Wrap Text
Registration No. 1944/017354/06
Incorporated in the Republic of South Africa
REPORT TO SHAREHOLDERS
FOR THE QUARTER AND SIX MONTHS ENDED 30 JUNE 2001
A good quarter by any measure
Group results for the quarter ...
* Headline earnings up 19% to $0.62 and 22% to R5.01 per share.
* Total cash costs down 4% to $185 per ounce.
* Bambanani and Tshepong will remain in AngloGold's portfolio.
* GoldAvenue Exchange goes live for gold trading.
... and for the half year
* Gold production down due to Elandsrand and Deelkraal sale.
* Total cash costs down 12% to $189 per ounce.
* Headline earnings down 11% with increased finance costs arising from
acquisition of Geita and Morila.
* A dividend of R7.00 per share declared, giving a 5% annualised yield on a
share price of R288.00 per share.
Regional operating results for the quarter
SOUTH AFRICA
* Key operations exceeded production and cost targets.
* Gold production up (excluding Elandsrand and Deelkraal sale).
* Total cash costs down 1% to R50,120 per kilogram (4% to $194 per ounce).
* Operating profit marginally lower on flat received price and increased
retrenchment costs.
AFRICA
* Another very good quarter.
* Gold production up 9%.
* Total cash costs 2% down to $121 per ounce.
* Operating profit up 29% to $22 million.
* ISO 14001 environmental accreditation for Geita.
NORTH AMERICA
* Gold production up 4%.
* Total cash costs down 4% to $202 per ounce.
* Operating profit up 28% to $6 million.
SOUTH AMERICA
* Gold production slightly down.
* Total cash costs down 4% to $141 per ounce, following cost cuts and
devaluation of Brazilian Real.
AUSTRALIA
* Gold production down 11% partly due to Sunrise Dam plant commissioning.
* Production drop matched by cost containment, leaving total cash costs down
3% at $195 per ounce, and steady in A$ terms.
Quarter Quarter Six Six
ended ended months
months
Jun Mar ended
ended
2001 2001 2001 2000
Rand/Metric
Gold
Produced - kg/oz 000 53,915 54,377 108,292
110,466
Revenue - R/kg/$/oz sold 73,578 74,133 73,850
65,096
Total cash costs - R/kg/$/oz produced 47,663 48,457 48,061
45,165
Total production costs - R/kg/$/oz produced 57,079 57,537 57,309
51,891
Operating profit - R/$ million 965 894 1,859
1,570
Net capital expenditure - R/$ million 576 535 1,111 633
Net profit - R/$ million 509 337 846 854
Net earnings (basic) - cents per share 475 315 790 799
Headline earnings - cents per share 538 409 947 859
Headline earnings
before unrealised
hedging activities - cents per share 501 410 911 859
Dividends - cents per share 700 750
Quarter Quarter Six Six
ended ended months
months
Jun Mar ended
ended
2001 2001 2001 2000
Dollar/Imperial
Gold
Produced - kg/oz 000 1,733 1,749 3,482
3,551
Revenue - R/kg/$/oz sold 285 295 290 308
Total cash costs - R/kg/$/oz produced 185 193 189 214
Total production costs - R/kg/$/oz produced 221 229 225 245
Operating profit - R/$ million 120 114 234 237
Net capital expenditure - R/$ million 72 68 140 96
Net profit - R/$ million 63 43 106 128
Net earnings (basic) - cents per share 59 40 99 120
Headline earnings - cents per share 67 52 119 129
Headline earnings
before unrealised
hedging activities - cents per share 62 52 114 129
Dividends - cents per share 85 102
Certain forward-looking statements
Certain statements contained in this document, including, without
limitation, those concerning the economic outlook for the gold mining
industry, expectations regarding gold prices and production, the completion
and commencement of commercial operations of certain of AngloGold's
exploration and production projects, and its liquidity and capital resources
and expenditure, contain certain forward-looking statements regarding
AngloGold's operations, economic performance and financial condition.
