AngloGold Ashanti Stock Has Upside Potential

AngloGold Ashanti [stock_market_widget type="inline" template="generic" color="default" assets="AU" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has done exceedingly well this year, taking advantage of the jump in gold prices and making its investors richer. The stock has shot up 56% so far in 2019, but don’t be surprised to see it move higher on the basis of its last quarterly report and the projections going forward.

Let’s take a closer look at what AngloGold is doing right and why investors can expect it to hit a higher gear in the future.

AngloGold Is Operationally Strong

In the first six months of 2019, AngloGold has produced 1.55 million ounces of gold. This is lower than the production of 1.62 million clocked by the company in the year-ago period, but investors need to look at the positives.

The year-over-year output for the first half of the year is down around 4%. But in the first quarter of the year, the output was down nearly 9% year over year. This means that AngloGold’s performance in the second quarter of the year improved as compared to the first one.

More specifically, AngloGold delivered 801,000 ounces of gold in the second quarter as compared to 752,000 ounces in the first quarter. The company was also able to turn around its cash flow profile, delivering a free cash flow of $78 million in the second quarter as compared to an outflow of $109 million in the previous quarter.

The good news is that AngloGold should be able to deliver strong free cash flow going forward as the average price of gold that it is receiving now must be higher than the second quarter. The company had clarified that it received an average gold price of $1,302 an ounce in the second quarter. But on Aug. 4, the average price of gold has gone up to $1,414 an ounce.

Solid Cost Control Will Be a Tailwind

AngloGold management has promised that the company will continue to keep a tight control on the cost profile. Its all-in sustaining costs in the first half of the year came in at $1,002 an ounce, down 2% from the prior-year period. Total cash costs over the same time period fell 4% to $792 an ounce.

The good part is that the company anticipates a further reduction in its cost profile in the second half of the year considering the guidance. AngloGold is on track to produce between 3.25 million and 3.45 million ounces of gold. Its cash costs are expected to range between $730 an ounce and $780 an ounce.

All-in sustaining costs are estimated to range between $935 an ounce and $995 an ounce. All of this suggests that the second half of the year should be better for AngloGold as far as its financial performance is concerned.

What’s more, analysts expect AngloGold’s bottom line to grow at a compound annual growth rate of 35% for the next five years. Given this impressive estimate, now would be a good time to buy the stock even though it trades at a trailing price-to-earnings ratio of nearly 39, as that rich valuation is worth it.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.
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