After a little over three-year suspension, AngloGold Ashanti Ltd. (AU, Financial) announced it is reinstating its dividend.
The distribution of the dividend is backed by consistent improvements witnessed by the South African miner.
- The miner closed fiscal year 2016 with headline earnings, adjusted to one-time charges, of $143 million, a 191.8% increase on a year-over-year basis. In 2015, the company reported adjusted headline earnings of $49 million.
- Considering AngloGold Ashanti has approximately 408 million shares outstanding, the adjusted headline earnings per share were 35 cents, a 191.7% increase from 12 cents in 2015.
- The company also reported a significant improvement in free cash flow of $278 million, a 97% increase from $141.1 million in 2015.
The stock market coolly welcomed these improvements.
One day after the miner released 2016 operating and financial results, the stock was down $1.09 or -8.44%, from $12.54 per share on Feb. 21 to $11.81 per share on Feb. 22. AngloGold Ashanti closed the week at $11.59 per share and has gained 10.28% year to date, following the uptrend in the price of the underlying commodity. On the London Bullion Market, gold rose 9.1% from an average price of $1,149.825 per troy ounce on Jan. 3 to an average price of $1,254.5 per troy ounce on Feb. 24.
This is not surprising since the stock returns on the market are exposed to the changes in the price of gold. The 7.86% rise in the price of gold sold compared to the previous year is the main reason for the substantial improvement in the economic and financial situation of the company, along with its “strong ongoing focus on cost and capital discipline.”
Additionally, a stronger U.S. dollar versus the Argentinian peso, the Brazilian real and the South African rand had a positive impact on operations in those countries.
The future value of the U.S. dollar against other currencies is the main concern whether deciding to invest in AngloGold Ashanti as President Donald Trump wishes to keep the value of the greenback low to encourage American exports.
As the price of the precious metal will continue its uptrend, however, supported by the Federal Reserve’s decision to either postpone the next U.S. rate hike or reduce the number of increases, and by the Chinese demand for gold, further appreciation of AngloGold Ashanti on the NYSE is quite possible since the stock is highly levered to gold prices.
AngloGold Ashanti has taken several steps to enhance the quality of its asset base in order to benefit from rising gold prices, including cost control initiatives that are improving its operating efficiency to the extent that it will be able to increase operations at mines characterized by a lower gold grade without affecting the operating costs, the all-in sustaining costs and production.
AngloGold Ashanti produced approximately 3.628 million ounces of gold in 2016, in line with expectations. This figure, however, is 5.7% lower than gold production from continuing operations in 2015. The company said “production was negatively impacted by weaker output from the South Africa mines due mainly to safety-related stoppages, lower grades from Kibali, a planned decrease in head grades at Tropicana and Geita and no production contribution from Obuasi.”
The company processed gold at total cash costs per ounce of $744 and at an AISC per ounce of $986.
In line with its guidance, the company used approximately $811 million in 2016 as capital expenditure, up 1.5% from 2015.
During the year, part of the liquidity available was used by AngloGold Ashanti to eliminate $1.25 billion in corporate loans and to achieve a $274 million net debt reduction target, which leads to a net debt to adjusted EBITDA ratio of 1.24 times, a 0.25 points improvement from the previous figure of 1.49 times.
The debt reduction improved the company’s ability to pay interest expenses on the outstanding debt. This is shown by the improvement in the interest coverage ratio from 7.41 in 2015 to 10 in 2016. The value of the ratio is well above the threshold of 1.5 and the industry average of 0.56, indicating AngloGold Ashanti is better positioned than most of its peers.
AngloGold Ashanti had approximately 50.1 million ounces of gold in proven and probable reserves on Dec. 31, 2016.
AngloGold Ashanti closed at $11.59 on Friday, down 24 cents or -2.03% from the previous trading day. The analysts’ average target price per share is $15.78, ranging between a low of $11.63 and a high of $22.58.
The recommendation rating is 2.8, which ranges between 1.0 (Strong Buy) and 5.0 (Sell).
The gold mining company has a market capitalization of $4.78 billion and an enterprise value of $6.69 billion. The gold stock is trading at 1.80 times the book value and at 4.87 times the EBITDA.
Disclosure: I have no positions in AngloGold Ashanti Ltd.
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