UPDATE 2-AngloGold cuts output forecast, sees costs rising
* Q2 adjusted EPS up 68 percent
* Drops output target for 2011 to 4.45 mln oz
* CEO sees more upside to gold price (Adds comments by analyst, CEO; share price)
By Ed Stoddard
JOHANNESBURG, Aug 4 (Reuters) - AngloGold Ashanti , Africa's biggest gold miner, reported a better than expected jump in second-quarter earnings on Thursday as it managed to contain costs while reaping the benefits of the surge in gold prices.
But the company cautioned over a rising trend in costs and cut its 2011 production target to 4.45 million ounces from an initial range of 4.55 to 4.75 million ounces because of flooding at its Sunrise Dam operations in Australia and other operational problems.
"It was a pretty solid set of results," said David Davis, an analyst with SBG Securities. But he said even the new output forecast would be hard to reach.
"I think (the new target) will be on the high end of achievement," he said. Factors constraining ouput include safety stoppages and weather-related events such as rain in Australia and drought in Colorado.
Adjusted headline earnings per share rose a hefty 68 percent to 89 U.S. cents in the April-June period from 53 cents in the previous quarter. Analysts polled by Reuters had expected a result of 65 cents.
Chief Executive Mark Cutifani said the gold price was the main driver behind the rise in earnings. The average gold price during the second quarter was up about 9 percent to $1,509 from the previous quarter's average price.
He also said on a conference call with reporters that the gold price could still rise from its current record levels and could go through $1,700 an ounce.
Spot gold was around $1,664.01 an ounce at 0815 GMT, off a record of $1,672.65 set in the previous session.
Cash costs were flat at $705 an ounce for the quarter, with the company managing to hold down the overall level because of factors such as improved grades in its Ghanian and Tanzanian operations and better use of equipment.
However, its South African operations, which account for about 40 percent of its global ouput, saw cash costs increase to $688 an ounce from $637 in the previous quarter because of higher winter power tariffs and increased royalities tiggered by the higher gold price.
"The lower production, along with higher fuel prices and stronger local operating currencies in Brazil and South Africa result in total cash cost guidance of $725/oz-$740/oz," the company said.
The share price was little moved trading just 0.26 percent higher at 301.50 rand as the market focused on production and costs going forward.
"The earnings were huge but its share price is not up because of the outlook on costs and production," said one Johannesburg-based analyst who declined to be named.
AngloGold and its rival Gold Fields , which is due to report its earnings next week, were both seen boosting profit in the April-June, helped by higher gold prices.
AngloGold returned to profit in the previous quarter after buying back its costly hedge book. The elimination of its hedge book -- which involved gold sold forward or covered by derivatives -- reflected the company's confidence in the gold price, a view that has been borne out by its record run. (Additional reporting by Olivia Kumwenda; Editing by David Dolan and Greg Mahlich)