AngloGold Ashanti Posts Strong Earnings

Higher spot gold prices, a lower hedge discount and weaker local operating currencies all contributed to strong first-quarter results for AngloGold Ashanti (AU-N, AGD-L).

AngloGold posted earnings of US$150 million or US42¢ a share in the three months ended March 31, compared with a loss of US$17 million or US5¢ a share, in the previous quarter.

“Our strategy of reducing the hedge book by almost half over the past year is yielding real results, giving a good kicker to our received gold price,” Mark Cutifani, AngloGold’s chief executive, said in a statement.

In its attempts to reduce its hedge book, the company delivered 154,000 oz. of gold against commitments during the quarter. This helped achieve a 5.6% discount to spot gold prices, improving on the target of a 6% discount this year.

Hedge commitments stand at 5.84 million oz. gold as of March 31, which represents an overall reduction of nearly 50% over the past year.

While the average spot gold price rose 14% in the first quarter compared with the previous quarter, the price AngloGold received for its gold increased by 25%.

Total cash costs for the group rose 5% to US$445 per oz.

Production, however, was down 13% from the previous quarter to 1.1 million oz. gold. That was partly due to the traditional 10-day yearend break at South Africa’s mines. But two fatalities in its South Africa operations also affected production; the company lost three production days across its entire South Africa division for safety interventions. (There have been four fatalities so far in the second quarter.)

Production was also affected by extended maintenance at its mill at the Geita gold mine in Tanzania.

Looking ahead, AngloGold says the government of Colombia has decided to grant the company exploration permits covering a portion of the La Colosa concession.

AngloGold has estimated that it must invest about US$200 million over the next three to four years to broaden its knowledge of the deposit and claims it is “one of the most significant gold discoveries of the past decade and the first significant gold porphyry discovery in the Colombian Andes.”

“The La Colosa development could ultimately be a game-changer not only for AngloGold Ashanti, but also for Colombia’s mining industry,” Cutifani said.

In May 2008, AngloGold completed a JORC-compliant inferred resource estimate that, at a cutoff grade of 0.3 gram gold per tonne and a gold price of US$1,000 per oz., delineated 468.8 million tonnes grading 0.86 gram gold per tonne for total contained gold of 12.9 million oz.

AngloGold owns 100% of the project, which is 150 km west of Colombia’s capital city, Bogota.

Exploration drilling on the property has defined porphyry-style mineralization at a grade of greater than 0.3 gram gold extending over a strike length exceeding 1,500 metres and a width of 600 metres.