Although AngloGold believes that the expectations reflected in such forward-
looking statements are reasonable, no assurance can be given that such
expectations will prove to have been correct. Accordingly, results could
differ materially from those set out in the forward-looking statements as a
result of, among other factors, changes in economic and market conditions,
success of business and operating initiatives, changes in the regulatory
environment and other government actions, fluctuations in gold prices and
exchange rates, and business and operational risk management.
Throughout this document, $ refers to US dollars, unless otherwise stated.
Published by AngloGold
PO Box 62117
Marshalltown
2107
South Africa
Telephone: +27 11 637 6000
Fax: +27 11 637 6399/6400
E-mail: investors@anglogold.com
LETTER FROM THE CHAIRMAN AND DEPUTY CHARMAN
Dear Shareholder,
Overall performance
The results reported for the June quarter reflect a strong performance,
with operating profit of $120 million, net profit of $63 million, and
headline earnings of $66 million (excluding the unrealised gain on hedging
activities) - all improvements on the previous quarter. This commendable
financial performance comes despite slightly reduced gold production and a
lower received gold price. Decreased finance costs resulting from the
competitive re-financing of existing debt and from lower interest charges
contributed to the quarter-on-quarter earnings increase. Performance for
the six months to June 2001 is equally pleasing.
The quarter saw a good operating performance across all five regions, with
AngloGold producing 1.7 million ounces of gold at total cash costs of $185
per ounce, and total production costs of $221 per ounce. For the six months
ended June 2001, the company produced 3.5 million ounces of gold at total
cash costs of $189 per ounce and total production costs of $225 per ounce.
In South Africa, the key operations are producing at or above
expectations, with particularly good performances at Great Noligwa,
Tshepong, Savuka and TauTona and continuing improvements at Bambanani.
While Mponeng continues to underperform, this is expected to improve
incrementally during the second half of the year, as new raise lines become
available. A decision has been taken to place Joel's South shaft in an
orderly closure mode, while the drilling project at North shaft continues.
However, should a value-adding offer to purchase Joel be received, this
would be considered. Consequent on improved operational performance, and in
the absence of offers that exceed AngloGold's valuation of certain of the
Free State assets, the board has decided to withdraw the cautionary notice
published in November last year in respect of the potential sale of some of
its Free State operations.
The Africa region had another excellent quarter, improving on its
performance in the first quarter. The region produced 211,000 attributable
ounces, with total cash costs 2% lower at $121 per ounce, and operating
profit 29% higher at $22 million. Yatela produced its first gold on 9 May
2001, one month ahead of schedule and $2 million below construction budget.
In North America, gold production increased by 4% to 130,000 ounces,
operating earnings improved by 28%, while total cash costs decreased by 4%
to $202 per ounce. Gold production at AngloGold's South American operations
was 1% lower than the previous quarter at 106,000 ounces, while total cash
costs were 4% down at $141 per ounce, as a result of continuing cost-cutting
and currency devaluation. Australia saw production decline by 11% to
118,000 ounces, while total cash costs decreased by 3% to $195 per ounce,
holding steady in local currency terms at A$379 per ounce.
AngloGold's strategy to reduce risk through geographic and orebody
diversification continues to deliver benefits. For the quarter, production
from outside South Africa, principally from low-cost, surface and shallow
mines, grew to 33%, operating profits to 41%, EBITDA to 51% and cash
earnings to 57%. The company's ongoing major capital projects, in South
Africa at Mponeng and TauTona, in Australia at Sunrise Dam, and at the
Cripple Creek & Victor joint venture in Colorado, are all progressing well
and within budget.
An equally pleasing aspect of this quarter has been GoldAvenue's business-
to-business website, GAExchange (www.gaexchange.com), which went live in
June, offering bullion products directly to regional banks for jewellery
fabrication industries in Italy. This will be extended to other countries
through the remainder of 2001, with GoldAvenue's business-to-consumer gold
jewellery venture targeting an initial product offering by year-end.
We are very satisfied with the wage agreement reached with the National
Union of Mineworkers (NUM) last week. This deal locks in a two-year
contract which is consistent with our goals of improving skills and
productivity, especially for production crews. The net effect of this wage
agreement on our bottom line is within the planning and performance
parameters we have set for our South African business units.
