AngloGold Ashanti CEO Srinivasan Venkatakrishnan. Picture: MARTIN RHODES
AngloGold Ashanti CEO Srinivasan Venkatakrishnan. Picture: MARTIN RHODES

AngloGold Ashanti will replace the production lost from SA in a massive asset restructuring as its historical home becomes less relevant, says CEO Srinivasan Venkatakrishnan.

The restructuring would possibly include adding output from its smaller Sadiola mine in Mali, along with the redesigned Obuasi mine in Ghana and further growth in Australia.

AngloGold, once the dominant producer in SA, used its domestic assets to grow internationally. It, like Gold Fields, is a shadow of its former self in SA, which is now ranked eighth among global gold producers.

The companies have moved away from SA’s deep-level, expensive, labour-intensive and dangerous mines to shallower, more mechanised operations in other countries. Africa outside SA has become the largest source of gold for AngloGold.

The company intends cementing this position by reinvesting $590m in Obuasi, which will be a 400,000oz-a-year mine, offsetting the decline in gold from SA, with low-cost output at a maximum of $850/oz against more than $1,245/oz in SA in 2017.

In its production update for the first quarter of 2018 AngloGold showed a fall in net debt to $1.77bn from $2bn a year earlier as it banked cash from asset sales.

Production from retained operations rose 6% to 773,000oz at an all-in sustaining cost of $1,002/oz, giving it a 25% margin to the received gold price for the three months.

"The stock has been very weak over the past few days mainly as a result of renewed concerns around SA.

"This should allay some fears and we expect the stock to outperform peers post this," said Goldman Sachs analysts.

The Obuasi mine had long been an underperformer, but AngloGold decided to stop the operation in 2015 and redesign it as a lower-cost mine subject to agreements with the government. The Ghanaian parliament was expected to ratify them in May, Venkatakrishnan said.

As important as Africa is for AngloGold, generating just less than half of its annual gold production, this is where it faces two of its largest challenges.

Geita — its single-largest mine — is operating under a cloud as the company and the Tanzanian government discuss new mining regulations that bumped up royalties by two percentage points and export tariffs by one percentage point. AngloGold is owed $84m by the state over which it has started an international arbitration.

In the Democratic Republic of Congo, the government has introduced new mining laws, which miners say will curtail investment and financially constrain existing operations. AngloGold shares the new Kibali mine with seasoned African miner Randgold Resources.

Sadiola might be closed or sold if Mali did not agree to a more favourable tax and fuel rebate for the mine that generates about 60,000oz of gold a year, Venkatakrishnan said.

In the first quarter, AngloGold sold mines in SA that contributed 385,000oz of gold to the group, shut the TauTona mine, which had added another 91,000oz, and stopped technology development that was putting in another 11,000oz.

SA has slipped from more than 1.3-million ounces in 2013 to about 400,000oz, the smallest of any region in which the company has mines. SA now accounts for 14% of the group’s production. This would fall as international output was expanded, Venkatakrishnan said. The decision to shut and sell mines was based purely on their performance rather than the regulatory and political environment in SA, he said.

AngloGold’s share price has fallen about 15% in 2018 to date, similar to its drop for all of 2017, leaving it with a market capitalisation of about R44.8bn. It was little changed on Tuesday, closing at R109.16.

seccombea@bdfm.co.za