Anglogold Ashanti Limited ADR Earnings Call Nuggets: Share Price Outlook and South African Government


Anglogold Ashanti Limited ADR
(NYSE:AU) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Share Price Outlook and South African Government

S. Venkatakrishnan – CEO: If I can answer that question, Johann, I appreciate the share price has not performed. But having said that, you’ve got to look at it from the point of view of what’s happened to the industry; AGA is no exception. Having said that, our share price has actually not delivered value for our shareholders. Having said that, in 2011, we had pretty good free cash flow generation and the share price performed. In 2012 and ’13, we went through a CapEx build phase to deliver better cash flows in 2014 and our cash flow started to go negative over that period and the market understandably penalized us saying that they are not seeing free cash flow come into the shareholders’ hands. But what is really changing going forward is if you noticed we did not give you a long-term production forecast. We are not fixated on growing the top line. The focus is basically growing the bottom line. We will work through that process as we go into our business planning sessions. We’ve 500,000 profitable ounces coming in as we go 2014 and we will not hesitate to use that to remove 500,000 ounces from the portfolio if we have to. So, the focus would be far greater on bottom line growth than top line growth. But I access there will be an element of skepticism in the market and we are in the penalty box, but it’s our job to get out of that penalty box.

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Johann Steyn – Citigroup: Then also I’ve just come back from two weeks of marketing internationally and I have to say over the past four years that I’ve been looking at gold and platinum stocks; I’ve never seen so little interest in gold stocks in South Africa. I guess you guys are going to go on road soon (meeting) all the shareholders globally. I mean, what’s your message? Why should shareholders this time around trust AngloGold and what can you do to restore that confidence?

S. Venkatakrishnan – CEO: I think, Johann, it’s the same question which I’ve answered before. The story is although may sound the same, the focus areas are different. With regard to South Africa, it’s still a huge cash generative engine going forward. Every jurisdiction goes through these issues and these turmoils whether you look at India, whether you look at China, whether you look at Argentina, Brazil, we have this all the time. The spotlight tends to be more on South Africa and that’s because the media likes it. And we’re not great in terms of actually messaging when we go out on the road as well. I think we need to take some accountability and I’m talking the broader roadshows rather than AGA roadshow specifically. But I think the storm we are in in South Africa will pass and I’m pretty certain the investors will come back again at the right time. It may not happen in the short-term, but I’m sure South Africa will see the limelight one day…

Johann Steyn – Citigroup: And then maybe just one last question on capital, a while ago, I spoke to AngloGold and I got a number for basically what it will take to sustain production at 4 million ounces to 4.5 million ounces a year. What is your number on that? I got a number last time about $2 billion a year to sustain 4 million ounces to 4.5 million ounces.

S. Venkatakrishnan – CEO: I’m not sure, if its 4 million ounces to 4.5 million ounces, I can understand because it includes some of the incremental project expenditure, but our normal sustaining spend is around $1 billion to $1.2 billion, and that’s what you see currently. The project capital is on top of that.

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Johann Steyn – Citigroup: Does that compensate for your base line decline?

S. Venkatakrishnan – CEO: Yes, it does. Yes, it does. The only aspect we have to bear in mind is the 500,000 ounces which come on stream, we may choose to deploy differently and you’ve got to adjust for any asset sales we do in the intervening period.

Brendan Ryan – Mining MX: Brendan Ryan, (indiscernible) Media. Venkat, a specific question on the speculation of the future of South African mines, did AngloGold Ashanti approach the South African government to split off the South African mines and were you turned down as the speculation has been printed?

S. Venkatakrishnan – CEO: We read the speculation the same time you did as well, and I’m sure the government did the same. As we said, we have dialogs with the regulators and this goes back to the time I joined the Company; 2004. If there is anything which we need to communicate the market, we would actually put it out. That was speculative. But our messaging has always been clear from day one. When this question was asked at the last conference call, the answer hasn’t changed. The question was, would you look at doing a split. The answer is, we never say never. Having said that, from what trading data we have seen over the last three months since one of our peers did the split, the value enhancement is not compelling. We believe there is a better value to be had to shareholders by basically modifying the portfolio and then generating underlying value. The corporate finance games can come later. What you can’t do is to generate permanent value for shareholders through corporate finance gains. You’ve got to fix the drivers in the business.

Brendan Ryan – Mining MX: Venkat, are you – would you say – but is there a yes or a no, to the question, did you approach government to split the Company?

