Gold bars. - AFP

Share Price

ANGLOGOLD ASHANTI LIMITED (ANG)

Last Trade :	R 337.34
Change(%) :	1.52
Cumulative Volume :	366972
Market Cap :	R127.95bn
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AngloGold enters new profitability era

Andr� Janse van Vuuren | Thu, 17 Feb 2011 16:26

[miningmx.com] -- ANGLOGOLD Ashanti stands on the brink of an earnings explosion as it enters its new financial year free from the restraints of a gold hedge, having also paid in full for the cost of having the hedge book removed. Analysts also believe there is plenty room for an upswing in the group�s share price, which traded at around R336.64 on Thursday afternoon - at the upper end of its 52-week range of between R266.40 and R366.31. RBC Capital Markets has a 12-month target price of R430 for the share. Similiarly, analysts at Imara SP Reid believe the share could turn at R399.45 during the next 12 months. AngloGold completed a hedge elimination strategy in October, spending $2.64bn during the financial year to remove the positions of a final 3.2 million ounces (moz). This was the culmination of a process which started in March 2008, when the group had almost 12moz committed under its hedging programme. Releasing quarterly and annual figures for the periods to end-December on Thursday, AngloGold reported a headline loss of $1.7bn for the full year. When adjusted to exclude the cost of restructuring the hedge book, headline earnings came in at $787m. Analysts believe the additional earnings derived from having full exposure to the gold price with no further penalties payable for the closure of the hedge will propel AngloGold�s profitability significantly, without even accounting for any production increase. "The hedge book was their poison pill. I won't be surprised if in the next year they double headline earnings," said Stephen Roelofse, an analyst at Metropolitan Asset Managers, speaking to Reuters. Speaking at a presentation of the group�s results, CEO Mark Cutifani said the group would use its additional earnings and cash flow to up dividend payments, invest in growth projects and improve its debt position. It declared a final dividend of 80 South African cents per share, up 14% on 2009�s dividend, contributing to a full-year dividend of 145c/share. The group�s net debt position was $1.3bn. �If you take into account (AngloGold) is the lowest cost gold producer in South Africa, you should see a lot of benefit coming through in the next year, given the favourable gold price environment,� said Imara SP Reid gold analyst Percy Takunda. The company�s production estimate for 2011 is 4.55moz to 4.75moz (4.52moz in 2010), at a total cash cost of between $660/oz and $685/oz ($638/oz last year). It expects to lift production to between 5.4moz and 5.6moz over five years from the group�s current operating and exploration portfolio. �(AngloGold) has set up its balance sheet in such a way that developing these (growth) projects won�t be as expensive as they used to be,� said Takunda. He added an additional endorsement of Anglo should be drawn from hedge fund billionaire John Paulson�s interest in the company. Paulson & Co bought 12% of AngloGold in 2009, after Paulson labelled Cutifani �an outstanding leader�.