AngloGold Ashanti Ltd Value Stock - Dividend - Research Selection

AngloGold Ashanti Limited operates as a gold mining company. The company also produces silver, uranium oxide, and sulphuric acid. Its portfolio includes 17 operations and 3 projects in 10 countries in South Africa, Continental Africa, the Americas, and Australasia. AngloGold Ashanti Limited was founded in 1944 and is headquartered in Johannesburg, South Africa.

AngloGold Limited was formed in June 1998 with the consolidation of the gold mining interests of Anglo American plc. AngloGold Ashanti Limited, as the company exists today, was formed on 26 April 2004 following the business combination between AngloGold and Ashanti Goldfields Company Limited.

AngloGold Ashanti Limited is headquartered in Johannesburg, South Africa. The company (Registration number 1944/017354/06) was incorporated in the Republic of South Africa in 1944 under the name of Vaal Reefs Exploration and Mining Company Limited and operates under the South African Companies Act, No. 71 of 2008, as amended (the Companies Act).

Its registered office is at 76 Rahima Moosa Street, Newtown, Johannesburg, South Africa, 2001. Telephone: +27 11 637 6000.

While AngloGold Ashanti’s primary listing is on the Johannesburg Stock Exchange (JSE), the company is also listed on the New York Stock Exchange (NYSE), the Ghana Stock Exchange (GhSE) and the Australian Securities Exchange (ASX).

HISTORY AND SIGNIFICANT DEVELOPMENTS

Below are highlights of key corporate activities from 1998:

1998

• Formation of AngloGold Limited through the consolidation of East Rand Gold and Uranium Company Limited; Eastvaal Gold Holdings Limited; Southvaal Holdings Limited; Free State Consolidated Gold Mines Limited; Elandsrand Gold Mining Company Limited; H.J. Joel Gold Mining Company Limited and Western Deep Levels Limited into a single, focused, independent gold mining company. Vaal Reefs Exploration and Mining Company Limited (Vaal Reefs), the vehicle for the consolidation, changed its name to AngloGold Limited and increased its authorised share capital, effective 30 March 1998.

1998-2004

• Expansion of AngloGold Limited’s operations outside of South Africa.

2004

• Conclusion of the business combination with Ashanti Goldfields Company Limited, at which time the company changed its name to AngloGold Ashanti Limited.

2007

• Sale by Anglo American plc of 69,100,000 ordinary shares of AngloGold Ashanti, thereby reducing Anglo American’s shareholding in AngloGold Ashanti from 41.7 percent to 16.6 percent.

2009

• Sale by Anglo American plc of its remaining shareholding in AngloGold Ashanti to Paulson & Co. Inc.

2010

• Elimination of AngloGold Ashanti’s hedge book, thereby gaining full exposure to spot gold prices.

2012

• Acquisition of the remaining 50 percent interest in Serra Grande in Brazil for $215 million.

• Acquisition of 100 percent of First Uranium (Proprietary) Limited for $335 million.

2013

• Commission of two new gold projects - Tropicana and Kibali - in the second half of 2013.

2015

• Sale of the Cripple Creek & Victor gold mine in the USA for $819 million.

2017

• South Africa region restructured - TauTona mine placed on orderly closure. Negotiations of the sales of Moab Khotsong and Kopanang mines during 2017 with the transactions concluding on 28 February 2018.

BUSINESS OVERVIEW

AngloGold Ashanti, a gold mining company with a globally diverse, world-class portfolio of operations and projects, is headquartered in Johannesburg, South Africa. AngloGold Ashanti is the third largest gold mining company in the world, measured by production.

Our business activities span the full spectrum of the mining value chain and take into account the impact of our activities on the varied and many communities and environments in which we operate.

PRODUCTS

AngloGold Ashanti’s main product is gold. Once mined, the gold ore is processed into doré (unrefined gold bars) on site and then dispatched to precious metals refineries for refining to a purity of at least 99.5%, in accordance with the standards of ‘good delivery’ as determined by the London Bullion Market Association (LBMA). This refined gold is then sold directly to bullion banks.

By-products of our gold mining operations, often a function of local geological characteristics, include silver in Argentina, sulphuric acid in Brazil and uranium in South Africa.

OPERATIONS

Our portfolio of 17 operations and three projects in ten countries, comprises long-life, relatively low-cost operating assets with differing ore body types, located in key gold-producing regions.

Our operations and projects are grouped regionally as follows:

• South Africa (Vaal River, West Wits and Surface Operations)

• Continental Africa (Democratic Republic of the Congo, Ghana, Guinea, Mali and Tanzania)

• Americas (Argentina, Brazil and Colombia)

• Australasia (Australia)

Given the current market environment and the scrutiny of financial capital allocation, we ensure responsible capital distribution, in line with business requirements. We do this while optimising internal expertise to identify and implement operational efficiencies, reducing overhead structures, improving capital discipline and pursuing other business improvement initiatives without compromising safety. We continue our focus on debt reduction to further strengthen our balance sheet and on improving the quality of our portfolio. This we aim to do by unlocking value from existing operations, brownfield opportunities, Obuasi and other long-term growth projects, including Colombia.

Our organisational and management structure aligns with global best practice in corporate governance. By using our human capital efficiently, group support functions cover planning and technical, strategy, sustainability, finance, human resources, legal and stakeholder relations. The planning and technical functions focus on identifying and managing opportunities, maintaining long-term optionality, and ensuring the optimal use of our intellectual capital through a range of activities that includes brownfields and greenfields exploration as well as innovative research focused on mining excellence.

