Reuters
UPDATE - AngloGold Ashanti Q1 EPS slides, vows cost cutting
Thursday April 29, 7:02 am ET
By Eric Onstad
(Adds conference call, analyst, fund manager, updates shares)
JOHANNESBURG, April 29 (Reuters) - The world's second ranking gold producer AngloGold Ashanti Ltd (ANGJ.J) posted an expected slide in first-quarter earnings on Thursday mostly due to lower output and pledged a fresh drive to cut costs.
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The firm, which this week completed its takeover of Ghana's Ashanti Goldfields, surprised the market last week when it warned of a tumble in output and profits, but analysts said some details were better than expected.
AngloGold has had a reputation as a more stable investment than some rivals due to its a wide geographic spread and a hedging policy to reduce the effects of a volatile gold price.
"At first it was shocking, but in context I don't think it was too bad...the cash margin is still 36 percent," said fund manager Stephen Roelofse at Sanlam Investment Management.
"At the end of the day it was a better operational result than had been telegraphed by the profit warning."
The shares, which have shed 31 percent this year, gained 1.1 percent to 217 rand by 1020 GMT, in line with a 0.9 percent rise in the gold mining index (^JGLDX - News).
Chief Executive Bobby Godsell told a conference call the company had set up a task force to squeeze more cost savings from its worldwide operations, including Ashanti.
Total cash costs rose during the three months to end-March rose to $259 per ounce, up 9.7 percent from the previous quarter and a 19.4 percent surge from the average for 2003.
"No aspect of our cost structure will be exempt from this review," Godsell said.
OPERATING PROFIT PLEASANT SURPRISE
Headline earnings not including Ashanti slid 21 percent, within the negative 10-30 percent range the firm detailed in last week's warning, but operating profit was better than expected, down four percent.
Adjusted headline earnings per share, which strip out capital, extraordinary and non-trading items, fell to 179 cents from 227 cents in the previous quarter. This was largely in line with a consensus forecast by seven analysts polled by Reuters of 183 cents. The forecasts were in a range of 165-202 cents.
The firm said last week the quarter's output would fall 11 percent to 1.235 million ounces compared to the previous period.
The lower production was due to a slow start in South Africa due to the Christmas holidays and lower grades or output at its Geita, Morila and Cerro Vanguardia mines in Tanzania, Mali and Argentina respectively.
"These are operational problems which can be overcome. I think they'll be able to rectify them and we should see some benefits flow through in the next quarter," said an analyst who declined to be named.
Even with the weak results, AngloGold still outshone by far rival Harmony Gold (HARJ.J), which posted a 50 percent drop in cash operating profit on Wednesday.
Harmony, the biggest domestic producer of bullion with 92 percent of output sourced in South Africa, is much more exposed to a strong rise in the rand over the past two years that has cut export income.
REVISES FORECASTS
The Ashanti takeover creates a group with proforma output around equal to world number one U.S. Newmont Mining Corp (NYSE:NEM - News) and has reduced AngloGold's exposure to the rand.
Even though the group now produces 53 percent of its gold outside of South Africa, an unexpectedly strong currency there forced the company to revise forecasts for 2004.
It said total cash costs for the merged group would be $250 per ounce instead of $243 per ounce and capital expenditure would be $573 million, down from $596 million.
Because the Ashanti takeover was finalised a month later than expected, 2004 group gold production would be 6.34 million ounces, down from 6.47 million previously forecast.
Production for the merged group in the second quarter was expected to be around 1.53 million ounces, Godsell said.
The company released first quarter results for Ashanti separately, showing gold output fell 2.2 percent year-on-year to 355,000 ounces. Cash costs rose 11.5 percent to $261 per ounce, mainly due to the lower output.
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