AngloGold Ashanti Limited

AGG Details

Definitive Agreement to Acquire Corvus: AngloGold Ashanti Limited (ASX: AGG) is engaged in the business of mining of gold and has got a diverse portfolio of operations and projects across nine countries. As per a recent news release, the company has entered into a definitive agreement in order to acquire the remaining 80.5% of common shares of Corvus. The transaction has been valued at a price of C$4.10 per share in cash. The transaction is estimated to cost AGG ~US$370 million and helps to consolidate the gold districts in Nevada, and also provides the company with quality low-cost production base in a reputed mining region.

Update on Siguiri Mine:

On 7 September 2021, the company has updated that the Siguiri Gold Mine in Guinea is operating normally. The mine produced 117,000oz at an AISC of US$1,225/oz for the six months ended 30 June 2021.

H1FY21 Performance Update:

• During the six-month period ended 30 June 2021, the company has reported a production of 1.2Moz, aided by contributions from Sunrise Dam, Kibali, Iduapriem, Cerro Vanguardia, Geita and Tropicana.
• There was an increase in AISC by 33% to US$1,333/oz during the period from US$1,002/oz in H1FY20 owing to higher cash costs, planned reinvestment and impacts of the COVID-19 pandemic.
• It reported an adjusted EBITDA of US$876 million in H1FY21, with a margin performance of 46%.
• Adjusted net debt decreased by 41% to US$850 million during H1FY21 end, compared to a level of US$1,431 million during pcp end.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business makes it prone to safety concerns for its employees. It has also been impacted by the spread of COVID-19 pandemic, high employee turnover rates and inflation.

Outlook: The management has decided to suspend the underground mining activities at Obuasi following an incident that resulted in the unfortunate loss of one of its personnel. However, it will continue with its reinvestment programme to drive growth through brownfields projects. It has provided revised guidance for FY21 of 2.45Moz to 2.60Moz of production at a total cash cost of US$890/oz to US$950/oz, AISC of US$1,240/oz to US$1,340/ oz and total capital expenditure of US$1,030m to US$1,190m. The revised guidance has been changed in order to remove the contribution of Obuasi for the second half of 2021.

The Obuasi gold mine recorded production of 85koz in H1FY21, compared to a total production of 717koz from Africa operations during the same period.

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: As per ASX, the stock of AGG is trading below its average 52-weeks’ levels of $3.950-$7.830. The stock of AGG gave a negative return of ~17.62% in the past three months and a negative return of ~11.48% in the past one month. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average EV/Sales, considering the reduction in production levels and rise in costs. For the purpose of valuation, few peers like Northern Star Resources Ltd (ASX: NST), Resolute Mining Ltd (ASX: RSG), Regis Resources Ltd (ASX: RRL) have been considered. Considering the expected upside in valuation & current trading levels, signing of definitive agreement to acquire Corvus, decrease in net debt, positive update on Siguiri Mine, technical levels mentioned below and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $4.120 as on 22 September 2021, 10:00 AM (GMT+10), Sydney, Eastern Australia.

Technical Insights:

On the daily chart, AGG prices are trading in a falling channel pattern and sustaining above the lower band of the pattern. Furthermore, the momentum indicator RSI (14-period) is trading near an oversold zone (~29.80 levels), indicating a possibility of the upside rebound from the current level. However, stock prices are trading in a lower tops and lower bottom formation. An immediate resistance level for the stock, is placed at AUD 5.25 while the key support level is placed at AUD 3.75.

AGG Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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