Bobby Godsell: CEO AngloGold Ashanti
By: Erika van der Merwe
Posted: 05-MAY-06

MONEYWEB: From the suave street-fighting good looks of Bernard Swanepoel to the man with the brains – in Bernard’s words. Bobby Godsell is CEO of AngloGold and probably needs no introduction. Bobby, perhaps I can start with your views on the gold price? We’ve heard how very optimistic Bernard is.



BOBBY GODSELL: I would echo Bernard in many areas. Our house view is that the fundamentals are good and the price should trade where it is or trade up. Predicting tomorrow’s weather and cricket score is difficult – the gold price is very, very volatile. But we continue to believe that the fundamentals of supply and demand, and also the attractiveness of gold as an investment destination in a world of increasing currency uncertainty makes it positive. So our budget is for $500 gold, and that we thought would give us a very good year. I’m very happy with the way it is.



MONEYWEB: How does your optimism on the gold price coincide with your firm policy to hedge your gold?



BOBBY GODSELL: Well, we started hedging in the late 1980s, when we had a massive restructuring to undertake, similar to Bernard’s, slightly larger actually in terms of numbers, where we had Free State mines that were largely loss-making, mines employing 100 000 people and we needed to restructure. We needed to recapitalise and restructure that entity and we wanted some measure of certainty. Hedging is risk-management thing, whether you do it for currencies or gold price or indeed anything else. It has served us very well, and it gave us the time to restructure those assets and to build a different base for a different kind of gold company. We have been de-hedging consistently for the last five years.



MONEYWEB: What does that mean?



BOBBY GODSELL: It means that we’ve delivered gold into contracts, and taken no new hedges. So the physical number of ounces involved has come down by about ten million. We did merge with Ashanti, which was extremely heavily hedged, over 100% hedged for five years of production. We are now sitting with about 30% of five years of production; we will continue to de-hedge because we are feeling bullish about where the gold market is, but also because of the risk profile of the company. We are involved with Newmont in building a new mine in Australia. I have even less certainty about the Australian dollar / US dollar exchange rate now and into the future than I have about the gold price. We may cover some of our capital expenditure, and we may do that through Aussie dollar-denominated gold contracts. It’s quite a convenient way of doing that. But the general trend is to de-hedge, and to increase the exposure. This year we are 13% hedged in terms of the ounces that we will produce. We are 87% unhedged. So we’ve probably collectively as a company have a bit more than Bernard of unhedged ounces this year.



MONEYWEB: So is there a target level. Are you planning to be kind of single-digit percentage hedged?



BOBBY GODSELL: There’s a direction. We want to be more exposed to the spot, because the spot is so strong. And what we will do – we haven’t done a big buy-back, like Barrick did very recently. We have restructured our book, but mainly what we do is to deliver into contracts and not hedge more.



MONEYWEB: Just looking at the current quarter – in the past quarter on which you’ve just reported there was a $9 gap between the price that you got and the average spot gold price, and the price you got was lower than the average spot price. And the gold price has since risen. So that gap will be even bigger, could be even bigger, in this quarter?



BOBBY GODSELL: Well, look, we have been a hedged producer, this is nothing new, since the late 1980s – the promise we make to our shareholders is that they should benefit substantially from gold-price increases. Clearly as a hedged producer, when we’ve hedged at lower prices than the currents, what there is going to be [is] a gap. That gap has been in the region of $10 an ounce for quite a long period of time. Clearly, as the price rises, the gap in absolute terms is likely to rise. What we are aiming for is to be within 5 and 10% of the spot in each quarter, and we’ve done that for the last 17 quarters.



MONEYWEB: And I want to ask you the same question I asked Bernard – you are also very optimistic on the gold price, and how are you taking advantage of that? Again, is it an expansionary strategy or just changing your mining operations?



