AngloGold: results out, where to next for the share price?

In summary

• Interim results for AngloGold Ashanti showed a decrease in production, all in sustaining costs, revenue and EBITDA
• The group is looking to divest from its South African assets
• Full year guidance is for cost, capex and production to be maintained at previously guided levels
• Recent currency and gold movements post the interim period have been favourable for AngloGold’s expected future earnings
• The share price of AngloGold has been pricing in the currency and commodity moves
• The long-term trend for AngloGold Ashanti remains up
• The share does however look overbought in the near term
• Trend followers might hope for a pullback in the share price to look for new long entry
• The long-term broker rating (Thomson Reuter) is a hold

AngloGold Ashanti (H1) performance

AngloGold Ashanti published its first-half (H1) figures on 8 Aug 2019.

Interim results from AngloGold Ashanti have shown a slight decrease in production led by its South African operations, and a 17.8% decline in gross profit when compared to the prior year’s comparative interim period.

Production & cost

In the six-month reporting period, gold production decreased to 1.554Koz (from 1.578Koz in the prior year’s comparative interim period). While production levels decreased, so did the total cash cost of mining the precious yellow metal, from $807/oz in 1H 2018, to $792/oz in 1H 2019. All in sustaining costs (AISC) improved by 2% year on year to $1002/oz, although all in costs (AIC) increased from $1109/oz to $1118/oz.

Financials

Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) on an adjusted basis decreased to $689m from $723m in the prior year year’s comparative period.

There was a free cash outflow of $31m in 1H 2019 which compares with an outflow of $51m in 1H 2018.

The group’s adjusted net debt value improved to $1739m in the interim period from $1786m in the prior year’s comparative period.

Full year guidance

AngloGold has guided that the company expects production, costs and capital expenditure to be maintained at previous levels for the full year. Gold production for FY19 is expected to be between 3.25Koz and 3.45Koz, with total cash costs being realised between $730/oz and $780/oz. AISC are expected to lower to between $935/oz and $995/oz in the year, assuming an exchange rate of R14/$ for the rand and BRL3.65/$ for the Brazilian Real.

Divesting from the South African operations

In a previous note, AngloGold announced that it would be looking to sell off its South African assets which include the world’s deepest mine Mponeng, as well as its surface operations which includes the Mine Waste Solutions business. The group has said that it has received a firm interest for these assets from credible operators within the sector and is committed to the divestment if it received what it deems an appropriate offer. Failing an appropriate bid, AngloGold will look to continue to run the domestic operations.

AngloGold to benefit in Q3 2019 from a rise in the gold price

The above chart shows a more than 17% increase in the price of gold since the beginning of June through to the 8^th of August (date at the time of writing). The move in gold, to test the $1500/oz level, should be favourable for AngloGold Ashanti’s 3^rd quarter earnings. The miner of the precious metal will be hoping to see the short term move in gold maintained into the remainder of the financial year.

A weakened Rand for favourable for the miner

Since the end of the interim reporting period (June 2019), we have seen a sharp weakening of the rand against a broad-basket of currencies. The above chart of the USD/ZAR shows the move from R13.80/$ to R15.15/$ from early July 2019 into August 2019. The rand has weakened slightly more than its emerging market currency peers which is favourable for the miner which derives much of its costs in emerging market currencies whilst receiving dollars for its exports.

AngloGold (ANG) share price – Technical View

Recent gains in the share price of AngloGold Ashanti have mimicked the fast rise we have seen in the price of dollar denominated gold and weakness in the South African rand.

From a trading perspective, the long-term trend remains up, although the share remains in overbought territory. Traders respecting the uptrend might hope for a pullback from overbought territory before looking for long entry. A pullback to between horizontal support at 26810 and trend line support at 25000, would be the area where we would consider looking for the long entry opportunity. Should the share price instead retrace to below the low at 24000, the long entry opportunity would no longer be considered valid, as this might indicate a change in the longer-term directional trend.

The average (long term) broker rating for AngloGold, as polled by Thomson Reuters, is hold.