AngloGold Ashanti shares: Inflationary pressures are strong (NYSE: AU)

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Part I – Presentation

1 – First quarter 2022 results and commentary

On May 9, 2022, Johannesburg-based AngloGold Ashanti (NYSE: AU) published its results for the first quarter of 2022 ending March 31, 2022. This publication is considered a market update report as the company publishes its full results every six months.

Table

Introducing 1Q22 AU Highlights (AngloGold Ashanti)

The company reported strong production in the first quarter of 2022 and completed the acquisition of Corvus which I’ve covered here.

Corvus Gold currently owns a 100% interest in Nevada’s two mining properties, the North Bullfrog NBP Project and the Mother Lode MLP Project, both located in Nevada. Both projects are at the exploration stage.

A crucial financial element is that the company ultimately received $326 million from Kibali in the DRC and an additional $210 million after the end of the quarter.

To note: This article is an update of my previous article published on April 6, 2022. I have been AngloGold Ashanti since 2020 and have published four articles.

The company has production assets and projects on three continents with advanced projects in Nevada, USA.

1.1 – Africa

Operations produced 330,000 ounces at a total cash cost of $1,017/oz for the three months ended March 31, 2022, compared to 352,000 ounces at a total cash cost of $948/oz for the three months ended March 31, 2021. The company owns the Iduapriem and Obuasi mines in Ghana, the Siguiri mine in Guinea, the Geita mine in Tanzania and Kibali in the DRC.

1.2 – Latin America

The US operations produced 131,000 ounces at a total cash cost of $986/oz as of March 31, 2022. The Company owns the AngloGold Ashanti Mineração and Serra Grande mines in Brazil; Cerro Vanguardia mine in Argentina.

1.3 – Australia

The Australian operations produced 127,000 ounces at a total cash cost of $1,160/oz as of March 31, 2022. The company owns Sunrise Dam and Tropicana.

1.4 – Nevada United States

AngloGold Ashanti completed its $365 million cash acquisition of Corvus on January 18, 2022.

It enables AngloGold Ashanti to create a low cost, long life production base in a leading mining jurisdiction.

Map

UA: Corvus map of the Bullfrog and Mother lode projects (Corvus presentation)

2 – Stock market performance

I cover four other companies located in South Africa: Sibanye Stillwater (SBSW), Harmony Gold (HMY), Impala Platinum (OTCQX: IMPUY) and Gold Fields Ltd. (GFI).

AngloGold Ashanti has fallen significantly since its peak in March 2022. AU is now down 17% YoY.

Chart
Data by YCharts

Part II – Global Overview and Gold Production

1 – Quarterly gold production

1.1 – Quarterly production

AngloGold Ashanti sold 597K Au Oz in 1Q22. The company said it produced 588,000 Au Oz in 1Q22 (continuation and discontinuation), unchanged from a year ago. First quarter production was flat year over year with strong contributions from Sunrise Dam, Cerro Vanguardia, Siguiri and Tropicana.

Chart

Quarterly AU Gold Production 1Q22 4Q21 1Q21 (Fun Trading)

1.2 – Quarterly production by mine

The company produced gold from ten different mines:

Chart

AU Quarterly Gold Production Comparison by Mine – 1Q21 vs 1Q22 (Fun Trading)

The Obuasi mine is on track to achieve a full mining rate of 4,000 TPD by June 2022.

2 – All-In Sustaining Costs and Realized Gold Price

All-in sustaining cost (AISC) was $1,405 per ounce in 1Q22. An increase of 9.2% compared to the last quarter of the year, mainly due to the expected increase in sustaining capital expenditure and the increase in total cash costs. Inflationary pressures are building and the company said in the press release:

Inflationary increases in operating costs were primarily driven by higher commodity prices for oil and consumables and higher service and labor costs.

Chart

AU Quarterly gold price and AISC – 1Q21, 4Q21 and 1Q22 (Fun Trading)

Part III – AngloGold Ashanti – Balance sheet and production for 1Q22: the raw figures

Note: Like most South African gold and PGM miners, full results are released every six months, which complicates analysis.

