AngloGold Ashanti to cut 2,000 management jobs

South Africa's AngloGold Ashanti plans to cut about 2,000 management jobs, or about 40 percent of its management positions, to reduce costs, its chief executive said on Wednesday.

Srinivasan Venkatakrishnan told a media conference the job cuts are part of a larger plan aimed at saving the company as much as $482 million next year.

Read more: AngloGold fastens cost seatbelt ahead of further price turbulence

AngloGold Ashanti has suspended its dividend and plans to slash exploration and corporate costs as it prepares for to wait out the low gold price environment.

Speaking to journalists ahead of the group's Q2 results presentation in Johannesburg, CEO, Srinivasan Venkatakrishnan (Venkat) explained that, while the group is positive about gold prices over the long run, in the short to medium term the group expects a lot of turbulence in the price of the yellow metal.

"It is best to be prepared for a low gold price environment so you are better positioned to tackle an upside in the gold price," he said. In order to do this, the group is using a gold price of $1,100 as its base case for planning and is focusing sharply on both costs and revenues.

As Venkat explains, “Our revenue enhancement efforts are focused on stripping out unprofitable production and bringing our Tropicana and Kibali projects to production in the coming months. These two important new mines are expected to contribute approximately 550,000oz to 600,000oz of new annual production next year at below our current average cost, improving the group’s cash cost profile.

On the cost side, the group has already initiated its previously announced Project 500 initiative which it says aims to remove rouhgly $500m from the group's operating cost line within the next 18 months.

"This approach has been piloted at four global sites (Siguiri – Guinea, Geita –Tanzania, Moab Khotsong – South Africa and Cuiabá – Brazil), which were selected on the basis of being among the largestlong-term producers in the company. Project 500 was well received by the site management teams and potential savings ofapproximately $235m have been identified. Detailed planning to realise those opportunities and ensure they are integrated intobudgets, is currently underway," the group noted.

At the corporate level, AngloGold has also begun streamlining its headoffice costs with the aim of removing as many as 2000 positions.

"We expect that during the last quarter of this year, after taking into account the notice periods that need to be provided to affected employees, approximately 35-40% of these roles will have been removed. Indirect spend, such as travel, communication and IT costs are being rationalised with a view to further sustainable cost savings," it says.

As a result, the group expects corporate costs are anticipated to fall from the $240m forecast for this year, to between $120m and $140m in 2014.

According to Venkat, the reduction of the group's executive team from 13 to 10, while only a 25% reduction in employment terms, from a total cost to company point of view, it will reduce their contribution by between 35% and 40%.

AngloGold's capital bill for the year is expected to come in at roughly $2.1bn, Venkat explained but, added that around $1bn of that is big project capital that will start to taper off next year.

The other cost pillar AngloGold is paring down considerably is its exploration arm. The group has reduced its exploration focus to just three areas, Colombia, Australia and Guinea and, as a result has withdrawn from 13 other jurisdictions.

For the rest of 2013, the group expects to spend $327m, compared to the previous guidance of $377m. And, in 2014, it plans to reduce this spend even further to between $150 and $175m.

According to Venkat, the decision focuses the group's exploration efforts on brownfields operations, which are expected to account for its new ounces in the medium term as well as areas where the group already has a foothold.

"We are looking to suspend speculative exploration, where the goal is the discovery of the world's ext gold belt. The junior explorers are also struggling for financing in this market so, to put in money in order to trade that market doesn't make logical sense in the current environment."

According to the gold miner, the total targeted annual savings from these exploration and corporate cost initiatives is expected to be between $437m to $482m next year, as compared to 2012 levels, or more than $100/oz."

The group also announced it will return to a bi-annual dividend schedule given the current market conditions and has elected to pass on the current quarterly dividend.

AngloGold was clear to point out that the next two quarters are likely to remain tough as the cost saving measures bed down and Kibali and Tropicana are yet to contribute fully. But, Venkat says, 2014 will be better.

The group expects all in sustaining costs to come in at around $1,200/oz for the full year 2013 but, for the quarter these costs are closer to $1,300/oz. However, Venkat says, for 2014, that number should come down by around $200/oz as revenues from Kibali and Tropicana ramp up and the cost savings filter through.

Financials

For the quarter, the group produced 935,000oz, 4% from the first quarter, at a total cash cost of $898/oz,

Headline earnings fell to $112m for the quarter, from $259m in the previous quarter, while at an adjusted level the group reported a loss of $135m for the quarter, compared to a $113m profit in Q1. "This figure includes a $144m loss associated with stockpile inventory write-downs, indirect tax provisions and corporate restructuring," the group said.

"Net loss attributable to equity shareholders for the second quarter of 2013 was $2,165m, compared to a profit of $239m in the previous quarter, negatively impacted by a post-tax impairment of tangible and intangible assets and investments and inventory write-downs aggregating $2.4bn."