AngloGold’s earnings surge as it stops mining in South Africa

AngloGold’s earnings surge as it stops mining in South Africa

By Ed Stoddard. (Photo: Getty Images)

AngloGold Ashanti reported a surge in earnings on Monday and said it would double its dividend payout ratio and give cash back to shareholders twice a year instead of on an annual basis. Red-hot prices are the main reason for this state of affairs. But one cannot help but notice this is unfolding after the company sold off the last of its South African mining assets.

AngloGold said its free cash flow in the third quarter of its financial year rose almost fourfold, enabling it to halve its debt to $875 million. Meanwhile, its adjusted earnings before interest, tax and depreciation and amortisation (“Adjusted EBITDA”)  rose 72% in the three months to the end of September, to $803m. EBITDA is a key metric used by number crunchers to value companies. The upshot is that AngloGold’s debt to EBITDA level is the lowest it has been in almost a decade. That certainly qualifies it for a new credit card.

The company’s costs and capital expenditure were down, but the big driver was a 30% rise in gold prices compared to the same period last year. Gold has been on a tear this year as investors search for safe havens for their capital in these uncertain times, and remains within striking distance of its historic peaks over $2,000 an ounce.

“Free cash flow rose to $339m for the quarter ended 30 September 2020, a 290% increase from the $87m generated in the comparable quarter of last year,” the company said in a statement.

“The company will pay shareholders 20% of its free cash flow before accounting for capital expenditure in growth projects, up from 10% previously. The company will also double the frequency of payouts from the current annual dividend declaration, to semi-annual payments.” it said. Investors rose to this fly as the company’s share price leapt a salmon-like 9% on the news.

Pointedly, AngloGold noted that its free cash flow figure excluded the $200 million it received from Harmony Gold for the sale of its last South African operating assets, which included Mponeng, the world’s deepest mine with shafts dropping 4 kms beneath the surface.

Mponeng will extract gold from the bowels of the planet for a few more years. Still, this is yet another example of the sun setting over South Africa’s gold mining industry. AngloGold has for years been trying to prune its debt and now it has made significant headway, with the added bonus of bigger, more regular dividend payments to its investors.

Such developments can also translate into more capital for exploration, investment and expansion purposes, and AngloGold has such plans, for example in Ghana, where its Obuasi Redevelopment Project, financed from internal cash flows, is still ramping up. But the AngloGold money that will flow to South Africa will now come in the form of dividend payments to domestic investors, which of course is no bad thing. But none of it will be used for building or expanding mines here – the kind of things that create jobs. AngloGold still has a big office in the Joburg CBD, but it is probably only a matter of time before its primary listing moves from the JSE to other pastures.

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