How Strong Does AngloGold’s 2H16 Need to Be to Reach Its 2016 Guidance?


Nov. 20 2020, Updated 3:03 p.m. ET

AngloGold’s 1H16 results

AngloGold Ashanti (AU) reported its 1H16 results on August 15, 2016, and the results were broadly in line with estimates. The company’s 1H16 production was somewhat lower than expected due to operational issues, including safety stoppages in South Africa and poor recoveries at the Kibali mine in the Democratic Republic of Congo.

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Share price reaction

After the results, AngloGold’s share price declined by 5%. It underperformed the broad gold miners’ index, the VanEck Vector Gold Miners ETF (GDX), which declined by only 0.6% the same day.

AU’s negative share price reaction was mainly driven by concerns surrounding the company’s ability to meet production and cost guidance for the year. While the run rate of production in 1H16 was slower than it needed to meet the annual production target, stronger currencies could make achieving the cost guidance even more difficult. Also, 2H16 is expected to be more capital intensive. This will put more pressure on free cash flow generation potential. But while AngloGold will need a stronger 2H16 to reach its guidance, it’s still achievable.

Share price rallies, weaker rand

The resurgence of South African gold stocks due to resilient gold prices and the weaker South African rand have seen gold companies’ share prices rally since December 2015. On a year-to-date basis as of August 16, 2016, Harmony Gold (HMY) has risen by a staggering 307%. This growth dwarfed the gains in the VanEck Vectors Gold Miners ETF (GDX), which has still risen by 119% in the same period.

Other South African miners have seen considerable rises as well. Sibanye Gold (SBGL) has risen by 230%, while AngloGold Ashanti (AU) and Gold Fields (GFI) rose by only 170% and 118%, respectively.

AngloGold’s 1H16 results

In this series, we’ll discuss AU’s operational performance in detail. We’ll also discuss what has helped the company achieve its stellar price performance so far in 2016. We’ll see whether or not the company will be able to achieve its production and cost guidance for the year based on its outlook. We’ll also see what Wall Street is saying about AngloGold, and whether its price rally can continue in light of its expected operational performance going forward.

Let’s start by looking at AU’s gold production performance.


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