AngloGold Ashanti Ltd. (ANG), the world’s third-largest producer of the metal, cut its dividend by half in the third quarter and reduced annual spending plans by $200 million after strikes idled all of its South African mines.
“It’s been a pretty tough quarter and we’re looking at an even tougher quarter-four given that this is where most of the issues were relating to the strike and labor unrest,” Chief Executive Officer Mark Cutifani said today on a conference call.
The walkout cost the company 250,000 ounces of lost output in the fourth quarter up to Nov. 2, it said in a statement.
The producer cut 2012 capital spending to an estimated $2 billion to $2.1 billion and declared a dividend of 0.5 rand (6 cents) a share. Earnings excluding one-time items fell to $235 million, or 61 cents a share, in the quarter, from $253 million, or 65 cents, in the previous three months, Johannesburg-based AngloGold said today in a statement. That missed the 70-cent median estimate of seven analysts surveyed by Bloomberg.
Unofficial strikes that began in South Africa’s platinum industry on Aug. 10 spread to gold, coal and chrome mines last quarter, weakening the economy, with Finance Minister Pravin Gordhan cutting the annual growth outlook to 2.5 percent from 2.7 percent. Prices for gold, up 2.5 percent from the previous quarter, helped AngloGold weather the production stoppages.
The company fell 3.7 percent to close at 288.94 rand in Johannesburg, bringing the loss for the year to 16 percent.
AngloGold will miss its 2012 output target of 4.3 million to 4.4 million ounces, Cutifani said. Work on extending the life of mines at Moab Khotsong and Mponeng is slowing, he said. All the South African mines except Mponeng have resumed operations.
The halts prompted a 4 percent drop in quarterly output to 1.03 million ounces. Weaker production led Standard & Poor’s to say on Oct. 18 that it may cut AngloGold’s debt rating to junk.
“We’re in the middle of a review of our South African operations,” Cutifani told reporters. “There is no doubt that we’re going to have to do some restructuring work.” There will be “big” job losses in the South African mining industry unless productivity gains can be won, he told investors.
AngloGold, whose largest overseas competitors are Barrick Gold Corp. (ABX) and Newmont Mining Corp. (NEM:US), mines about a third of its metal in South Africa, where it employs about 35,000 people.
“We’re about 90 percent through some of the tough things we’ve had to deal with,” Cutifani said. The violence at Lonmin Plc (LMI)’s Marikana mine was the worst he had seen in the industry.
A commission of inquiry has been appointed by South African President Jacob Zuma to probe the deaths of about 46 people at Marikana in August, including 34 shot by police. Police and security personnel were also killed in protests. Miners ended their six-week illegal strike at Marikana on Sept. 20 after the company committed to pay increases of 11 percent to 22 percent.
Illegal strikes spread to Anglo American Plc’s Kumba Iron Ore Ltd. and platinum operations, as well as Xstrata Plc’s chrome mines and Gold Fields Ltd. and Harmony Gold Mining Co.
The stoppages cut South Africa’s September gold production by 11 percent from a year earlier and platinum by 18 percent.
AngloGold won’t change strategy after the strikes, Cutifani said. “It has hurt South Africa’s reputation as an investment destination, but in terms of how we think about it in the portfolio, we haven’t changed our view,” he said.
In Ghana, a 28 percent drop in Obuasi production to 60,000 ounces contributed to the decline in the quarter. A new plan will see the mine produce more than 500,000 ounces a year in 2015, Cutifani told investors today. The project may generate cash flows of $200 million to $300 million, boosting its value to as much as $5 billion in the next few years, he said.
The Sadiola project in Mali has been delayed by a year by a coup in the country, Cutifani said. The development schedule of the Mongbwalu project in the Democratic Republic of Congo is being reviewed to assess additional discoveries, he said.
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