AngloGold Ashanti  

“Barrick veteran appointed new CEO”          

Share price: R107,00 

Net shares in issue: 409,5 million

Market cap: R43,8 billion

DCF: R139

Trading Sell and Portfolio Sell (maintained) 

Kelvin Dushnisky is the new CEO of AngloGold Ashanti with effect from 1 September 2018. He joins AngloGold Ashanti from Barrick Gold, where he held the position of President and Executive Director. Barrick, the Canadian based international miner has a market cap of almost R200 billion equivalent, 4,5x that of AngloGold Ashanti. 

Dushinsky, a Canadian who relocates from Toronto to Johannesburg, is a lawyer by training and has spent 16 years with Barrick, working his way up the ranks. He was appointed President of Barrick in August 2015 and joined the Board of Directors in February 2016, so he wasn’t at the top for long. AngloGold must have made him an offer he can’t refuse to join, let alone move to sunny South Africa where policy and government attitudes to mining isn’t so sunny.

Venkat Venkatakrishnan steps down as CEO at the end of August 2018 and relocates to London to take up the CEO role at Vedanta Resources.   

There will be added headaches when Dushinsky arrives, including Tanzania in the battle with the Tanzanian authorities on royalties and ownership, and issues in Mali and the DRC. Continental Africa is 40% of AngloGold EBITDA.

I wrote previously that a new CEO, whoever that was to be, would likely prioritise organic growth. However, corporate action is not out of the question.

Venkat unwound the hedge book, cut high gearing, disposed of or shut down loss-makers, adapted to lower gold prices, generated positive free cash, and started paying dividends again. Harmony has bought three assets from AngloGold. 

With a good legacy, I also observed that a new CEO would be wise not to tamper with that.

There is also good corporate memory and I thought that a new CEO could have been recruited from within. This is not so, therefore one could wonder if some of the senior executives passed over could look elsewhere. 

I hope that organic approach with existing assets would take priority rather than greenfields new discoveries. Also, those political issues in tricky African territories need to be navigated.  

EBITDA will be $1,5 billion for the year ended December 2018 with and earnings $300 million (72 US cents). I have the dividend doubling to 12 US cents and remain at that level for the foreseeable future, especially if earnings are in the region of $400 million or 100 US cents. Net debt to equity I have falling from 70% to 30% within two years.

The million-dollar question. Is this new CEO appointment sufficient catalyst for boosting the share price? I would argue not. Venkat did a solid job and leaves large shoes to fill. The Canadian, despite his long tenure at a leading Canadian producer, had a career in a business used to far less challenging geographies as 75% of gold production comes from the Americas.

Given recent commodity market developments I have reduced my DCF from R145 to R139, which is still higher than the current share price of R107, but the gold space isn’t for the faint hearted right now. Diversified miners such as Anglo American and BHP Billiton remain preferred. 

Wishing you profitable investing, until next time

Mark N Ingham