AngloGold $500m cash unlock is first step in narrowing discount to international peers

ANGLOGOLD Ashanti is expected to say at its first quarter results on Monday it had unlocked about $500m in cash from profits earned by its Kibali joint venture with Barrick Gold in the Democratic Republic of Congo (DRC).

The gold miners share a 90% stake in Kibali, a 365,000 ounce per year gold mine and among the prized assets in the portfolios of both. However, the partners had been unable to repatriate profits from the mine since the country’s mining code was updated in 2018.

Barrick said last week it had received an attributable $536m amounting to 91% of historical trapped cash from Kibali as well as cash flow earned from the mine in first quarter of the current financial year. This indicated that the vast majority of Kibali free cash flow generation would be received by both joint venture partners in the future, said RMB Morgan Stanley in a recent report.

“This would improve AngloGold’s cash conversion rate and reduce jurisdictional risk associated with the AngloGold operations in the DRC despite the country scoring unfavourably in the recent Fraser Institute survey,” the bank said. “This should aid in narrowing the valuation gap to international peers.”

Canada’s Fraser Institute ranks countries according to the attractiveness of their investment climate to mining companies. African countries performed poorly in the 2021 survey compared to the previous year; the DRC’s ranking halved.

Attention would now fall on AngloGold’s operational risk, specifically its ability to lower costs at individual mines as well as see through project developments. Were these to be achieved, the company would attract a leading rating owing to its project pipeline.

Attention could now turn to elevated execution risk with respect to underlying operational performance and the full asset potential programme, as well as the medium-term outlook in 4Q22, ahead of fully pricing in a sector-leading production growth,” said RMB.

Alberto Calderon, CEO of AngloGold since late last year said in February that AngloGold could have 300,000 oz/year in new production from its Nevada prospects in the US following the $370m acquisition of Corvus Gold and the consolidation of its properties with adjacent properties of its own.

In addition, the group is also rebuilding production at Obuasi Gold in Ghana following the mine’s suspension and waiting for approvals ahead of building the Quebradona mine which has been delayed for two years.

AngloGold is currently running an 18-month to two year asset-by-asset review in an attempt to force down cash costs to sub-$900/oz. There was an outside chance of portfolio adjustment as a result of the review, said Calderon.