Is AngloGold Ashanti Worth the Risk?

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Source: Thinkstock

Source: Thinkstock

AngloGold Ashanti (NYSE:AU) has been one of the worst performing gold mining stocks over the past several years. Its performance was so bad that at its trough in December, the company’s stock was actually lower than where it stood back in 2000 when the gold price was around $300/ounce! There are numerous reasons for this underperformance.

  1. The bulk of the company’s production is in Africa, and much of it is in South Africa. Mining investors hate investing in South Africa and the stocks of the companies that operate here are serial underperformers.
  2. The company saw production costs soar. At one point, in 2012 the company’s quarterly production costs reached over $1,500/ounce! This doesn’t include things like interest payments, manager’s salaries and other corporate expenses.
  3. The company’s production has been declining. Production collapsed from nearly six million ounces annually in 2006 to less than four million ounces annually in 2012.
  4. The company hedged a lot of its gold production, and it took a huge loss when it finally stopped doing so back in 2009.

In short, everything that could have gone wrong with a gold mining company went wrong with AngloGold Ashanti. Nevertheless, there are signs that the company is turning around. Of the four criticisms I list above, the only one that still seems to be an issue is the first one. The company still has about a third of its operations in South Africa, and another third is in the rest of Africa.

But otherwise, the company has been cutting production costs, growing production, and it is no longer hedged. Given these points, is now a good time to bite the bullet and buy shares in AngloGold Ashanti?

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