AngloGold Starts Reef Boring to Avert ‘Terminal Decline’

AngloGold Ashanti Ltd. will begin extracting gold using reef-boring technology in the first quarter of 2014 as the third-biggest producer of the metal seeks to halt a “terminal decline” of the industry in South Africa.

AngloGold aims to derive 10 percent to 20 percent of its South African gold using the technique within the next five years, Chief Executive Officer Srinivasan Venkatakrishnan said in a phone interview today. The Johannesburg-based company has produced 35 kilograms of gold using the new machines in testing at its TauTona mine, he said.

“This is a game changer, or a paradigm shift,” said Venkatakrishnan, 48, who became CEO in May. “If we do nothing, the gold industry is in terminal decline.”

After more than a century as the world’s biggest gold producer, South Africa has now slumped to sixth position. Production fell by a third to 167,236 kilograms in the five years to 2012, according to the Chamber of Mines, the industry lobby group. China, Australia, the U.S., Russia and Peru have all overtaken the country.

The boring machines, which AngloGold has developed with its suppliers, are able to remove just the gold-bearing ore from the reef, replacing it with cement and chemicals that stabilize the mining structure. That means the company will have to treat less rock and can operate 24 hours a day, Venkatakrishnan said.

“This opens up areas that we cannot otherwise mine,” he said. “It also opens up areas which we have left behind for infrastructure support.”

Profit Swing

AngloGold rose the most in two weeks in Johannesburg trading after the company returned to profit in the third quarter as costs dropped.

Adjusted headline earnings, which exclude one-time items, were $576 million, compared with a loss of $135 million in the previous quarter, AngloGold said in a statement. The stock rose as much as 7.2 percent, the biggest intraday gain since Oct. 22.

The company, with 21 operations in 10 countries, is cutting jobs, spending and exploration and slowing production at higher-cost mines as it responds to a 22 percent decline in the gold price this year. AngloGold reduced all-in sustaining costs 11 percent to $1,155 an ounce. Gold rose 0.4 percent to $1,317.45 an ounce today.

“People are starting to realize that this company has come $300 down the cost curve on an all-in basis,” Richard Hart, a Johannesburg-based analyst at Macquarie First South Securities Ltd., said in a telephone interview. Gold analysts in South Africa compare companies’ quarterly results sequentially.

Shock Waves

AngloGold was 6.4 percent higher at 158.57 rand at 4:26 p.m. in Johannesburg, valuing the company at about 64 billion rand ($6.3 billion).

The cost-cutting efforts “will help us ride any shock waves we see as far as the gold price is concerned,” Venkatakrishnan said on a call with reporters. “If the speculation that the gold boom is over is wrong, and the gold price were to surprise us on the upside, we will cream the extra cash flow for our shareholders.”

AngloGold suspended its dividend in August following the plunge in the gold price. The company will be in a “much stronger position” to resume the distribution in February, when the board meets to decide on the payment, Venkatakrishnan said.

In September, AngloGold said it had started cheaper output from operations in the Democratic Republic of Congo and Australia earlier than planned. In the same month, it settled wage increases that ended a 48-hour strike in South Africa, where it produced 32 percent of its gold in the third quarter.

AngloGold is currently considering three offers for its Navachab mine in Namibia, he said. The company won’t dump assets “just to tick a box,” said the CEO, who was appointed after Mark Cutifani left to run Anglo American Plc.

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