By James Macharia
JOHANNESBURG, May 15 (Reuters) - AngloGold Ashanti, the world's No. 3 producer, swung into profit in the first quarter of this year on the back of a higher gold price and slashed its hedge book, which it promised to cut even further.
AngloGold, which has one of the biggest forward sales among its peers, pleased the market by making further cuts in the fixed-price forward sales, which analysts say has prevented the company benefiting from the strong spot price of gold.
Mark Cutifani, AngloGold's chief executive officer, who has previously said he is not a fan of the gold hedge, said so far the hedge has been slashed by about 50 percent since last year.
Analysts were disappointed by a 13 percent drop in output for its first quarter to end-March versus the December quarter.
"The results were solid, but production was really down, that is a concern," said Stephen Roelofse, a Cape-Town based gold analyst at Metropolitan Asset Managers.
"Their forecast for production in the second quarter is flat, they have to have a big jump in production in their second half of the year to make their forecast output for this year."
AngloGold's production plunged to 1.103 million ounces in the first quarter, partly due to safety closures in South Africa and operational woes at its Geita Gold Mine in Tanzania, and forecast second-quarter production at 1.14 million ounces.
Cutifani maintained an output forecast of up to 5 million ounces of gold this year.
Total cash costs would be $485/ounce in the June quarter after a 5 percent rise to $445/ounce in the March quarter.
AngloGold's earnings were bang in line with market consensus. Adjusted headline earnings rose to $150 million, or 42 cents a share, in the period to end-March compared with a loss of $17 million, or 5 cents a share, in the quarter to end-December.
Headline earnings are the key profit measure in South Africa, stripping out capital, non-trading and some extraordinary items.
The gold price in the March quarter averaged $908 per ounce, up 14 percent on the December quarter, while the rand/dollar exchange rate average was flat, which meant the rand gold price also rose 14 percent to a record high of 290,000 rand per kg.
South African gold producers sell their gold in dollars and receive earnings in rand.
GOLD PRICE
Cutifani said the gold price could rise higher, and forecast it at between $850 and $1,000 an ounce for the rest of this year, and beyond that next year on investment demand.
Rival Gold Fields, the world's No. 4 gold producer, said last week it more than doubled adjusted headline EPS for its March quarter on higher output, while Harmony Gold Mining Co., the world's No.5 producer, reported flat headline EPS for its March quarter, due to lower output and higher costs.
AngloGold shares traded 1.31 percent up at 316.29 rand, beating a 1.13 percent rise in the gold share index.
AngloGold, which has around 21 operations across four continents, cut its hedge book by 154,000 ounces during the March quarter, and Cutifani plans a further reduction of up to 150,000 ounces in this quarter.
He wants to cut the hedge book to below 4 million ounces by end-2010 from 5.84 million ounces by the end of March.
"Our strategy of reducing the hedge book by almost half over the past year is yielding real results, giving a good kicker to our received gold price," he said.
Forward sales are used routinely by mining companies to fix selling prices for nuggets not yet mined to protect profits.
Cutifani said AngloGold can now explore its vast La Colosa concession in Colombia after receiving an official permit following a delay due to an environmental dispute.
(Editing by David Cowell) (For full Reuters Africa coverage and to have your say on the top issues, visit: http://af.reuters.com/) Keywords: ANGLOGOLD/
(james.macharia@reuters.com; +27117753158; Reuters Messaging:james.macharia.reuters.com@reuters.net)
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