To:John Barendrecht who wrote (205) From: John Barendrecht Friday, Jul 4, 1997 3:28 PM Respond to of 79916
S.African gold mines set to report painful losses By Melanie Cheary
JOHANNESBURG, July 4 (Reuter) - South Africa's gold industry is likely to reveal painful losses when mining companies unveil results next week, analysts and portfolio managers said on Friday.
The results, for the second quarter of the year, are expected by many in the industry to be the worst in the industry's history.
``The quarterly results are going to be the worst that the industry has ever seen,'' said Nick Goodwin, a mining analyst at Fedsure Asset Management.
``If you agglomerate all the mines' results it will be a net loss. We have never had that before,'' he said.
The industry's woes will have deepened even further meantime, with world gold prices plunging to 12-year lows beneath $325 an ounce on Friday.
Goodwin expected a net loss of 100 million rand ($22.1 million) for the second quarter, compared with a profit of 280 million rand in the first quarter, which itself was considered disastrous.
Only mining houses conducting successful hedging policies were likely to escape the hammering, analysts said.
``The only ones that will stand a bit of a chance are the Anglo (ANGL.J) mines or anyone else who has hedged. In general revenues will be down, especially for those who haven't hedged,'' said Dave Giese at stockbrokerage Smith Borkum.
The mining houses are due to report results from Thursday, starting with Gold Fields of South Africa Ltd (GLDF.J).
Profit margins at South African gold mines have shrunk severely due to escalating costs -- swelled by inflationary effects of the declining rand -- lower grades, and falling production, exacerbated by labour problems.
``Margins are now getting really thin, it really is getting very serious. The margin last quarter was 236 rand per ounce, now you are getting less rands per ounce for your revenue and your costs are higher so it comes straight off your margin,'' Goodwin said.
Grahame Graham-Parker, general manager of Infinity Asset Management echoed his gloom.
``They will undoubtedly fall into a loss this (second) quarter. Those blue-chip gold stocks like Driefontein (DRFN.J) and Kloof (KLOF.J) are very exposed to the gold price. The marginal mines will definitely post a loss. At the end of the day South African gold mines are wasting assets,'' he said.
The gold price received by South African mines is currently around 1,458 rand/kg compared with around 1,800 rand/kg last October.
First quarter successful hedging policies helped the Anglo American Corp of South Africa Ltd gold mines and also lifted Gengold Ltd (GMFJ.J), lessening its profit decline.
Gencor's Beatrix Mines Ltd (BETJ.J)and JCI Ltd's (JHNL.J) HJ Joel Gold Mining Co Ltd (JOEJ.J)and Western Areas Gold Mining Co Ltd (WNAJ.J)were among those seen benefitting somewhat from hedging policies in the latest quarter.
``I do see some surprise on the upside for those with successful hedging policies,'' Graham-Parker said.
Some commmentators, more optimistic than those expecting a net loss, said the industry's second quarter distributable profit would slide 30 percent over the previous quarter to about 150 million rand, with taxed income at one billion rand and capital expenditure 850 million rand.
Production was expected to have improved slightly to around 120 tonnes of gold compared to the previous quarter's 115 tonnes.
Costs were seen up four percent and the average rand gold price was seen down five percent at around 49,000 rand/kg. But Anglo was seen winning about 50,000 rand/kg.
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