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Jude Wanniski takes note of ''Confessions of an Economic Hit Man''
By Eric Onstad
Reuters
Thursday, January 27, 2005
http://www.reuters.com/financeQuoteCompanyNewsArticle.jhtml?
duid=mtfh28789_2005-01-27_12-37-21_l27257712_newsml
JOHANNESBURG -- World No. 2 gold producer AngloGold
Ashanti Ltd. posted a 7 percent fall in adjusted fourth-quarter
operating profit as costs climbed and hedging dampened its
exposure to a higher gold price.
But the South African-based group said on Thursday it had
slashed 2.2 million ounces from its hedging programme --
whereby gold is sold in advance at fixed prices -- because
it was bullish on the outlook for gold prices .
"Their earnings would have looked much better if it hadn't
been for the hedge book," said Stephen Roelofse, fund
manager at Sanlam Investment Management.
In the first quarter, the firm should reap the benefits of
revamping its hedging book and see higher profits if gold
is steady or higher than the current level of around $425
per ounce.
The company injected $159 million into the restructuring,
but most of those costs are reflected in the average price
of $396 per ounce AngloGold received for selling its gold
in the quarter, $38 less than the average spot price.
AngloGold is seen as a conservative investment because
of its wide geographic spread and its hedging programme
that smoothes out fluctuations in the volatile gold price.
The company's shares, which fell 37 percent last year as
a buoyant rand hit profits, fell by 1.8 percent in
Johannesburg to 188.50 rand by 1234 GMT compared to
a 0.7 percent rise in the top 40 benchmark index .
Operating profit, adjusted to strip out hedging that was not
realised in the quarter, fell to 586 million rand ($98.30 million)
from 631 million rand in the previous quarter.
This was below an average of four forecasts of analysts
polled by Reuters of 644.5 million rand.
Adjusted headline earnings per share soared 129 percent to
243 cents, mainly because the firm took a deferred tax
credit of $59 million. Headline EPS is adjusted to exclude
capital and non-trading items and non-realised derivatives.
"I think they took advantage of that tax credit and got a huge
lift-up from that and could afford to restructure their hedge
book this quarter without influencing their adjusted earnings,"
Roelofse said.
Overall gold output for the quarter rose 4 percent to 1.7 million
ounces, but strong performances at some mines masked
continued underformance at operations in Ghana, acquired
last April when it took over Ashanti Goldfields for $1.44 billion.
The huge Obuasi mine slipped into the red, posting a cash
operating loss of $4 million.
"You did say that this operation would get worse before it got
better, but I seem to detect that it's got quite a lot worse than
we might have hoped," analyst Brenton Saunders of Deutsche
Securities said at a results presentation.
Chief Executive Bobby Godsell said in response that he had
warned that restructuring would take four to six quarters and
pledged that improvements would be seen this year.
"The operational integrity of the company is now hugely driven
by achieving the Obuasi turnaround. ... We're absolutely
tying ourselves to improved performance during 2005."
Gold output at Obuasi this year is expected to surge to
450,000-500,000 ounces, up from 255,000 in 2004.
Total output in 2005 is seen rising to 6.5 million ounces
from 6.06 million last year, AngloGold forecast.
The group, in the midst of a cost-cutting campaign, said
total production costs rose by 4 percent to $354 per
ounce, partly due to stronger operating currencies.
AngloGold Ashanti, majority owned by diversified miner
Anglo American, also said it had approved a $121 million
deepening project at its Cuiaba mine in Brazil. It is due to
boost output there by around a third to 250,000 ounces.
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