Vaccine news weakens case for gold, re-rating of AngloGold shares after dividend boost

THE hoped-for re-rating of shares in AngloGold Ashanti has not yet materialised with the prospect of gold price weakness undercutting the company’s excellent third quarter financial and operating performance, at least in the short-term.

Standard Bank Group Securities was one of several banks that pointed to a potential re-rating in AngloGold shares. Trigger events for the re-rating remain the installation of a permanent replacement for CEO Kelvin Dushnisky, who resigned in September, and the repatriation of $359m in funds from the Democratic Republic of Congo.

On November 2, AngloGold said it had revised its dividend policy to a payout ratio of 20% of free cash flow before growth capital expenditure. It would also pay dividends on a semi-annual basis. Standard Bank Group Securities upgraded its earnings outlook to $3,72/share from $3,27/share previously partly on higher production.

Said RMB Morgan Stanley in its report on the company: “We think this places the company on a more favourable footing to international peers ahead of a potential foreign listing”.

The bank, however, has since taken a more bearish approach to the US dollar gold price as a result of advances in a vaccine for Covid-19 disease. “While high uncertainty, negative bond yields, and a weakening US dollar lend near-term support, we no longer expect the gold market to return to the highs reached in August,” said Morgan Stanley.

It consequently revised its 2021 estimated gold price forecast lower to $1,835/oz full year average followed by a further drop to $1,745/oz in 2022. The gold price is currently trading at $1,860/oz, a decline of 1,55% from Wednesday.

South African gold shares have been under pressure, AngloGold included. The company’s shares have fallen 15% since the third quarter numbers were published.

“Gold continues to lose momentum in response to recent vaccine announcements and their potential effectiveness in combating a not-yet-under-control outbreak,” said Saxo Bank.

This development had driven “a small exodus of exchange traded funds with total holdings down 1.7 million oz or 1.5% to a two-and-a-half month low. But Saxo Bank said it remained positive on the metal. “The vaccine can kill the virus but not the mountain of debt that has been accumulated this year.”

Central banks were expected to maintain loose monetary conditions which could lead to a rise of higher inflation “… through a policy mistake in not reacting sooner to the eventual recovery,” it said.

Gold mining companies, such as AngloGold, had also set themselves on a path for more generous shareholder returns, said ScotiaBank which added that in months ahead dividend improvements were likely.

“While we were expecting dividends to be announced in 2H/20, we had not anticipated the extent to which these would come through; with large increases – up an average 70% since September,” it said.

It expected further announcements over the coming months and others may lay out new frameworks in their dividend payouts.

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