Cape-based financial advisor David Melvill keeps his friends and associates well informed. He often drops me a line about his latest thinking – usually supporting a bullish view on gold shares. His latest article deserves to be shared. Drawn from research compiled by Trinity Asset Management’s Quinton George, it focuses on the attractions of the world’s third largest gold mining group Anglogold Ashanti. David – and Quinton – make a compelling case. – AH
By David Melvill*
Is it possible that Trinity would invest into AngloGold Ashanti (ANG)?
I would have said, “No.” This is the one gold company that I have loved to “hate.” Why? For many years ANG hedged their gold production – this is the forward selling of their mining efforts. In a very real sense this kept the price of gold subdued, as the price for the future was predetermined – it killed the market.
Over the last 10 years their share price has done nothing except lose money. It traded at R 250 then and today it is R 130. That means that a long term investor has received a miserable dividend each year and lost 48% of his capital, not to mention the further ravaging effect of inflation decreasing its buying power.
If you had bought ANG at its peak of almost R 400 a year ago, you are down 68%. This is illustrated in the chart below – it is horrific, for a company of this size. It has been extremely painful for investors. As Peter George would say, “You want to buy a share when there is blood in the street.” Therefore this presents one of the best buying in opportunities. Trinity has decided to take full advantage of the situation.
ANG is so “beaten up” it is offering superb value. Trinity’s Quinton George believes, “The share may have hit its bottom and could start to rally nicely from here.” The graph below comparing it with Sibanye proves the point.
Where does ANG operate?
AngloGold Ashanti (ANG) is the third biggest gold miner in the world, it conducts mining operations in Africa, North and South America and Australia, and undertakes exploration activities worldwide. Only 35% of the operations are now in SA.
How big is ANG?
ANG has a market Cap of R 58 billion. It is on a price earnings ratio of 8,5 – almost unheard of in the gold industry, where one normally pays a premium to enter into a gold company.
Who heads up the mine?
Srinivasan Venkatakrishnan is the CEO. He has recently increased his holdings in ANG, he now holds 78 437 shares; this equates to more than R10 million. I sent this article to Adrian Saville at Cannon Asset Managers who had this to say: “Of the different CEO’s I have met in the SA setting, Venkat stands out as incredibly impressive.”  That is so lovely to hear! He sounds like a winner, I hope he can turn the ship around for the company, but also the country. We so need credible leaders.
* David Melvill runs Cape Town-based Financial Hub. You can reach him through [email protected]
