James Turk bids goodbye to M3 and the Fear Index

Section:

By Rebecca Bream
Financial Times, London
Sunday, April 2, 2006

Bobby Godsell, chief executive of AngloGold Ashanti, predicted that
worldwide gold production would stagnate, then fall in the coming
years as large deposits of the precious metal become scarce.

He said this would support the rally in the gold price, which last
week hit a 25-year high of $588 per ounce.

The South African company, the world's third biggest gold producer,
mined 6.2 million ounces of gold in 2005 but expects production to
be lower this year, between 5.8 and 6.1 million ounces, and then
increase again in 2007 as new projects come on stream.

But in an interview with the FT, Mr Godsell warned that the gold
industry will find it hard to keep up current levels of
production. "All of the gold majors are finding it difficult to
replace their reserves. New mine production will be flat to
declining."

RBC Capital Markets in London estimated that total gold production
would rise slightly in 2006 and 2007, be flat in 2008 and start to
fall in 2009. "There hasn't been a big gold discovery for years,"
said an analyst.

Mr Godsell said: "Gold is precious because it is scarce. Twenty
years ago the majority of gold was produced by four old world
countries: South Africa, Australia, Canada, and the US. In the
future it will be anything but. Tomorrow's ounces of gold are going
to be in interesting countries."

AngloGold, which has expanded away from its base in South Africa as
the country's reserves of gold dwindle, is focusing on exploration
in high potential but high risk areas such as the Democratic
Republic of Congo, Colombia, Mongolia, and Russia.

The high gold price has stimulated exploration activity by smaller
mining companies, but Mr Godsell is sceptical about whether this
will lead to increased gold supplies as rising costs threaten to
kill off these projects. "The juniors have a better track record of
finding ore bodies [than major gold companies], but to build a mine
now you are talking about $500m for an open pit and at least $1
billion for an underground mine," he said.

Speculation that AngloGold would try to grow by takeover has
increased since Anglo American, a UK-listed mining group, said it
would cut its stake in the company from 51 per cent to 41 per cent.
After Anglo American cedes direct control AngloGold would be "more
fleet of foot" in making decisions on mergers and acquisitions, said
Mr Godsell. "We look at everything and we have exploratory
discussions, but we have no announceable deals."

Rumours have suggested AngloGold may buy Gold Fields of South
Africa, the fourth biggest gold miner, to form the world's largest
gold company. "There are some synergies, we both have mines in South
Africa, Ghana and Australia. If we could put together a good deal
that would be in the interests of shareholders that would be a great
thing to do."

But he added: "Most M&A activity is value-destructive and this may
be particularly true in the gold sector as gold shares trade at a
premium."

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