Dividend
We are pleased to announce an interim dividend for the half year of R7.00,
representing an annualised dividend yield of 5% on Friday, 27 July 2001
closing share price of R288.00.
Changes in the board of directors
Following his appointment as Chairman of South African Airways, Don Ncube
has sadly resigned from the AngloGold board. His presence will be sorely
missed. A replacement has not yet been appointed. Mike King and James
Campbell have also resigned from the board, following their departures from
Anglo American. They will be replaced by Bill Nairn and Tony Lea.
BOBBY GODSELL
Chairman and Chief Executive Officer
RUSSELL EDEY
Deputy Chairman
30 July 2001
OPERATING AND FINANCIAL REVIEW
OVERVIEW
AngloGold's operating profit for the quarter ended 30 June 2001 increased
by 5% to $120 million. Headline earnings (excluding unrealised gains from
hedging) rose by 19% to $66 million ($0.62 per share or $0.31 per ADR).
Reduced finance costs resulting from the re-financing of existing debt and
from lower interest charges contributed to the quarter-on-quarter earnings
increase. The received gold price for the period declined by 3% to $285 per
ounce. Gold production decreased by only 16,000 ounces (1%) to 1.73 million
ounces, despite the loss of 33,000 ounces arising from the disposal of
Deelkraal and Elandsrand between the March and June quarters. Total cash
costs were down by 4% to $185 per ounce and total production costs decreased
by 3% to $221 per ounce.
In the absence of an offer from a third party which exceeds AngloGold's
valuation of the Bambanani and Tshepong operations in the Free State and, in
light of the fact that both of these mines are performing according to plan,
it has been decided to withdraw the cautionary notice published in November
last year in respect of some of its Free State operations.
It has been decided to place Joel South shaft in an orderly closure mode
and it will be closed by the end of 2001, unless a reasonable offer to
purchase Joel is received. In the interim, drilling at Joel North shaft
will continue. Similarly, Matjhabeng's Eland shaft will be closed by the
end of this year.
For the six months ended June 2001, gold production decreased by 69,000
ounces, or 2%, to 3.5 million ounces compared to the first six months of
2000, as a result of the disposal of Elandsrand and Deelkraal, which
together produced 277,000 ounces in the first half of 2000. This, however,
was partially offset by production from Morila and Geita. Total cash and
production costs decreased by 12% and 8% to $189 per ounce and $225 per
ounce respectively. Operating profits were down by 1% to $234 million for
the half-year. Headline earnings before unrealised gain from hedging
decreased by 11% to $122 million due to the increase in interest paid during
the first half of this year arising from the acquisition of Geita and
Morila. Retrenchment costs increased from $6 million in the first half of
2000 to $16 million in the first six months of 2001.
Agreement was reached last week with the National Union of Mineworkers
(NUM) on wages and other conditions of employment for the next two years.
The terms of the agreement provide for the salaries of the lowest-paid
employees (Category 3) to be increased by 9% from 1 July 2001 and for the
salaries of all other employees covered by the agreement to be increased by
8% from that date.
With effect from 1 July 2002, the minimum salary for Category 3
underground employees will be increased to R2,000 per month, while the
salaries of Category 3 surface employees (the company's lowest-paid
employees), will be increased by 10%. The salaries of all other employees
covered by the agreement will be increased by 7.5%, with a further 0.5%
increase to take effect from 1 January 2003.
The agreement provides for increases to annual leave and for the
introduction of an ill-health retirement benefit through the Mineworkers'
Provident Fund.
SOUTH AFRICA
Overall performance
The operating performance of the region continued to meet production and
cost expectations for another quarter, with gold production, total cash
costs, and operating profit all steady for the June 2001 quarter.
While the sale and final transfer of Elandsrand and Deelkraal reduced
production by 1,037 kilograms, gold output for the remainder of the region
actually increased by 386 kilograms to 36,341 kilograms (1.17 million
ounces). The received gold price was unchanged at R72,355 per kilogram
(though marginally lower in dollar terms, at $280 per ounce). Reflecting
management's commitment to containing operating costs, total cash costs were
down 1% to R50,120 per kilogram (and 4% in dollar terms to $194 per ounce).
