AngloGold Eyes Australian Growth on Optimism Prices Will Rebound

AngloGold Ashanti Ltd. (ANG), the world’s third-biggest producer of the precious metal, is committed to growing its operations in Australia, betting a recovery in bullion prices will counter rising energy costs.

The company may evaluate gold assets on offer in Australia, including those being sold by the world’s largest Barrick Gold Corp. (ABX), said Graham Ehm, executive vice president of Australasia at AngloGold. The Johannesburg-based company will continue exploring around its Tropicana mine in Western Australia to identify growth opportunities, he said.

“Australia is a pretty good base,” Ehm said in an interview in Kalgoorlie, Western Australia. “If you’ve got a good base then you continue to invest in that base.”

The decline in the Australian dollar, which has dropped against each of its Group of 10 currency peers in the past three months, has pressured energy costs, particularly diesel which the company purchases in U.S. dollars, Ehm said. While AngloGold is working on an assumed price of less than $1,300 for next year, it remains optimistic about the potential for gold to increase, Ehm said, without giving a forecast.

“We are now at about $1,300, and we’ll do our plans at probably a bit lower than that,” Ehm said. “In the long term, we are still pretty bullish about gold. It’s still a commodity that’s sought after by India and China. It’s a commodity where you can’t turn production on quickly.”

AngloGold fell 1.3 percent to $12.55 in New York on Aug. 2. The shares have fallen 60 percent this year, compared with a 15 percent increase in the benchmark NYSE Composite Index.

Currency Decline

The Australian dollar fell 3.8 percent last week to 89.05 U.S. cents, the steepest slump since September 2011.

AngloGold’s Tropicana mine, 330 kilometers (205 miles) east-northeast of Kalgoorlie, will produce its first gold in the September quarter, earlier than planned, the company said in a statement on Aug 1. The project is forecast to produce as much as 490,000 ounces of gold a year at a cash cost of between A$590 and A$630 per ounce. That’s about half the production cost at AngloGold’s Sunrise Dam mine, also in Western Australia, and below the average cash cost of $894 an ounce in the first quarter of 2013.

“At remote operations like Sunrise Dam and Tropicana your energy bill is something like 30 percent to 40 percent of your total costs,” Ehm said. “Right now we are adjusting to the drop in the gold price. How that evolves in terms of the planning cycle, I’ve got ideas on, but no concrete plans.”

Tropicana, Sunrise

Tropicana, where AngloGold has a 70 percent stake, had initially been forecast to begin production in the December 2013 quarter. Independence Group NL (IGO) holds the remaining stake in the mine. AngloGold will this year switch its Sunrise Dam operation, 220 kilometers northeast of Kalgoorlie, to an underground operation from a combined open-pit and underground mine.

“As the gold price comes down, AngloGold has to adjust and our asset mix will change,” Ehm said. “With the projects coming online it’ll look like quite a different company in the next 12 months.”

Mark Cutifani, who ran the gold producer before he was appointed chief executive officer at Anglo American Plc (AAL) in April, believes looming cuts to production in the industry will help gold prices rebound.

“I don’t see the gold price staying low for a protracted period of time because the drop in production that will occur will be quite significant and will surprise everybody,” Cutifani said June 26 in an interview in Canberra.

Across its operations, AngloGold forecasts it will produce as much as 4.1 million ounces this year, the company said in a statement on July 16. The company had previously forecast a range of 4.1 million ounces to 4.4 million ounces.

The producer said it would take an impairment charge of $2.2 billion to $2.6 billion after revaluing its assets and ore stockpiles amid gold’s 22 percent slump this year.

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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