EXPLORATION

Our exploration programme is aimed at providing an organic growth pipeline to enable us to generate significant value over time.

Greenfields and brownfields exploration takes place in both established and new gold-producing regions through managed and non-managed joint ventures, strategic alliances and wholly-owned ground holdings. AngloGold Ashanti’s discoveries include La Colosa, Gramalote and Quebradona (Nuevo Chaquiro) in Colombia.

GOLD MARKET

Investors added more gold to their portfolios during 2017 as market uncertainty increased and inflation expectations started to rise. Positive momentum held for much of the year, helping to offset the potentially negative impact of anticipated interest rate increases in the US, with the gold price averaging $1,258/oz over the 12 months compared with $1,249/oz in 2016. It touched a low of $1,158 in 2017 and reached a high of $1,348/oz for the year. The gold price closed the year at $1,306/oz. Continued gold investments into portfolios, with inflows into global gold-backed exchange-traded funds totalled $8.2bn or 6.72Moz, compared with 14.18Moz in 2016.

Speculators increased their gold net long position by 7.36Moz year-on-year on the Comex commodity exchange, further underpinning the positive sentiment in the gold market.

Stock markets globally ended the year at or near record highs. The MSCI All-Country World Index gained 22 percent or nine trillion, during 2017, a new high, as global growth accelerated and investors bet on continued improvements to corporate earnings. Additionally, the US Tax Cuts and Jobs Act and the US Federal Reserve’s gradual approach to normalising monetary policy further buoyed equity markets. These record valuations coincided with continued strength in most other asset classes in developed markets, including property, bonds and alternatives like collectibles and cryptocurrencies, though some of the enthusiasm over the latter has waned in 2018.

Monetary policy tightening across the globe pushed up global short-term bond yields while long-term yields remained relatively flat. The US Federal Reserve increased interest rates three times during the year, while the Bank of England lifted its benchmark rate during November for the first time in a decade to 0.50 percent (from 0.25 percent). In March 2017, the European Central Bank (ECB) claimed victory over deflation and signalled that its monetary policy would become gradually less expansionary.

Bond markets remained stable, with increased investments in emerging market sovereign debt, as compared to government debt in developed countries, where yields were down in 2017. As a result, emerging market currencies strengthened and borrowing rates from these countries remain at or near multi-year lows.

In 2017, the global volatility index traded at historically low levels, despite the impact of various political events including geopolitical concerns about a US-led nuclear war with North Korea, political upheaval in Europe with the Catalan separatist movement in Spain, a continued swing to the right in several EU member states and an inconclusive German election.

The US dollar price of gold rose 13 percent from the first to the last trading day of the year, its biggest annual gain since 2010, outperforming most major asset classes (other than stocks). Aside from the tailwinds from geopolitical uncertainty, gold prices were supported by a weakening US dollar and elevated equity valuations, which created concern over a potential market correction. Debt investors were also likely concerned about a record bull market that was threatened by the increasing prospect of a normalisation in interest rates in the US. The geopolitical instability further heightened investor uncertainty and fuelled investments in gold, which remain a hedge against these risks.

Central banks were also very active in the gold market, with Russia increasing its holdings, particularly in the last two months of the year. The central banks remained an important source of demand for gold and net purchases by central banks recorded a gain of 48 percent for the whole of 2017, up 123t to 381t compared to 258t in 2016.

JEWELLERY DEMAND

Jewellery consumption for 2017 was up 13.2 percent compared to 2016, with all major physical consumer regions recording year-on-year gains. India’s jewellery consumption increased by 8 percent in the last quarter of the year, helped by a surge in sales during Dhanteras (the first day of Diwali) and lower prices toward year end. Jewellery fabrication also increased 5.5 percent in 2017 from 2016. Chinese demand slipped 2 percent year-on-year, with ongoing losses in the pure gold segment as consumer preferences continued to shift towards more fashionable pieces with lower gold content. It is worth adding that after posting double-digit percentage declines on average since its 2013 peak, China’s jewellery offtake appeared to have finally stabilised in 2017. Total physical demand increased on an annual basis, with physical demand up 10.6 percent from 3,555.9t in 2016 to 3,931.6t in 2017.

Gold supply was broadly unchanged and mine production rose fractionally to 3,268.7t in 2017 (2016: 3,236.0t), while there was net dehedging of 30.4t. Recycling levels declined by 10 percent year-on-year to 1,160t in 2017 as mine production was offset by reduced hedging activity, while scrap volumes remained flat year-on-year.

COMPETITION

As gold mining is a mature and regulated industry, and very significant volumes of gold and gold derivatives trade in the world markets independent of gold mine supply, AngloGold Ashanti does not consider that competition for sales plays any role in its operations as a gold producer. For more information on a geographical analysis of gold income by destination, refer “Item 18: Note 2 - Segmental Information”.

However, gold producers do compete against each other for acquisition of mining assets, exploration opportunities and human resources. See “Item 3D: Risk Factors”.

SEASONALITY

Subject to other factors and unforeseen circumstances, quarter one production is generally lower than production during the rest of the year as a result of the ramp-up of operations after annual holiday production declines.

RAW MATERIALS

AngloGold Ashanti uses chemicals, including cyanide and lime, in the production of gold. These chemicals are available from a large number of suppliers and do not represent a material portion of the company’s costs.