Operating profit decreased marginally by 2% as a result of higher
retrenchment costs.
Mine performance
At Great Noligwa, despite a 2% improvement in total cash costs to R34,398
per kilogram - a remarkable $133 per ounce - higher productivity and a 7%
increase in recovered grade, operating profit was down 3% to R262 million
($33 million) due to a movement in gold inventory. Following an exceptional
first three months, gold production at Kopanang was 3% lower than the first
quarter at 3,820 kilograms (123,000 ounces) due to reduced grade, as
anticipated. Production was nevertheless well above target, as was
operating profit, at R61 million ($8 million). Kopanang reached a very
important safety milestone during the quarter when it achieved 1 million
fatality-free shifts. It also reported a 38% reduction in its lost-time
injury frequency (LTIF) rate. Gold production at Tau Lekoa was steady at
2,383 kilograms (76,000 ounces). Total cash costs, however, rose by some 6%
in rand terms (4% in dollars) as a result of non-recurring infrastructure
maintenance. This had the effect of reducing operating profit by 40% to R20
million ($3 million).
Gold production at TauTona increased 4% to 4,870 kilograms (157,000
ounces). Total cash costs were slightly higher at R42,229 per kilogram,
largely due to winder maintenance. In dollar terms, total cash costs
reduced slightly to $164 per ounce. Operating profit improved by 28% to
R144 million ($18 million). Following a disappointing performance in the
first three months of the year, Savuka had a good second quarter. Volume
mined increased by 11% and gold produced by 14% to 2,016 kilograms (65,000
ounces) while total cash costs decreased by 5% to R63,636 per kilogram ($246
per ounce). Lack of mineable face length continues to impact production at
Mponeng. This was compounded when blasting was held up during rescue
operations following a fall of ground in May. These problems led to a 4%
decrease in gold production for the quarter, to 2,453 kilograms (79,000
ounces), an 11% increase in total cash costs (or 8% in dollar terms) and an
operating loss of R38 million ($5 million).
As previously reported, the mine will move incrementally towards improved
production during the second half of the year as the new raise lines
referred to in the March quarter's report become available.
The performance of Bambanani continues to improve, despite the effect on
production and costs of a transformer fire on 58 level during April.
Production increased by 10% on the first quarter and total cash costs were
2% lower at R60,185 per kilogram ($233 per ounce). Tshepong's performance
continues to impress. Gold production increased 17% (following a similar
quarter-on-quarter improvement in the first three months). Total cash costs
were 11% down to R44,579 per kilogram ($173 per ounce) and operating profit
was 13% higher than the previous quarter at R55 million ($7 million). At
Matjhabeng, the planned closure of the Sable shaft and the early closure of
the Nyala shaft during the quarter led to a 16% decline in gold production
to 1,440 kilograms (46,000 ounces). Total cash costs decreased by 15% to
R60,344 per kilogram ($234 per ounce) and the operating loss for the quarter
was reduced from R30 million ($4 million) to R25 million ($3 million). The
remaining Eland shaft will be sold or managed
to closure by the end of the year. Despite a better quarter at Joel, with
a reduced operating loss of R18 million ($2 million), from R32 million ($4
million) in the March quarter, the mine continues to be uneconomic.
At Ergo, gold production decreased by 17% to 2,368 kilograms (76,000 ounces)
off an exceptional performance last quarter.
AFRICA
Overall performance
The region had another good quarter in all respects, improving on its
performance in the first quarter. Production was 211,000 attributable
ounces, an increase of 9% on the previous quarter, at a total cash cost of
$121 per ounce. Operating profit was 29% higher at $22 million.
Despite three of the five operations in the region being less than one year
old, accelerated safety focus at the new operations has resulted in the
region recording a LTIF rate of 1.77.
