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AngloGold’s South African gold mines now ‘outlier’ laggards

Tau Tona gold mine

Tau Tona gold mine

10th November 2015

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – The South African mines of AngloGold Ashanti, once the pride of the company, have slumped to ‘outlier’ status as strongly performing lower-cost international operations show them up as laggards.

While AngloGold’s West Wits mines in South Africa had third-quarter all-in sustaining costs (AISC) of $1 195/oz – which put them above the current $1 094/oz gold price – the AISC of the company's international mines was a far lower $826/oz.

A key slide flashed up at Monday’s presentation of third-quarter results showed AngloGold’s South African West Wits and Vaal River regions failing to make the cut and preventing the Johannesburg- and New York-listed company from breaking back into profit.

The slide tracked the last 12 months of the production and AISC of AngloGold’s 19 mines in nine countries and showed up the South African operations as low value mines that are failing to keep up with those in the rest of Africa, Australia and South America.

“South Africa currently sits as an outlier,” AngloGold Ashanti CEO Srinivasan Venkatakrishnan (Venkat) told journalists at a media roundtable which Creamer Media’s Mining Weekly Online attended – while the international assets were firing on all cylinders.

South Africa was also the prime cause of AngloGold’s third-quarter production falling 5% to 955 000 oz; the region also suffered five fatalities and lost 48 000 oz to safety stoppages.

This had gold mining analysts referring to South Africa mines as “continuing to be a drain” on the overall portfolio.

Venkat’s response was that work was under way to get South Africa back into the target zone by increasing its production by 10% in early 2016 and cautioned against “throwing the baby out with the bathwater”.

He made the point that, going back in time, the company had also experienced issues in its Australian and continental Africa mines but that these problems had been solved.

“The key objective is to maximise the South African value, and that’s where our focus is at this stage,” he added.

However, that did not stop Citigroup gold analyst Johann Steyn from pointing out that the same symptoms that prompted AngloGold to sell off its Free State mines in the 1990s were again pertaining and queried whether a disposal stage had not been reached.

Venkat’s response was that the impact of safety stoppages had been pervasive in that it had not only lowered production, but had also lifted unit costs, stifled ore-reserve development and slowed project advancement.

“We’re seeing the triple whammy come through,” he said, pointing out that steps were being taken to drive improvement, asset by asset.

“You give it your best shot,” he said, but cautioned that other options would have to be considered in the event of failure.

“One thing you should know is that I don’t become emotionally attached to any asset. At the end of the day it either fits or it doesn’t,” Venkat assured.

But currently he continued to see good potential from the suite of South African assets.

“If the safety performance goes up, you’ll start to see the ore reserve development rates pick up and mining flexibility return,” he added.

Falls of ground were the main cause of the five third-quarter operating South African fatalities and netting and bolting is being intensified to prevent recurrence.

In two-and-a-half years, AngloGold has reduced its overall cash costs to $735/oz and all-in sustaining costs to $937/oz, and in the case of its international mines, cash costs are down to $674/oz.

While it is getting progressively more difficult to lower costs, management’s plan is to continue to do so through the optimisation of life-of-mine plans to extract the best value.

AngloGold International COO Ron Largent said the value would be extracted by refining operational efficiencies.

“Yes, there’s still room for improvement,” Largent told analysts, fund managers and journalists.

Deutsche Bank research analyst Patrick Mann asked for details on the magnitude of the ore-reserve backlog of the South African operations and when steady-state output would be attained.

AngloGold South Africa COO Chris Sheppard replied that safety stoppages had impacted development but not to any significant extent.

Sheppard said that the Mponeng gold mine currently had 27 months of ore reserve, the Kopanang mine 23 months, Moab Khotsong 21 months and Tau Tona, as the “grand old lady” in its twilight years, 16 months of ore reserve.

“I would love ore reserve to be at 24 months and have it oozing out of my ears but the issue actually centres on having mining flexibility, because therein lies the conversation around unit cost.

“If you can get your mining flexibility right you naturally increase the efficiencies of your work teams, and therein lies the secret of success,” Sheppard added.

The first pillar of the company is safety, but safety declined badly in the third quarter, taking 48 000 oz of potential South African gold with it, Tau Tona being the exception with three-million fatality-free shifts.

The last time AngloGold had five fatalities in three months was in the third quarter of 2012.

“What is clear is that we need to redouble our efforts if we are to return to our strong safety performance of the last two years, so our focus is increasing compliance to procedures and systems,” said Venkat.

The Siguiri, Sadiola and Iduapriem mines in continental Africa were injury free.

Edited by Creamer Media Reporter

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