AngloGold hedge backfires as price hits 25-year high

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The Independent Online

The South African mining group took a hit from losses on forward sales contracts, in which it had agreed to sell gold in the future at a fixed price.

It underestimated the rise in the market price, which is now higher than the level agreed in the contracts, meaning that the contracts are recorded as a loss in the company's accounts. That meant the group's loss attributable to shareholders totalled $185m (£99.5m) in the first quarter, which compares with a loss of $227m in the previous quarter and a profit of $22m in the first quarter of last year.

Stripping out the forward sales contracts, known as the hedge, AngloGold made a profit of $86m compared with $61m a year ago as gold prices rose and one-off charges that appeared in last year's accounts were not repeated. Analysts also highlighted tight control on costs. Total costs rose 11 per cent to $308 an ounce, 4 per cent less than the guidance given to the market.

Gold prices have been rising steadily since the end of last year, enabling the company to sell at $545 an ounce in the first quarter, up 14 per cent from the previous quarter when it received $476 an ounce. Since then, the market price has climbed further and hit $684.90 an ounce yesterday, the highest since 1981. AngloGold said the gold price "seems set for a sustained positive cycle".

The company's production fell 10 per cent from the previous quarter to 1.34 million ounces, due to lower grades (a lower amount of gold that comes out of the ore) and fewer production shifts in South Africa. The group had previously signalled that output would dip and forecast it would rebound in the second quarter to 1.48 million ounces.

Since the end of March, Anglo-Gold has raised $495m from selling new shares, after the mining giant Anglo American ceded control of the company by reducing its stake from 51 per cent to 41.8 per cent last month. Its chief executive, Bobby Godsell, is now looking for ways to expand the group. AngloGold was the world's biggest gold producer until 2002 when it was overtaken by Canada's Barrick, now the biggest, and Newmont of the US, which reported big profits earlier this week.