SEP 2, 2021 8:00 AM

AngloGold Ashanti maintains low leverage

buy

AngloGold Ashanti (BBB + / Baa3 / BB +) reported 2Q financial results. In 2Q21, gold production increased by 4% qoq to 613 Koz, while gold sales remained at the same level as in the previous quarter. In 1H21, production decreased by 9% yoy to 1,200 thousand ounces. The company's revenue amounted to $ 1.965 billion, which corresponds to the level of a year ago. Adjusted EBITDA decreased 15% year-on-year to $ 876 million.

YTM
3.1%

RISK
BBB+/ Baa3 / BB+

DURATION
7.5

AngloGold Ashanti's free cash flow in 1H21 turned negative at minus $ 25 mn due to lower gold sales, higher costs and higher tax payments. Nevertheless, positive free cash flow was recorded in 2Q21, which amounted to $ 67 mn against minus $ 92 mn in 1Q21. All is sustaining costs (AISC) increased 33% yoy to $ 1,333 per ounce in 1H21 due to higher oil prices, lower gold ore grades, higher CAPEX, compliance with maintenance requirements the safety of tailings and the negative impact of the pandemic on gold sales.

Due to the suspension of underground mining at Obuashi in May, the company lowered its production forecast for 2021 to 2.45-2.6 Moz from the previous 2.7-2.9 Moz. The mine is expected to resume operations towards the end of the year. The forecast for total production support costs (AISC) has been raised to $ 1,240-1340 per ounce from $ 1130-1230. Capital expenditures will be $ 1.03-1.19 billion versus $ 0.99-1.14 billion due to additional costs for the safety compliance program for tailings in Brazil.

Despite the moderately negative financial performance dynamics in 1H21 and the worsening forecast for 2021, AngloGold Ashanti's balance sheet remains strong. Thus, the adjusted net leverage for the first six months of the year was 0.37x, which is half the indicator of 0.73x a year ago. The company maintains a high level of liquidity of $ 2.5 billion, of which $ 1.1 billion is in cash and $ 1.4 billion in unused credit line. The share of short-term liabilities is only $ 255 million, so the risks of refining are low. Among AngloGold Ashanti Eurobonds, the issue with maturity in 2030 (ISIN - US03512TAE10) looks attractive. The bonds offer a 3.1% dollar yield with a 7.5-year duration.

AngloGold Ashanti is contending with Newmont and Barrick to be known as the world's largest gold miner. Now ranked as the third-largest gold producer based on ounces sold, it holds about 71 million ounces of proved and probable ore reserves and produces about 4.5 million ounces annually. It also sells silver, uranium, and sulfuric acid. In addition to six deep-level mines and one surface mine in South Africa, AngloGold Ashanti has mining operations in the Americas, Australia, and other areas of Africa. In all, it operates some 20 mines in 10 countries, including Argentina, Brazil, Namibia, the US, and Tanzania. The company was formed in 2004 after AngloGold Limited acquired Ashanti Goldfields Company.