The bottom end of the commodities cycle continues to inflict pain on mining companies and Anglo Gold Ashanti announced even greater losses on Monday.
The world’s third largest gold miner, Anglo Gold Ashanti, on Monday reported a loss of $127-million in the three months ending June, compared with a loss of $89-million over the same period last year. The low metal price has been a significant burden for South Africa’s “sunset” industry. The price of gold slid 12.5% compared with last year fetching a cash cost of $718 per ounce in the second quarter of 2015, as opposed to $833 per ounce in the second quarter of 2015.
Despite this, the company said production levels were still better than expectations, as were cost cuts, and as a result the company was able to generate $71-million in free cash flow in the second quarter thanks to strong performance from international mines and a recovery from its South African operations (the profits for which improved by $7-million compared with the previous quarter, but were $40-million lower year-on-year).
The markets reacted positively to the results on Monday, and following their announcement, the AngloGold Ashanti share price rose from R80.59 per share to R87.34. The share has lost 55% in value over the past year. AngloGold Ashanti is the third largest gold producer in the world (after Barrick Gold and Newmont mining) and produced 138 tonnes of gold in 2014.
With this results announcement, as with others before, AngloGold Ashanti chief executive Srinivasan Venkatakrishnan emphasised that the company was committed to keeping costs down.
“Cost management will continue to be a key driver for us,” said Venkatakrishnan in a news release. AngloGold Ashanti said it has responded to lower gold prices by cutting overhead expenditure by more than two-thirds since the end of 2012, while lowering all-in sustaining costs by about a quarter over the same period. The group said it had introduced two new, low-cost mines, sold or closed higher-cost assets and removed unprofitable ounces from its portfolio.
The company also sold its Cripple Creek & Victor mine (CC&V) in the US for $820-million in June of this year to reduce net debt, and is now intensifying efficiency efforts to complement the cost benefit it receives from weakening local currencies and plummeting oil prices.
Although production levels beat expectations, they were still lower than for the same period last year. One of the reasons for this, the company said, was “continued safety-related interruptions in South Africa.”
The alleged overuse of safety-related interruption by government was a prominent issue raised by mining companies in an emergency meeting called by the South African minister of mineral resources two weeks ago. A task team has since been established to address these and other challenges which have contributed to significant hardships faced by local mining companies.
The results in the very least support AngloGold Ashanti’s argument that they cannot afford the wage demands unions have put forward in the current round of wage negotiations.
AngloGold Ashanti is one of four gold producers currently in wage talks with mining unions, which appeared last week to have failed when both the National Union of Mineworkers and the Association of Mineworkers and Construction Union rejected the “final” wage offer that was put on the table. The Chamber of Mines said that not all unions accepted the final offer, and so it reverted back to its previous “firm offer”, which proposes that entry-level employees receive wage increases of between 7% and 13%.
“The NUM, in turn, has advised that it will formally declared a dispute and refer the matter to the Commission for Conciliation, Mediation and Arbitration for mediation,” the Chamber said. The NUM have meanwhile begun mobilising members to prepare for a strike, which it has described as “inevitable”.
Sunday marked the three-year anniversary of the so-called Marikana Massacre where 34 miners were shot down by police during a strike on the platinum belt where Rock Drill Operators demanded a wage of R12 500. The AMCU, the majority union in the platinum belt but not yet in gold, have asked gold mining companies for basic salary of R12 500 for all underground workers.
The gold price reached all-time highs of around $1 900 per ounce in the second half of 2011 but has fallen close to $1 080 per ounce.
But crisis elsewhere did give the metal price a much-needed boost last week when the Chinese government devalued its currency for three consecutive days in a row. This followed a pegging of the Yuan for four months prior to protect it from depreciating, but resulting in less competitive exports.
The sudden move by China caused panic in the markets as fears grew that it in fact signalled a far more dire state of affairs in the Asian giant’s economy than realised. This further fueled concern that the US Federal Reserve would have to hold off on an interest rate hike for longer.
In times of uncertainty Gold becomes a safe haven for investors to put money into. As a result, the metal price jumped back up above $1 120 per ounce until markets were placated by assurances by the People’s Bank of China that it did not want to see a collapse of the Yuan.
AngloGold Ashanti estimated its production would be between 900 000 and 950 000 ounces in the third quarter of the year with total cash costs of $770 to $820 an ounce. The company expected the price of Brent crude oil (currently at $49 a barrel) to average $62 a barrel for the quarter.
“Both production and cost estimates assume neither labour related interruptions, power, or other disruptions at our operating mines,” the company noted. “Other unknown or unpredictable factors could also have material adverse effects on our future results.”
Lisa Steyn Mail & Guardian