Anglogold weathers storm of low gold prices

The five gold-producing companies serviced by Anglogold, in aggregate, saw gains in both profit and gold production in the quarter ended Dec. 31, 1997.

Anglogold is a division of South African-based mining house Anglo American, and is made up of South African gold producers Western Deep Levels, Elandsrand, Vaal Reefs, Ergo and Freegold.

Compared with the third quarter of 1997, Anglogold’s available profit was 16% higher, at R260 million, and operating profit was up 8%. Gold production rose by 4%, to 1.85 million oz., and average gold revenue per oz. sold was up by 9%, to R1,794. Cash costs were 7% lower, at US$268 per oz.

Capital expenditures rose 18% from the previous quarter, reaching R224.4 million.

Robert Godsell, Anglogold’s chief executive officer, says the company is steadily working its way towards productivity goals set in the new year. To Anglogold’s relief, a mid-year wage increase turned out to be cost-neutral to all the companies in the stable (except Ergo, which saw its costs rise by 1%).

Godsell says Anglogold is in the process of curbing unprofitable mining activity and that, when this weeding out is complete, gold production is expected to be cut by about 17% and cash costs, by 9% to US$259 per oz.

Highlights from Anglogold’s operations are as follows:

* Western Deep Levels — Available profit rose by 44% to R78.8 million, due largely to higher production and cost controls. Gold production improved by 9%, to 345,000 oz. and cash costs fell by 12% to US$234 per oz.

Productivity at Western Deep Levels, in terms of grams per total employee costed, rose 9% from the previous quarter. Capital expenditures, at R30 million, were down 8%. Gold production for 1998 has been forecast at 1.2 million oz.; capital expenditures, at R178 million.

* Elandsrand — Fourth-quarter gold production, at 200,000 oz., was up 3% from the third quarter, mostly as a result of a 25% increase in tonnes milled at the newly consolidated Deelkraal division. However, cost-cutting measures at Deelkraal are expected to result in lower production levels in the future.

Profit for the quarter increased by 72%, to R38.6 million, largely due to the taxation benefit achieved from the rationalization of Deelkraal and Elandsrand. The company nonetheless had to absorb Deelkraal’s R13-million third-quarter loss.

Productivity for the consolidated Elandsrand was up 3% in the previous quarter, while capital expenditures, at R21.9 million, were 1% higher.

* Vaal Reefs — Available profit at Vaal Reefs was up 36% from the third quarter, to R98.9 million. The company attained its highest quarterly gold production, 622,440 oz., since the fourth quarter of 1988; the total was 11% greater than in the previous quarter. In addition, the average grade mined increased by 11%.

Higher gold revenue from a combination of increased production and higher uranium profits was offset by a 4% increase in production costs (excluding retrenchment costs) and higher royalty payments — the result of a shift in the ratio of gold produced from various areas.

In terms of grams per total employee costed, productivity improved by 14%.

Capital expenditures for the quarter increased by 45%, to R130.7 million.

Topping the list of development work this quarter is the deepening of the main shaft at Vaal Reefs No. 11 to 3,100 metres below surface, the objective being to provide cheaper, more rapid access to levels 76 to 101. From the 101 level, two declines will be developed down to the 117 level. The disposal of marginal shafts is expected to boost productivity by 24%.

* Ergo — Available profit rose by 11% to R16.7 million at Ergo. Gold production declined by 1% to 102,851 oz., with a 3% improvement in the average recovered grade being offset by a 4% decline in the amount of material treated. Cash costs increased by 4% to US$265 per oz.

Gold production for 1998 is forecast at 385,852 oz., reflecting an 11% decline in average grade, while capital expenditures are forecast at R20.7 million.

* Freegold — An ongoing cost-cutting program is reflected in the performance of Freegold in the fourth quarter. Gold production was down 5%, at 580,000 oz., leading to a 55% drop in available profit, to R26.5 million.

While production costs (excluding retrenchment costs) were slightly lower than in the previous quarter, cash costs were some 3% higher at US$326 per oz.

Capital expenditures declined by 10%, to R36.5 million. In view of the current gold price, the Freegold 4 project is being reviewed to determine its continued viability. Management will continue to focus on the four long-life shafts, and because none of the other shafts is operating at a profit (under current gold prices), further cost-cutting is envisaged.

Looking ahead, gold production for 1998 has been forecast at 164,000 oz.; capital expenditures, at R144.5 million. The anticipated closure of the marginal shafts during 1998 is expected to boost productivity by 28%.