AngloGold Ashanti ’s adjusted headline earnings doubled to $303million and headline earnings per share more than doubled before the hedge was bought out. We made the decision to get rid of those hedges and in cash terms that cost us about $1.5billion and there will be another $1billion in the fourth quarter. Obviously you take that through your earnings which impacts headline earnings. The good news is that’s gone for good." Mark Cutifani, CEO of AngloGold Ashanti told Summit TV.
"On the gold price we think the fundamentals are strong - it’s an expensive product to produce with current costs around $1,000 an ounce when you put in capital so very expensive," he added. Cutifani doesn’t think the price itself is way out of market considering that in 1980 in real terms it was around $3,000 an ounce. So he sees that currently it is probably only halfway towards a real peak in the gold price in recent history.
"In the most recent past the rand gold price is still more than 10% lower than its most recent highs so in rand terms because of the strength of the rand we still haven’t seen a really aggressive dollar - so there is a little bit of rand strength in there but that doesn’t explain $1,400 an ounce for gold. That’s more a US dollar issue..."
"It does reflect strength in the market and weakness in the US dollar. In that context if I go to the rand and say I’m not sure that the rand is necessarily strong (or) the US dollar is exceptionally weak - when you add and subtract all of those factors at the end of the day we are still in a good position," he said.
Cutifani’s view on gold fundamentals is that the metal is underpriced. Having worked in nickel and copper and base metals, coal and the bulks and a whole range of other products he sees gold as the one commodity that hadn’t priced up significantly in the last 10 years.
"The other commodities have doubled and trebled when you look at nickel, coal, and iron ore - all these sort of products - but gold has performed rather meekly compared to those products. With that in mind I can easily see gold going north of $2,000. Whether it will hit historical highs I’m not sure but I can easily see gold going to $2,000 particularly if governments are now debating the role of gold in terms of the financial structures that’s already happening. In my view it will be hard to imagine gold being adopted as a standard - physical assets of which gold is the most liquid is why gold is so important - but anything is possible in today’s world," Cutifani added.
AngloGold Ashanti’s margin at spot price over its total cost structure is at very competitive 40%, this will allow the gold producer to generate a lot more cash.
"That’s part of the reason why we’ve been the best performing gold major in terms of share market performance in the last 2.5 years that reflects the strategy we introduced to the market about 2.5 years ago so they’re all factors we have to take into account - but at this stage it looks good although I don’t think we are anywhere near real highs in terms of the gold price," he told Summit TV.
Major transformations have been made right across the portfolio by the AngoGold team. 50% of its operations now have different mining methods as a consequence of a very thorough technical review. This has made a significant turnaround or improvement in 60% of the portfolio.
The company still has challenges such as safety issues. There is a 65% reduction in safety injuries and fatalities across the South African business but there’s still a long way to go in improving safety.
"Firstly I think South Africa is a great place to do business. I’ve maintained that ever since I’ve been here for three years. In terms of co-operation with the unions and the government I have nothing but praise for the co-operation we’ve had. There have been some frustrations and concerns but we’ve always managed those conversations in a constructive way and I say that without qualification," says Cutifani.
" Our job as business leaders and those in government that do understand global financial practices and issues we need to engage in a constructive way and help people understand the unintended consequences of moves...(such as nationalisation). One of the problems that we have is that debate scares investors and that will kill employment growth in the country so we can’t allow that to occur. There’s 181 countries in the world and not one country has successfully nationalised its mining industry. There are examples of successful state mining companies - a small number that have been constituted in an appropriate way in the system with a broader strategy - but in terms of nationalisation there are no positive examples that have created value for the communities in the long term," he concluded.