A wolf in wolf's clothing

AngloGold Ashanti assumes price-performance leadership of the global Tier I gold miner grouping.

JOHANNESBURG - 

For months, Kinross held top spot as price-performance leader in the global Tier I gold miner grouping, but no longer as AngloGold Ashanti ascended to assume the leadership role. The latest news, out this week, was that debt-challenged major miner Anglo American sold its remaining 11.3% shareholding in AngloGold Ashanti to US hedge funds managed by Paulson & Co, for $1.28bn. 

Looking at its NYSE stock price, AngloGold Ashanti is trading at fractions below its 12-month high, ranking it as one of the world's best performing stocks - of any kind - over that time period. Within the global Tier I gold grouping, high flyers such as Yamana and Goldcorp are trading 50% and 40%, respectively, below 12-month highs; Barrick, the biggest gold miner by output and value, is 39% below its 12-month price highs. 

Earlier this year, Anglo American raised $434m from a similar sale of AngloGold Ashanti stock; at the start of 2008, Anglo American owned 52% of AngloGold Ashanti but had previously decided on a strategic exit. Beyond the Anglo American sell down, which could have depressed AngloGold Ashanti's stock price, 2008 was a monumental year for the transnational gold digger. 

New CEO Mark Cutifani oversaw gold production of 4.982m ounces for the year; total cash costs for the year were $444/oz, and the irritating hedge book was partially attacked. Hedge commitments were reduced by 5.29m oz or 47% to 5.99m oz, allowing the group to be "better positioned to materially participate in higher spot prices going forward". 

Net debt at the end of 2008 was $1.3bn, a little lower than a year previously. This year, so far, AngloGold has sold two non-core assets. Its indirect 33.33% joint venture interest in Australia's Boddington was sold to Newmont for up to $1.1bn, of which $750m is due when all conditions precedent are fulfilled. Tau Lekoa in South Africa was sold to Simmer & Jack for up to R600m (about $60m). 

Even then, AngloGold Ashanti is anticipating production from 20 operating units during 2009, led in terms of output by Mponeng (South Africa), set to produce 520,000 ounces this year at a cash cost around $270/oz; Kopanang (South Africa), for a possible 400,000 ounces at a cash cost of around $295/oz; Sunrise Dam (Australia), 410,000 ounces and $540/oz, and Obuasi (Ghana), 400,000 ounces and $630/oz. All told, the group is anticipating production of just shy of 5m ounces of gold this year, ranking it global No 3 gold miner after Barrick, and only just behind Newmont. 

Just as important, if not more so, AngloGold Ashanti is set to rank as one of the lowest cost gold miners in the Tier I grouping, possibly second only to Australia's Newcrest.

Where AngloGold Ashanti is looking for group cash costs of around $440/oz for 2009, a number of analysts believe that a number more like $380/oz is doable. 

Within the AngloGold Ashanti group, the culture to be found today focuses on delivering according to promised production and cost guidance, delivering on a targeted ROCE (return on capital employed) of over 15% and, simply, becoming the most profitable mining company in the world. 

"We believe this to be possible" says a specialist London-based gold analyst, "in particular under new management and given the exceptional gearing potential from making a previously lazy asset portfolio work a lot harder and smarter". The remaining hedge book, which runs out to 2016, remains an irritation for some investors. As at 6 February 2009, the marked-to-market value before the credit risk adjustment of the group's hedge position was a negative $2.94bn.

Of the 2008 AngloGold Ashanti rights issue that raised $1.7bn, no less than $1.1bn in cash went to hedge book settlements during 2008. Given the series of objectives that AngloGold Ashanti has largely dealt with by now, new strategies could unfold quite rapidly. The level of the stock price is sufficiently firm to launch a rights issue that could raise fresh capital to further reduce the hedge book, or finance any number of potential projects in the corporate pipeline, not least Colombia's La Colosa, one of the world's biggest virgin gold discoveries for years, made by AngloGold Ashanti itself. 

There are also any number of smaller gold stocks with great properties but with relatively depressed stock prices, given the far greater illiquidity challenges faced by miners without operating mines. Just one example is Greystar, which recently raised around $10m in a rights issue. Like La Colosa, Greystar's Angostura discovery contains more than 10m ounces of gold (and tens of millions of silver ounces), and is also found in Colombia. Yet Greystar, even after the benefit of a stock price that's risen more than 600% from recent stock price lows, is valued by investors at a mere $141m. 

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Related Links ARTILCES:  Kinross gambles on diamonds, will acquire nearly 20% of Harry Winston  AngloGold expects Colombia La Colosa project green light by June  Anglo American sells remaining AngloGold Ashanti stake to Paulson   OTHER PAGES:  GOLD NEWS GOLD ANALYSIS AFRICA

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