Will AngloGold Leave South Africa in Order to Thrive?

Two decades ago, AngloGold Ashanti (JSE:ANG) combined its assets in South Africa and became the world’s largest gold producer. However, the miner may now have to abandon its home in order to rival competitors that have long since eclipsed the company.

According to a Bloomberg report, many analysts are speculating that in order for AngloGold to boost its value and rival companies such as Newmont Mining (NYSE:NEM) and Barrick Gold (TSX:ABX,NYSE:ABX), which not only outproduce the miner but have also recently formed mega companies, AngloGold may need to leave the African country.

“Their best bet is to get out of South Africa and leave Mponeng behind,” said Rene Hochreiter, analyst at Noah Capital Markets. Adding, “[the] costs never come down in South African gold.”

The Mponeng mine is the world’s deepest mine and due to the fact that it is located in a dying South African industry, AngloGold is struggling to contain the asset’s costs.

If the miner were to leave the underperforming mine behind, it would act as a final step in the company’s gradual withdrawal from South Africa.

In fact, only 14 percent of AngloGold’s output in the third quarter of 2018 came from the country — a 26 decrease from 2017. Much of the output was lost when the company sold and shut down mines in order to stem losses.

Insiders close to the miner revealed that the company has been considering selling off its South African operations in favor of listing on the London and Toronto stock exchanges.

Following Barrick’s merger with Randgold Resources (LSE:RRS), London investors were left with very few options when it comes to purchasing gold and that could benefit AngloGold greatly.

“Whether it’s AngloGold or anybody else in South Africa gold, it makes sense to go and find other places to make money,” noted Leon Esterhuizen, an analyst at Nedcor Securities.

AngloGold’s CEO Kelvin Dushnisky has been candid regarding the fact that he has been looking to sell non-core assets in order to unlock value, but he’s also revealed that it’s too early to make a decision on South Africa. If the company’s scaled-down operations can generate free cash flow, then perceptions about the country might change, he has said.

As the relatively new CEO of AngloGold, Dushinsky has seen the company’s shares rally 41 percent since he took over in September. In comparison, Barrick has climbed 17 percent and Newmont just 2.4 percent over the same period.

James Bell, an analyst at RBC Capital Markets (TSX:RY,NYSE:RY), explained that further gains may be tempered by the difficult jurisdictions — including Tanzania and the Democratic Republic of Congo — in which the miner operates. Indeed, given the challenges AngloGold is facing, the company should be in no rush to exit South Africa if it can make those operations profitable, he added.

Despite the company landing on a list of gold producers that may be involved with a merger and acquisition deal at some point this year, Bell does not believe that AngloGold will be taken over.

“AngloGold is not a takeover target,” he said. “It’s a very large complicated business and has exposure to jurisdictions which are quite tough for other companies to be comfortable in.”

As of 12:45 p.m. EST on Monday (January 21), AngloGold was down 2.12 percent, trading at ZAC 16,602.00

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.