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AU’s Stock Rose Even after Its Weak 3Q16 Operational Performance

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AngloGold’s weak 3Q16 results

AngloGold Ashanti (AU) reported its 3Q16 operating results on November 14, 2016. The company reported weaker-than-expected production and higher-than-expected costs for 3Q16, mainly due to lower production at its South African operations, which were impacted by safety stoppages.

AU’s international operations were also negatively affected due to delays in their access to higher grades in Brazil. On one hand, lower production impacted costs. On the other hand, strengthening local currencies and equal capital expenditure absorbed over fewer ounces increased per-unit costs.

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Share price reaction

After its results, AngloGold’s share price rose 5%. While the company disappointed on the production and costs front, its free cash flow soared in 3Q16, leading its share price to outperform the broader gold miners’ index, the VanEck Vector Gold Miners ETF (GDX), which rose 1% on the same day.

The resurgence of South African gold stocks due to resilient gold prices and the weak South African rand have seen gold companies’ share prices rally since December 2015. On a year-to-date basis as of November 14, 2016, Harmony Gold (HMY) has risen 153%, dwarfing the gains of GDX, which has risen 54% in the same period.

Other South African miners Sibanye Gold (SBGL), AngloGold Ashanti (AU), and Gold Fields (GFI) have also risen considerably.

AngloGold’s 3Q16 performance

In this series, we’ll discuss AU’s operational performance in detail. We’ll also discuss the reasons for the company’s weaker costs and production performance in 3Q16. We’ll see whether or not AU will be able to achieve its production and cost guidance for the year based on its outlook. We’ll also see whether the company’s 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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