AngloGold Ashanti: More Upside Ahead

AngloGold Ashanti [stock_market_widget type="inline" template="generic" color="default" assets="AU" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has been on a terrific run over the past year as its stock has gained more than 43%. This might seem surprising to a few given the weakness in gold pricing that was prevalent a year ago, but a closer look at the company’s operations will clearly indicate that its rally is no fluke.

Pulling the Right Strings to Grow the Business

AngloGold’s divestiture strategy was a smart one as it shed high-cost assets and is now focusing on boosting its production efficiency.

AngloGold finished 2018 on a strong note by exceeding its important guidance metrics for the sixth year in a row. Though the company delivered lower production for the year on account of sales of non-core assets, investors would have been happy with the fact that AngloGold managed to lower its cost profile.

Its all-in sustaining costs for the year dropped 7% to $976 an ounce in 2018, pushing AngloGold’s headline earnings from $0.06 in 2017 to $0.53 last year. Also, the company’s free cash flow jumped from just $1 million in 2017 to $67 million in 2018.

More specifically, the company produced 3.4 million ounces of gold last year, which was down from the 3.75 million ounces it produced the year before. However, AngloGold’s production from retained operations came in at 3.35 million ounces of gold, an increase over the 3.28 million ounces it produced in 2017.

Its cash costs fell to $773 per ounce from $792 per ounce the year before, and all-in costs were down to $1,068 an ounce as compared to $1,126 an ounce in 2017. This makes it evident that AngloGold’s divestiture strategy was a smart one as it shed high-cost assets and is now focusing on boosting its production efficiency.

What’s more, the company’s capital expenditure for 2018 came down to $721 million from $753 million the year before, and it also managed to reduce its debt from $2 billion to $1.66 billion in 2018.

In all, AngloGold’s operational execution was solid last year. More importantly, it won’t be surprising to see the company keep doing well in 2019 and beyond as it is sitting on a few catalysts.

Why AngloGold Investors Can Expect More Upside

AngloGold received a gold price of $1,261 an ounce in 2018. The price of the precious metal has increased this year to around $1,300 an ounce, so there’s a good chance that the company will witness a higher realized price this year.

As far as production is concerned, AngloGold expects output in the range of 3.25 million to 3.45 million ounces. The production is in line with last year’s levels as AngloGold continues to divest more assets while ramping up in other areas to secure long-term growth.

The good part is that the divestments will lead to further improvements in the company’s cost profile. AngloGold is forecasting total cash costs in the range of $730 an ounce to $780 an ounce, the mid-point of which is lower than last year. Also, all-in sustaining costs are expected in the range of $935 an ounce and $995 an ounce, which would be down from $976 an ounce last year given the mid-point of the guidance range.

Thanks to the lower costs and an uptick in gold prices, AngloGold Ashanti investors can expect more upside from the stock, which is why it makes sense to keep holding it for more gains.

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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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