AngloGold Ashanti PLC

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

AngloGold Ashanti is a global gold mining company focused on exploring, mining, and processing gold deposits, operating in diverse geographical regions.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

AngloGold Ashanti (AU), headquartered in South Africa with operations spanning across multiple countries in Africa, Australia, and the Americas, is a global gold mining company.

  • Operations: AU engages in exploration, mining, and processing of gold deposits, with its production being the core driver of revenues.
  • Revenue Distribution: The company’s revenue is primarily derived from gold sales, with the majority coming from the Africa region and the remainder split between the Americas and Australia.
  • Industry Trends: The gold mining industry is affected by a variety of factors, including fluctuations in gold prices, the cost of extraction, regulatory changes, and geopolitical events. Gold prices in recent years have been particularly volatile, with large swings causing some challenges for profitability.
  • Competitive Landscape: The gold mining industry is highly competitive, featuring a diverse range of established companies and many smaller players. These range from global giants with multiple operations to smaller, more regional companies. Competition can be stiff as companies fight for the same precious minerals.
  • Margins: High operating costs can be a challenge for gold producers as input prices have gone up in recent times. Companies with production facilities in regions with elevated transport costs or less efficient extraction methods face an extra uphill battle to keep margins high.
  • What Makes the Company Different: AngoGold Ashant does not mine copper or other metals, and its operations span across continents. The company’s approach is to develop a globally diverse and more resilient business and is more focused on high-quality mines, which should deliver better long-term performance. Also, the company has also been working hard to develop local communities and promote sustainable mining practices.

Financial Analysis

In terms of key financial metrics, AngloGold’s recent performance has shown a significant upswing in revenue, fueled by higher gold prices and improved operations in its mines.

  • Recent Performance: AU reported a strong performance in 2022 and showed excellent results in Q1 2023. Profitability margins have been steadily rising due to the higher gold prices, which have made for higher revenue per unit. However, the company’s finances were not entirely consistent, and it has also faced several production and cost-related issues.
  • Financials (Q1 2023): According to its Q1 2023 report, the company had a production of 588,000 oz with all-in sustaining cost (AISC) of $1,357 oz.
  • Guidance: The company has revised upward its production guidance for 2023 to a range between 2.45 and 2.65 million ounces and decreased its all-in sustaining cost guidance. The company also says that its “cost of sales per ounce (including royalties)” in the coming year would be in the range of $1,440 to $1,540.
  • Revenue Growth: The revenue for AU was $4.8 billion for 2022, compared to $4.2 billion in 2021, which is growth of ~ 14%. The annual revenue increased by another 13.65% YoY during the twelve-month period ended December 2023, so it has been consistently on a growth trajectory.
  • Profitability: In 2022, AngloGold’s profitability improved substantially, as the net income attributable to shareholders increased to $318 million, compared to a loss of $198 million in 2021. That trend continues in Q1 2023 where the company posted a profit of $332M.
  • Capital expenditure: AU is investing heavily in its projects. It expects to have its highest capital expenditure in 2023.

Moat Analysis

AngloGold Ashanti’s moat stems mainly from the nature of the mining business and the strength of its assets rather than specific internal characteristics.

  • Intangible Assets: AU’s brand name, reputation for responsible mining, along with patent-protected processes, do give it a slight competitive advantage but are not enough for creating a durable economic moat.
  • Location/Geographic Niche: In this industry, a large part of the competitive moat comes from geography, such as operations located in the Powder River Basin. But the company has a global and not localized geographical presence, which reduces the strength of its moat from this source.
  • Cost Advantages: While there are many different components to the mining business, it is a commodity business. This implies the presence of limited cost advantages over other companies.
  • Scale Advantage: AU is one of the largest gold miners in the world, providing it a scale advantage. The business is capital-intensive and requires high fixed costs. Because of the high volume, the cost per unit tends to come down, giving AU an edge. This moat could become stronger with time.
  • Switching Costs: The absence of high switching costs from buyers further implies that the company is not differentiated from its peers.
  • Network Effect: The network effect does not play a role in this business, nor does it appear to have any benefit.

Moat Rating: Based on all the points above, AU has a narrow moat, which is likely to be eroded in future. We have assigned a moat rating of 2/5 to AU.

Risks to Moat & Business Resilience

Despite the company’s positive trends in revenue and profitability, its moat and business resilience are threatened by the following risks:

  • Fluctuations in gold prices: Because gold is a commodity, the price at which it sells in the market is heavily dependant on macro variables. A price crash will significantly affect the company’s profitability.

  • Mitigation: The company has stated in its reports that it wants to focus on margins, which may help alleviate some of these problems.

  • Inflation and input costs: Higher crude oil prices have led to higher extraction and transportation costs. Inflation in the input costs negatively affect the profitability of the company and threatens the moat.

  • Mitigation: The company can try to control costs, but some of the price changes are beyond management control.

  • Mining Risk: There are several geopolitical, technical, and environmental risks associated with mining, and operations are highly prone to accidents.

  • Mitigation: The company has safety policies, and has tried to minimize these risks through improved maintenance, but there are always some risks in mining operations.

  • Regulatory Challenges: The company faces constant regulatory hurdles in several jurisdictions in the world, and changes in the regulations can affect future earnings.

  • Mitigation: The company must stay active on this and try to diversify into friendlier jurisdictions.

  • Competition: There are always other players trying to gain market share, and this can reduce profitability in the long term.

  • Mitigation: As shown by their continued increase in return on invested capital, AU is trying to improve its operations and generate better earnings than its competitors, which can help them fight against these competitors.

  • Labor relations. Many of AU’s mines are in South Africa, and the region has been plagued by labor disputes and unrest. These can directly affect production and could lead to negative earnings.

  • Mitigation: Improved communication with employees and more equitable compensation strategies are recommended for these cases.

Understandability Rating

The basic business operations and financial performance of gold mining companies are relatively simple to understand, but the complex interactions that influence their financials as well as their large number of operations and subsidiaries make the valuation challenging.

Understandability Rating: We have assigned a rating of 3 / 5

Balance Sheet Health

Although the company has a relatively large debt and high capital investments, the overall financial health is still reasonably good, which is why we give the company a solid rating.

  • Cash: The company has $1.6 billion in cash, cash equivalents and restricted cash.
  • Debt: Total debt is at $2.6 billion, which should be easily payable considering the financial strength.
  • Solvency: Given that total assets are close to $10 billion, the debt seems like a manageable sum, and the company can easily maintain its financial commitments.
  • Liquidity: The company has enough current assets to cover current liabilities, further proving its excellent financial status.

Balance Sheet Health Rating: Based on all the points mentioned above, we have assigned a rating of 4 / 5.