Mine performance
A steady performance during the quarter at Sadiola (38% attributable)
resulted in a 5% increase in gold production to 52,000 attributable ounces
and a reduction in total cash costs of 4% to $125 per ounce. The mine has
remained accident-free for the year to date.
Yatela (40% attributable) produced its first gold on 9 May 2001, a month
ahead of schedule and $2 million below construction budget. Contractor
demobilisation is complete, and the mine is in the process of a production
build-up under the new management and a team of permanent employees. Total
attributable gold production for the quarter was 8,000 ounces and has been
credited to pre-production capital. Production and cost statistics will be
included in the operating results from the third quarter.
Morila (40% attributable) sustained its good production performance
despite power interruptions during the quarter. Power generation problems
have been overcome and production for the quarter increased by 3% to 65,000
attributable ounces. Total cash costs, at $100 per ounce, were up 11% on
the previous quarter. This increase in the unit cost was due to a reduction
in the proportion of high-grade soft oxide material treated to lower-grade
sulphide material. Recovered grade was 18% down on the previous quarter.
Safety results for the mine are commendable with a progressive LTIF rate of
1.36.
The mine is currently undergoing a 90-day completion review in terms of
its project finance arrangements with positive results to date.
Geita (50% attributable) continues to perform exceptionally well.
Increased plant throughput resulted in production of 72,000 attributable
ounces for the quarter, an improvement of 19% on the previous quarter.
Total cash costs of $133 per ounce were 6% lower than the previous quarter.
Operating profit for the quarter rose by 53% to $7 million.
The mine has received ISO 14001 environmental accreditation, a significant
achievement 12 months after first gold production. Safety on the mine
remains impressive with no accidents recorded for the quarter.
Navachab maintained its trend of continued improvement. Production
increased by 7% to 22,000 ounces and total cash costs for the quarter were
$162 per ounce, a 7% decrease on the previous quarter. The mine had three
lost time injuries for the quarter.
NORTH AMERICA
Overall performance
Gold production from these operations increased by 4% in the second quarter.
Operating profit rose by 28% during the same period as a result of higher
production despite lower realised gold price. Total cash costs for the
period decreased by 4% to $202 per ounce.
Mine performance
At Jerritt Canyon (70% attributable), the second quarter's production of
73,000 ounces was 3% less than the first quarter as a result of decreased
Cortez tonnage. Total tonnage processed in the second quarter was
approximately 3% down on the first quarter. Total cash costs for the second
quarter were $217 per ounce, 6% lower than the first quarter, due to reduced
volumes of purchased Cortez ore.
Production at Cripple Creek & Victor (CC&V) (67% attributable - see Note 5
on Page 10) was 57,000 ounces, 13% higher than first quarter levels. Total
cash costs were $177 per ounce in the second quarter, a rise of 5% on the
first quarter due to increased tonnage mined in the second quarter.
SOUTH AMERICA
Overall performance
In this region, gold production was 1% lower than the previous quarter at
106,000 ounces. Total cash costs for the quarter were 4% down on the
previous quarter at $141 per ounce, as a result of the continuing cost-
cutting programme across the region and positive effects at Morro Velho and
Serra Grande from the devaluation of the Brazilian Real.
Mine performance
The reduced gold production for the quarter was due to a 10% decrease in
production at Cerro Vanguardia (46.25% attributable) as a result of lower
than expected grade. This reduction was partially offset by a 3% increase
in production at Morro Velho, due to an additional 1,900 ounces from the
Nova Lima plant clean-up, as well as a 3% improvement in production from
Serra Grande (50% attributable) due to increased tonnage treated.
At Cerro Vanguardia, the improving safety trend noted in previous quarters
continues and Serra Grande remains below the Ontario benchmark. There was,
however, an accident at Morro Velho's Mina Velha, which claimed the lives of
two employees. A complete review of procedures, focusing on total risk
management, is being carried out throughout the region.
AUSTRALIA
Overall performance
Production for the quarter of 118,000 ounces was 11% below output in the
March quarter, in part due to commissioning of the expanded Sunrise Dam
plant. The lower production was, however, matched by reductions in cash
expenditure at the mines, which allowed for a 3% decrease in total cash to
$195 per ounce, holding steady in local currency terms at A$379 per ounce.
