These Factors Will Impact AngloGold’s Costs in 2H16



Focus on margin expansion

AngloGold Ashanti’s (AU) cost metrics improved during 1H16. Its AISC (all-in sustaining costs) for 1H16 reached $911 per ounce, which is a $13 per ounce improvement YoY (year-over-year).

The company acknowledged during its earnings call that the costs would have been significantly better, if it had not been for the challenging first half at Kibali and the operational disturbances in South Africa. The company also mentioned that it continues to work on these two areas to improve costs for the rest of the year.

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South African costs improve

AU’s AISC in the South African region fell by 10% YoY in 1H16 to come in at $809 per ounce. The weaker South African rand helped this region’s costs despite several headwinds, including lower production, inflationary pressures, and a court-ordered reinstatement of the 542 employees dismissed in 2013.

Meanwhile, a major seismic event occurred at its TauTona mine, which removed a portion of the mine life and caused an outlook revision for the rest of the year.

AU’s South African peers Harmony Gold (HMY), Sibanye Gold (SBGL), and Gold Fields (GFI) have also been reaping the benefits of the weaker South African rand since December 2015. Notably, Sibanye Gold makes up 2.1% of the VanEck Vectors Gold Miners ETF (GDX).

Costs for international operations

The company mentioned during February 2016 that the costs in its international operations would be negatively impacted by exchange rates and inflation. AngloGold actually saw this impact taking place in 2Q16, with both Australian and Brazilian currencies strengthening against the US dollar (UUP) (USDU).

The company reported AISC of $873 per ounce in 1H16, as compared to $840 in 1H15. The strong cost performances from Sunrise Dam and Cerro Vanguardia were offset by the costs at Geita and Tropicana as well as Kabali.

Among AU’s international operations, its AISC improved by 4% YoY in the Americas. The company is expecting a strong second-half performance from the Cuiaba mine in Brazil and the Tropicana operation in Australia.

The company has maintained its 2016 cost guidance of between $680 and $720 per ounce for cash costs and its AISC of between $900 and $960 per ounce. The company mentioned that as compared to its peers (RING), it’s continuing to realize higher currency benefits because about two-thirds of its portfolio benefits from weaker currencies.

Now let’s focus on AngloGold’s free cash flow generation and debt reduction efforts.


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