[miningmx.com] — ANGLOGOLD Ashanti stands on the brink of an earnings explosion as it enters its new financial year free from the restraints of a gold hedge, having also paid in full for the cost of having the hedge book removed.
Analysts also believe there is plenty room for an upswing in the group’s share price, which traded at around R336.64 on Thursday afternoon – at the upper end of its 52-week range of between R266.40 and R366.31.
RBC Capital Markets has a 12-month target price of R430 for the share. Similiarly, analysts at Imara SP Reid believe the share could turn at R399.45 during the next 12 months.
AngloGold completed a hedge elimination strategy in October, spending $2.64bn during the financial year to remove the positions of a final 3.2 million ounces (moz). This was the culmination of a process which started in March 2008, when the group had almost 12moz committed under its hedging programme.
Releasing quarterly and annual figures for the periods to end-December on Thursday, AngloGold reported a headline loss of $1.7bn for the full year. When adjusted to exclude the cost of restructuring the hedge book, headline earnings came in at $787m.
Analysts believe the additional earnings derived from having full exposure to the gold price with no further penalties payable for the closure of the hedge will propel AngloGold’s profitability significantly, without even accounting for any production increase.
“The hedge book was their poison pill. I won’t be surprised if in the next year they double headline earnings,” said Stephen Roelofse, an analyst at Metropolitan Asset Managers, speaking to Reuters.
Speaking at a presentation of the group’s results, CEO Mark Cutifani said the group would use its additional earnings and cash flow to up dividend payments, invest in growth projects and improve its debt position.
It declared a final dividend of 80 South African cents per share, up 14% on 2009’s dividend, contributing to a full-year dividend of 145c/share. The group’s net debt position was $1.3bn.
“If you take into account (AngloGold) is the lowest cost gold producer in South Africa, you should see a lot of benefit coming through in the next year, given the favourable gold price environment,’ said Imara SP Reid gold analyst Percy Takunda.
The company’s production estimate for 2011 is 4.55moz to 4.75moz (4.52moz in 2010), at a total cash cost of between $660/oz and $685/oz ($638/oz last year). It expects to lift production to between 5.4moz and 5.6moz over five years from the group’s current operating and exploration portfolio.
“(AngloGold) has set up its balance sheet in such a way that developing these (growth) projects won’t be as expensive as they used to be,’ said Takunda.
He added an additional endorsement of Anglo should be drawn from hedge fund billionaire John Paulson’s interest in the company.
Paulson & Co bought 12% of AngloGold in 2009, after Paulson labelled Cutifani “an outstanding leader’.
