AngloGold Ashanti Ltd. (AU, Financial) may be a good option for investors who may want to take a long position in a gold mining stock.
The South African gold producer's stock jumped 2.65% to $8.51 at the end of regular hours trading on July 5. The upside was on the heels of the announcement that its Sunrise Dam Gold Mine in Western Australia is on-line following the successful completion of the Recovery Enhancement Project.
AngloGold Ashanti marks a new era with a gold production of about 300,000 ounces this year, a boost of 25% from its previous level.
The development of a high-grade large deposit, improved gold recovery rates, increased throughput and productivity are sustaining revised estimates on production from Sunrise Dam Gold Mine.
Sunrise Dam Gold Mine has the potential to become one of the most prolific gold deposits in Australia. AngloGold Ashanti will decide on how to buoy annual gold production up to a range of 300,000 to 350,000 ounces and maintain that level of output in the long run at no more than $900 per ounce of metal sold in all-in sustaining costs, or AISC.
Mike Erickson, who is the senior vice president for Australia, said: “With a combination of innovation, strict capital discipline and incremental investment, we will see a significant step up in production and a reduction in our all-in-sustaining costs over time.”
The annual production of gold expected from Sunrise Dam Gold Mine will be approximately 9 to 10% of total output guided for full fiscal 2018. The company anticipates a total gold production of 3.325 million to 3.45 million ounces of gold for the entire current year. The AISC of one ounce of gold sold at Sunrise Dam Gold Mine will be significantly lower than the range of $990 to $1,060 per ounce the company guides for full fiscal 2018.
Those metrics on annual production and AISC are defining the next cornerstone asset in the portfolio of AngloGold Ashanti.
Long-term investors, who may want to benefit from the new entry, must know that the stock in AngloGold Ashanti is trading underneath the 200, 100 and 50-SMA lines.
The market capitalization of $3.731 is per share above the 52-week low of $7.81 by only 70 cents and is 41% far from the 52-week high of $12 per share.
Mike Erickson added: “We are on an exciting improvement pathway at Sunrise Dam Gold Mine which will enable us to optimise the development world-class orebody and achieve sustainable cash margins over the life of mine.”
Sunrise Dam Gold Mine together with the company's issuance of a rebase plan for its Obuasi mine in Ghana, the successful unload of AngloGold Ashanti’s assets base with the costliest assets that are in the South Africa region and developments the miner is undertaking at its Congolese Kibali mine should boost free cash flow generation as well as returns with time passing.
In fact, in addition to a decline in the sustaining capex, analysts are also expecting a rise in AngloGold Ashanti’s free cash flow.
Concerning its trailing 12-month earnings before interest, taxes, depreciation and amortization margin, the South African miner has almost realigned its operating profitability with the industry median of about 24% to 25%. This ratio is expected to improve over time as the company proceeds with its strategy.
The recommendation rating on the stock is 2 out of 5 and the average target price of $14.38 per share, represents a nearly 70% stock appreciation.
The stock has a price-book ratio of 1.41 times versus an industry median of 2.06 times and an Ev-to-Ebitda ratio of 6.43 times versus an industry median of 9.9 times.
(Disclosure: I have no positions in any security mentioned in this article.)
