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AngloGold Ashanti Soars on 3rd-Quarter Operating Results

- By Alberto Abaterusso

AngloGold Ashanti Ltd. (AU) rose 4.61% to $10.43 on the New York Stock Exchange after releasing third-quarter production results on Monday.

The miner said that despite a 14.6% year-over-year decline in gold production to 851,000 ounces, the all-in sustaining cost also decreased 14.1% to $920 per ounce of metal sold. The decline in the AISC reflects cost improvements from operations at the Mponeng mine in South Africa, the Kibali mine in the Democratic Republic of Congo, the Iduapriem mine in Ghana and at the Tropicana mine in Western Australia. During the quarter, the South African company didn't report any fatalities, but did see a 41% improvement in the all injury frequency rate to 4.17 per million hours worked.

The stock was also boosted by positive results from the change in net debt. The figure, which is total debt minus cash and cash equivalents, declined 15% from the prior-year quarter to $1.75 billion.

As a result, the net debt to the trailing 12-month adjusted earnings before interest, taxes, depreciation and amortization ratio - a measurement of leverage - improved 24.2% to 1.13 from 1.46 in the year-ago quarter, though the quarterly adjusted EBITDA was negatively affected by lower gold prices. The production decline also impinged on the adjusted EBITDA because of a lower volume of gold ounces sold. On a retained basis, however, AngloGold Ashanti produced nearly the same volume of gold compared to a year ago thanks to stronger output from the Mponeng mine and to ramped-up production at the Congolese Kibali mine.

Gold production increased 25% at the Mponeng mine, reflecting higher ore grades and better mining practices. In addition to positive performance from surface operations, the Mponeng mine pushed South African operations to deliver 120,000 ounces of gold, a 3% increase year over year, at an AISC of $1,026 per ounce, a 17% decrease year over year.

Lower gold prices during the quarter were also the main determinant of a substantial 61.4% decrease in the operating cash flow to $34 million.

AngloGold Ashanti is targeting full-year 2018 gold production of 3.45 million ounces, which is the upper end of the guidance range. The lower end of the range is 3.325 million ounces. The South African miner should continue to report cost improvements at some of its operations in Africa and Western Australia in the fourth quarter as well, since it is projecting the AISC to trend toward the lower end of the $990 to $1,060 per ounce range.

The company is forecasting to spend $770 million to $860 million for capital expenditures in 2018. The portion for non-sustaining capital expenditures, about 22.1% of the total, has been revised downward to $170 million to $190 million from the previous range of $200 million to $250 million.

CEO Kelvin Dushnisky said that AngloGold Ashanti is steadily progressing on the company's projects, through which it aims to improve the life and overall quality of the entire portfolio of mineral assets.

In addition, the miner announced it will sell the Sadiola mine in Mali since it couldn't reach an agreement with the Malian government on the terms of an investment project. The search for a buyer has already begun. The Sadiola mine is operated in joint venture with Iamgold Corp. (IAG).

AngloGold Ashanti has a market capitalization of approximately $4.3 billion as of Nov. 5. The share price has increased 8% for the 52 weeks through Monday and is now above the 200-, 100- and 50-day simple moving average lines.

The 52-week range is $7.08 to $12.

The stock has a price-book ratio of 1.77 versus an industry median of 1.74.

The recommendation rating is 2 out of 5, reflecting a buy. The average target price is $14.15 per share, reflecting a 35.7% premium.

The share price was down approximately 3.4% at $10.08 in early trading on Nov. 6.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.