In stock market terms AngloGold Ashanti has been lagging behind its peers, Barrick Gold and Newmont. One explanation is that the world’s third-largest gold miner has been struggling with high costs, political risk and a lack of growth opportunities.
That’s changing. The company has made some smart strategic moves in recent years, such as exiting SA, expanding elsewhere in Africa and investing in exploration and development opportunities in other regions. The market should reward AngloGold Ashanti with a higher valuation and better recognition.
The company’s SA exit was a wise decision as it reduced its exposure to a challenging operating environment, where it faced rising costs, labour unrest, power outages and regulatory uncertainty. In 2020 AngloGold offloaded Mponeng Mine, with surface assets and the mothballed TauTona and Savuka mines, to its rival Harmony Gold for $300m, removing a profitable but risky asset from its portfolio.
These transactions, alongside smaller but important strategic moves, enabled the company to put its all-in sustaining costs (AISC), which measure the total cost of producing and sustaining an ounce of gold, closer to the industry average of $1,300.
The company’s African expansion was another smart move, as it increased its exposure to a region with significant potential for growth and value creation. It announced a proposed joint venture with Gold Fields in Ghana to create Africa’s largest gold mine, with a combined annual production of more than 1-million ounces of gold.
The joint venture, which is subject to regulatory approvals, will combine AngloGold Ashanti’s Obuasi mine, which was recently redeveloped after being suspended for several years, and Gold Fields’ Tarkwa and Damang mines, which are among the most profitable in the region with an AISC of less $1,000 for the first five years.
The company’s exploration and development activities in other regions, such as Australia, the Americas and Colombia, also demonstrate its commitment to diversifying its portfolio and increasing its exposure to low-cost, high-potential jurisdictions.
The company’s strategic actions have begun to bear fruit. For starters, an average AISC of just more than $1,400 per ounce of gold is edging closer to the industry average, and it is now not far behind Barrick and Newmont. Its balance sheet is strong, with net debt of just $1.2bn, down 40% since 2020, while its liquidity — cash or assets that can easily be converted into cash — sits at about $2.3bn. Aside from burnishing its credentials as a stable and financially healthy mining company, the balance sheet strengths ensure it does not miss out on potential new projects or opportunities.
The share price is starting to reflect these positive developments. Shares in the company made a decent debut in New York this week, rising more than 1% as investors guardedly bought into a stock that now carries next to zero currency or country risk. Before moving its primary listing and headquarters to the US, AngloGold stock on the JSE where it retains a secondary listing, had gained more than 50%, far outperforming its two larger rivals.
AngloGold is a sleeping giant that is ready to wake up and unleash its full potential. CEO Alberto Calderon deserves praise for setting it up for a higher valuation and due recognition from the market.
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