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Can AngloGold’s Project Pipeline Provide an Upside to Its Production?

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Falling production

Production is an important variable for gold miners like Eldorado Gold (EGO), New Gold (NGD), and IAMGOLD (IAG). Notably, EGO and NGD make up 3.5% of the VanEck Vectors Gold Miners ETF (GDX). In this part of our series, we’ll analyze AngloGold’s production growth prospects.

AngloGold Ashanti’s (AU) 1Q16 production fell by 7.2% YoY (year-over-year) to 861,000 ounces. The fall was mainly due to planned reductions at its Obuasi, Tropicana, and Morila mines, while its Kibali joint venture saw an unanticipated fall in volumes during the quarter.

In its preliminary 1H16 release, the company said that it expects production to be 1,745,000 ounces. This implies 2Q16 production to be 884,000 ounces, which would be an improvement over its 860,000 ounces in 2Q15.

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Production guidance

AngloGold’s production guidance for 2016 is between 3.6 million and 3.8 million ounces. The company’s midpoint guidance implies a run rate of 47% for 1H16. This would mean that it will have to post a strong 2H16 performance in order to reach its guidance.

Project pipeline

The company’s project pipeline remains strong, with various opportunities in its portfolio. The company is focusing on growing its reserves and resources at its existing operations. It also has some greenfield exploration options in Colombia. Among brownfield projects, expansion at Siguiri is a priority. It would entail a capital expenditure of $110 million–$115 million, including contingencies. This project would increase the production profile at Siguiri and would also increase the life of the mine.

The Sunrise Dam project is another area of priority focused on mineral resource extension for underground mining. Geita underground is another one of AngloGold’s brownfield development projects. It would help the company maintain its production profile going forward by focusing on mineral resource delineation drilling.

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