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* Q1 adj headline EPS 53 U.S. cents vs loss of 199 in Q4 * Q1 output 1.039 mln oz vs 1.148 mln oz in Q4
* Sees Q2 output at 1.09 mln oz at cash costs of $760/oz
* Shares up 2.3 percent
(Adds quotes from CEO and analyst)
By Ed Stoddard
JOHANNESBURG, May 11 (Reuters) - Africa's biggest gold miner AngloGold Ashanti (ANGJ.J) returned to profit in the first quarter on Wednesday after buying back its hedge book and said it expects slightly higher output in the current three months.
AngloGold has closed out instruments it used to hedge against the price of gold, allowing it to increase its exposure to rises in the spot price of gold XAU=, boost its cash flow and profit margins and push ahead on projects. [ID:nLDE6960YQ]
The first-quarter numbers were in line with the company's forecast given last week. AngloGold took the unusual step of providing a detailed forecast as it was its first set of full results since the elimination last year of its hedgebook.
"The business is generating strong, steady cash flow now that we're capturing this higher gold price," Chief Executive Officer Mark Cutifani said in a statement.
Shares in the company were up 2.3 percent at 318.30 rand by 1217 GMT, outstripping a 0.7 percent rise in Johannesburg's Top 40 index of blue chips. .JTOPI.
The company said strong performances in its operations elsewhere in Africa and in the Americas helped it regain some of the 20,000 ounces of production lost due to unprecedented rainfall at its Sunrise Dam mine in Australia.
The results may be a sign that AngloGold's business in Africa "could be turning around" said one analyst, who declined to be identified because he is not allowed to speak to the media.
But other analysts said there were disappointments related to the immediate outlook for costs.
"The kicker, I think, is disappointing guidance for Q2 -- flat production with costs up 8 percent," said Leon Esterhuizen, an analyst with RBC Capital Markets in London.
The company added rising costs in the quarter would stem from stronger local currencies and higher fuel and power costs.
" We are seeing structural cost pressures of 10 to 15 percent per year," Cutifani told a presentation.
AngloGold said it expects output to be basically flat in the second quarter to 1.09 million ounces at total cash costs of $760 per ounce.
Adjusted headline earnings per share for the January-March quarter were 53 U.S. cents compared to a loss of 199 cents in the previous one.
Headline EPS, which excludes certain one-time items, is the main profit measure in South Africa.
Asked about claims resulting from the mine-related disease of silicosis that RBC Capital Markets has estimated could cost the South African gold industry $100 billion, Cutifani said AngloGold was working with the rest of the industry and the government to find "the right compensation system".
But while he said he would like it resolved within months, it would likely be "a long and protracted process".
He declined to give an exact forecast on the gold price but said that inflationary pressures and other fundamentals were supportive of it.
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 bullion's record surge in recent weeks.
Gold XAU= rallied to record highs in the first quarter, boosted by declines in the dollar and concerns over widening unrest in the Middle East and North Africa. It has since extended those gains further, breaking through the $1,500 an ounce level. By 0955 GMT, spot gold XAU= was at $1,512.49 an ounce.
AngloGold said last year that the unwinding would add some $500 to $600 million to its bottom line and it would use the cash to develop some of its pending projects. [nLDE68Q1B3]
The company said it had produced 1.039 million ounces of gold in the quarter, down from 1.148 million ounces in the previous three months. Total cash costs were at $706 per ounce, up from $672 in the previous quarter. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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Additional reporting by Yumna Mohamed; Editing by Mike Nesbit