The high-value forward contracts, which matured last quarter, could not be
replicated in the current quarter, resulting in a fall in the average
realised price from A$594 per ounce to A$520 per ounce.
Mine performance
At Sunrise Dam the expansion of the plant to bring the throughput capacity
to 2.5 million tonnes a year of fresh ore was completed one month ahead of
schedule and within the approved budget of A$46 million. The plant's
subsequent performance has indicated that throughput rates in excess of the
design capacity will be possible with minimal additional capital
expenditure. The major cutback of the open pit is continuing and will be
completed during the fourth quarter. Although output of 68,000 ounces was
higher than planned, it was, as anticipated, still 9% below the March
quarter. The restricted plant throughputs and use of lower-grade ore during
the commissioning phase resulted in a 12% increase in total cash costs
relative to the previous quarter, but these remain extremely competitive at
$148 per ounce (A$288 per ounce).
The performance of Union Reefs during the second quarter was
disappointing. Poor mining rates caused by equipment unavailability, lack
of access to the main Crosscourse pit and the failure of satellite orebodies
to yield anticipated grades, all contributed to a 25% fall in production to
23,000 ounces. With these difficulties pushing total cash costs up to $269
per ounce (A$524 per ounce), a review of the mine's operations has been
undertaken to ensure a more stable performance for the remainder of the
year. Because of the limited future value of the mine, possible disposal
options are being considered.
Although the current Boddington (33% attributable) oxide operation is
nearing completion and mining is restricted to remnant ore blocks,
production has improved marginally to 20,000 ounces (compared to 19,000
ounces in March). However, the mining costs associated with accessing the
remaining small volume ore blocks has pushed total cash costs up by 4% to
$215 per ounce (A$417 per ounce). It is now anticipated that the oxide
operation will cease at the end of the third quarter and the plant will be
placed on care and maintenance pending the commencement of the Boddington
Expansion Project. Progress is being made on the transfer of management of
both the Boddington mine and its expansion, to the Boddington Gold Mine
joint venture partners.
The unusually heavy rains experienced during the first quarter have
resulted in restricted pit access and a major loss of reserves at the Tanami
(40% attributable) mine. As a result, mining was terminated at the end of
June and processing will cease during the third quarter when stockpiles will
be exhausted. Production during the June quarter slipped a further 15% to
7,000 ounces, however with the restricted mining activity, total cash costs
fell dramatically to $193 per ounce (A$370 per ounce) from $423 per ounce
(A$805 per ounce) in the March quarter. AngloGold is examining its future
options in respect of the Tanami district joint ventures.
GOLD MARKET
The spot gold market was more active (and stronger) in the second quarter of
2001 than it had been in the first quarter of the year. The closing spot
price of $271 per ounce was $15 above the opening price for the quarter, and
the average price for the period was $5 per ounce higher. These average
figures conceal substantial price volatility for much of the quarter, which
saw a price range of over $40 per ounce, touching on a brief high around
$298 per ounce in mid-May. The strength of the market was unfortunately not
sustained evenly through the period and the quarter ended with the price
softening below $270 per ounce to settle around its current level of $266
per ounce.
Foreign exchange markets continued to be active. The Australian dollar
strengthened more than 11% against the US dollar during May from its
oversold low of A$0.4777 against the US unit, but the US dollar rallied
towards the end of the quarter and finished strongly, with both the euro and
the rand at their lows for the quarter. Overall, the rand remained under
pressure for most of the period, averaging R8.03 to the US dollar, or almost
3% weaker than the first quarter average exchange rate of R7.83. Since the
end of the quarter, the dollar has rallied further, pushing the rand to a
record low against the US currency of R8.35. These moves have translated
again to local price support for South African gold producers, and the spot
price of gold in South Africa averaged R69,160 per kilogram - more than 4%
better than the local average spot price for the first quarter of 2001.
