JOHANNESBURG (miningweekly.com) – The negative sentiment on South African had been “significantly overblown” at a time when the right things were being done, outgoing AngloGold Ashanti CEO Mark Cutifani said on Wednesday.
After delivering his last set of AngloGold Ashanti results for 2012 – the company’s second-highest ever yearly earnings of $924-million despite the negative impact of last year’s strikes, Cutifani said that AngloGold Ashanti's share price should be trading at around $60 a share on the New York Stock Exchange based on earnings and cash-flow growth since 2008 rather than the current $27 a share.
The company was introducing the new ounces at half the price of the industry, which, he was confident, would eventually stand it in good stead.
But in the meantime, its share price was being discounted as a result of negative sentiment towards South Africa, as was also the case with South Africa’s other gold majors.
“The great frustration is the share price,” said Cutifani, who takes up the position of CEO of Anglo American on April 3.
He said he remained “immensely confident” about the future of South Africa and praised Minerals Minister Susan Shabangu for bringing the two conflicting mine unions together to sign an accord.
“That’s the sort of leadership the world needs to see,” added Australia-born Cutifani, who is also president of the Chamber of Mines of South Africa.
“In my view, the fundamentals are sound in South Africa. We’re getting back to the right conversations and we’re becoming much more sensitive about headlines and people trying one-upmanship.
“If we work together and manage the perception of how we’re dealing with the issues, it will get us back on track for people to be comfortable to invest in the country for the future, and that’s what we want to see,” Cutifani told Mining Weekly Online in a video interview (see attached).
While there was a calculation doing the rounds that AngloGold Ashanti was 68% undervalued, Cutifani believed it to be more than that.
Delivery against objectives had been the best in the industry in the last five years, with industry-leading earnings up 500%, safety improvement up 70%, environmental protection up 70% and community relations in a new paradigm.
It was the gold industry’s best-performing stock in the period from 2008 to 2011 by a considerable margin.
The company was looking at all options to unlock that value. At this stage, a physical structural change like unbundling did not appear to be a compelling case.
Investments were continuing in the company’s Mponeng and Moab Khotsong gold mines in South Africa to ensure stable production for more than 30 years.
“We have always been a strong promoter of the future of South Africa and of transformation,” Cutifani said.
Work on new technologies was setting the company up for a “great” half-century of operation.
“These technologies still need people and are so important for safety and long-term productivity, and, in the long term, will actually create more jobs.
“In the short term, they do present some challenges, but we would look at our natural attrition and work with people to change the operation over time, so that we don’t create major shocks in terms of employment,” he said.
Only the gold-bearing rock would be extracted, which meant that only a third of the material needed to be moved to achieve the same amount of production.
“Mining at 5 000 m is tough using any sort of technology, so it also has to be fundamentally more efficient to create a 30- to 50-year life,” Cutifani said, adding that AngloGold Ashanti would be more than happy to share the technologies with the rest of the mining industry, particularly around the safety aspects.
Exploration spend across the group has been rationalised, corporate and operating costs are undergoing a review, some assets deemed to be noncore are being considered for sale and capital expenditure (capex) has been prioritised.
“We’ve moved decisively to ensure that we continue a strong recovery from a difficult end to last year,” joint interim CEO Tony O’Neill said.
O’Neill has had oversight of all operating and exploration functions while fellow joint interim CEO Srinivasan Venkatakrishnan has had accountability for all financial and corporate matters.
The $924-million adjusted headline earnings for the year suffered a $208-million strike erosion.
Production in 2012 was 3.94-million ounces at a total cash cost of $862/oz, which included about 235 000 oz lost to the strike.
The company said that it continued to seek to better the quality and diversity of its portfolio.
Its main greenfield projects at Tropicana, in Australia, and the Kibali joint venture, in the Democratic Republic of Congo, remained on track to produce gold within a year.
The expansion of Cripple Creek & Victor mine, in the US, also remained on schedule.
Production in 2013 was anticipated to grow to between 4.1-million ounces and 4.4-million ounces at an improved total cash cost of $815/oz to $845/oz.
More focused investment in the business had helped the company to forecast stable capex of $2.1-billion for 2013.
Corporate costs were expected to decline by about 18% to $240-million.
Spending on exploration and feasibility studies was forecast at about $377-million, 18% lower than in 2012.
“Our focus is on improving margins and delivering returns, rather than production growth, and that will continue to drive our decision-making,” Venkatakrishnan said, adding that the company had good projects and a solid financial base.
Its underground development contract with Mining and Building Contractors at Obuasi mine, in Ghana, had been terminated in an effort to improve production and costs.
Geita, in Tanzania, was the group’s largest production contributor, improving yearly production by 7% to 531 000 oz at a total cash cost of $660/oz.
Production for the year rose in the America’s region from 891 000 oz to 953 000 oz and the Australian operations increased output to 258 000 oz from 246 000 oz.
Fourth Quarter
Fourth-quarter adjusted headline earnings were $7-million, or $0.02c a share, compared with $295-million, or $0.76c a share in the fourth quarter of 2011.
The earnings were affected by the lower volumes and higher cash costs during the quarter, reflecting the impact of the strike in South Africa, which eroded $208-million of earnings; the change-over of the mine development contractor at Obuasi; and other factors which had a negative impact.
A strong performance from the Americas region was primarily offset by the strikes in South Africa.
Despite challenges faced in South Africa, Standard & Poor’s affirmed the investment-grade rating on AngloGold Ashanti’s publicly traded debt following an extensive review.
At Tropicana, one-million ounces were added to the resource and the organisation achieved the lowest quarterly injury-frequency rate on record at 6.17 per million hours worked.