In an Aug. 8 research note, BMO Capital Markets analyst Andrew Kaip reported that AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) is "well positioned for the remainder of 2019."
He explained that "increasing production and demonstrated free cash generation in Q2/19 have set the stage for a strong H2/19 that is getting even stronger at prevailing gold prices."
Kaip reviewed the company's Q2/19 numbers. Generally, production was in line, costs were higher than expected and cash flow was a miss. H1/19 earnings per share (EPS) also did not meet expectations.
Specifically, AngloGold's reported headline H1/19 EPS was $0.29 and its reported adjusted headline EPS was $0.25. These compare to ROTH's forecasted EPS of $0.29. Slightly higher operating costs drove the miss that lower depreciation offset somewhat.
Cash flow from operations in Q2/19 came in at $343 million, significantly lower than ROTH's $495 million projection. About $146 million of it was attributed to "a negative working capital adjustment related to a build in accounts receivable and inventory," indicated Kaip. "We expect the bulk of the negative working capital build to reverse through H2/19."
The "build" also impacted free cash flow in Q2/19, which amounted to $50 million versus ROTH's projection of $111 million. Capital spending of $293 million during the quarter, which was lower than the $384 million ROTH forecasted, partially offset the free cash flow deficit.
As for Q2/19 gold production, AngloGold's prereported total was 801,000 ounces (801 Koz), a near match to ROTH's estimate of 801.7 Koz. Gold production during H1/19 was 1,554,000 ounces (1.554 Moz), slightly below ROTH's forecast whereas H1/19 gold sales of 1.577 Moz were in line. Production from Iduapriem and Cerro Vanguardia was stronger than anticipated whereas production from Geita was weaker than expected.
"AngloGold is tracking well relative to 2019 production guidance of 3.25–3.45 Moz of gold," Kaip highlighted.
Regarding costs, all-in sustaining costs in Q2/19 amounted to $996 per ounce, slightly higher than ROTH's estimate of $959 per ounce.
The miner lowered 2019 capex guidance to $850–920 million from $910–990 million, "owing to the timing of spending at Obuasi," explained Kaip, who added that Obuasi is still slated for initial production by the end of this year.
In terms of asset divestiture, AngloGold's management noted that strong interest has been shown for its South African operations. "The sales processes for both Cerro Vanguardia in Argentina and Sadiola in Mali continue," Kaip added.
BMO has an Outperform rating on AngloGold Ashanti.[NLINSERT]
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Disclosures from BMO Capital Markets, AngloGold Ashanti, August 8, 2019
We, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
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Company Specific Disclosures
Disclosure 9B: BMO Capital Markets makes a market in AngloGold Ashanti in United States.
Disclosure 16: A research analyst has extensively viewed the material operations of AngloGold Ashanti.
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