AngloGold Ashanti's Profit Dips on Operating Costs
JOHANNESBURG, South Africa - South African gold mining company AngloGold Ashanti Ltd. said Friday its net profit for the third quarter fell 59 percent, partly due to higher operating costs brought on by soaring oil prices.
A significantly weaker exchange rate between the dollar and the South African rand also contributed to the decline in profitability, the Johannesburg company said.
Higher production, principally from the recent acquisition of Ashanti Goldfields, and a higher gold price helped contain the earnings slide.
For the three months ended Sept. 30, net profit fell to $40 million from $97 million in the prior third quarter. But this represented a return to the black from a net loss of $12 million in the second quarter.
Operating profit sank to $97 million from $176 million a year earlier, but it was substantially above the second quarter's $26 million.
The latest results are roughly in line with analyst expectations.
Significantly, the third quarter was the first time that Ashanti made a full three-month contribution to results, helping gold production rise to 1.63 million ounces from the second quarter's 1.49 million ounces when its contribution was only for two months. In the third quarter of 2003, output was 1.39 million ounces.
Benchmark crude oil prices have risen by more than 70 percent this year. A $1 rise in the oil price roughly translates into a $1-an-ounce rise in AngloGold's costs.
Godsell also pointed to other inflationary pressures, such as the rising cost of employing outside mining contractors.
These factors contributed to cash costs rising to $272 an ounce from the prior year's $237 and the second quarter's $260. AngloGold received an average price of $392 an ounce for its gold during the third quarter.
A strengthening in the value of the rand to an average rate of 6.37 to the dollar from 7.40 over the year also ate into profitability, as a falling dollar makes it costlier for AngloGold to meet operating and debt-service costs.
Cost cutting is essential given the tough macroeconomic conditions, said finance director Jonathan Best. He noted AngloGold is aiming to cut $40 million from its cost base in 2004 and $50 million in 2005 as part of a $90 million cost reduction over three years. Better managing the company's use of fuel is a key priority, Best said.
Godsell said he was satisfied with the company's operations in North America, South America and South Africa, but that management's attention is now closely focused on improving the performance at Ashanti's mines in Ghana.
AngloGold's American shares closed at $37.08, up 47 cents, or 1.3 percent, on the New York Stock Exchange.