AngloGold Ashanti Limited

AGG Details

Quebradona Project Update: AngloGold Ashanti Limited (ASX: AGG) is a global gold mining company with a diverse, high-quality portfolio of operations, projects, and exploration activities across several countries including Australia, Brazil, Argentina, Tanzania, Columbia, etc. On 27 October 2021, AGG provided an update on Quebradona Project, where it notified that the environmental regulator of Columbia, Autoridad Nacional de Licencias Ambientales (ANLA), has decided to ‘archive’ the environmental permit application for the Quebradona project.

Resumption of Underground Mining at Obuasi: In an update provided on 1 October 2021, AGG had informed that it expects the underground ore mining at the Obuasi Gold Mine to resume by mid-October. Further, the gold production from underground ore sources is expected to recommence only in January 2022.

Acquisition of Corvus: In September 2021, AGG inked a definitive agreement with Corvus Gold Inc. to acquire the remaining 80.5% of common shares of Corvus not already owned by AGG. The combination of Corvus and AGG’s Nevada assets will help AGG to establish a meaningful, low-cost production base in a premier mining jurisdiction.

H1FY21 Result Highlights:

• For H1FY21, AGG had reported total gold production of 1.2Moz, down from 1.32MOZ in pcp.
• Gross profit for H1FY21 stood at US$565 million, down from US$658 million in H1FY20, due to the impact of COVID-19 on production and costs, lower realised grades across certain operations and the suspension of underground mining at Obuasi Gold Mine.
• Further, the company reported adjusted EBITDA of US$876 million in H1FY21, down from US$1,035 million in H1FY20.
• As at 30 June 2021, the company had adjusted net debt of US$850 million, down by 41% from US$1,431 million as at 30 June 2020.

Net Debt Trend (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Uncertainty: The company is exposed to the risks associated with the uncertainties surrounding the impact of the COVID-19 pandemic, as it could cause temporary suspension of operation and impact the company’s performance.
• Commodity Price Risk: AGG is exposed to the risk associated with the fluctuations in the prices of gold as it could impact its financials.

Outlook: For FY21, the company expects its total production to be in the range of 2.45Moz to 2.60Moz with a total cash cost of $890/oz to $950/oz. In the long run, the company expects the production from 2024 to 2028 to be in the range of 400,000oz to 450,000oz at an all-in sustaining cost of $900/oz to $950/oz. If the proposed acquisition of Corvus is completed, it will allow AGG an opportunity to integrate infrastructure and processing facilities and unlock future value via the synergies of a combined operation. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has been corrected by ~7.27% and is trading lower than the average 52-week price level band of $3.95 -$7.7. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of a low double-digit upside (in % terms). The company can trade at slight discount to its peers, considering the uncertainties surrounding the COVID-19 pandemic and risks associated with gold price fluctuations, etc. For the valuation purpose, peers such SSR Mining Inc (ASX: SSR), Perseus Mining Ltd (ASX: PRU), Gold Road Resources Ltd (ASX: GOR), etc. have been considered. Considering the resumption of underground mining at Obuasi, decline in net debt, expected benefits from the proposed acquisition of Corvus, modest production outlook, current trading level, valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $4.95 as on 5 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia).

AGG Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:  

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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