“Daily updated mining exploration news on gold”—-The new brooms at Africa’s biggest gold producers - AngloGold Ashanti, Gold Fields and Harmony - have had a lot of sweeping to do in a fast-changing industry. Some have swept cleaner than others.
The aggressive way AngloGold CEO Mark Cutifani tackled the company’s hedge book (selling gold forward at a fixed price to reduce risk) is impressive. When Cutifani took over from Bobby Godsell in October last year, the firm had about 10,6m oz of gold hedged. This meant AngloGold was selling its product for less than the spot gold price. By the end of September the hedge book stood at 6,3m oz, and the company plans to reduce this to 6m oz by the end of 2008.
Australian-born Cutifani has also gained significant ground on the safety front. The June quarter was the first in AngloGold’s century-long history that a worker did not die in its mines, which are among the deepest in the world. Cutifani insists AngloGold can eliminate deaths, but Afrifocus Securities analyst Mark Madeyski says this is not possible because of the risks associated with mining such as deep and narrow ore bodies.
Another analyst, who can’t be named because of his company’s policy, says Cutifani has delivered on all his promises, particularly on production.
The other gold major that’s experienced a makeover since its leadership change is Harmony. Graham Briggs took the reins from 12-year veteran Bernard Swanepoel in August 2007. Swanepoel had quit abruptly, leading to a 30% drop in the share price in just two days. From the start, Briggs emphasised Harmony was returning to its “back to basics” mining approach.
Briggs, a geologist, has succeeded on this front, controlling costs and upping production. He has also engineered deals involving Harmony’s uranium and Papua New Guinea (PNG) assets. Both transactions have added value to the group. In PNG, Harmony sold a 50% stake in its Hidden Valley mine as well as exploration targets to Australia’s Newcrest for about US$530m. In December last year, Briggs announced the sale of a 60% stake in its Randfontein uranium dumps and a mine shaft to Pamodzi Resources Fund for $209m.
Both of these transactions bring cash to Harmony’s balance sheet and reduce the amount of capital the company will have to spend to develop the projects by itself. This will allow the firm to slash its net debt from R2,4bn at the end of September to R224m by mid-2009. That puts Harmony in a good position, given the uncertain credit environment.
“I think Briggs has done quite well, given what he’s got to work with,” says Madeyski, referring to the fact that Harmony’s mines are older and of a lower quality than its competitors.
The other new appointment in the sector is Nick Holland, who took over as Gold Fields CEO from Ian Cockerill on May 1. His first day on the job was a baptism of fire: nine workers plunged to their deaths at Gold Fields South Deep mine after a rope snapped. Since then, Holland has focused on improving the group’s safety performance.
“I don’t think he’s achieved much yet,” says Madeyski. He does, however, acknowledge Holland has had less time at the helm to effect any changes than Briggs and Cutifani.
What does stand in Holland’s favour is that the chartered accountant has tackled the Gold Fields safety record head-on. His actions include the six-month closure of the main shaft at the company’s key Kloof mine for repairs, costing the company 500 kg/month of gold. Though this brings about short-term production pain, it sets the company up for less safety-related stoppages in the future. The anonymous analyst adds that many of Gold Fields safety problems are a legacy left by previous management, and Holland has been left “to pick up the pieces”.
Out of the three CEOs, Madeyski picks Cutifani as the winner: “He knows what he’s doing, I’m impressed with him.” The unnamed analyst agrees, saying: “AngloGold’s a completely different ship; there’s a whole different vibe there.”
The markets, however, have favoured Briggs, with Harmony’s share price having fallen less than the other two. It slid 38% from a high of R118,50 to R72,97 this week. But this is skewed by the fact that Harmony’s stock came off a low base after dropping drastically in August 2007, following a production forecast cut and Swanepoel’s resignation. AngloGold has lost 47% from its 12-month high of R349 to trade at R182,39/share. Gold Fields fell the most, giving up 52% of its R137,40/share 12-month high to trade at R65.
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