FOCUS-Avgold slashes Target cost with hedge
01:13 p.m Jul 15, 1998 Eastern
By Darren Schuettler
JOHANNESBURG, July 15 (Reuters) - South Africa's slumping rand is
yielding fatter profits for the country's struggling gold companies and
making it easier to finance major new projects.
South Africa's Avgold Ltd on Wednesday saved a bundle on its promising
Target gold mine by taking advantage of soaring rand gold prices and
selling gold forward, a move other producers may follow, analysts said.
Avgold said it sold forward approximately 1.1 million ounces in rand
over the next three years, in a move that would boost cash flows from
existing operations and slash its Target funding costs.
''We are delighted with the hedge. The funding requirements for Target
have about effectively halved,'' Avgold financial director David
Kovarsky told Reuters.
The Target project is expected to produce about 300,000 ounces of gold a
year by 2001 at a cash cost of around $180 per ounce.
Kovarsky estimated the funding requirement for Target at a maximum of
between 450 million and 500 million rand. The company had previously
forecast requiring up to 900 million rand for the project, including 200
million in equity.
Kovarsky said Target funding would be sourced solely from cash and debt
without accessing equity markets.
''The local currency depreciation has enabled them to lock in some
pretty attractive revenue streams and avoid large-scale equity
financing,'' a mining analyst said.
''For those companies needing to finance projects, it's an attractive
option,'' the analyst said.
South African gold producers have enjoyed sharply higher rand gold
prices in the past few weeks as the country's currency came under attack
from foreign speculators and weakened against the dollar.
With gold traded and priced internationally in dollars, the value of
rand earnings increases as the rand slides against the U.S. currency.
The rand gold price was trading at 1,790 per ounce on Wednesday, well
above 1,404 per ounce recorded on January 1.
Avgold said it would receive prices ranging between 62,000 rand per
kilogram and 78,000 rand per kilogram for the 1.1 million ounces of gold
sold forward over the next three years.
Avgold realised a gold price of 56,259 rand per kilogram in the March
quarter. Its June quarterly results are expected on July 29.
Other gold producers are restructuring their hedging programmes to take
advantage of the spike in prices.
Last week, Durban Roodepoort Deep said it had restructured its hedge to
cash in on rising rand gold prices.
Analysts expect most South African gold producers to deliver stellar
financial results in the upcoming September quarter.
Harmony Gold Co Ltd on Wednesday forecast earnings per share of 109
cents for the September quarter compared to 68 cents per share posted in
the June quarter.
''The effect on the bottom line is quite significant,'' Harmony managing
director Bernard Swanepoel said at a briefing on the company's June
quarterly results.
Copyright 1998 Reuters Limited. |
