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29.07.2004 Business & Finance

Anglogold Ashanti cuts cost costs at it's Ghana base

By Business Day

Anglogold Ashanti hits rich vein AngloGold Ashanti has already been able to achieve annual savings of $11.4-million by cutting costs at Ghana-based Ashanti, which the South African gold producer acquired just a few months ago, AngloGold Ashanti vice-president Charles Carter said yesterday.

The cut in corporate costs is one of several benefits already flowing from the merger. Carter said combining exploration efforts, and the start of work to improve the performance of the Obuasi gold mine in Ghana, previously an Ashanti asset, were also helping the group.

Cost savings

Carter told the Diggers & Dealers forum in Kalgoorlie, Western Australia that the merger had boosted the former AngloGold's gold reserves by 33 percent.

He said the merger enabled AngloGold Ashanti to use its cash flow and balance sheet to add value to Ashanti's operations. The South African company, which is headed by Bobby Godsell, had also provided technical expertise.

Carter said the closure of Ashanti's London office, the relocation of some staff to SA and the rationalisation of the remaining management, had led to cost savings.

Combined with these measures, the repayment of Ashanti's revolving credit facility, the termination of consulting contracts, restructured insurance contracts and procurement have led to annual savings of $11.4-million at the merged company.

He said it had originally been expected that there would be total annual savings of $50-million.

"We are already pretty close to that, and we haven't covered the full range of our intentions," he said.

More benefits from merger

He said the really big benefits of the merger would start to flow in four to six quarters, after the turnaround of Obuasi delivered more gold at a lower cost per ounce.

Carter said there were two elements to the company's plans for Obuasi. The first involved cost-cutting and production improvements in the area currently mined , with the second phase tapping the potential of deeper deposits.

The rationalisation of the former AngloGold and Ashanti exploration teams had led to the termination of exploration projects in Sierra Leone, Burkina Faso and Côte d'Ivoire.

DRC targeted next

Meanwhile, exploration drilling is being planned at Kimin in Democratic Republic of Congo. "While this is obviously a tough environment right now, we are looking forward to the opportunity to fully explore the properties we have in the Congo, believing that we now have access to potentially exciting growth prospects in Central Africa," said Carter. "The Congo is potentially a huge gold province."

He said with its African experience, AngloGold Ashanti was likely to be more comfortable operating in the Congo than some of its competitors from North America.

AngloGold Ashanti down under

Meanwhile, the head of AngloGold Ashanti in Australia, Peter Rowe, said the company has taken a stake in Trans Siberian Gold, giving it a platform to enter Russia.

AngloGold Ashanti is discussing the investment with the South African Reserve Bank, as current rules do not allow it to hold a minority stake in a foreign company for more than a year. The company gave no details on whether AngloGold Ashanti planned to take a larger stake, or would wish to remain a minority shareholder.

Mongolia and China are also in AngloGold Ashanti's exploration portfolio, Rowe said.

"As traditional ore bodies mature and the acquisition and discovery of ore bodies has become more difficult, AngloGold Ashanti is focusing on prospective areas in the globe that may have a higher risk profile," he said. He described this as a "new frontiers" strategy.

The rand

When asked about the strong rand's effect on the company's South African operations, Rowe said that its mines had good margins, and while there was "pressure on the bottom line" due to the currency, the mines remained profitable.

The only two exceptions to this were end-life mines that had already been scheduled for closure Ergo and Savuka and whose lack of profitability was apparent before the rand strengthened.

"We are in a completely different boat to Harmony (which has many loss making shafts)," said Carter.

Rowe said he was positive about the planned development of the Boddington mine, 100 kilometres southeast of Perth, which is a joint venture between AngloGold Ashanti, and Australian companies Newmont and Newcrest.

He said it is "the largest undeveloped gold deposit in the world, and we are working together to take this project forward".

"We hope to be able to be in a position to take recommendations to our boards about the expansion of Boddington in the second half of 2005," he said.

Meanwhile, he said, AngloGold Ashanti "was considering our options for divestment" of the Union Reefs mine in the Northern Territory region of Australia.

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