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29.10.2005 Business & Finance

Anglogold Ashanti Records Low Gold Production

By Chronicle
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Gold produced by AngloGold Ashanti went down by 2% to 1.534Moz, due to anticipated decline in grades at Sunrise Dam and Geita in Mali, and a reduction in heap leach ounces at Siguiri in Guinea, the third quarter result of AngloGold Ashanti has revealed.

However, there was strong recovery in the South Africa region following the four-day strike, which saw local production up 2% to 677,000oz and total cash costs 2% lower at R59,053/kg.

The Group total cash costs increase 2% to $284/oz with adjusted headline earnings declining to $1million, primarily due to a negative $21million fair value (non-cash) movement on the convertible bond.

AngloGold Ashanti's performance in Ghana was no different in two mines as the Bibiani mine gold production fell by 7% to 28,000oz.

As previously reported, production at the operation had recently focused on lower-grade satellite pits; however, on the basis of successful tailings treatment trials conducted this quarter, Bibiani would become a tailings-only operation from the fourth quarter of this year.

Total cash costs increased 4% to $308/oz, while gross loss adjusted for the effect of unrealized non-hedge derivatives increased from $1million in the second quarter to $4million in the third, due to both the lower yield and a reduction in stockpile inventory.

Obuasi, this quarter also experienced a 19% decline in grade and production consequently dropped 4% to 98,000oz, while total cash costs increased 5% to $341/oz. This is a consequence of a primary crusher failure early in the quarter, as well as delayed access to two high-grade areas, due to unstable ground conditions.

In an effort to address the grade decline, measures have been put in place to reduce dilution and to more effectively identify and mine quality tons, which has resulted in improved underground grades from the beginning of the fourth quarter. Gross loss adjusted for the effect of unrealized non-hedge derivatives, at $5m, was in line with that of the previous quarter.

The improving trend in the mining mix and flexibility continued, with 17% and 35% increases in development and definition drilling, respectively.

However, the 2005 forecast production for Obuasi is now estimated at 400,000oz, with a likely modest improvement in 2006 to approximately 415,000oz.

Two employees lost their lives this quarter, one due to a fall of ground and the other in a machinery accident.

At Iduapriem, gold production however increased 10% to 44,000oz, due primarily to a 10% improvement in tonnage treated after the crusher and conveyor problems of last quarter were resolved.

Total cash costs nevertheless increased 9% to $369/oz as a consequence of ore dilution, which is currently being addressed through better blasting patterns.

The resolution of this problem, combined with the implementation of the initial recommendations from the mine-to-mill study noted last quarter would likely result in improved production during the fourth quarter. Due to a lower price received and increased total cash costs, gross loss adjusted for the effect of unrealized non-hedge derivatives was $2million versus a second quarter profit of $2million.

The third quarter of 2005 saw new levels of investor and speculator interest in gold and a strong break in gold price behaviour from its linkage over the past four years to the US dollar/euro exchange rate.

Although the average spot price of gold for the quarter of US$439/oz was only $12/oz or some 3% higher than the average price for the metal during the first half of the year, the average figure does not reflect the extent of activity in gold this quarter.

The price saw a range of $57/oz during this quarter, the second highest quarterly price range in five years.

Much of this activity came during the latter part of the quarter, and the spot price has strengthened by almost 15% since late July, to touch $480/oz in early October. This is the highest gold spot price seen in seventeen years, and the market now is looking to the figure of US$500/oz last seen in December 1987.