BOBBY GODSELL: Well, like Bernard, we are in a very strong organic growth as it so happens. We’ve got six major projects, two of which are new mines and four of which are deepening existing mines. What I must say, and I would love to hear Bernard’s view on that, if the rand price of gold stays above R110 000 – and we’ve become convinced that it’s going to stay there for any length of time – then I think we are into a whole new ballpark for South African Wits Basin mining. The fact of the matter is the ore body continues to at least 5 000 metres, and the fact of the matter is that we’ve done the work in a major national collaborative project – CSIR, Wits and the Chamber of Mines. We know we can mine between 4 000 and 5 000 metres, we can do it safely, there are no health issues, there are no particular technical or logistical issues. There are cost issues, because the deeper the shaft, the transport time, ventilation and costs of that kind rise. But I think everybody is going to be dusting off their expansion or their deepening projects if we become convinced that the rand price is really above R110 000 for any length of time.



MONEYWEB: And we heard Gold Fields is doing that. Bernard?



BERNARD SWANEPOEL: Erika, I do agree. I think in Harmony’s specific case, we are probably looking at R115 000, R120 000, but that’s now project-specific – the types of ore bodies we have. I think on a national level, I think R110 000 is probably a correct number. And these mines take time. I mean today announced a [indistinct] between Tshepong and Phakisa, two shafts in the Free State. Some of that development started in 1992, got interrupted. But you need to have some certainty, and for a lot of these projects, you need a seven- to 10-year time horizon. And yes, at R110 000/kg, I think we can really reinvest in South African gold mining.



MONEYWEB: And Bobby, the issue of cost increases in South Africa? In a way you diversified away from that, because you have a global presence in terms of your mining operations. Your comment on what we see in South Africa?



BOBBY GODSELL: Here’s Friday afternoon and here’s Bernard. I can’t resist this. If you asked the single thing that I was proudest about or happiest or most confident about of this company that I’m part of, it’s in fact the cost performance in our South African mines over the last nine quarters, where we’ve been within spitting distance of R60 000/kg. And this quarter was R61 747/kg, to be precise. And I think this is the product mainly of efficiency. I’m not such a fan of cost-cutting. If we had corporate jet, we could sell it. We’ve never had one. But sort of once-off. And sometimes that’s good symbolically. But you know, actually it’s about getting the guys who spend the money to have a sense of value-generation about spending it. Neville Nicolaus [?] says every guy who has a company cheque book – and it’s terrifying how many people in a large mining organisation have company cheque books; I don’t mean literally, but I mean, they order supplies, they allocate labour, they actually spend money – now he wants them to have the bank statement before they write the cheque. That is he wants them to have some sense of what is the value-creation in their activity. For me the ideal, and we’re a little way away from it, would be that every underground worker at the end of the shift, would know the cost input and he would know the ground broken and he would have an idea about the grade, he would know if had made money or lost money. That would be wonderful. Then you are talking about a 21st century mine. We’ve made quite a lot of progress in getting to real-time cost-management systems, and that’s the result of the South African costs. Which are damn good, I have to say.



MONEYWEB: Yes. Again, on a more mundane level, your uranium. I believe you’ve said today that it’s negligible. But at a price of $41 a – I don’t know what the units are for uranium – it looks quite attractive.



BOBBY GODSELL: Pounds. Absolutely. I guess because of market circumstances we’ve become very aware of uranium and silver. We actually produce a huge amount of silver from our mine in Argentina, which is by volume 90% silver and 10% gold. It’s interesting how many Mark Twains there are in the world. Five years ago everybody said silver is finished. Digital photography – don’t you realise it’s gone? At that stage, it was struggling to get to $5 a pound of silver. It’s now at $12, and looking very good. Uranium – if there’s one commodity that I would have my pension fund invested in even more than gold it’s uranium, because it truly is the only alternative energy source on scale. And so I think this is a commodity that’s now in a completely different market circumstance. We are moving to increase our recovery of uranium in South Africa, we are looking at the way we have been selling it. It has been the nature of the uranium market worldwide to sell in terms of long-term contracts to public utilities, the nuclear equivalent of Eskoms. And we also would be very interested in finding uranium mining in any other circumstances. We are doing the same with silver. And then Boddington, as Bernard as noticed with Papua New Guinea, has copper coincident with the gold-ore body, which is pretty common in many parts of the world. So there are three interesting metals that add value. They give us quite significant by-product credits in our company at the moment, but we are looking at them as metals in their own right.



MONEYWEB: Bobby Godsell, CEO of AngloGold, thank you.