Analysts are hands-off AngloGold until noise of Calderon turnaround dissipates

Molten gold pour.

NEXT month signals two years since Alberto Calderon became CEO of AngloGold Ashanti. On paper, much has been achieved. The former BHP executive has cracked the whip on mine cash costs, installed a $1.1bn carbon reduction plan, restructured the executive committee, and readied the company for a primary listing in New York.

Analysts, though, are unconvinced following a poor operating performance so far this year. AngloGold reported a $205m cash outflow for the first six months after suffering setbacks at its mines. AngloGold CFO Gillian Doran insisted one-off events were to blame. “We look forward to reporting a much improved second half,” she said during a presentation. “So do we,” Adrian Hammond, an analyst for Standard Bank, responded tartly.

The major financial hit to AngloGold was sustained in Brazil where it booked a $341m impairment on two mines: Córrego do Sítio (CdS) and Cuiabá. This was after complying with environmental legislation related to tailings storage — a sensitive topic in Brazil after a dam burst in 2019 and killed 270 people at Brumadinho, an iron ore mine owned by local firm Vale. A third business in AngloGold’s Brazilian ventures, the Serra Grande mining complex, is also under pressure. This follows the results of an asset review Calderon started in early 2022, and that is still under way.

The review, added to the impairment, almost certainly condemns CdS to a sale or closure, while Serra Grande is on borrowed time. They “don’t fit with a company like AngloGold”, Calderon acknowledges. The two make up 5% of total production. Compounding their fates, inflation is running hot in AngloGold, averaging 9% from January to July. “I was very surprised by it,” Calderon told media last week. He expects cost inflation to average 7% for the year.

The asset review has thrown up some interesting results. Geita, Obuasi, Iduapriem, Kibali and Tropicana — which make up 60% of total production and 80% of earnings — have been ranked as AngloGold’s “tier one” assets. They have the lowest-cost, highest-quality resources and qualify for the most capital. They are also, except for Tropicana, all African.

Calderon rejects the suggestion that AngloGold will be seen in a different light to members of its North American peer group, which are more diversified. “Africa is lots of different countries,” he tells the FM. He brushes off suggestions that war in Niger, destabilising the Sahel that runs from Central to West Africa, potentially weakens the firm’s investment case.

As for the listing of AngloGold shares in New York, as well as a switch in its domicile to London from Joburg, shareholders are due to meet on August 18. AngloGold needs 75% support for a successful vote. “We have had a lot of meetings but I don’t take anything for granted,” Calderon tells the FM. He told analysts 66% of the world’s gold investment was in New York and most of the balance was in London.

“We are significantly underrepresented in the largest pool of capital, a lot of which is in the hands of active investors.” As for indexation, Calderon acknowledges AngloGold is powerless to influence this. He confirmed that AngloGold would remain in the MSCI’s Emerging Markets index for now. “Indexation was not a key driver of this,” says corporate affairs head Stewart Bailey.

“We expect investors to be on the sidelines until the completion of the corporate restructuring and delivery of improved operational results,” says Raj Ray, an analyst for Canadian bank BMO Capital Markets. Another analyst asked simply when the firm’s performance would be “less volatile”.

Shares in AngloGold have caught up in the past 12 months, gaining 50% while the shares of its North American peers have been stationary. But for now, the Calderon revolution has paused. “The challenges in Brazil could see the company making some tough portfolio decisions over the next year,” says Arnold van Graan, an analyst for Nedbank Securities. “This could be an overhang and a drag on the overall turnaround story.”