AngloGold Ashanti Faces Rising Costs Amid Declining Production in South African Gold Industry

Strategic Insights -

AngloGold Ashanti, the world's third-largest gold miner, continued to make progress in shedding its toxic gold hedge book in 2009, helping to narrow its annual pre-tax loss to R1.17bn ($153m) despite strong production costs. The company's total cash costs rose from $444 per ounce in 2008 to $514 in 2009, and are expected to rise further to $590-$615 this year, as it faces increasing energy and labor costs. Meanwhile, gold production fell 8 per cent to 4.6m ounces in 2009, and the trend of rising costs amid declining production is common in the South African gold industry.

Key Takeaways:

  • AngloGold Ashanti's total cash costs rose from $444 per ounce in 2008 to $514 in 2009, and are expected to rise to $590-$615 this year.
  • The company's gold production fell 8 per cent to 4.6m ounces in 2009.
  • AngloGold Ashanti has shed its toxic gold hedge book, reducing the negative value of the hedge book from $2.18bn in 2008 to the end of 2009.
  • The company's pre-tax loss fell from R18.1bn to R1.17bn in 2009, largely due to hedge book writedowns.
  • Despite ongoing pressures on profitability, AngloGold raised its final dividend to 70 South African cents, a 30 per cent increase from the 2008 amount.
  • The gold price continues to be driven by "safe haven" investment interest, with gold investment exceeding gold jewelry demand for the first time since 1980.
  • AngloGold Ashanti's share price fell 0.34 per cent to R29,400.
  • The company is focusing on increasing its exposure to the gold price, with plans to look for "right opportunities" to increase its exposure.

Statistics:

  • AngloGold Ashanti's total cash costs rose from $444 per ounce in 2008 to $514 in 2009 (source: AngloGold Ashanti annual results).
  • AngloGold Ashanti's gold production fell 8 per cent to 4.6m ounces in 2009 (source: AngloGold Ashanti annual results).
  • AngloGold Ashanti's negative value of the hedge book on a mark-to-market value was $2.18bn in 2009 (source: AngloGold Ashanti annual results).
  • The gold price rose to above $1,000 per ounce (source: various).
  • AngloGold Ashanti's pre-tax loss fell from R18.1bn to R1.17bn in 2009 (source: AngloGold Ashanti annual results).
  • AngloGold Ashanti's dividend increased by 30 per cent to 130 cents in 2009 (source: AngloGold Ashanti annual results).

Sources:

  • AngloGold Ashanti annual results (2009).
  • Bloomberg.
  • Reuters.
  • AngloGold Ashanti company statement.