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Why Is AngloGold so Confident in 2H16 after Its Slow Run Rate in 1H16?

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Nov. 20 2020, Updated 10:52 a.m. ET

Fall in production

AngloGold Ashanti’s (AU) 2Q16 production was 3% higher quarter-over-quarter at 884,000 ounces. AngloGold’s 1H16 production reached 47% of the midpoint of its annual production guidance range. Its production in 2Q16 was, however, 7% lower YoY (year-over-year). The fall was mainly due to the loss of production from Obuasi, a poor first half from Kibali, and planned grade drops at its mines at Geita and Tropicana.

In this part, we’ll analyze Anglo’s region-wise production growth. Production is an important variable for gold miners such as 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).

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South African region

AU’s South African region’s production decreased by 3% YoY to 486,000 ounces in 1H16. While this production is weaker YoY, it’s still higher than the company’s average historical decline of 8% per year. While the Mponeng mine delivered a standout performance with a 25% increase in production, the increased safety-related stoppages during the first half of the year impacted production negatively.

AU’s management mentioned in the company’s earnings call that while, “we are supporters of the intent of Section 54 regulatory stoppages and mass audits, the manner in which they are exercised continues to have a significant impact on work routine and production.”

The company expects an uptick from South Africa in the fourth quarter of 2016.

International operations

AU’s international operations produced 1.26 million ounces of gold in 1H16, a 9.2% fall YoY. The YoY fall resulted from the following:

  • stopping its tailings treatment at Obuasi
  • a planned reduction in ounce production at Geita and Tropicana (mainly due to the reduction of grade)
  • challenges at the Kibali Sulfide processing circuits

The company expects production to pick up at Kibali in the second half of the year. It also expects its Brazilian production to return to higher grades at the same time. So despite its lower run rate in 1H16, AngloGold has maintained its 2016 production guidance at 3.6 million–3.8 million ounces.

Next, we’ll discuss Anglo’s exploration upside.

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