Paulson-Backed AngloGold Colombia Mine Delayed as Costs Rise

Paulson & Co President John Paulson
Paulson & Co President John Paulson. Photographer: Jin Lee/Bloomberg

AngloGold Ashanti Ltd., the gold producer whose largest shareholder is billionaire John Paulson, said development of its key Colombia mine is delayed and will cost more than expected after it struggled to obtain permits.

First output at La Colosa will now be 2018 at the earliest, compared with earlier estimates of end-2016, Rafael Herz, chief executive officer of the company’s Colombian unit, said in an interview in Bogota. Costs will likely escalate to as high as $3.5 billion, from a previous forecast of $2.7 billion, he said.

The Johannesburg-based company is counting on projects such as La Colosa, which could double its output in the Americas, to compensate for aging mines in South Africa. Paulson’s $36 billion hedge fund boosted its stake in AngloGold last quarter to benefit from rising prices and potential for higher output.

“The project has suffered obstacles in the exploration phase that clearly have delayed the schedule,” Herz said yesterday. “Some critical decisions as to where we can do activities, what kind of permits do you need and how will they be obtained need to be clarified,” he said of current mining regulations in Colombia.

Exploration at the property resumed last year after being suspended in February 2008 amid government restrictions on use of forestland. This year, the company received permits to tap nearby water supplies instead of trucking water to the mine.

‘Most Significant’ Discovery

Colosa is the “most significant” gold discovery worldwide in a decade, AngloGold CEO Mark Cutifani said in 2009. The project, which is a potential ‘company-maker’ according to Herz, may produce about 800,000 ounces of gold a year, or almost 20 percent of total output. Reserves at the site, located about 150 kilometers west of the capital, are about 12.3 million ounces.

“It’s a very interesting prospect since it’s so large,” Leon Esterhuizen, an equity analyst at RBC Capital Markets who rates the stock “outperform,” said in a telephone interview from London. AngloGold’s stock is “cheap” relative to prices for the metal, which reached a record this month, he said.

Gold has rallied 27 percent in 12 months and reached a record $1,577.40 an ounce on May 2. Gold for June delivery rose $3.20, or 0.2 percent, to $1,526.50 an ounce at 10:22 a.m. on the Comex in New York.

Paulson Fund

With a stake of about 11.8 percent, Paulson’s fund is the largest shareholder in AngloGold, according to Bloomberg data. The hedge fund last quarter bought 97,540 American depositary receipts in Anglogold, South Africa’s biggest gold producer, and 2 million ADRs in Gold Fields Ltd., the country’s second-largest producer, according to data compiled by Bloomberg.

Paulson bought an 11.3 percent stake in AngloGold worth $1.28 billion, or $32 a share, in March 2008 from Anglo American Plc.

AngloGold’s American depositary receipts fell 46 cents, or 1 percent, to $44.76 in New York.

George Soros, the billionaire founder of Soros Fund Management LLC, sold most of his holdings in the bullion-backed SPDR Gold Trust in the first quarter, while buying shares of mining companies such as Goldcorp Inc.

Environmental regulation also stalled development of a $1 billion gold mining project by Greystar Resources Ltd., which in March withdrew permit applications for the Angostura project in Colombia after environmental opposition. The government later said the company can’t build any projects in a protected watershed area.

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