Shares of AngloGold Ashanti Ltd. (AU, Financial) rose 0.82% on the New York Stock Exchange on Nov. 6 after the company released its third-quarter production results.
The South African miner reported an 11% year-over-year increase in gold production and a robust reversal in the free cash flow to $88 million from an outflow of $41 million the second quarter.
A lower price realized from the sale of one ounce of gold during the quarter, however, negatively impacted both free cash flow and gross profit. Free cash flow declined 23.8% from a year ago and the gross profit fell 13% to $205 million.
Of course, the lower gold price per ounce impacted the net debt to adjusted EBITDA ratio as well. The company reported the ratio was 1.49 times, down from 1.56 in prior-year quarter.
AngloGold Ashanti produced 997,000 ounces of gold in the third quarter, an increase from 900,000 ounces in the comparable quarter of 2016 and approximately 915,000 ounces in the second quarter of 2017.
Despite higher reinvestment expenditures, the all-in sustaining cost (AISC) of $1,071 per ounce of gold did not change from the prior-year quarter. Stronger currencies and a general increase in energy prices also did not impinge on the AISC.
Compared to a year ago, the all in-cost per ounce of metal declined $24 to $1,142 in the third quarter, while the total cash cost per ounce increased 1.3% to $807.
During the quarter, AngloGold Ashanti sold 979,000 ounces of gold for an average price of $1,277 per ounce. This is an improvement from 898,000 ounces of gold sold in the third quarter of fiscal 2016 at an average price of $1,334 per ounce.
In addition, AngloGold Ashanti says the restructuring of operations in South Africa and all brownfield projects are on track and within budget. Gold production is expected to range from 3.6 million ounces to 3.75 million ounces. During the first nine months of fiscal 2017, the miner produced 2.76 million ounces of gold.
For full fiscal 2017, the company guides capital expenditures of $950 million to $1.05 billion. The total cash cost per ounce is expected to be between $750 and $800 and the AISC per ounce is expected to range from $1,050 to $1,100.
AngloGold Ashanti has a market capitalization of $3.87 billion, a price-book (P/B) ratio of 1.60 and an EV/EBITDA ratio of 6.12.
Despite the fact the company's current market valuation is only 6.5% higher than its 52-week low of $8.89 per share, the Peter Lynch chart below suggests the South African gold stock is overvalued since it is trading above its earnings line:
AngloGold Ashanti has lost nearly 10% year to date. The stock is downtrending, so I would wait before establishing or adding to a position in order to benefit from potential upside.Â
“We expect a strong finish to the year at our key international operations and continued delivery to tight timelines and budgets on our portfolio-improvement projects,” CEO Srinivasan Venkatakrishnan said.
According to the RSI indicator of 50.10 – as illustrated in the chart below - it is not possible to determine if AngloGold Ashanti is overbought and, therefore, expected to continue its downward trend.
With an average target price of $12.64 per share, analysts foresee 33.5% upside from the current share price. The recommendation rating is 2.3 out of 5.
Disclosure: I have no positions in AngloGold Ashanti.
