Why AngloGold Ashanti Can Sustain Its Recent Stock Momentum

AngloGold Ashanti [stock_market_widget type="inline" template="generic" color="default" assets="AU" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock has regained its momentum after going off track a couple of months ago. The mining stock has been helped by a solid earnings report, as well as a rise in gold prices on the back of global economic uncertainties.

Looking ahead, it won’t be surprising to see AngloGold stock getting better and scale new highs. Let’s see why.

Keeping a Lid on the Cost Base

AngloGold Ashanti produced 752,000 ounces of gold during the first quarter. This was much lower than the prior-year period’s production of 824,000 ounces. What’s more, the average realized gold price fell to $1,297 an ounce as compared to $1,323 an ounce in the year-ago period.

Thanks to the lower production and weak pricing, AngloGold’s finances took a hit. However, the company did well to keep a handle on its costs during the quarter. Its all-in sustaining costs came in at $1,009 an ounce as compared to $1,028 an ounce a year ago.

All-in costs were nearly flat year over year, while total cash costs fell to $791 an ounce as compared to $834 an ounce a year ago. However, the lower costs weren’t enough to offset the weak pricing and production profile at AngloGold. The company’s adjusted EBITDA dropped 20% year over year to $307 million.

The good news for AngloGold investors is that the company will further streamline its costs and asset base in the future, driven by the sale of its non-core assets.

AngloGold is Focusing on Higher Efficiency

One reason why AngloGold has been able to reduce costs is that it is shedding non-core assets. The company recently announced that it plans to sell off its last mine in South Africa.

AngloGold has already kicked off negotiations to sell the Mponeng mine, which is a smart decision as the company believes that it will cost around $1 billion to extend the life of the mine beyond its current life of 8 years.

AngloGold says that it expects to meet its full-year guidance despite its divestment moves.

Moreover, it makes sense to exit the South African mining operations as the company’s output in that geography has been on the wane. AngloGold’s South African gold output fell in almost half to 487,000 ounces last year as compared to 903,000 ounces in 2017.

As a result, selling off those assets that will burden its bottom line in the future thanks to a depleting production and cost profile makes a lot of sense. More importantly, AngloGold says that it expects to meet its full-year guidance despite its divestment moves.

So, AngloGold’s production profile should turn favourable once its divestment moves are complete. Of course, selling off assets will keep its top and bottom lines under pressure in the near term, but it will prove beneficial in the long run.

Additionally, the price of gold has started picking up the pace of late thanks to the U.S.’ moves of imposing tariffs on both China and Mexico. This has given rise to an uncertain economic environment, thereby forcing investors to look for safe-haven assets such as gold. As such, AngloGold’s performance can gradually improve in the future, setting the stage for more upside.

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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