Is AngloGold’s Calderon winning the war on sub-par ratings?

Beating the rap. Alberto Calderon, CEO of AngloGold Ashanti could be proving doubters wrong.

A FEATURE of gold’s record-breaking price performance in the past 12 months has been the relatively lacklustre response of the metal’s most prominent miners.

The two biggest, Newmont and Barrick Gold, are largely unchanged over 12 months compared with gold, up 17%. The VanEck Gold Miners ETF, which invests in more than 50 gold miners, predominantly in North America, was unchanged even as gold reached a record nominal high of $2,441 an ounce earlier this month.

Shares in AngloGold Ashanti have been similarly disappointing in the past 12 months, down  5%. Since January, however, the company has completely outperformed rivals, up 23% compared with 1.7% and 10% declines for Newmont and Barrick Gold. This suggests the rerating desired by AngloGold boss Alberto Calderon might be finally in motion.

Calderon set out his goals soon after joining AngloGold 2½ years ago. The first was to re-establish the company so that it not only spoke the language of its peers, but started to look like them as well. In practice, this meant taking a primary listing in New York, controversially away from Johannesburg, as well as formally setting up headquarters in Denver.

Second, he domiciled AngloGold in the UK so as to attract an improved credit rating. Later this year, AngloGold shares will join the Swix, Russell 2000 and CRSP indices, attracting mandated investors that wouldn’t necessarily take positions in firms on the MSCI’s emerging market where AngloGold shares are to be found.

But a third and far more meaningful step (in that domicile and listing changes don’t fly without it) is Calderon’s progess in improving the quality of AngloGold’s production – dubbed by him as the full asset potential strategy.

Three years ago, AngloGold mines operated at an average cash cost $300 an ounce higher than sector rivals. Though Calderon wasn’t able to drop cash costs as he initially promised, he’s contained them to industry-wide inflation.

The strategy has come with the closure of a high-cost South American mine, and restructuring, including at the firm’s office in Johannesburg. But the extent of rewards is likely to be revealed when the firm reports its half-year numbers.

“Even though we are facing about 5% inflation, we have basically managed to compensate it almost completely,” Calderon told analysts on May 10. “If we deliver at the lowest end of guidance, we would be [within] $30-$95 an ounce of the two largest gold companies in the world.” In effect, that would mean the company has closed between 70% and 90% of the gap on total cash costs that separated it from the established industry leaders.

For now, however, investors have to take the fine detail of that improvement on faith. Since the company is still considered a “foreign private issuer” in the US, it can’t yet disclose detailed financial numbers until, most likely, the half-year point, to be reported in August. It could imply an opportunity cost because the gold price could potentially correct between now and midyear. Or it could mean the firm is not yet reflecting its full upside, or indeed the upside of projects.

One in particular is Merlin in Nevada. Currently estimated to yield 300,000 ounces a year in gold, the project could go much higher. “There are scenarios that are profitable at, let’s say, around 500,000 oz a year,” Calderon told analysts in a first-quarter production call. “It’s a huge resource, higher than we have stated to now. Let us do the work. We’ll update you on how we see things.”

It wasn’t Calderon who led AngloGold out of South Africa operationally with the sale in 2022 of its Mponeng mine to Harmony Gold for $300m, but the decision will nonetheless sit heavy if the Nevada project, and another in Ghana — the ramp-up of the enormous Obuasi gold mine — fail to meet expectations.

For now the market is firmly at AngloGold’s back. “Margins came in at 52% and 33% [on total cash costs and all-in sustaining costs respectively],” said Tanya Jakusconek, an analyst for Canadian bank Scotia Capital, in a recent report on first-quarter sector performance. That was based on a gold price average of $2,071 an ounce.

“Assuming the current spot price of $2,345 an ounce and first-quarter costs reported, margins would be 58% and 40%.”

A version of this article was first published in the Financial Mail.