luismmolina/E+ via Getty Images
A Hold Rating for Shares of AngloGold Ashanti plc
This analysis reiterates the Hold rating for shares of AngloGold Ashanti plc (NYSE:AU), a Greenwood, Colorado-based mining company that mines gold deposits in West and East Africa, Western Australia, Brazil, and Argentina. The same rating was assigned in the previous analysis, dated June 6, 2024.
AngloGold Ashanti’s Performance Since Last Rating
Since the last analysis, AngloGold Ashanti shares are up 20.53% (or +21.41% including the payment of the semi-annual dividend of $0.19/share on March 28 and the next dividend of $0.22/share on September 13), which is better than the US stock market represented by the S&P 500 positive change of 3.03%. As predicted in the previous analysis, investors flocked to the safe haven of gold amid risks and uncertainties, and AngloGold Ashanti’s operating conditions improved. To the point that the company reported positive net income for Q2 2024, further reinforcing the upward trend. But, as previously forecast, thanks to the good liquidity of shares available in the market, now reflected in the average (“3-month”) volume of 1.63 million, both capital gains and market beat would likely have been more generous had investors bought on a dip around June 10, when gold prices experienced their “sharpest sell-off in 3.5 years“. Arundhati Sarkar, news editor at Seeking Alpha, reported on June 10, 2024, that sentiment around the yellow metal suddenly soured as China’s central bank slowed the pace of its gold purchases, while markets prepared for the much-anticipated meeting of the US Federal Reserve but widely expected to keep its policy rate unchanged on the back of strong US jobs numbers.
On average, the gold price per ounce in the second quarter of 2024 increased to $2,292/ounce (up 18.3% year-on-year) on 581,000 ounces sold by subsidiaries of AngloGold Ashanti and to $2,336/ounce (up 18.5% year-on-year) on 81,000 ounces sold by joint ventures of AngloGold Ashanti group. This sharp increase in the selling price per ounce was supported by the bullish sentiment that saw two major culminations for the yellow metal’s market price, which hit its fifth straight weekly gain as Middle East risks rising on April 19 and scored a spot on the podium at the Olympics of Metals on 21 May in the wild game of raw materials. The precious metal’s market price was driven by geopolitical risks and strong demand for safe-haven assets, particularly from Chinese traders, and hedges against macroeconomic headwinds and fears of a pick-up in inflation also took a hit. Rising hopes for a Fed rate cut at its September meeting and a weaker US dollar also helped push gold prices per ounce higher.
AngloGold Ashanti Gold Deposit in Operation: Production, Costs, and Projects
The following operating tailwinds captured the benefit of bullish sentiment on gold prices: production of 648,000 ounces of attributable gold in the second quarter of 2024, a pleasant improvement from 634,000 ounces in the prior year quarter with subsidiaries’ output (up 4.3% year-on-year to 581,000 ounces on a consolidated basis), which more than offset the decline in joint ventures (down 6.8% year-on-year to 82,000 ounces on a consolidated basis).
The operating strength of AngloGold Ashanti is evident in its gold production across various regions. Notably, the consistent improvement in production and focus on high-margin assets in Brazil showcase the company’s commitment to operational efficiency and profitability. The efforts in Australia, Argentina, and other locations also contribute significantly to the overall positive trend in gold production.
The expectation of continued growth and development, especially in key projects such as the Tropicana Renewable Project and the optimizations at various mines, bode well for AngloGold Ashanti’s future performance in the gold market.
Rising Earnings and Cash Flows Are Drivers of Share Prices. Financial Condition Is Improving
Higher gold prices, increased production and lower costs and expenses resulted in an impetus given to the following stock price drivers: A) Net income was $253 million in Q2-2024 swinging from a loss of $83 million in the prior year quarter. B) The Adjusted EBITDA nearly doubled to $684 million in Q2-2024 from $356 million in Q2-2023. C) The Free Cash Flow recovered to $183 million in Q2-2024 from negative $44 million in Q2-2023, boosting Free Cash Flow for H1-2024 which was $206 million versus negative $205 million in the corresponding period of 2023.
The strong financial position of AngloGold Ashanti, highlighted by rising earnings and robust cash flows, indicates the company’s ability to capitalize on the current market conditions. With substantial net income and improved operating metrics, AngloGold Ashanti is well-positioned to navigate the challenges of the gold market and leverage its financial stability for further growth and development.
The Outlook: Several Upside Catalysts of Gold Prices, Production, and Costs
The positive outlook for gold prices, driven by various factors such as interest rate cuts, geopolitical tensions, and macroeconomic uncertainties, presents a favorable environment for AngloGold Ashanti’s future performance. As the company aligns with the trends in the gold market, investors can expect continued growth and profitability in the coming months.
Analyst predictions and market trends suggest a bullish sentiment towards gold prices and mining companies, including AngloGold Ashanti. With a supportive market environment and potential price targets, the company is poised to benefit from the positive momentum in the precious metals sector.
Conclusion
AngloGold Ashanti’s strategic positioning within the gold mining industry, coupled with its operational strength and financial stability, presents a compelling case for investors. As the company continues to capitalize on favorable market conditions and drive growth through efficient operations, maintaining a hold rating offers investors the opportunity to benefit from the company’s potential while remaining cautious of market fluctuations.
