AngloGold set for $2.6bn asset writedown

As gold prices tumble and goldminers around the world slash their asset values by billions of dollars, AngloGold Ashanti is another company to join the ranks.

The South African company announced it is writing down the value of assets by up to $2.6 billion and restraining production plans, the Financial Times reported.

The miner will take a writedown charge of $2.2 billion to $2.6 billion in its latest quarter, where gold had is sharpest one-day drop in price in more than 30 years.

According to chief executive Srinivasan Venkatakrishnan, the company will “tighten up on costs, overheads and capital”, after the average quarterly gold price slipped by $220.

“It’s been a strong performance in a challenging environment from our operators and from the teams developing our two new, high-quality projects,” Venkatakrishnan said.

“In light of the $220/oz drop in the average quarterly gold price which will negatively impact our second quarter results, we’ve moved decisively on all fronts to sharpen our focus on efficiency and to tighten up on costs, overheads and capital.”

Output has been downgraded to 4m to 4.1m ounces, down from 4.1m to 4.4m ounces.

AngloGold also announced Tony O’Neill had resigned from its executive board and would retire early. He was given the acting joint chief executive title along with Venkatakrishnan when Mark Cutifani left to go to Anglo American.

Venkatakrishnan has been in charge alone since May.

South Africa’s Chamber of Mines said on Monday around 60 per cent of the country’s gold mining ventures are unprofitable in the wake of dropping gold prices.

AngloGold said it produced 935,000 ounces in the second quarter at a total cash cost of between $900 and $920 per ounce.

“This is in line with market guidance of 900,000oz to 950,000oz at a total cash cost of $900/oz to $950/oz,” it said.

In a trading update ahead of its second quarter results, the company said it is re-examining the carrying value of its mining assets and forecasts an impairment of ‘the net realisable value of its mining assets (including ore stock piles)”.

“Over the remainder of 2013 all business plans and associated reserves and resources will be revised and optimised to reflect the lower gold price assumptions, associated mitigation measures and management initiatives to improve margins and cash flow.”

It added the impairment charges “will not impact cash flow and are excluded for the purposes of the financial covenant included with the company’s banking agreements.”

A host of companies have felt the impact of falling gold prices, with West Australian miner Northern Star recently abandoning plans to develop its Ashburton Gold mine until prices recover. Barrick Gold cut 32 jobs from its Perth office recently while WA gold miner Apex Minerals went into administration.

Alacer Gold recently announced it will sell of its Australian assets after a big slump in profits for the first quarter of 2013, while Kalgoorlie Consolidated Gold Mine said it is reviewing its costs to keep its Kalgoorlie-Boulder Superpit feasible.

The country’s mining sector – including gold, coal and platinum – is gripped with tensions as it enters two-yearly wage negotiations.  

The chamber is in discussions on behalf of major gold producers such as AngloGold Ashanti, Harmony Gold and Sibanye Gold. It proposed a four per cent basic pay increase across all areas.

But the offer is pittance compared to union demands. The National Union of Mineworkers, the major gold union, is demanding a 60 per cent jump for some categories of miners. The Association of Mineworkers and Construction Union (AMCU) is calling on doubling the wages of underground workers.

This is the first time AMCU has entered the negotiation foray.

But senior executive at the chamber Elize Strydom said “it would be dire” if companies accepted unions’ demands of above-inflation salary hikes.

“The future of the industry is at stake,” she said.

“We indicated to the unions that at this price roughly 60 per cent of our operations are lossmaking. If we were to add capital expenditure to the costs, then all our operations at this stage would be lossmaking.”

The country’s mining industry has faced many violent labour clashes over the last year.

Police shot and killed 34 striking miners last August in one day.

Up to 4000 mineworkers were on a sit-in strike at an Anglo American Platinum mine earlier this month.

The workers went on strike in the country’s unstable platinum area to protest against the suspension of four leaders from the AMCU.

A leader from the National Union of Mineworkers was shot dead earlier this month when two unidentified men approached and shot him as he emerged from a morning meeting.

They also wounded another man.

South Africa has dropped to be the world’s sixth biggest gold producer due to its older mines becoming deeper, more expensive and difficult to run over the past 30 years. Industry officials also blame increasing costs and falling productivity.

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