AU 1T21 4Q21 1Q22
Total revenue in millions of dollars 956 1,039 1,016
Gross profit in millions of dollars 279 274 259
Adjusted EBITDA in millions of dollars 449 478 438
Cash flow from operating activities in millions of dollars 149 460 533
Capital expenditures in millions of dollars 241 348 265
Free cash flow in millions of dollars -92 112 268
Total cash in millions of dollars 1,081 1,154 1,045
Adjusted net debt in millions of dollars 908 755 917
Shares outstanding (diluted) in millions 419.30 420.06 420.25*
Gold production 1T21 4Q21 1Q22
Total gold production in K Oz 588 659 588
Gold production sold in K Oz 597
Realized Gold Price $/Oz 1,788 1,798 1,881
AISC in $/Oz 1,287 1,389 1,405

Source: Documents filed by the company

* Estimated by Fun Trading

AngloGold Ashanti: Balance Sheet Details

1 – Turnover and trends. Revenue was $1,016 million in 1Q22

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AU: Quarterly Revenue History 1Q22 4Q21 1Q21 (Fun Trading)

1Q22 revenue was $1.016 billion, $60 million higher than the first quarter of 2021. The higher price of gold this quarter helped.

The company said in the press release:

AngloGold Ashanti is entering a new operating model after completing the implementation of an organisation-wide restructuring. The company introduced new management and eliminated duplicate roles and unnecessary expenses to reduce costs and improve operating results

2 – Free cash flow was $268 million in 1Q22

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History of quarterly free cash flow AU (Fun Trading)

Note: Generic free cash flow is operating cash flow minus capital expenditures. AngloGold Ashanti’s free cash flow was $268 million in the first quarter of 2022, compared to a loss of $92 million in 1Q22.

The increase in free cash flow this quarter was boosted by the $326 million received from the Kibali gold mine in the Democratic Republic of Congo. The company has cash tied up in the DRC, Tanzania and Argentina.

In 1Q22, the situation improved significantly with a balance of $232 million.

Note: An additional $210 million from Kibali RDC was received subsequent to quarter end.

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Introducing AU (AngloGold Ashanti) Cash Blocks Enhancement

3 – AngloGold Ashanti’s debt situation is excellent

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UA Quarterly Cash vs. Adjusted Net Debt History (Fun Trading)

Total cash is now $1,045 million and adjusted net debt is $917 million at the end of March 2022. Liquidity is $2.5 billion, as shown below.
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AU: Balance sheet and liquidity (AngloGold Ashanti)

It is a solid debt profile that encourages investors to bet on the long term.

4 – Orientation 2022 still on the right track

Gold production in 2022 is expected to be 2.55 Moz to 2.80 Moz, and the AISC is between $1,295 and $1,425 per ounce ($1,360 median). The guidance has not changed since my previous article.

CapEx will be between $1.05 billion and $1.15 billion.

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Presentation of the AU orientations 2021 (AngloGold Ashanti)

In the press release, the company said:

The Company’s production is expected to be weighted in the second half, with unit costs expected to decline in the second half of 2022. In the current global environment, we expect inflationary pressures to persist through the end of the year. The company is working proactively to mitigate this impact through the implementation of the new operating model, which aims to improve operational efficiency, the ongoing operational excellence program already in place and the comprehensive review of asset potential . Additionally, the continued prevalence of COVID-19 remains a risk to guidance.

Part IV – Technical Analysis and Commentary

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Short Term AU TA Chart (Fun Trading)

AU is forming a descending channel pattern with resistance at $17.6 and support at $15.1.

The Fed acted decisively against inflation and raised the interest rate by 75 points at the beginning of June. Additionally, he has repeatedly revealed that he will increase interest even further in 2022 and potentially an additional 75 points at the next meeting in July. Although inflation is a significant plus for gold, any attempt by the Fed to combat it by raising interest rates will weaken the price of gold.

Thus, the general strategy has not changed for AngloGold Ashanti. I recommend trading the short-term LIFO around 40%-60% and holding a long-term base position for an end goal of $28. This is the basic strategy that I support in my market, “The Gold and Oil Corner”.

For this week, I recommend trading the channel selling around 40% to 60% of your position between $17.5 and $18.5 and building up between $15.4 and $15 with potential support below 14, $75.

To note: The LIFO method is prohibited by International Financial Reporting Standards (IFRS), although it is permitted in the United States by Generally Accepted Accounting Principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by setting up two different accounts for the same security, one for long term and one for short term.

Warning: The TA table must be updated frequently to be relevant. This is what I do in my stock tracker. The table above has a possible validity of approximately one week. Remember that the TA chart is a tool only to help you adopt the right strategy. This is no way to predict the future. Nobody and nothing can.

Author’s note: If you find value in this article and wish to encourage such continued efforts, please click the “Like” button below to vote for support. Thanks.

About Aldrich Stanley

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