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What Led to AU’s Increased Cost Guidance after Its 3Q16 Update?

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Costs rose

AngloGold Ashanti’s (AU) cost metrics worsened in 3Q16. Its cash costs rose 8% YoY (year-over-year) to $797 per ounce in 3Q16. The rise was mainly due to lower grades, lower production, and inflation. 

The rise also affected the company’s AISC (all-in sustaining costs) in 3Q16. These costs came in at $1,071 per ounce, a rise of 14% YoY.

Rises in AU’s total cash costs, exploration, and corporate and marketing costs and a planned increase in its capital expenditure led to this rise in AISC.

AngloGold’s AISC for the nine months that ended on September 30, 2016, came in at $965 per ounce, 4% higher compared to the same period last year.

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Change in assumptions

The company has increased its AISC guidance for 2016 from $900–$960 per ounce to $980–$1,1010 per ounce. The company is now taking higher assumptions for exchange rates. The assumptions have changed as follows:

  • US dollar to South African rand: 14.6 against the previous 14.97
  • US dollar to Brazilian real: 3.5 against the previous 3.51
  • US dollar to Australian dollar: 0.75 against the previous 0.74
  • US dollar to Argentine peso: 14.8 against the previous 15.1 
  • Oil price assumption: $43 per barrel against the previous $42 per barrel

AngloGold’s peers

AU’s South African peers (GDX) Harmony Gold (HMY), Sibanye Gold (SBGL), and Gold Fields (GFI) also reaped the benefits of the weaker South African rand at the beginning of 2016. Now, their local currencies have started strengthening, negatively affecting their costs.

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

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