AngloGold Ashanti is one of the largest gold producers in the world and the largest gold miner in South Africa. The company has operations and exploration projects in 20 countries including some of the largest undeveloped deposits in the world, such as the Kibali mine in the Democratic Republic of the Congo (DRC). The company's output has been falling for the last six years due to falling grades primarily at its operations in South Africa.
â¢ The company's operations are located across the world, thus they are relatively unexposed to political and economic risk in any one country.
â¢ The company is moving its focus away from South Africa, which will give AngloGold access to substantial high-grade reserves in Ghana and the DRC.
â¢ We forecast gold prices to average US$1,675/oz in 2013 and to remain elevated as monetary policy stays loose for the foreseeable future. This will be positive for the company, as its revenues are almost solely dependent on gold prices.
â¢ AngloGold has had declining production for the past six years as a result of falling grades in South Africa, thus reducing output. This is set to continue over the coming years and increase costs for the company's main operations.
â¢ The DRC is home to one of AngloGold's main growth plans and thus the company is exposed to significant political risk, as well as the lack of adequate infrastructure.
â¢ While diversified, the company has significant exposure to South Africa, a country that we have a bearish outlook on given industrial strife, rising costs and the likelihood of higher taxes in the coming year.
â¢ AngloGold's Kibali mine in the DRC is one of the largest undeveloped gold mines in Africa. The mine also possesses high-grade reserves and thus the cash costs are relatively low.
â¢ The company has numerous expansion plans worldwide, including in Colombia, Russia and China.
â¢ The Kibali mine needs substantial investment in infrastructure before extraction and export from the mine can begin.
â¢ While not our core scenario, if the US economy surprises to the upside and we see interest rate hikes, it would be negative for gold prices and thus would have a significant detrimental impact on the company's revenues and profits.
We expect AngloGold's trend of declining gold output to be reversed with several expansion projects coming online, which will easily offset falling grades at its mines in South Africa. Most notably, the company operates the Kibali mine in the DRC, which is expected to produce 450kozpa ('000 ounces per annum) in 2013, a significant boon to the company's output. Furthermore, Kibali is a high-grade deposit, thus reducing costs. In South Africa, the company has only one project, the Mponeng mine, which is expected to produce 125kozpa by 2012. Although the company is well diversified in terms of location, AngloGold remains exposed to fluctuations in gold prices. AngloGold could also benefit from Ghana's gold reserves.
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| Table: AngloGold Ashanti - Key Financial Data |
| 2006 || 2007 || 2008 || 2009 || 2010 || 2011 |
| - % chg y-o-y||13.6||0.0||22.1||1.3||43.6||24.6|
| - % chg y-o-y||21||-88||299||-172||-554||113|
|Net Income, US$mn||-87||-606||-1978||-333||87||1562|
| - % chg y-o-y||-56||594||226||-83||-126||1691|
|Profit Margin, %||-2.9||-20.2||-54.1||-9.0||1.6||23.6|
|Debt to EBITDA||1.9||17.5||5.5||-5.9||1.8||1.0|
| Source: BMI, Bloomberg |