Charlotte Mathews
28 July 2008
Johannesburg — THE big gold companies are expected to report this week that they performed better in the June quarter than in the torrid March quarter, when production was disrupted by January's power shortages and the Christmas break.
They are expected to benefit from a higher average gold price, fewer public holidays and the restoration of electricity to levels of 90% or more. But costs remain under pressure.
The local gold quarterly reporting season starts on Thursday , with AngloGold Ashanti due to report that day and Gold Fields on Friday.
Later next month , Pamodzi Gold and Harmony will report results and DRDGold is scheduled for August 22.
In the March quarter, the effect of power outages and cutbacks on volumes showed in a 14% drop in Gold Fields' production and 21% increase in cash costs compared with the December quarter, while Harmony output fell 16,6% and cash costs were up 9,2%. AngloGold reported a 13% drop in gold production to 1,2-million ounces across all its operations, and cash costs up 6% at $430/oz because of weaker production and inflation. A large proportion of gold companies' costs are fixed, which means unit costs soar when production declines.
Metropolitan Asset Managers resources analyst Stephen Roelofse said on Friday the average gold price in the June quarter was about 3% lower than the previous quarter at $896/oz, but in rand terms, as the rand had weakened, it was almost unchanged at R223000/kg. It had since fallen back to R228000/kg, which was off the recent peak of more than R250000/kg.
Roelofse said Gold Fields and Harmony were both expected to report higher earnings per share for the quarter, with Gold Fields benefiting from higher volumes and improved unit costs, and Harmony more than doubling earnings because of its high leverage to the gold price.
AngloGold's headline earnings would be knocked by the once-off impact of restructuring its hedge book, but it was also likely to have shown an operational improvement.
A second analyst, who asked not to be named, said production this quarter could be about 7% higher on average, based on Gold Fields' outlook, but he estimated costs could be 15%-20% higher year on year because of hikes in input such as diesel, steel and electricity, which was increased by 14% in May.
Another analyst said he would be delighted if costs were only 15%-20% higher because his estimate was more like 20%-25%.
Gold Fields said in a recent update its June quarter production in SA would be above the original forecast, up 6,6%, because of better quality mining at Beatrix. Its international production would be flat, while costs would be steady. New production from Cerro Corona and expansions in Australia and Ghana would start to contribute in the September quarter.
AngloGold said June quarter production was 1,25-million ounces, and cash costs were $434/oz. It said it would incur a once-off pretax loss of $1,1bn in the quarter from the costs of restructuring the hedge book, as well as a pretax loss on cancelling some uranium contracts.
But analysts said the September quarter would present more challenges.
It would include some labour disruptions from Cosatu's rolling protests against the soaring cost of living, and the annual wage increase would take effect from July 1. Roelofse said the prevailing dollar gold price would not help boost profits significantly in the current quarter, but he believed the rand did not have much room to strengthen further.
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