AngloGold Ashanti, the world’s third-largest gold producer, expects the biggest miners to put more assets on the block as they seek to bolster margins ahead of a forecast slump in prices.
The largest companies have shed $912 million (R9.8 billion) of unwanted mines in the past 12 months after gold last year notched up its biggest annual drop in more than three decades.
“Portfolio rationalisation will continue to happen,” AngloGold’s executive vice president planning and technical Graham Ehm said by phone from Perth.
“Those operations that don’t really give you much margin at those prices, really don’t belong in your portfolio, so you will see that continue.”
Operations remain under review for potential sales or spin outs with the metal seen more likely to decline than to advance beyond $1,400 an ounce, said Ehm.
Spot gold traded at $1,283.03 an ounce at 10:03 a.m. Sydney time.
Barrick Gold has trimmed its operations to 19 from 27 in 2013, as it shutters and sells assets that won’t “contribute any meaningful free cash flow at current prices in the foreseeable future,” outgoing chief executive Jamie Soklasky said on a July 31 earnings call.
Mine sales are lowering the producer’s costs, he said.
Goldman Sachs sees gold sliding to $1,050 an ounce by the end of the year, while Australia & New Zealand Banking is forecasting $1,180 an ounce, citing weaker demand in China, the biggest consumer.
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Mining investor QKR, founded by former JPMorgan Chase banker Lloyd Pengilly, last month completed the $110 million purchase of AngloGold’s Navachab mine in Namibia.
“The Navachab sale has just gone through and if you look at our portfolio you’ll see there are those that are still up at the high cost end,” Ehm said yesterday.
“You’ve got to consider in the long-term whether they fit or they don’t.”
With operations across 10 countries, Johannesburg-based AngloGold may consider potential sales of assets, including Obuasi in Ghana, Sadiola in Mali or Colombia’s La Colosa, according to David Davis, an analyst at Standard Bank’s securities unit.
“All gold companies are looking to maximise their free cash flow per ounce and AngloGold is no exception,” said Johannesburg-based Davis.
“Anything that does not fit the portfolio may be offloaded.”
Second-quarter profit will be eroded by costs from closing its Yatela mine in Mali and reorganising operations in Ghana, AngloGold said last month.
A restructuring at the more than 100-year-old Obuasi mine could lead to a sale of part or all of the asset, chief executive Srinivasan Venkatakrishnan said in May.
Gold, which has advanced in two consecutive quarters, will probably continue to trade between $1,250 an ounce to $1,400 an ounce as it has over the past year, according to Ehm.
He doesn’t think “it’s going to move out of that sort of range,” he said.
“There are probably lots of reasons why it might start to push down and not too much that would see it push up above those sorts of levels.” - Bloomberg News