.62 million oz., down 5% from a year earlier. The dollar spot-gold price was 17% higher for the year, but 16% lower in rand terms.

South African gold producers have long reaped benefits from rand depreciation against the U.S. dollar. But over the past two years, the rand lost almost 40% of its value against the U.S. dollar, only to recover all of that and more, to strengthen by almost 60% against the 2001 year-end exchange rate. As a result, AngloGold reported a whopping 42% jump in cash costs last year, to US$229 per oz.

Cash costs were even higher in the last quarter of 2003, at US$249 per oz., while gold production was steady at 1.39 million oz. Adjusted headline earnings in the latest quarter totalled US$75 million, up 12% from a year ago. The adjusted operating profit was up 1%, at US$137 million.

On the operations front, AngloGold notes that the Cripple Creek and Victor mines in Colorado, and Cerro Vanguardia in Argentina, turned in improved performances in the latest quarter after steps were taken to overcome technical difficulties. However, grades continued to fall at the Morila mine in Mali. Morila produced 48,000 oz. in the latest quarter, 40% less than a year earlier, while cash costs rose 67% to US$182 per oz.

Meanwhile, AngloGold is forging ahead with plans to merge with Ashanti Goldfields (ASL-N). The transaction is expected to close in April, after required approvals from the government of Ghana are in hand. Once the deal is completed, AngloGold expects its gold production to increase to about 6.6 million oz. from 5.6 million oz. Unit cash costs are expected to increase to US$238 per oz.

The past year has been a challenging one for Ashanti Goldfields, with higher production costs trumping the benefits of higher gold prices.

The company achieved its annual production target of 1.6 million oz., but total cash costs shot to US$222 per oz., up 11.5% from US199 per oz. a year earlier.

The company posted earnings (before exceptional items) of US$54.8 million for 2003, down from US$79.7 million a year earlier. After exceptional items, earnings came in at US$49.2 million, down from US$56.2 million a year earlier.

Production at the Iduapriem mine in Ghana rose to a record 243,533 oz., up from 185,199 oz. in 2002. The Geita mine in Tanzania also set a new production record last year, at 661,045 oz., up from 579,043 oz. in 2002.

The Obuasi and Siguiri mines in Ghana and Guinea, respectively, performed below expectations, owing to lower ore grades and recoveries.

Ashanti’s reserves at year-end (calculated at US$350 per oz.) stood at 25.7 million equity ounces, down from 27.8 million oz. at the end of 2002.