AngloGold to Control Serra Grande

Gold major AngloGold Ashanti ( AU - Snapshot Report ) recently agreed to buy the remaining 50% stake in Brazil’s Serra Grande gold mine from Canadian gold miner Kinross Gold Corporation ( KGC - Analyst Report ) for $220 million. The Johannesburg, South Africa-based global gold mining company currently holds a 50% interest in the Brazil mine.

AngloGold said that it will finance the purchase with its current cash reserves and debt facilities. The transaction is subject to various conditions including the clearance of the South African Reserve Bank. The companies are also required to submit a notification of the deal with the Brazilian anti-trust authorities. The transaction is expected to consummate in second-quarter 2012.

The Serra Grande mine’s operation consists of three underground mines, one open pit mine and one dedicated processing plant. The mine, which is operated by AngloGold, produced 134,000 ounce (oz) of gold at a cash cost of $767/oz last year. Till date, the mine has produced 3.4 million ounces (Moz) of gold.

The full ownership of the Serra Grande will entitle AngloGold to 100% production from the mine. The buyout is expected to increase the company’s attributable production from Brazil to more than of 500,000 oz a year. It will also boost AngloGold’s contribution from the Americas region to over 1 Moz.

AngloGold is expected to reap substantial benefit from the acquisition. The purchase is expected to increase the company’s annual production, ore reserve and mineral resource by roughly 70,000 oz, 375,000 oz and 1.186 Moz, respectively.

The company foresees annual gold production from its Brazilian operations to grow to between 540,000 oz and 550,000 oz from 428,000 oz achieved in 2011. Moreover, annual production from the Americas region is expected to increase to more than 1 Moz annually. The company also hinted about the potential for further upside in exploration at the mine.

AngloGold, which had revenues of $6.9 billion in 2011, is the third largest gold producer in the world with operations in South Africa, continental Africa, Australia and the Americas. The company competes with Barrick Gold Corporation ( ABX - Analyst Report ) and Newmont Mining Corp. ( NEM - Analyst Report ) among others.

AngloGold’s profit more than doubled year-over-year to $563 million in first-quarter 2012, boosted by higher gold prices. However, production fell 6% in the quarter to 981,000 ounces on account of safety stoppages at the company’s South African operations.

AngloGold aims to boost production to between 5.4 million and 5.6 Moz by 2014 on the heels of new projects in Africa, Australia and South America and expansion of some of its existing operations. For the second quarter, the company envisions production to be roughly 1.04 Moz.

AngloGold, which is the largest producer of gold in Africa, currently holds a Zacks #3 Rank, which translates into a short-term (1 to 3 months) “Hold” rating.