AngloGold to be more cautious on forecasts

AngloGold Ashanti will be more cautious when issuing production forecasts in SA because of the increased impact of safety stoppages.

Johannesburg - AngloGold Ashanti will be more cautious when issuing production forecasts in South Africa because of the increased impact of safety stoppages, which caused output to drop by 82 800 ounces - worth $101 million at current prices - in the first nine months of the year.

With seven fatalities at its South African operations this year, the world’s third-largest gold producer has had a higher number of temporary closure notices issued under section 54 of the country’s Mine Health and Safety Act, where the Department of Mineral Resources can shut down operations if they are deemed unsafe.

While the company admits it needs to improve safety, Chief Executive Officer Srinivasan Venkatakrishnan has argued that the DMR is overly zealous in closing entire operations, even for minor infractions. As such, the company is considering building such shutdowns into its outlook forecasts.

Read also: AngloGold Ashanti’s cash flow soars

“Given the unpredictable nature of safety stoppages, I think we’ll take a more prudent or punitive stance internally on a go-forward projections for the production from South Africa, starting from next year,” Venkatakrishnan said on a call with reporters Monday.

Though it’s too early to give production forecasts for 2017, “I don’t think we’d go in lower than this year,” Venkatakrishnan said. The company will probably produce 3.6 million to 3.65 million ounces this year at an all-in sustaining cost of $980 to $1 010 an ounce, it said in a statement.

Deep mines

AngloGold’s labor-intensive mines in South Africa are the deepest in the world and in some cases more than 50 years old. With 52 000 employees operating heavy machinery at depths of as much as 4 kilometres (2.4 miles), seismic activity and human error are common, making the mines among the world’s most dangerous.

Even so, the company argues that the DMR is often too heavy-handed in its approach to closing mines, which incurs high costs. AngloGold last week won a court ruling blocking a section 54 notice that had closed down is Kopanang mine last month.

The DMR closed the operation due to incorrectly stored explosives at one level where 91 of the mine’s 4 218 employees were working. Judge Andre van Niekerk said in his judgement officials weren’t proportionate in their actions, using “a hammer to crack a nut.”

AngloGold’s adjusted earnings before interest, taxes, depreciation and amortisation climbed to $395 million in the three months ended September 30, compared with $291 million in the same period in 2015, the Johannesburg-based company said Monday in a statement. Free cash flow improved to $161 million from an outflow of $50 million the year before.

Even so, production from continuing operations in the quarter were down 5.8 percent to 900 000 ounces, while all-in sustaining costs rose 14 percent to $1 071 an ounce. The company’s average gold price received was $1 334 in the quarter, 19 percent higher than a year earlier.

The higher costs were “exacerbated by a poor performance in South Africa, a delay in accessing higher grades in Brazil, capital expenditure absorbed over fewer ounces, and strengthening currencies,” Venkatakrishnan said. “Work is already well advanced to turn this around.”

BLOOMBERG