AngloGold Ashanti is a definite stock-pick saysJacques Botha, Chief Mining Economist at African Foresight. It’s an opinion that is backed by his own investment in the shares. “I bought them after Venkat (CEO Srinivasan Venkatakrishan) came, and I read their strategy,” he told Alec Hogg and Gugulethu Mfuphi in this interview after the release of the second quarter results. He says he likes the company’s new (Venkat-driven) strategy – including its maintenance of a presence in Africa; it’s global mix; the way in which the portfolio is managed and the risks are spread…as well as its grasp of the reality of gold price changes. “It’s a well-run company,” he avers…noting that the (latest) results have exceeded guidance…and show that the company is moving in the right direction and beating targets. He is particularly impressed by the fact that production costs are at $836 an ounce. Looking ahead, Botha supports Alec Hogg’s notion that, as a high-tech, hard rock miner, Anglogold Ashanti should be looking at opportunities in platinum (another high-tech hard rock mining arena) possibly by way of a merger with problem-plagued Amplats. Furthermore, he is more bullish on the price of platinum than on the price of gold. No matter what happens, (in this new age of mining) the key is to be either a high-tech producer or a high-labour producer – it cannot be both, Botha concludes. GK
GUGULETHU MFUPHI: Well, we continue our analysis of AngloGold’s second quarter production numbers. That’s with Jacques Botha, Chief Mining Economist at African Foresight. Jacque, its good to have you with us in our Cape Town studios. Perrhaps the best place to start is with the presence of a mining company – or rather of AngloGold Ashanti – on the rest of the Continent. You might have picked up on when I asked Venkat if it’s better to be on the Continent, he said there is no other option. Either you are on the African Continent or not, and you are losing out on an opportunity there.
JACQUES BOTHA: Yes, I agree with him totally. I really like their strategy, their global mix, and how they’ve spread their risks. And, yes, their results – just a quick comment on that. I think they’ve exceeded their guidance’s and I think it is a very well-run company and where there’s new strategy since Venkat came in charge. I really liked their strategy. They are following a strategy that I believe is the best way to manage gold mining, in the future.
ALEC HOGG: Jacques, they’re still losing money.
JACQUES BOTHA: Yes, a very good point – and there is a risk. The gold mining industry was built on anticipation. I spoke to CEOs of gold mining houses a year ago, who felt very comfortable in buying mines that were mining feasibilities. They would go through feasibilities that didn’t take into account – or even imagine – that gold would be $1500. Now, I think AngloGold Ashanti is more into reality in the way they are managing their portfolio. I really haven’t yet had time to spend on going through all the numbers, but they are going in the right direction and they are exceeding their targets.. I’m very impressed with their cash costs – that it is costing them $836 now to produce an ounce of gold – and even their sustainable cash costs.
As you know, the gold mining industry is being very brave to also promise the market that they will keep on their operations at certain costs. Their sustainable cost is $1064, which is also still…so, even if the gold price falls a bit more, say, by another $100.00 or $200.00, they could still theoretically make a profit. Of the gold miners, I think they are are definitely one of my bets and, over the long term, I’m fairly, bullish about the gold price. Over the shorter term, the next two years, there are risks that the price could even come down further.
GUGULETHU MFUPHI: Just on that, I wanted us to touch on; you mention that you are very bullish on the gold price going forward, then as AngloGold Ashanti, as a stock-pick a share price, I hear today that it is up by 60 percent. Is this something where you would put your money in?
JACQUES BOTHA: I actually have. I bought them after Venkat came, and I read their strategy. I actually bought Anglo, I’m happy to say that I bought some of his shares and I think it is definitely a stock-pick. There are risks. The global story is that, at this stage, gold has had a nice run because of o political concerns about Iraqi, the ISIS and and Russian scenarios. Tthings happened this weekend that make those stories less of a threat. It could even be that gold could soften this week again, but there are other factors that I’m very positive could drive the gold price higher over the next few years.
ALEC HOGG: Jacques, that’s always a big risk, when you’re going into the gold sector that you have geo-political or big global issues. But, I liked what Neil Froneman said last week, when he was in our studios. He’s a hard-rock miner, so anything to do with hard rock he’d be happy to get into. AngloGold Ashanti is also a hard rock miner. Do you think it would be an idea for them to also consider platinum? Maybe even a merger with Anglo Plat, which seems to have its problems – whereas AngloGold Ashanti seems to be, perhaps, better managed?
JACQUES BOTHA: That is actually quite an interesting idea. I really think AngloGold Ashanti know how to mine hard rock, especially more on the high-tech side. I was amazed that, after these earthquakes, they could actually electronically assess their damage… from a control room covering all the mines. Now that is high tech! Then you have Neil Froneman who is really mining the difficult old mines, which are low-tech and high labour. It is almost like a war zone down there. So yes, I think Anglo Plat is also high-tech but it may not be a bad idea. I would actually spread my risk and my portfolio. Over the long term, I am more bullish about the platinum price than the gold price. So it makes sense, I think.
GUGULETHU MFUPHI: More bullish on the platinum price than the gold price. Just to close off with, Jacques, it is interesting that Alec touched on the cost measures, which no doubt are something that has contributed positively to AngloGold Ashanti’s numbers. But there needs to be a future growth story. You’ve touched on one. Is there another one that Venkat and other gold producers can consider?
JACQUES BOTHA: A future gold story on the price?
GUGULETHU MFUPHI: Growth story.
JACQUES BOTHA: A growth story. I think what they are doing is very good. They are very cautious and very efficient, and that is the way it is going to go. Economy is about economies of scale and you can decide whether you’re going to be a high-tech producer or a high-labour producer,. It has to b e one of the two. You cannot sit on both chairs and fall in the middle, like some miners have done. I think the fact that they are very professional. The know their markets, and understanding Africa. Even in Africa, I think they are moving slightly more to the high-tech side, but they are doing it very efficiently. So I think there is definitely a growth story there.
GUGULETHU MFUPHI: Thank you so much to Jacques Botha. He’s the Chief Mining Economist at AFRI Foresight.