AngloGold gains on record quarterly cash generation

AngloGold Ashanti (NYSE: AU) shares rose Tuesday after the South African miner boosted quarterly output and generated record cash flow.

Consolidated production climbed 17% to 768,000 oz. in the third quarter, AngloGold said Tuesday. Gold output from the company’s managed operations also advanced, rising 16% to 682,000 ounces.

The growth in output reflects the contribution from the Sukari mine, acquired through its $2.5 billion takeover of Centamin a year ago, as well as improved performances across the company’s key assets, AngloGold said. Of those, the biggest driver was Ghana’s Obuasi mine, with a 23% year-on-year increase in recovered grade.

AngloGold reaffirmed its 2025 target for production to range between 2.9 million and 3.2 million ounces.

Record cash generation

Rising gold prices also buoyed the bottom line. AngloGold’s realized price averaged $3,490 an oz. in the period compared with $2,486 a year ago. That allowed the company to generate about $2.37 billion in revenue from its gold production and a nearly three-fold increase in profit over the same period a year ago.

Free cash flow more than doubled to a record $920 million, AngloGold said. This allowed the company to end the quarter with liquidity of $3.9 billion, including $2.5 billion in cash and cash equivalents.

With these results, AngloGold boosted its interim dividend to 91¢ per share from 80¢ three months earlier. The most recent payout included a minimum quarterly dividend of 12.5¢, with the balance reflecting management’s decision to pay half of the cash flow ($460 million) generated during the period.

“This is another record quarter for cash generation and another healthy dividend declaration,” CEO Alberto Calderon said in the statement. “Cash costs again stayed flat in real terms, which means we can capture these stronger margins and show capital discipline by passing the benefit on to shareholders.”

Earnings miss

While operational results were in line with analyst expectations, some financial metrics trailed analyst estimates. AngloGold’s revenue fell about $160 million short of the consensus estimate, and earnings – although they doubled to $1.32 per share – were also weaker than expected.

BMO Capital Markets attributed the earnings miss to environmental rehabilitation and finance activities, which boosted cash costs by 5%.

Still, investor reaction to the results was mostly positive, with AngloGold rising 4.8% to $77.69 late Tuesday morning, near the stock’s 52-week high of $78.10. The company’s market capitalization now stands at about $39 billion.

Reinvestment strategy

AngloGold is continuing to reinvest in its existing assets to bolster reserves. A key example is Tanzania’s Geita mine, where investment over the next three years is expected to increase the gold reserve by about 60% and to extend the life of mine to 10 years.

A feasibility study is currently underway to evaluate the potential for a 1-million-tonne-per-year mill expansion that could underpin an increase in annual production to about 600,000 oz. for at least a decade.