S. Venkatakrishnan – CEO: I have answered the question, we do not comment on speculations.

Adrian Hammond – BNP Paribas Cadiz Securities: Three questions if I may. Firstly on Mongbwalu, your decision to suspend it, is that a cash preservation decision or is it based on project economics?

S. Venkatakrishnan – CEO: I think it’s a combination of both, but primarily driven around the fact that the project didn’t meet our hurdle rates. And just put it in context here, when we obtained the license, there was a requirement to go back having done the feasibility study on the project within a timeline, and therefore the focus was all around the Mongbwalu project area. So, at present given where the gold price has moved, et cetera, it doesn’t make sense. But having said that, there is still prospectivity in the broader area around the concession and that is being worked on. So it’s a combination of both.

Adrian Hammond – BNP Paribas Cadiz Securities: Then just on Obuasi, you’re obviously going in with this new plan for a transition. Does Obuasi’s future depend on the success of this transition? What happens if you don’t reach these milestones that you’ve laid out?

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S. Venkatakrishnan – CEO: Actually, yes, the success of the mine does depend on how we actually deliver on the strategy. Like any asset, it would have key milestones which it needs to comply. If not, we look at alternative options, but we have got to give this a chance.

Adrian Hammond – BNP Paribas Cadiz Securities: Lastly, what is the AMCU presence at the moment? Where and what is the percentages and what is the likelihood of separate negotiations moving into wage negotiation period?

S. Venkatakrishnan – CEO: Firstly with regard to AMCU; AMCU do have a presence in our minds. The membership is fluid. It changes all the time. What we can say is that they have got a bigger presence in westwards than in Vaal River, but we don’t put out the numbers because they change every time. With regard to wage negotiations, we are going to follow the collective bargaining system through the Chamber. We are working with our peers. We have invited AMCU to join the collective bargaining system. They are reflecting on it. So we will work through that process over the next couple of months…

Unidentified Analyst: Congratulations, Mr. Venkat on your appointment. Sorry that I’m late ladies and gentlemen, but I got lost in Johannesburg will all the name changes. I’ve just come back from Exile in Mauritius and leading from the last question, I’ve got a report here in the Sunday Times yesterday, the Business Times, you talking about collective bargaining and there’s a shareholder who has already lost 50% of his shareholders’ value. I don’t know whether I should ask it to the Chairman, but hopefully you can give me an answer. I take it you’ve read the report, headed ‘Mines’ move to stop paying union chiefs sparks row’ and I believe from my previous research also as a media man for Dutch radio and television, forgive the colors are miring, at least off the record we are part of the number 10 teams in the world. Could you please explain, what is the latest on paying presumably the NUM President a salary? Labor is, from what I’ve read the last few days, one of the biggest problems facing the economy and that I’m saying with my other hat on as an economist. Secondly, did you read the report from PSG, came out last week written by Michael Du Plooy, and maybe the media should also read that, talking about shareholders’ value compared with the gold price, but the only question I have at this stage, what about paying union leaders destroying shareholders’ value?

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S. Venkatakrishnan – CEO: Thank you very much for your question and you’re more than welcome to direct the question at me, no reason to direct it at the Chairman. If I can just explain the background behind the payment of the NUM President’s salary, this is a system, which goes back over 30 years and it was when the National Union Mineworkers were in infancy and consequently, it was a view taken across the mining companies that they should ensure that there is professional talent that goes in, to enable the union movement to succeed longer-term. It was done with that in mind. What did, change in 2006, is that we do not pay the salary of the NUM President. It is contributed for by all of the mining companies and it’s paid for by the Chamber. That is the history. Now having said that, NUM is no longer the only dominant union in the labor sector, we are aware of that and what this may lead, however, incorrectly it is, to the fact that we are actually supporting one union against the others. So what we are currently doing is working with the Chamber, not just AngloGold Ashanti, other mining companies to basically transition out of this practice. But given, it’s going on for over 30 years, it cannot happen overnight and we’ve given ourselves the rest of this year to transition through the arrangement, and it’s not just AngloGold Ashanti, which belongs to this category. We fully appreciate the broader question you have raised in terms of shareholder value. Rest assured, that would be the focus of the team understandably in a falling gold price environment, so we are fully cognizant of the fact that we are in the midst of a storm but we are paid to see the Company and the shareholders out of the storm. Thank you very much for coming. I fully appreciate you’ll have lot more questions, but all of you have the contact numbers of Stewart Bailey and the team in the office. We are always available to take any questions you may have. Thank you once again for coming.