JOHANNESBURG - AngloGold Ashanti, the world’s third-largest gold mining company by production, yesterday announced it would spend $500million (R5.83billion) to reopen its Obuasi mine in Ghana as retrenchment costs and a provision for the silicosis class action in its South African operations squeezed earnings in the year to December.
AngloGold Ashanti capex for restarting Obuasi, Ghana’s oldest gold mine, was expected to be between $450m and $500m the first two-and-a-half years of the project.
The decision follows support from the Ghanaian government and is the latest indication of renewed confidence in the mine, which has been riddled with troubles, including high input costs, illegal miners and an ageing ore body.
“We are confident that we have the right redevelopment plan, the strongest possible technical team and a very strong level of support from the government of Ghana, which together will help make the project a success, with attractive capital investment for an operation of this size and returns well in excess of our hurdle rates,” said Graham Ehm, the executive vice-president of group planning and technical.
He said AngloGold Ashanti expects Obuasi production to reach 400000 ounces a year and the rate of return was between 16percent and 23percent at real gold prices of between $1100 and $1240 an ounce.
Srinivasan Venkatakrishnan (Venkat), AngloGold Ashanti’s chief executive, said the company had addressed its previous concerns at the mine.
“Given the illegal mining issues, we have a security agreement in place with the government,” adding that the company had been studying the possibility of reopening the mine. “This is something we have been looking at. We went through the process of improving the mine’s feasibility study. The critical issue was the support from the government. We had a willing stakeholder. That was the biggest trigger in this regard,” he said yesterday.
Adjusted headline earnings for the year plummeted to $9m, or 2cents a share, compared with $143m, or 35c a share in 2016 after taking into account the $71m retrenchment costs and a $46m provision for the silicosis class-action claims by former employees.
Last June, AngloGold Ashanti announced the restructuring of its mines, which resulted in it placing TauTona and Savuka into care and maintenance, and a subsequent closure of the operations was expected later this year.
AngloGold Ashanti sold the Khotsong and Great Noligwa mines to Harmony Gold Mining for $300m. It also sold the Kopanang Mine to China’s Heaven-Sent Sunshine Investment for R100m.
The restructure has reduced the company’s exposure to South Africa to between 10percentand 13percent.
Despite the lower earnings AngloGold Ashanti said it had strong cash flow and financial performance in the period under review. A 70c a share dividend was declared.
It reported production of 3.75million ounces, 4percent higher than the previous year’s production of 3.62million ounces on the back of strong production from international operations including Mali, Ghana and Australia.
Seleho Tsatsi, an investment researcher at Anchor Capital, said AngloGold took steps to restructure the business in 2017. “The group’s South African assets were restructured with asset sales occurring during the year. Some of those sales will close this year. Reported earnings were affected by a meaningful amount of special items.”
AngloGold Ashanti shares dropped 3.77percent to close at R116.24 on the JSE yesterday.