Fitch Ratings has affirmed AngloGold Ashanti Limited’s (AGA) Long-Term Issuer Default Rating (IDR) at ‘BBB-’ indicating bonds of investment grade (relatively low risk) with a stable outlook.
According to Fitch, the affirmation reflects AngloGold’s position as the third-largest global miner and its diversified asset base. Again, the stable outlook is sustained by the temporary operational weaknesses which is offset by a low leverage profile.
However, should these operational challenges persist, the rating action could be revised, Fitch said. Expectations are that AngloGold Ashanti’s average funds from operations (FFO) gross leverage at 1.4x and net leverage at 0.4x in 2021-2024.
AngloGold Ashanti is the third-largest gold producer (3 million ounces (moz) in 2020), falling mildly below world leaders Newmont Corporation (6 million ounces) and Barrick Gold Corporation (4.8 million ounces).
“We expect AGA to maintain its production at between 2.5moz-3.2moz (including Kibali) in 2021-2024, focusing on operational efficiencies at its existing mines and successful ramp-up of Obuasi in Ghana.”
Of its consolidated production, 25 per cent comes from low-risk Australia. Also, future expansion in Colombia and in North America could help further diversify country exposure in the longer term, Fitch said.
However, the challenging country mix is offset by the diversification of the company’s production in 10 operations, with one mine accounting for 20 per cent of total production in Fitch’s forecast and the rest for 4 per cent-15 per cent.
“The rating factors in the group’s presence in geographies with higher operating environment and country risk, such as Tanzania, Guinea, Ghana, Brazil, the Democratic Republic of the Congo (through a JV) and Argentina.”
Other factors considered for the rating action include AngloGold Ashanti’s lack of commodity diversification, relatively high cost of mining operations and relatively short operating mine life of nine years (11 years including Kibali in DRC).
High Cash Cost Affects Rating Action
The company’s all-in sustaining costs were exceptionally high throughout the three quarters of 2021, being in the fourth quartile of the global gold cost curve, Fitch underscored. “We expect costs to normalise to a more sustainable level by 2023.”
The company’s cash cost increased by 28 per cent year-on-year to US$977 per ounce and all-in sustaining cost (AISC) increased to US$1,343/oz from US$1,004/oz.
Fitch alluded the rise of cash in costs to high single-digit inflation across all geographies and lower ore grades at most of the mines. Again, overall operational inefficiencies and various mine-specific challenges featured as reasons for such high costs.
Additionally, sustaining capital expenditure has been rising due to a reinvestment programme across the portfolio and the conversion of tailings operations to dry-stacking operations in Brazil (US$60/oz cost impact).
On a positive note, Fitch does not view the company’s operating environment as a constraint for the rating, despite the weak economic environment experienced in most of the hosting countries.
The above action is supported by the fact that AngloGold Ashanti is a global commodity producer with a well-diversified asset base across ten operations and also sells gold in world markets, with strong access to international financial markets, Fitch noted.
