AngloGold expands from South African base

When AngloGold (AU-N) was established in early 1998, it sought to transform itself from a company with aging South African mines and few growth opportunities into to a company with a broad portfolio of geographic and geological gold-mining assets. Despite gold prices mired at near-record lows, the company has made progress meeting these objectives.

Last year, 25% of AngloGold’s production and 33% of its earnings came from outside South Africa, and from open-pit or shallow underground mining. That’s a significant accomplishment, given that the company’s total production last year rang in at an impressive 7.24 million oz., making it the world’s largest gold producer. Cash costs were US$213 per oz. last year, while total production costs came in at US$244 per oz.

The new Morila mine in southern Mali, about 180 km south of capital city of Bamako, is off to an impressive start. AngloGold and partner Randgold Resources each hold a 40% stake in the mine, with the remainder held by the Malian government. AngloGold paid US$132 million for its interest last year.

The open-pit mine was commissioned last October and, by year-end, 142,953 oz. gold had been produced at a cash cost of US$88 per oz. (57,000 oz. attributable to AngloGold). It is expected to produce 500,000 oz. annually at an average total cash cost of US$127 per oz. for at least nine years. Gold is extracted through a carbon-in-leach plant with a design capacity of 3 million tonnes per year.

Malian President Alpha Konar officially opened the mine during an on-site ceremony in mid-February. He noted that with Morila now on-stream, Mali has become the third-largest producer in Africa.

The mine also brought many social benefits to the region, including 75 km of road, an airstrip, and a health clinic that is taking steps to reduce malarial infections in local communities. Morila employs a workforce of 772, including 688 Malians.

AngloGold also holds a 38% interest in the Sadiola Hill gold mine in Mali, which has been an unqualified success for the company and junior partner Iamgold (IMG-T). It is expected to contribute about 207,000 attributable ounces to AngloGold’s account this year at a cash cost of US$116 per oz.

Construction of the nearby Yatela heap-leach mine is on schedule for the first gold pour in June of this year. AngloGold and Iamgold each own a 40% interest in Yatela, which has reserves of 10 million tonnes grading 3.6 grams within a larger resource of 33 million tonnes grading 2.1 grams.

AngloGold is also expanding the Navachab gold mine in Namibia by two years to 2005. It is the country’s only gold producer. The expansion of the existing pit’s western perimeter will expose ore with an average grade of 1.74 grams per tonne. The company had hoped for an even larger expansion, but the project’s low grades, coupled with the need for new mining and processing equipment, rendered the project uneconomic at current prices.

AngloGold expects that, over the next 15 years, new projects such as Morila, Yatela and its newly acquired, 50%-owned Geita mine in Tanzania — together with an expansion at the company’s key Australian mine, Sunrise Dam — will contribute some 20 million oz. at an average cash of US$175 per oz.

At the same time, the company hopes to improve the lacklustre performance of its aging South African operations. It hopes to reduce overhead costs by at least 10% this year, and then hold costs neutral in Rand terms in the years ahead.

On the financial front, AngloGold reported net earnings of US$155 million (after writedowns of assets) on revenue of US$2.2 billion last year.