THE BOTTOM LINE
AngloGold did the right thing by cutting its SA losses
Now it needs the government to provide incentives to keep its remaining operations - and employees - afloat
The decision to sell and close mines contributing more than half of AngloGold Ashanti’s South African gold output was clearly the right one no matter how emotional the action might be for what was once the bedrock of the company’s annual production.
The costs at these assets was dragging the entire company down and the large exposure to South Africa, with its dire regulatory framework, dramatically rising expenses for labour and services, as well as declining output, falling grades, lower productivity and the ever-present threat of fatal accidents, made the decision a logical one.It has meant the once dominant gold miner in the country is a mere shadow of itself, with a single deep-level mine and a tailings operation. But the South African asset base gave AngloGold the ability to expand strongly in Africa, Australia and South America, making it the world’s third-largest gold miner.
The first-quarter results from AngloGold gave investors their first glance at what the company’s potential was without the burden of high-cost, unprofitable mines in SA, with the group’s overall cost base coming down to little more than $1,000/oz, giving it a 25% margin to the average received gold price during the three months.The time had clearly come for AngloGold to do what it had been intending to do since its ill-fated attempt to separate its international portfolio from the local mines, creating two companies. The plan was thwarted by shareholders, but AngloGold’s board has come to the same point, albeit with a dramatically smaller South African footprint and one much easier to sell if it decided to do so.
Unfortunately the underlying message is that SA is no longer a gold destination major companies want to be associated with anymore. Mines are old and tired and the operating environment is challenging and expensive.
If anything, this should send a clarion call to the government to reconsider how it views the sector and provide incentives for it to stay operational as long as possible and retain tens of thousands of jobs.