Mining

The Company

AngloGold Ashanti is the world’s third-largest gold producer by volume, with annual production of around 4m oz and a strong presence in exploration, mining and marketing. The company is headquartered in Johannesburg and has 21 operations in 10 countries. Its major development projects are Tropicana in Australia, Kibali in the Democratic Republic of the Congo (DRC) and La Colosa in Colombia.

The company’s extensive brownfield, greenfield and marine exploration programmes extend to 12 countries in both established and new gold-producing regions through managed and non-managed joint ventures, strategic alliances and wholly owned ground holdings. In addition to AngloGold’s primary mining operations, the company has an interest in the Rand Refinery in South Africa, as well as owns and operates the Queiroz refinery in Brazil.

The group is organised across four geographic regions: South Africa, continental Africa, the Americas and Australasia. South Africa accounts for 35% of group production and includes two mining areas, namely West Wits and Vaal River, which together comprise six deep-level mining and surface operations. AngloGold concluded the acquisition of First Uranium, the owner of Mine Waste Solutions, which operates in the Vaal River area of South Africa in July 2012. The continental Africa segment comprises operations in Ghana, Guinea, Mali, Namibia and Tanzania, as well as projects in the DRC, with regional production of around 1.5m oz, or approximately 35% of the group total. The Americas unit includes the firm’s operations in Argentina, Brazil, the US and projects in Colombia. In 2012 AngloGold concluded the acquisition of the remaining 50% interest in Brazil’s Serra Grande, bringing regional contribution to group production to 23%. The Australasia unit is currently made up of a mine and a project in Australia.

While we envisage a scenario where strike action could materially impact production rates and thus profitability at South African mines in 2015 (due to a combination of retrenchments, labour union disputes and wage negotiations), AngloGold’s production base, which covers all regions of the globe, puts the company in a better position to navigate this challenging environment than its more domestically focused peers.

Development Strategy

AngloGold is one of the most geographically diversified precious metals companies in South Africa, with just 29% domestic contribution to EBITDA. We forecast that the company will see production CAGR growth through 2019, as it brings relatively low-risk greenfield projects online through mid-2016, reducing overall operating costs.

Of particular importance are the Kibali and Tropicana projects. Having visited Tropicana in July 2014, we flag the project as straightforward both logistically and geologically, increasing expectations of a ramp-up that meets production and cost guidelines. Kibali is a Tier 1 gold asset, with both resource scale and high grades. We expect the asset to produce at around $600 per oz at steady-state, improving the quantum and quality of company earnings. The combination of falling capex and almost immediate EBITDA contribution from these two assets translates to a projected free cash flow per share increase from a $1.4 per share loss in 2013 to a $0.65 per share gain in 2014.

Following the execution of the company’s current project pipeline, AngloGold have a considerable resource base in Colombia, which will be the focus of its exploration and development spending through 2017. On the home front, AngloGold is pioneering technology advances within the South African deep-level mining environment. The technology will introduce reef boring combined with ultra-high-strength backfill, which will offer the potential to materially improve the productivity and profitability of the region.

The company is currently testing this mining methodology at its TauTona mine in South Africa, with potential roll-out across the domestic portfolio by 2020, which would see approximately 50% of mining conducted through advanced mechanised methods.

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