AngloGold trims its hedge

Eyeing a strengthening gold price, AngloGold (AU-N) trimmed its hedge book by another 2.4 million oz., to 10.5 million oz., during the second quarter.

The move, which followed a 1.7-million-oz. reduction during the first quarter, resulted in a received gold price of US$305 per oz. — US$7 lower than quarter’s average spot price but US$18 per oz. better than in the first quarter.

Says Chief Executive Officer Bobby Godsell: “It’s unlikely we’ll reduce our hedge book by anything like this order of magnitude going forward.”

During the recent quarter, gold production climbed 4% to 1.4 million oz. despite damaging seismic events at the Great Noligwa mine, the company’s largest South African producer. Total cash costs rose by US$10 per oz., or 7%, to US$161 per oz., thanks in part to a strengthening rand.

During the quarter, Noligwa’s operating profit slipped by 3% to US$42 million, and cash costs rose 3% to US$113 per oz. as a result of spending aimed at improving the shaft. The effects of seismic events at Noligwa will likely be felt in the third quarter.

Overall, the African operations contributed US$108 million in operating profits by producing 850,000 attributable ounces at a total cash cost of US$152 per oz.

Outside of Africa, North American operations produced 114,000 oz. (20% higher than a year earlier) at a lower US$213 per oz. Operating profits climbed to break-even levels. In South America, production climbed 2% to 104,000 oz. at US$129 per oz. (up 3%), while operating profits slipped to US$14 million. The company’s Aussie operations chipped in 135,000 oz. (up 16%) at US$186 per oz. (down 11%). Operating profits soared 188% to US$12 million.

AngloGold’s second-quarter headline earnings, which exclude exceptional items, rang in slightly lower than a year earlier at US$87 million, or 79 per share. The decrease is mostly due to the settlement of a one-time US$10-million legal claim related to a long-term supplier contract. The company says the contract has been renegotiated, providing a more favourable deal for AngloGold.

Compared with the second quarter of 2001, operating profits climbed 10% to US$162 million, net profits rose 11% to US$79 million, and revenue increased 9% to US$406 million.

In the first half of 2002, production slid to 2.8 million oz., compared with 3.5 million oz. in the initial six months of last year. The drop is attributed to the sale of the company’s Free State assets.

Headline earnings in the first half jumped 44% to US$176 million, operating profit soared 31% to US$309 million, and net earnings rose 42% to US$150 million. Revenue fell 24% to US779 million.

Black empowerment

During the second quarter, the South African Parliament passed a Minerals and Petroleum Resources Development law, according to which mineral rights must be leased from the state rather than owned outright.

Anglo says it is hopeful the South African mining industry will be able to come to a compromise on some of the issues raised by the new legislation. The bill still requires a presidential signature.

“We’re quite confident the government values the mining industry and won’t act to intentionally disrupt its role in the economy,” says Godsell.

At the end of June, AngloGold had US$338 million in cash and equivalents, up from the US$149 million it had a year ago.

AngloGold’s board has declared a semi-annual dividend of R13.50 per share (a 93% increase over the interim dividend of 2001) for holders of record on Aug. 23. Payment is expected by Aug. 30. Holders of American depository shares, each of which is worth half of an ordinary share, would receive US66 per share based on the latest exchange rates, though actual conversion will take place just prior to payment on Sept. 12.

The company’s depository shares trade on the New York Stock Exchange. In late-afternoon trading on July 31, they were off US$1.14, or 5.12%, at $21.12.