The rally in the gold price this quarter was driven strongly by reaction
to developments in the US economy, and the correction in the price since
then is linked directly to a moderation of those views, and to a reassertion
of the strength of the US dollar in the latter half of the quarter.
The gold price was well supported early in the quarter by the ongoing
tightness in short term gold lease rates, which continued to squeeze
speculators holding short positions. This tightness saw the gold price firm
steadily through to mid-May, as the net short position on the New York Comex
reduced by half from the beginning of April. The announcement by the United
States Federal Reserve on 15 May of their fifth cut this year of 0.5% in the
Federal Fund Rate in as many months, triggered fears of a revival of
inflation in the US economy, and some investors moved swiftly to buy gold
futures, particularly on the New York Comex. These fears were encouraged by
the reported pick-up in consumer inflation rate to 3.3% in April and by the
continued strength of US consumer spending in the first quarter of the year,
notwithstanding slowing in other critical areas of the US economy. This
buying moved the open position on the Comex from net 160 tons short at the
beginning of the quarter to a peak net long position equal to some 134 tons
of gold at the end of May, and with it, the spot gold price to a high of
$298 per ounce.
Since then, investors have become more sanguine about inflation in the USA
and have steadily reduced their long positions in gold. The surge in the
inflation rate earlier this year was driven materially by energy cost
increases, and this influence appears to be both a singular event, and one
that looks increasingly likely to retrace itself at least in part in the
year ahead. Looking to the future, it would seem that deflationary
pressures are more likely to prevail, with production and retail
overcapacity hanging over the economy from the capital expenditure boom of
the 1990s. This is not to say that there will not be price pressures in
some sectors, but the overall equation will be settled by the absence of
real price pressures or price leverage in consumer goods. This absence of
price pressure will be compounded, sooner or later, by weaker consumer
demand.
Notwithstanding receding fears of US inflation, and a stronger US dollar
at the end of the quarter, gold has not given up all of its gains from the
quarter. Investors and speculators on the New York Comex remain net long to
the extent of some 1 million ounces, and the price seems well supported in
the mid-$260s.
Of concern for the immediate future is the fact that the market is about
to enter a traditionally quiet period, particularly for physical demand.
There is also some danger that gold demand for jewellery in the developed
markets might well be softer during the second half of the year due to a
generally slowing down in the economy. As we have noted before, physical
demand also remains price sensitive - increasingly so in some important
markets. Spot price increases such as those, which occurred during the past
quarter, translate very quickly into lower or no physical demand for gold.
This important element in the supply/ demand equation for the metal was
reinforced during the price rally in May, where normal physical demand
subsided, and there was significant flow back of selling in Hong Kong by the
Chinese gold jewellery industry. However, news from the Indian market is
encouraging, and there should be good reason to expect firm offtake from
that important market once the monsoon season has passed.
GOLD MARKET
NET DELTA OPEN HEDGE POSITION AS AT 30 JUNE 2001
As at 30 June 2001, the group had outstanding the following net forward-
pricing commitments against future production. A portion of these sales
consists of US dollar-priced contracts which have been converted to rand
prices at average annual forward rand values based on a spot rand/dollar
rate of 8.05 available on 30 June 2001.
Kilograms Forward Price Forward Price Ounces
Sold R per kg $ per oz Sold
'000
12 Months ending
31 December 2001 98,008 R76,552 $292 3,151
2002 113,509 R81,618 $299 3,649
2003 83,706 R86,722 $303 2,691
2004 58,183 R92,690 $311 1,871
2005 46,016 R105,787 $340 1,479
January 2006 - December 2010 106,582 R116,794 $333 3,427
506,004 R92,361 $310 16,268
The marked-to-market value of all hedge transactions making up the hedge
positions in the above table was a positive R1,367 million ($170 million) as
at 30 June 2001. The value was based on a gold price of $270.60 per ounce,
exchange rates of R/$8.05 and $/A$ 0.5088 and the prevailing market interest
rates and volatilities at the time.
As at 30 July 2001, the marked-to-market value of the hedge book was a
positive R2,011 million ($245 million) based on a gold price of $266.70 per
ounce and exchange rates of $/R8.21
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